Thursday, 26 April 2012

More funds from the EC

Whilst the third round of European funding will be welcome in Wales, it is disappointing, to say the least, that we should still be in a position where we qualify for such aid.  We have managed, as a nation, to get through two sizeable tranches of such aid with no obvious movement towards the stated objective of closing the gap in GVA.
The first round, Objective One, seems to have been largely frittered away on a series of projects most of which looked good in themselves, but which seem to have realised little long term benefit.  At the time, the impression that I had was of a large pot of money for which projects could bid, accompanied by a complex bureaucracy, within which some of the money was spent on advising others how to apply for it and then spend it.  There never seemed to be any ‘big picture’ view of what the outcomes should be; it didn’t look joined up.
For the second round, the government said that it was going to be more strategic by having fewer and larger projects.  I wasn’t convinced that they succeeded.  The words were all there, but in some cases it looked as though having ‘fewer and larger projects’ simply amounted to giving large sums to consortia of councils which then took on the distribution to the same sort of projects as in the first phase.  The difference was simply that there was an additional layer of bureaucracy between the Government and the projects being funded.
None of those involved are likely to admit any of this, of course; they were all caught up in the spin and presentation of success, the publicity which flowed to councils and ministers from a whole stream of flashy looking projects.  But phase 2 looks to have been as big a failure as phase 1 in practice.
Perhaps there’s something in the character of Wales as a nation, or in our style of politics which made this inevitable, but it seemed at times that being seen to share the cash around fairly and evenly, to ensure that there were projects benefitting in each and every corner of the aided region, was more important than ensuring that the GVA objective was achieved.
Whatever the cause, as we prepare for a third round of funding, I cannot say that I feel any real optimism that any lessons have been learned.  I still see no ‘grand plan’ for what we want to achieve or where we want to be at the end of the next round; and I suspect that, as a result, we’ll fall back on the tried-and- found-wanting approach of saying ‘Look, here’s a pot of money, who wants to bid for some?’, and then doling the cash out to the most telegenic proposals.
It’s not as if the Welsh Government is lacking in strategies; they’ve got several shelf-fulls of them in the Bay.  It’s more that there is a complete disconnect between those box-ticking strategies and actual government action.  A government which was serious about reducing the GVA gap would, by now, have a plan for doing so, and would see the inflow of large amounts of cash as being an opportunity to implement elements of that plan.  I won’t hold my breath.

22 comments:

Adam Higgitt said...

"Perhaps there’s something in the character of Wales as a nation, or in our style of politics which made this inevitable".

I don't know much about this but there appears to be little doubt that the injection of structural funds has done nothing to even arrest WW&V's economic decline much less reverse it - at least if per capita GDP/GVA is the measure.

But rather than ask, as you provocatively do, is this a Welsh disease, it might be worth asking whether structural funds per se work.

This study (http://www.wifo.ac.at/wwa/downloadController/displayDbDoc.htm?item=WP_2007_310$.PDF) seems to suggest not. In fact it finds (albeit from an acknowledged small evidential base) that the effectiveness of structural funds in Objective One areas is "low" with €1.3bn invested and only €36bn worth of growth (on one measure).

Owen said...

Couldn't have put it better myself, John. Spot on.

Adam Higgitt said...

Sorry, that should be €1.3 trillion, not billion!

John Dixon said...

Adam,

Thanks for the link. An interesting paper, if not exactly the easiest of reads.

If I read it correctly, your subsequent correction tells only part of the story – I think it’s €1.3 trillion for a mere £36 million of growth, according to page 11. If that’s actually true, the extent of the failure is astounding. There are caveats to the work, of course, but it certainly should be provoking a lot more analysis.

My allusion to the nature of Welsh politics was really a suggestion that ‘pleasing particular constituencies’ seems at times to be a more significant driver than GVA outcomes. It would be easy – too easy – to turn that into an accusation of cronyism; but it would also be facile – too facile – to reject such a possibility out of hand. Sometimes, relationships in Wales are just too cosy; and the extent of consensus in our politics does nothing to challenge that.

Back to the substance, however. Conventional wisdom says that Ireland used its structural funding effectively, and there’s little doubt that Ireland’s economy did well during the period that it was receiving such funding. Ireland’s subsequent well-documented problems do not undermine the validity of that observation.

The problems, of course, are firstly, that Ireland could have been an ‘outlier’ in the context of this study; the information contained in the paper doesn’t tell us that. Secondly, it’s close to impossible to separate out the impact of one variable from another in a specific case; it’s perfectly possible that structural funding and good performance were a mere correlation rather than cause and effect.

