Friday, 25 February 2011

More bad economic news

Another set of comparative economic figures, another dose of bad news, and another chance for the yah-boo of politics.  “It’s your excessive cuts”, say the Tweedledees, but “It’s your mismanagement of the Welsh economy”, say the Tweedledums.  Economic truth is an elusive commodity, but economy with the truth seems to be available in abundance.
What we know for certain is that Welsh economic performance continues to lag behind the rest of the UK, that the gap is getting wider, and that Wales' poor economic performance is a long term trend – predating the establishment of the Assembly as well as the terms of office of either the current or the previous UK Government.  I think we can also safely conclude that none of the parties or politicians involved have actively set out with the deliberate intent of ensuring that Wales’ economy underperforms, although that is nevertheless the clearly visible outcome.
Whilst economic development is a devolved matter, all the most important levers remain in London, so it’s a classic opportunity for everyone to blame someone else.  Instead of playing the blame game, let’s just recognise that – or, even better, change it.  I’m pretty confident that arguing over who is most responsible, however many juicy headlines that might get for the politicians, is a wasteful diversion from the real task of doing something about it. 
We know that what we’re currently doing isn’t working.  Wales has, seemingly, frittered away two enormous rounds of European funding on a whole series of projects which, although intrinsically useful in themselves, have really not reached the parts that previous initiatives also failed to reach.  They have simply not delivered on establishing a long term increase in GVA per head, which was what they were supposed to be used for.  We have a plethora of strategies from the factory in the Bay, but, as the First Minister himself has admitted, implementation has not been as good or as consistent as it could have been.
I had hoped for some rapid delivery from the Economic Renewal Programme; the underlying principles as stated seemed to be an attempt to move in quite a different direction.  But most of the six months since its publication seem to have been taken up by appointing panels and experts and rearranging the internal departmental deckchairs; and as Dylan J-E has painfully highlighted on a number of occasions, in a number of respects, the change seems to be rather less sweeping than the hype suggested that it would be, and particularly unhelpful to a lot of indigenous SMEs from which the new jobs are most likely to come.
With hindsight, bringing the activities of the WDA into the Civil Service looks like one of the worst decisions taken by the Assembly Government; and I don’t think it’s too late, even now, to try and resurrect the culture of that body even if the targets given to it need to be refocused onto building a more sustainable and localised economy.
And giving Wales more power to vary rates of business taxation – a proposal put forward by Plaid in the past, and encouragingly receiving some Conservative support this week – would probably be one of the most significant ways in which government(s) could act positively.  What we need is action; what we really don’t need are the accusations and counter accusations which we’re getting.

13 comments:

Dylan Jones-Evans said...

John, this is an excellent article and a call to arms for the Welsh economy.

Your point about the civil service and their inability to take forward the role of government in stimulating the Welsh economy is well made. With all respect to civil servants, the vast majority have neither the foresight nor experience to drive forward the radical changes needed within the Welsh economy. In fact, the safety first philosophy adopted within the corridors of Cathays Park is to the detriment of any real change. As one very prominent and successful businessperson said to me last week, the main problem with economic development within Wales is that for every civil servant that is trying to help you, there are nine other holding you back. The labyrinthine bureaucracy of the Welsh European Funding Office and its obsession with process over outcomes is probably a contributing factor as to why we have yet to use the second round of structural funding effectively.

Many businesspeople, once they have encountered the obstructive tendencies of the pinstripistas within WAG never want to have anything to do with them again. On the other hand, I have high hopes for the new acting Director General of the Department of Economy and Transport as long as he goes with his instincts and does not, like his predecessor, try to please his political masters all of the time.

One other thing. I take your point about playing the blame game but as long as we have a largely tribalistic Labour Party in power which has an even greater “them and us” mentality than Lady Thatcher ever did, then nothing will change. The perfect example of this is how someone as visionary as Professor Kevin Morgan has been frozen out of the Labour Party because of a disagreement with WAG over policies, including the fate of the WDA.

One can only hope that there are still those in Wales’ largest Party, including the First Minister, who may be enlightened and will think long and hard on how we reverse this long decline through bringing together a Wales of all the talents, regardless of whether they disagree with those in power or not.

