Institutions, Efficiency and the Organisation of Seaports: A Comparative Analysis By Justin John Pyvis This thesis is presented for the degree of Doctor of Philosophy Murdoch University September 2014 I declare that this thesis is my own account of my research and contains as its main content work which has not previously been submitted for a degree at any tertiary education institution. .................................... Justin John Pyvis Abstract Ports form an essential part of a country's infrastructure by facilitating trade and ultimately helping to reduce the cost of goods for consumers. They are characterised by solidity in physical infrastructure and legislative frameworks – or high levels of “asset specificity” – but also face the dynamics of constantly changing global market conditions requiring flexible responsiveness. Through a New Institutional Economics lens, the ports of Port Hedland (Australia), Prince Rupert (Canada), and Tauranga (New Zealand) are analysed. This dissertation undertakes a cross-country comparative analysis, but also extends the empirical framework into an historical analysis using archival data for each case study from 1860 – 2012. How each port's unique institutional environment – the constraints, or “rules of the game” – affected their development and organisational structure is then investigated. This enables the research to avoid the problem where long periods of economic and political stability in core institutions can become the key explanatory variables. The study demonstrates how the institutional pay-off structure determines what organisational forms come into existence at each port and where, why and how they direct their resources. Sometimes, even immense political will and capital investment will see a port flounder (Prince Rupert); or great resource booms will never be captured (Port Hedland); other times, the port may be the victim of special interest pressure from afar (Tauranga). All of these failures, and eventual successes, are traced to changes in each port's institutional environment over time. This work is particularly relevant to those involved in port planning of all forms, whether dealing with higher-level governance issues or everyday allocation problems. The thesis concludes that for ports, institutions do matter: without understanding the i institutional constraints a particular port faces at a particular point in time, even the best laid plans may go awry. ii Table of Contents Abstract i List of Figures vi List of Tables vii List of Illustrations ix Acknowledgements x Chapter 1: Introduction 1.1. Introduction 1 1.2. Design of the Thesis 3 1.3. Structure of the Thesis 6 Chapter 2: Theoretical Framework 2.1. Introduction 10 2.2. Existing Economics Literature 11 Relating to Ports 2.3. New Institutional Economics 18 2.3.1. Transaction Costs 21 2.3.2. Path Dependence 23 2.4. Applying the NIE to Ports 24 2.4.1. What is an efficient 31 port? 2.5. Conclusion 36 Chapter 3: Port Hedland 3.1. Introduction 38 3.2. The Mangrove Harbour 40 3.3. Booms, Busts and 41 Institutional Follies 3.3.1. The Late-Nineteenth 42 Century Gold Rush 3.4. Scaddan's socialisme sans 52 doctrines (State Socialism) iii 3.5. The “Cinderella Section” of 56 Western Australia 3.6. Manganese Blues and the 59 Iron Ore Embargo 3.6.1. Protectionism and 69 the Iron Ore Embargo 3.7. A Change in Direction 74 3.8. The Port Hedland Port 83 Authority 3.9. The Pilbara Amalgamation 87 Chapter 4: Prince Rupert 4.1. Introduction 91 4.2. “The Golden Age of Sail”, British Columbia and the British 92 North America Act 4.2.1. Institutional Change and the British North 99 America Act 4.3. British Columbia and the 104 Canadian Railway Boom 4.4. Build it and They Will Come: Charles M. Hays and the Grand 109 Trunk Pacific 4.5. “The Greatest Next Year 121 Town in the World” 4.6. The War Boom 126 4.7. Institutional Changes and the 129 Chance for a Revival 4.8. Realised Potential 147 Chapter 5: Tauranga 5.1. Introduction 152 5.2. The Early Days 153 5.3. Slow and Steady 164 5.4. “Rotorua's Port” 168 5.5. Amalgamation 183 5.6. Containerisation 187 iv 5.7. Decentralisation and 195 Waterfront Reform 5.8. Privatisation and the Modern 203 Port Chapter 6: Conclusion 6.1. Introduction 213 6.2. A Comparison of the Findings 213 of the Three Case Studies 6.2.1. Constitutions 214 6.2.2. Credible Commitment and the 216 Legal System 6.2.3. Institutional Constraints and 221 Transaction Costs 6.3. Implications and Limitations 231 of the Research 6.4. Conclusion 234 Bibliography Newspapers and Magazines 238 Parliamentary Debates 239 Official Records 241 References 246 v List of Figures Chapter 2 2.1. Theoretical Path Dependence 34 Diagram Chapter 3 3.1. Australia's Terms of Trade 