But the key question is this - what if the conclusion is actually correct – i.e. that massive amounts of structural funding have at best a very marginal effect?
At one level, that wouldn’t really be a huge surprise. I’ve argued before that the extent to which governments can really influence the economy in a free market system is much smaller than they would have the rest of us believe. Politicians seize on good news to take the credit, and on bad news to blame their opponents, but much of that is just game-playing. Specifically, in the current context, I don’t believe that the economy of the UK would be in a much different condition if Labour had won the 2010 election, however much they are now claiming that it would be.

There’s some consolation in the report’s conclusion that there is evidence that poorer regions have a tendency to grow faster than richer regions regardless of regional funding. However, at a speed of 0.5% per annum, it’s going to take a very long time before Wales catches up. And, on the basis of recent evidence, there’s no real sign that Wales is actually moving in line with that average trend in any event.

I wouldn’t suggest for one moment that we should not grab the next round of European funding with both hands as a result of these conclusions. But perhaps those managing it ought to be a little more careful about the expectations that they create. And it certainly adds to the case for a more radical re-think about the way in which the money is being spent. It suggests that the cost of repeating what has already not worked might actually be insignificant; but that isn’t an argument fore repetition.

John Dixon said...

...or even 'for' repetition.

Adam Higgitt said...

John

As you say, not an easy read. And I dare say I haven't done justice to its many caveats and qualifications.

It is indisputable that Wales has received two rounds of this money and does not appear to benefited from it. Likewise, it is indisputable that Ireland received structural funding and its economy did grow - quite spectacularly, in fact. Like you, I suspect there are simply too many variables at work to say for sure that there was/is a causal link and these monies were poorly used in Wales (or indeed have been well used, preventing an even more calamitous decline) and well used in Ireland. In fact, as we've discussed before, I tend to regard the whole practice of comparing different jurisdictions to be largely pointless. There is much that can be learned from places like Ireland, but to imply that its experiences represent a comprehensive template for Wales is for the birds.

Like you, I have my doubts about how effective this sort of intervention can ever be. And like you I wonder whether we even need be interested in such questions: if there is money that could come to Wales, we should probably grab it.

Unless, of course, you believe that doing so could actually harm the creation of wealth. Many free market-types would.

Welsh Ramblings said...

Adam Higgitt's points here are largely correct.

Expectations need to be managed with regards to European funding. If you look at how much was received by Wales it really isn't that significant- less money per annum than Holtham's fair funding calculation. And fair funding a la Holtham could be spent on whatever the Welsh Government wanted, wherever in Wales it wanted, with no conditionality.

I would still grab this money and throw every penny at infrastructure. Over 14 years it's about £200m per year and crucially the UK Govt didn't match fund it, setitng the precedent that about half the anticipated monetary value of these funds had to be found elsewhere from Welsh budgets. Over the past almost decade and a half European funds amounts to less than 2% of Welsh public spending.

So it's really exactly as Adam says- take the money, but manage the expectations.

John Dixon said...

Ramblings,

I'd agree that it should go on infrastructure, whilst not over-setting the expectations. However, part of the problem is that very little of the first two rounds went on infrastructure.

Welsh Ramblings said...

I agree John. I didn't mean imply anywhere in my comment that any of the money had gone on infrastructure.

If we're "only" talking approx £200m per year in funding, it's still not to be scorned or turned down if it was being used strategically.

Anonymous said...

I would spend it on rail and improving energy efficiency of the housing stock right accros WW&Vs. Doing this with £200m a year, each year, for 14 years would go quite a long way. Creating a large number of jobs over those 14 years, and at the end we should have a much improved rail network, helping with petrol poverty, and a much more energy-efficient housing stock, helping with home-fuel poverty. These would be quantifiable, tangible results.

Iwan Rhys

Anonymous said...

why is it provocative for John to say that this is a Welsh disease when the official EU figures for similar areas of the UK to Wales who received European money show improvement to their GDP while Wales has gone backwards.

Things would be worse without the injection of cash but to pretend this is an EU funds problem beggars belief and doesn't instill any type of confidence that the third lot of money will make any difference to the Welsh economy either.

John Dixon said...

Anon,

I don't think anyone is arguing that "this is an EU funds problem". The question being raised was whether, and to what extent, European structural funds could have made a difference.

Like Iwan and Ramblings above, I believe that it is more likely that it could have made a difference if the various Welsh Governments since 1999 had had some sort of strategic plan, and invested the money in infrastructure; unfortunately, no government has done that. But the research to which Adam referred us asks an even more fundamental question as to whether any spending of the sort would have, or could have, made a significant difference to Welsh GVA. And that research wasn't just based on Wales; it was a review of a number of regions which received structural funding.