We are too small a country not to.

Anonymous said...

I honeslty believe that the only way that Wales can ever become economically successfull is if it has it's own currency. I wrote that here before John. If we had one now, and because we are doing pretty badly....then our 'Punt' (I like that name) would weaken against others. This in turn would make it an attractive place for large businesses to locate to because labour would be cheap and also our exports would be cheap for those with comparable stronger currencies. Compare Ireland and Iceland. Yes Ireland collapsed because it became one big hedge fund I have read but it's doing a lot better now than Ireland who cannot devalue because it's interest rates and it's currency is at a level suited to the EU's strongest ie Germany. Same with Wales.....the currency is at a level which suits S E England or rather the City. However, I doubt if DJE and many like him would find a currency without the queens face on it a pleasant prospect. :-)

Anonymous said...

It's me again from above post. I just re-read DJE's post and I really don't see any plan for Wales' economic future....just whingeing about civil servants and the Labour party. He's probably correct but I hardly see any 'radical' proposals from him......Come on Dylan, you can do better.

jogger said...

It's simple to me.

Wales must somehow get into a position where it is a producer of products for export. This will greatly increase the GDP figure.

Sustainable Technologies are what is needed to export.

I have looked the EU convergence lists of recipients of the funds. Very few are actually producing anything other than services which are not going to bring a higher GDP.

A Welsh stock exchange would bring massive confidence and interest in business throughout Wales.

Cibwr said...

I am inclined to agree that in hindsight the abolition of the WDA was a mistake, done with the best possible intentions. If it is de-merged I think it should also include a revitalised Development Board for Rural Wales division and a reborn Wales Tourist Board. The WTB was an excellent organisation - both in terms of promotion and developing tourism - I am not sure that Visit Wales has quite managed to live up to the WTB.

Dylan Jones-Evans said...

Anon - if you had been in my position for the last eighteen months on a European project, you would have made similar statements!

You ask if I can do better. All I can say is that each and every proposal that the Welsh Conservative Economic Commission has been working on will be released daily on my blog for the next two weeks.

You may not agree with all of it but it does, collectively, represent a plan for Wales. Let's at least have a discussion about it.

John Dixon said...

Anon 17:20,

The issue isn't really about currency per se, it's about the monetary regime under which it operates. I accept that there is a problem in that interest rates set in Brussels or London may not suit Welsh interests (although, over the long term, I believe that 'European' rates would have been better for Wales than UK rates). However, the same could apply even within Wales - Government economic policy is clearly based at least in part on expansion in the Cardiff area (and it says as much in the ERP). There is no certainty that interest rates set to suit Cardiff would be any better for, say, Ynys Môn or Carmarthenshire than interest rates set in London or Brussels. The smaller size of the country makes it likely that the disparity would be less of course - but it doesn't eliminate it.

I'm sure that Dylan can speak for himself, but I somehow doubt that whose face appears on the currency would be the determining factor for him any more than it would be for me.

I don't agree with everything Dylan has to say - and I'm sure that he wouldn't expect me to; but there are things with which I do agree (such as business taxes), and I'm not in the business of rejecting ideas purely because of where they come from (any more than I automatically welcome ides because of where they come from). The key point is simply this - current policy isn't working.

Jogger,

Exporting helps the balance of payments, but it doesn't necessarily do anything for GDP. And services can bring a higher GDP; don't dismiss them on those grounds. Displacing imports is as effective as exporting, and a great deal greener too. Relocalising the economy is what we should be trying to do, not simply accepting globalisation as inevitable.

Anonymous said...

"There is no certainty that interest rates set to suit Cardiff would be any better for, say, Ynys Môn or Carmarthenshire than interest rates set in London or Brussels. The smaller size of the country makes it likely that the disparity would be less of course - but it doesn't eliminate it."

