Much of my work for The New Zealand Initiative is on local government. I am interested in how local government can contribute to a growing economy. With the government ‘going for growth’, it should be interested too. 
 
I recently attended a series of webinars on cluster development. Participants shared domestic and international knowledge and experience of what makes clusters great and how they can be developed.  
 
Clusters are geographic concentrations of interconnected businesses, suppliers, service providers, and associated institutions centred on regional specialisations. When allowed to flourish, they foster innovation and knowledge spillovers, draw domestic and foreign investment, and attract highly skilled workers.  
 
New Zealand has many clusters, including fintech and med tech in Auckland, Bay of Plenty kiwifruit, wood processing in Rotorua, energy in Taranaki, ‘Wellywood’, Nelson’s blue economy, Marlborough sauvignon blanc, Christchurch aerospace, tourism in Queenstown, Dunedin video games, and engineering in Southland.  
 
But too often, their potential is hampered by lack of engagement. Many other small, advanced economies have been more proactive with cluster development. The feeling is that clusters need help to make this happen. 
 
Instead of allowing clusters to grow naturally, central government agencies try to orchestrate economic development using subsidies and other interventions to 'pick winners' among regions, sectors and individual businesses. Meanwhile, councils do not have financial incentives to embrace growth and development. Both tiers of government tie businesses in red tape. 
 
Think Big and the Provincial Growth Fund gave government-led economic development a bad name. A better approach, inspired by the Initiative’s report In the Zone, would be to empower clusters of local businesses, helped by economic development agencies, to come together with local stakeholders to identify opportunities for growth as well as barriers. They could then pitch for specific carve-outs or policy trials supporting their emerging clusters. 
 
The success of clusters internationally comes from giving businesses the ability and freedom to collaborate within their regional ecosystems. Local clusters will never be successfully driven by central government agencies – they are too remote and siloed. Centralised attempts to direct their development undermine what makes them successful.  
 
The government’s recent announcement of reforms to foreign direct investment should boost local and regional economies. Making it easier for digital nomads should help too. Local clusters will have their own ideas. 
 
New Zealand's economic challenges require bold thinking across many policy areas. A more proactive approach from the local level, leveraging local specialisations and strengths, could actively support national ambitions.