It's a good question to ask, albeit one which should make a number of people uncomfortable; but feeling uncomfortable is no reason to not ask a question.

The bottom line is that I think all of us agree that Wales should grab any cash that's available; it would be crazy not to. But there is also a good degree of agreement that intervention of this sort may not be as effective as we might wish, even if it were spent in the most effective way possible rather then doled out to a series of short term projects.

Ramblings refers to 'only' £200 million. (S)he's right, of course; it's not an enormous sum in the scale of things, but it's still better than a kick in the teeth (or should that be 'slap in the face'?).

The question could be widened, though. If £200 million makes little or no difference, then how much difference would £2 billion make? Ten times nothing is still nothing according to the mathematicians. So the wider question is this - can any intervention based on giving a grant to a government make a significant difference to GVA per head? It's a counter-intuitive question in some ways; instinctively one feels that having more resources would make a difference, but the research paper to which Adam referred us should cause us to ask some searching questions.

But in the meantime, it would be silly not to take the money and use it to invest for the long term rather than fritter it away as has happened continually since the start of Objective One.

Adam Higgitt said...

"why is it provocative for John to say that this is a Welsh disease when the official EU figures for similar areas of the UK to Wales who received European money show improvement to their GDP while Wales has gone backwards."

Because structural funds by themselves may not be a driver of GDP/GVA in either direction. See above discussion.

"to pretend this is an EU funds problem beggars belief"

The report cited appear to suggest otherwise.

Anonymous said...

you are saying that it would make no difference what Wales did with the money it wont work, despite the fact that evidence on the ground, EU stats and analysis etc proves that other areas of the UK and countries across Europe managed to utilize funds for growth, making Wales unique among EU funding recipients for going backwards.

If that's the case we shouldn't bother with any EU money or any UK and Welsh Government investment from now on because it wont make any difference either, good luck selling that economic master plan.

John Dixon said...

I wonder whether you've read either the research paper to which Adam provided a link or the discussion above, Anon. It's not me that's saying "it would make no difference what Wales did with the money". I'm not convinced that that is a fair description of the points being made by Adam either.

However, the research paper does cast considerable doubt on the efficacy of such spending, and despite the undoubted caveats which must accompany such research, the question is one which deserves to be considered. What the research suggests is that there may well be other factors determining whether a region does or does not grow which are more significant than the receipt of structural funds.

The situation is a complex one; and your assertion that "EU stats and analysis etc proves that other areas of the UK and countries across Europe managed to utilize funds for growth" is a bold one. Firstly, there's the need to consider the possibility that ""they would say that wouldn't they?". I.e., those responsible for dispensing such large sums of money are hardly likely to argue that the effect was so small as to be insignificant. Secondly, there's the difficulty of separating out different factors; a correlation between structural funding and growth isn't the same thing as a causal link.

I want to see Wales' GVA catching up with the UK average; I think most people in Wales do. It isn't happening at present, despite two successive rounds of funding from the EU. So questions need to be asked; and we shouldn't be afraid of asking the difficult ones about the efficacy of any approach.

Adam Higgitt said...

"EU stats and analysis etc proves that other areas of the UK and countries across Europe managed to utilize funds for growth"

Does it? I've seen figures showing other Objective One areas in the UK saw their GDP grow in the years following the allocation of structural funds. I haven't seen the analysis you're talking about, i.e one that causally links the two. Perhaps you could post a link to it here?

More generally, I agree with John's last reply: any additional funding for the purpose of developing the economy of WW&V should be exploited to its maximum (Iwan puts forward a good approach) and, unless we think that structural funds can actually harm an area's economic development (I don't, but some do) taking the money is a no-brainer. But if the evidence that I've linked to is credible, we should also perhaps be circumspect about the yield such investment is likely to deliver.

Welsh Ramblings said...

At the risk of contributing to a perception that we're all ganging up on Anon, the point Adam is making is that other regions that have done better than Wales, have done better because of separate reasons to EU structural funds.

I don't understand how £200m per yer of state funding would be seen to make a tangible difference to Wales' economic performance, UNLESS as John and Iwan Rhys suggest such funding was systematically spent and not raided for other projects.

This doesn't mean, as Anon says, that there is no point in state investment. Far from it, in my opinion. It's about managing the expectations, again as Adam seems to be saying.

I just don't understand why anyone would think you could alter Wales' GVA figures on the basis of £200m per year of state spending. The Welsh block grant is £15bn. European funds are less than 2% of Welsh public spending. Let's have some perspective.

John Dixon said...

Ramblings,

I agree with the broad thrust of your comment, but be aware of an obvious comparison. If £200 million per annum for seven years has only a minimal effect on Wales' GVA, then how come Build4Wales, which involved spending only £100 million per annum for five years, was going to transform the economy, as some (including you, I believe) have argued?

