Monday, 19 October 2015

Misreading Special Economic Zones [updated]

[UPDATE: SEZ report is launched tonight at the Mac’s Function Centre in Wellington at 5:30pm. Get along.]

I welcome the welcome that Local Government NZ, the councils’ counsellors, have given to the NZ Initiative’s idea of Special Economic Zones.

Local Government New Zealand (LGNZ) welcomes The New Zealand Initiative’s new report, In the Zone: Creating a Toolbox for Regional Prosperity which recommends the use of Special Economic Zones as a way to test new regionally tailored policies and encourage regional economic development. …

Lawrence Yule at LGNZ however seems to be on a very different page about the actual point of the proposal

“This innovative report is about leading a principled discussion with our key partners around more fit-for-purpose funding options.”

Ah, no, Lawrence. It’s not about just another way to put your hand in ratepayers’ and taxpayers’ pockets.  Consider the Initiative’s leading example:

China’s Shenzhen SEZ has proven to be a spectacular success and showcases the possibilities of an SEZ. Shenzhen itself was partially inspired by Hong Kong’s example. Innovations developed in Shenzhen spread outward, benefitting broader regions.

The success of China’s Shenzhen SEZ was not due to “more fit-for-purpose funding options” for council, whatever the hell that might mean. As the report itself makes clear

The zone came about as part of Deng Xiaoping’s wider goal to open China to the rest of world… The zone’s establishment within a traditional, centrally planned economy symbolised Deng’s commitment to liberalisation…

Since, as the report’s authors say, “New Zealand simply suffers from too centralised an approach that inhibits policy flexibility and policy evaluation,” that’s just one simple example of Mr Yule’s myopic misreading of the manuscript. Maybe he should read it more thoroughly before commenting further. As you can here: ‘IN THE ZONE CREATING A TOOLBOX FOR REGIONAL PROSPERITY.’

UPDATE: Report’s lead author Eric Crampton clarifies how the Enterprise Zones encourage council’s to participate:

On SEZs, here's the basic mechanism:
1) Council proposes an SEZ to Central (what regulatory carve-out they want, or what policy change);
2) Central approves, or not;
3) Local government gets a minor kickback from central government for part of the increase in tax revenue sent to the Beehive from their region. They only get it for increased growth, not for baseline. Amounts of money at stake are small from a central government perspective but could be large from local government's perspective, encouraging some changed mindsets about how important it is to consent new businesses, and new houses, quickly and efficiently.

I’m guessing that bureaucrats like our Lawrence are eyeing up the ‘kickbacks’ that are there as incentives for growth, with no thought to the fine print of how they might achieve that…

More here at the NZ Initiative’s blog:

We suggest using existing district and regional councils to test-bed policy reforms in the places that want to try them out. Instead of changing the overseas investment act for the whole country, and buying a big ideological fight over it, why not loosen the rules for the Greater Wellington area and evaluate what’s happened? RMA reform has proven impossible. But if the West Coast of the South Island wanted to try a different version of the RMA making it easier to consent sustainable mining activities, and if Auckland wanted to try one focused on achieving housing affordability, why not let them try it?
    We couple the policy trial zone suggestion with a tax sharing mechanism so that local councils would have strong incentive to propose the kinds of special economic zones that would do the most good for their regions. Councils presiding over stronger economic growth should receive some of the increased tax revenue that otherwise flows only to the Beehive. We do not flesh it out in great detail, as there are many ways that could work and that would satisfy the principle. But if median regional GDP growth for Auckland has been around 5%, then it could receive a small share of any growth in remitted taxes below 5%, but an increasing share for increases above 5%. And regions that have grown more slowly would face lower benchmarks.
    Two principles:

  1. While we give a few suggestions of policy trial zones that we think would be good ideas, the zones should really emerge from what locals see as the central government regulations and policies holding them back.
  2. Central government should only authorise a policy reform zone where it would be happy for the policy to be taken up by any other region wanting it. Otherwise, it could turn too easily into dirigiste central-government winner-picking.

The report has received decent initial coverage. Oliver talked about the report on Q&A on Sunday; the video is embedded below. NBR provides an excellent transcript.

The Dom’s Collette Devlin covers the overall idea, and the Wellington application, in two nice pieces.
Nevil Gibson at NBR also likes the idea; we’d first mooted the idea at NBR a year ago.



  1. We propose a revenue-sharing mechanism so that councils presiding over very strong economic growth, and consequently strong increases in the revenues sent from their regions on to central government, get a portion of that revenue growth kicked back to local government. That then lets growing councils defray some of the costs of growth to those who do wind up experiencing costs through inconvenience, traffic, or whatever. And, because they can then make those side-payments, we get less opposition to growth in the first place. That's the hope.

  2. Congrats to the NZ Initiative for getting this far.

    Would be great if councillors could come to see their role as outward facing 'protectors' of their zones, against central government fiddling, and understand that the zone is run by those in it.

  3. Special economic zones , sounds like a good idea where those that see opportunities will invest hoping to make a profit by producing a product or service , creating jobs etc. but they need to be free of bureaucracy with all of the rules regulations and red tape. L Yule, like many of those council bureaucrats see this as a way to set up fiefdom's which they can use as a cash cow. I don't believe economic activity is helped by the addition of gov't and councils except for making good common sense law so traders can do their business. The whole country is an economic Zone.

  4. On further reading, congrats again to NZ Initiative. This is a practical & innovative way forward, and they've done their best to keep it very simple. It's something most NZers would support. Wish them all success.


1. Commenters are welcome and invited.
2. All comments are moderated. Off-topic grandstanding, spam, and gibberish will be ignored. Tu quoque will be moderated.
3. Read the post before you comment. Challenge facts, but don't simply ignore them.
4. Use a name. If it's important enough to say, it's important enough to put a name to.
5. Above all: Act with honour. Say what you mean, and mean what you say.