You are correct John that it wouldn't eliminate it but the disparity would be less. But there is one thing which I am surprised you have overlooked.....I mean you being a Welsh nationalist. And that is, Cardiff is in Wales whereas London and Brussels are not. Nobody has mentioned anything about my comment re-Ireland and Iceland which is very relevant. The one currency fits all in the Euro region has failed. You have to admitt it. In the same way that the pound has failed Wales. I suppose you will be happy for Wales to continue indefinietly to receive massive payments in benefits and structural funding.

Another round of eu funding anyone? The system has failed! Admitt it. A currency is like a valve....your economy is sick then the currency weakens and because of this, your exports become cheaper as well as your labour until such time as your economy grows which strengthens your currency which increases rates and puts a breaks on things etc etc. It's really quite simple.

And you are wrong John, DJE would never entertain a separate currency because he would be ideologically opposed to it....him being a member of the Conservative and Unionist Party.

Anyway, more important things to do now....like watch the game. :-)

Cibwr said...

I am pleased that the Conservative party is at least looking at the economic needs of Wales as a unit, rather than as an annex of England, though they are rather late coming to it, it is none the less very welcome!

Plaid produced an economic policy in the 1960s that called for centres of growth, the development of advanced industrial estates in about a dozen locations throughout Wales. It seems to me that this was an attempt to localise development and should have been applauded for that.

The Lib Dem/Labour policy of creating Techniums seems to have been a similar attempt at decentralised development, creating local powerhouses of innovation and development. What would be interesting is to know why some failed and some succeeded, at the time I think they were generally welcomed.

It seems to me that we have to localise development and build local partnerships otherwise we risk an M4 corridor ribbon development. Now it also seems fairly obvious that we need to develop the internal economy of Wales with local trading - and there we need to improve the local transport and communications infrastructure as well as improving our links to the rest of the world.

Undoubtedly that means the formation of an integrated transport net in South East Wales (rename it the Valleys Metro - much more accurate than the Cardiff Metro), high speed trains to the ports of Pembroke Dock/Fishguard and Holyhead, the reopening of the Carmarthen to Aberystwyth railway and the provision of super fast broadband to all areas. Many of these improvements in infrastructure are out of the budget of the squeezed Welsh government but funding should be sought from European sources - though I recognise that this causes some issues with match funding.

I understand the need for a lower taxation regime to encourage the growth of local companies, I wonder if this will have the added spin off benefit of resulting in those companies trading in Wales having to register their Welsh operations in Wales....
I would certainly like to see the proposed Scottish differential business rate, where supermarkets pay at a higher rate to smaller retailers, that I think would also benefit smaller local business.

Where there has been failure over European development money it has been the lack of strategic spending rather than a scatter gun approach that has funded many useful projects but which has failed to produce that bonus of an uplift in living standards. This is where we need to plan more effectively - I hate the buzz word but "joined up planning" is what we need.

John Dixon said...

Anon,

No, I don't really want to see Wales in a position where we qualify for another round of European funding.

But neither do I think that the single currency has 'failed'. That's an oversimplification of a very complex situation.

I can understand why a nationalist would want to see Wales having a separate currency; I just think that the balance of all the factors leads us in another direction.

Anonymous said...

We will soon see what the Irish will do regarding the Euro when they default. It will be interesting.

Anonymous said...

http://www.telegraph.co.uk/news/worldnews/europe/ireland/8349497/Irelands-new-government-on-a-collision-course-with-EU.html

Declan Ganley, the Irish businessman who led the 2008 No vote to the Lisbon Treaty, said Ireland must "have the balls" to threaten debt default and withdrawal from the single currency.
"We have a hostage, it is called the euro," he said. "The euro is insolvent. The only question is whether Ireland should be sacrificed to keep the Ponzi scheme going. We have to have a Plan B to the misnamed bailout, which is to go back to the Irish Punt."

John Dixon said...

Anon,

Of course, any independent country has the right to withdraw from the Euro if they wish; and of course those who've opposed the idea from the outset will be seeing their opportunity. That doesn't mean that they wouldn't be making a mistake though. The problem with history - including economic history - is this; you only get to live it once. We all make choices and have to live with them, and can never be entirely certain how things might have turned out had we done things differently. None of us can ever be certain that we are making the right choice - we just have to come to a conclusion based on our interpretation of the facts.