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Cullen Speech to Infrastructure Forum

Hon. Michael Cullen
Speech Notes
Wednesday 5 November 2003

Speech to Infrastructure Forum

Hotel Intercontinental, Grey Street, Wellington

I trust that today’s forum has both broadened your appreciation of the issues around infrastructure and also sharpened your focus on the key areas that need attention.

I would like first of all to commend the work of Rick Christie and the Board’s secretariat in organising today’s event. I believe it is very fitting that we are here under the auspices of the Growth and Innovation Advisory Board. There is a tendency to associate growth and innovation with so-called ‘cutting edge’ issues such as the creation of high-tech research parks and the sourcing of venture capital. We can easily forget that a reliable infrastructure underpins all sustained economic growth.

As the term ‘infrastructure’ suggests, it comprises those things that lie beneath the surface and underpin our economy and our way of life. Most New Zealanders – be they CEOs or beneficiaries – rarely give it a thought; until something goes wrong.

We were perhaps fortunate to have an early reminder of how brittle old infrastructure can be when the power supply to central Auckland was compromised a few years ago. Recently Italy, London and the Northeastern United States have had similar wakeup calls. What that experience showed us was that old technology operating to the limits of its capacity was vulnerable to changes that were not anticipated until they occurred; in that case, a higher than normal soil temperature due to a long, hot summer.

Of course, not all infrastructure problems creep up on us like this one. For the past two decades or so, every resident of Auckland, every local authority in the region, and every government, has been conscious of the growing crisis in Auckland’s roading system. The problem there has never been one of failing technology, but of successive failures to coordinate planning and financing amongst a range of players in a fast growing region.

I believe we are starting to get on top of Auckland’s roading issues, and am very pleased with progress towards a solution.

My pick for the next infrastructure challenge is our systems for water supply and stormwater drainage. This is something that is coming under new pressures on the demand side; for example, with greater population density in inner city suburbs affected by infill housing or construction of new apartment complexes. And simultaneously there are supply issues, as the possible climate change scenarios mean that water will not necessarily fall from the sky in sufficient quantity in catchments that have served us well for decades. Added to that are the issues around resource use and environmental impact.

I mention these three examples because I believe they illustrate the folly of pursuing too far an ‘integrated’ view of infrastructure issues. Each of them has its own etiology, and the course that each takes and the possible solutions do not necessarily provide insights for dealing with the others.

We certainly need coordination around identifying future infrastructure issues and understanding their dimensions and the risks they pose. However, we need to realise that this is likely to shed more light upon the complexity of the issues, rather than lead to simple solutions.

Perhaps the search for an integrated approach is like the search in theoretical physics for a unified theory of all matter. It would be nice to have, but very hard to achieve, given the large number of variables involved and the limits to our knowledge of them. And one suspects that even if we found the theory, it would be hard to put it to practical use.

This does not mean we should give up trying to predict infrastructure issues and prepare for them. Quite the contrary. What it implies is that the task cannot be assigned to a group of experts. Instead all major infrastructure providers, users and regulators need to get better at examining trends and communicating with each other. The infrastructure audit and the other work being carried out or commissioned by MED will be essential inputs into that.

It is clear to me that infrastructure issues need to be addressed sector by sector. This is the approach Paul Swain is already taking with the National Transport Strategy. Each sector has its unique set of variables and problems; its own microeconomy, as it were, in terms of natural monopolies, asset life cycles, issues of scale and scope. There are different types of resource use, different mixes of public and private investment, and different regulatory issues.

Nevertheless, there are cross cutting issues in which factors which impinge upon one area of infrastructure may do the same for another, or indicate a particular risk or new set of options. For example, if on an issue such as roading we can make progress on a working model for public-private partnerships or PPPs, then it is likely that it will have broad application and will short circuit the search for financing solutions in other areas of infrastructure. Similarly, there are shared risks around RMA issues and the related question of the level of competency within local authorities.

So my preference would be for a broad and pragmatic strategy:

First of all, to relieve obvious pressure points and focus attention on the challenges of each sector;

Secondly, to encourage better infrastructure scenario planning among all players with an interest in infrastructure;

And thirdly, to get better at sharing that information and at identifying commonalities, shared risks and dependencies.

The question arises, of course, as to whose strategy this is. To my mind it cannot be other than a partnership between central and local government and the private sector.

The role of central government will continue to be focussed on funding. During the late 1990s the commitment of central government to the nation's infrastructure appeared to flag somewhat. Net purchase of physical assets by government during the period 1994 to 2000 amounted to around $5.8 billion, or an average of around $800 million per annum. That situation has been turned around, and the corresponding figure for 2001 to 2007 (actual and forecast) is a total of $8 billion, or around an average of $1.15 billion per annum.

Even so, any forecast of infrastructure needs for the decade ahead will suggest that there is plenty of scope for private financing options.

Making sufficient funds available is only the first part of the solution. As many governments have found, it is not easy to spend infrastructure money quickly. There are many potential bottlenecks in planning and resource management processes. And there are practical limits to the speed at which construction work can progress.

One could draw an analogy between infrastructure work and surgical treatment. The patient may need multiple procedures – bypasses, repairs, new organs, and so on. But we cannot simply open up the torso and do all the work simultaneously. That would itself cause severe strain and undermine our goal for a healthier body.

My final point then is that we must not ignore the social impact of reforming our infrastructure. Major changes to how our cities and towns work can create both winners and losers. For example, some of London’s recent transport pricing changes have left some low income communities more isolated from places of employment and social services. No doubt there are net gains overall; but there are social costs to be considered.

Let me stress that I do not believe our problems are insurmountable. You have a government that is committed to building a world-class economy on the foundation of a world-class infrastructure. Add in time, patience, imagination and good cooperation amongst all the players, and I believe we will achieve that goal.

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