Don't get me wrong, Build4Wales was, as I've said before, a good idea, better than has come from many politicians (although not as ambitious as Gerry Holtham's suggestion for a £2billion fund). But if that could produce the claimed 50,000 jobs, then Objective One funding could and should have produced 140,000 jobs, if it had been used in the way that I think we both agree should have happened, i.e. targeted infrastructure spending. But I don't believe that it would have had anything like as much effect as that, even if it had not been frittered away by successive governments.

My point, here, is simply that the need for circumspection about the likely impact of spending isn't limited just to structural funds. My suspicion that governments can actually exercise rather less influence on economics than they claim isn't limited to structural funds either.

Adam Higgitt said...

For what it's worth I'm agnostic about whether the money on offer constitutes a serious slug of dosh or not: you can spend a small amount very well or a large amount very poorly, so much depends on the manner in which this cash is used.

I'm not even saying that structural funds are bad value for money - I simply don't know enough about the topic to assert something like that. I just think that when we look back on the fact that WW&V has received two rounds of funding and yet has also seen its per capita GDP relative to the EU average decline we need to ask whether this must mean that the money was spent badly, or whether other factors were involved. In that, it is worth asking if structural funds work. I found a paper that seemed to suggest not, but I dare say other evidence to the contrary exists.

Welsh Ramblings said...

John,

"If £200 million per annum for seven years has only a minimal effect on Wales' GVA, then how come Build4Wales, which involved spending only £100 million per annum for five years, was going to transform the economy, as some (including you, I believe) have argued?"

Semantics are important here. I didn't use the word 'transform'. As part of a Welsh economic policy it would be a demand-led mechanism guided by the state rather than funded entirely by the state. But if you had something like that, and then a strategic use of the European funds (which I have said should be grabbed with both hands), and then fair funding, and then the ability to prudentially borrow money, and spend all of those streams strategically and systematically, then you're looking at a transformation, as long as the political will is there. Whenever I have blogged about the Build for Wales policy I would always have cited it as being part of a wider package.

What I was calling for was perspective when it comes to the value of the European funds alone.

I don't think Objective One, which was earmarked for a range of social as well as economic programmes, is comparable to a demand-led infrastructural investment vehicle which is what Build for Wales was supposed to be. I accept the point anyway, although I never made such job estimates in relation to Build for Wales.

You are wrong to confuse the £2bn that Gerry Holtham called for with Build for Wales. £2bn would be accessible from conventional borrowing, and the Welsh Government actually esimated that £3bn could be sustained in their evidence to the Silk Commission. Build for Wales was a Plaid stop-gap measure design to go towards compensating for the fact Wales doesn't have proper borrowing powers. It was never promoted as a viable replacement for those powers, as far as I understand.

I basically agree with your point about managing expectations but think you're wrongly targeting me as being some kind of propagandist for Build for Wales, a policy with which I had no involvement with when it was created! In its defence though I would say even if it was inflated or oversold, it is one of the few ideas to have survived the last elections from any party, so there was/is merit to it.

John Dixon said...

Ramblings,

I don't think that there is any disagreement between us that Build4Wales was a good idea, and I've never suggested otherwise. All that I have suggested is that its potential impact has been over-hyped.

Actually, I think that both Buld4Wales and the Holtham scheme were both stop-gap measures to enable access to borrowing powers, and both represent the sort of creative thinking which we need. The Holtham proposal was both bigger in scope and with no dependency on permission from the Treasury since it used existing powers, and therefore preferable; but I'd be happy to advocate either or both, provided we have a sense of perspective about their likely impact.

And I think we're in agreement that a targeted programme of using any funds available on selected infrastructure projects is more likely to improve the GVA position of Wales than the sort of scattergun approach followed by successive Welsh Governments.

I doubt that there are many in Wales who don't want to improve the lot of Wales in GVA terms, but the fact that doing so has proved to be such an elusive goal despite that shared desire underlines the complexity and deep-rooted nature of the problems we face. We need to be careful about presenting any scheme or proposal as being some sort of a lifeline, and political debate has tended to over-simplify the problem by doing precisely that.

Welsh Ramblings said...

Holtham's £2bn was suggested by him as a stop-gap measure, and would be accessed by using local government borrowing powers. The actual scheme that has been drawn up by the Welsh Government (which will leverage £100m-£170m), and subsequent comments by Holtham at a conference I attended, suggest that it wouldn't be realistic or practical to drawn down billions of pounds through local authorities. Unfortunately these comments aren't on record, so you'll have to trust me.

There is no easy solution to Wales' deep-rooted economic problems, as we agree.