Thursday 30 May 2013

Will the last person leaving Wellington please turn out the lights?

Commercial vacancies are at their highest in Wellington since the early 1990s, when the city was still reeling from the fallout of the 1987 sharemarket crash, and since then there's been considerable head office and industrial drift to NZ's largest city, Auckland, where most of the big jumbo jets land.

The public sector purge has had a noticeable divider effect on Wellington, and making matters worse is the jump in insurance premiums following the Christchurch earthquakes, which has hit many inner city residents and businesses in the pocket. The increased focus on Auckland's super-city status and the Christchurch rebuild have also drawn attention away from Wellington. Diversification into the film, arts, technology and finance sectors has picked up some of the slack, but even then, more jobs have still been lost than created.

And despite what the Government would have us believe, the public sector purge has proven to be false economy, and the money supposedly saved has instead been channelled towards a small number of expensive private consultants who are basically paid to say what the Government wants to hear. It goes to show the cuts aren't so much about returning to surplus, but more about blatant anti-intellectualism and Ministry of Truth-iness.

To add insult to injury, our normally optimistic (or should that be Stepfordish) PM John Key remarked that Wellington was a "dying city" and that he "didn't know how to turn it around". While Wellington is undoubtedly fighting an uphill battle, it's hardly dying by any means. Even Auckland's public figures thought the remarks were bollocks. By the sounds of it, he's never been to a properly dying city like Detroit, more of which will be mentioned below.

Working in a bricks-and-mortar based retail and services company right now, I can very much sense the entire sector is under assault on multiple fronts.
  • Shopping malls and big box retailers, which have considerable funds, often foreign and/or private equity, to draw upon.
  • Online resellers, who don't have to pay commercial rents.
  • Commercial rents rising faster than inflation, which have been driven up in large part by rent-seeking insurers repackaged as 'quake insurance' and leaky building claims.
  • The industry has seen numerous closures in recent years, and those companies that remain in business are chasing a mature market.
  • And of course, the public sector cuts which have made people in the region a lot more cautious overall with their wallets.
Since we can't compete on price alone, we have attempted to make up for it with proper customer service,  and diversifying what we sell and do. Even then, it's an uphill battle against a flat customer base. And if worst comes to worst, going back to study towards a future-proofed qualification in a sector with skills shortages increasingly looks an option, even though I've gotten my fingers burnt to ashes before.

Many cities have lived and died on a single dominant industry, and ghost towns near abandoned mines are just one example. Take the case of two major American cities, Seattle and Detroit. Both cities made it big as heavy industry outposts, in aerospace and motor vehicles respectively. Both cities stagnated in the 1970s as the major companies they depended on hit the rocks. U-Haul reported that it ran out of trailers because of the sheer numbers of people moving out of Seattle following the Boeing Bust, and Detroit was reeling from the 1967 riots and the Big Three facing foreign competition and moving more of its operations out of Detroit.

Yet Seattle eventually bounced back, while Detroit remains in the doldrums to this day. It helped that Seattle always had a more diverse economic base than Detroit, and Boeing had a higher proportion of highly educated workers than the Big Three. It also helped that a young man named Bill Gates moved a small company called Microsoft to Seattle's outskirts in 1979, which much of Seattle's know-how would go on to work for. And this know-how in turn fostered the likes of, Valve Software, and Nintendo of America. By contrast, industrial giants like Boeing and the Big Three had very limited spin-off effect.

Closer to home, the late science professor Paul Callaghan had a vision of New Zealand as 'a place where talent wants to live'. Right now, we seem to be a place where talent wants to leave, and where making it big is largely about who you know instead of what you know - the sign of a patronage economy. PolarBearFarm founder Layton Duncan's move to Melbourne is a microcosm of why such talent is leaving. Pegasus Mail creator David Harris - a favourite son of Dunedin - warned 10 years ago that it would happen. Recent deals like that of the Sky City pokies-for-convention-centre deal give the impression that the nation is being run from a golf cart in a North Shore country club, or from the back seat of a Rolls-Royce.

With every man and his dog moving to Auckland for work, the city is experiencing a shortage of housing which the Auckland Mayor Len Brown and Environment Minister Nick Smith are locking horns over - Mayor Brown wants Auckland to build taller, while Minister Smith wants Auckland to build fatter. It's an issue that major cities the world over are grappling with, and in NZ it has the added layer of political polarisation and a powerful property speculator lobby.

One obvious solution to Auckland's housing shortage is to foster regional development, which went out of fashion during the Rogernomics reforms of the 1980s. Another is a longer airport runway for Wellington, which local business leaders cite as the biggest roadblock to Wellington footing it with Auckland. The big challenge would be how to finance it. So far, the city council and Wellington Airport have taken the first few steps.

Despite the gloom pervading Wellington right now, I refuse to give in to the temptation to up sticks and move to Auckland, where the glamour jobs supposedly are. While Auckland is NZ's best hope for a global city, a close family friend - originally from Wellington - who lives and works up there tells me that it's a rat race. And I'm not about to further add to Auckland's growing pains in a hurry. There are those among us who still keep the faith.