43 3.2. Value of Gold Production 49 (£Millions) 3.3. Global Manganese Price and 60 Western Australian Production 3.4. Iron Ore Price 73 3.5. Port Hedland Exports 83 Chapter 4 4.1. Growth in GDP Per Capita of the “Western Offshoots” and the 117 United Kingdom 4.2. Japanese Crude Steel 137 Production 4.3. Real Coal Prices 140 4.4. Real Coal Prices 148 Chapter 5 5.1. New Zealand's Balance of 157 Trade (Imports - Exports) 5.2. Tauranga's Rapid Growth 181 5.3. Tauranga's Growth 210 5.4. Tauranga's Annualised 210 Growth Rates vi List of Tables Chapter 1 1.1. Williamson's Four Levels of 5 Social Analysis Chapter 2 2.1. Existing Port Literature 12 2.2. Condensed Non-Institutional 13 Port Literature Examples 2.3. Williamson's Four Levels of 20 Social Analysis 2.4. Traditional distinctions of port 28 governance structures 2.5. Condensed Institutional Port 35 Literature Examples Chapter 3 3.1. Institutional Change and the Development of Mineral Rights in 76 Western Australia Chapter 4 4.1. Population of British 94 Columbia and Canada 4.2. Grain Received at the Prince Rupert Elevator and Prince 124 Rupert Imports and Exports 4.3. 1966 Freight Costs (per 100lb), Vancouver vs Prince 133 Rupert 4.4. Canada Marine Act Key 149 Changes Chapter 5 5.1. New Zealand's Constitutional 154 Evolution vii 5.2. Number of Harbour Boards and Local Authorities in New 161 Zealand 5.3. Tauranga and New Zealand 164 Population 5.4. Kaimai Deviation 182 5.5. Actors Supportive of the 194 Tauranga Proposal 5.6. Timeline of Port Reform 199 5.7. Key Institutional Changes 200 5.8. Key post-Reform Statistics at 206 Tauranga Chapter 6 6.1. Arrival of British Institutions in Western Australia, British 214 Columbia and New Zealand 6.2. Ownership and Control of 215 Each Port by the First World War viii List of Illustrations Chapter 3 3.1. Location of Port Hedland in 38 Australia's North-West 3.2. Aerial View of Port Hedland 39 3.3. SS Albany at the Port 47 Hedland Jetty Chapter 4 4.1. Prince Rupert's Location and 91 Primary Trade Routes 4.2. The Controlling Interests at 116 Prince Rupert Chapter 5 5.1. Port of Tauranga Location 152 5.2. Port of Tauranga 167 5.3. 1961 Port of Tauranga's 186 Economic Service Area 5.4. 1975 Newspaper Comic Critical of the Auckland Harbour 191 Board's Influence 5.5. New Zealand's Ports in 204 November 1989 Chapter 6 6.1. Institutional Change, Pre 216 WW1 – Post WW1 6.2. Institutional Events at Port Hedland, Prince Rupert and 220 Tauranga 6.3. Path Dependency at Prince 224 Rupert 6.4. Path Dependency at 226 Tauranga 6.5. Path Dependency at Port 230 Hedland ix Acknowledgements This dissertation would not have been possible without the support of a number of people and organisations. First and foremost, I would like to thank my supervisors Malcolm Tull and Fred Affleck, whose expertise and ongoing advice was invaluable. I would also like to like to thank Murdoch University, who provided me with the research facilities, a scholarship and funding for essential overseas field work. Next I would like to thank those who helped review particular sections of this dissertation, in particular James Reveley for his thoughts on Tauranga and New Zealand and Steve Salmon for his insights into Prince Rupert and Canada. While I would love to name everyone who shared their views on Port Hedland and Western Australia, as well as my topic in general, there are quite simply too many people to name. Given that this is an historical work, it would not have been possible without the help and support of archivists and librarians from: Archives New Zealand (Auckland, Tauranga and Wellington); Library and Archives Canada (Ottawa); Prince Rupert City & Regional Archives (Prince Rupert); the State Records Office of Western Australia (Perth); University of Victoria (Vancouver Island); University of British Columbia (Vancouver); and the Vancouver Public Library (Vancouver). I thank them all for their sometimes painstaking efforts in aiding my search for original records. Finally, my family and friends. I would like to thank my mother, Mandy, for her support and tolerance of my presence around the house; and my father, Richard, for the time he spent reading and commenting on my work. I would also like to thank my brother, Kingsley; my girlfriend, Keali; and of course my friends, for their understanding and encouragement throughout. x Chapter 1: Introduction 1.1. Introduction The great classical economist Adam Smith wrote in the Wealth of Nations that “without the disposition to truck, barter, and exchange, every man must have procured to himself every necessary and conveniency of life which he wanted”.1 That short passage highlights how important Smith thought exchange was in improving the welfare of individuals.