I was more than a little
disappointed with the Welsh government’s response to a question from Leanne
Wood on procurement last week. The
question highlighted how much more successful some other EU countries are at
ensuring their public procurement is 'internal' rather than 'external'.
That doesn’t mean
that I was entirely convinced about all aspects of the question. Whilst I have no reason to doubt the accuracy
of the figures quoted (Germany 98.9%, France 98.5%, the UK 97%), the precise
figures may not be particularly helpful.
I doubt that they tell us much more than that a larger country with a
bigger population and a more diverse economy will be able to meet more of its
needs internally than a small country. And I wouldn’t be at all
surprised if a breakdown of the German figures, for instance, by region and
municipality showed an increasing level of external spend.
But it’s the
principle rather than the detail which is important. Every pound spent by Welsh public authorities
outside Wales
is a pound lost to the Welsh economy. It
represents a loss of GDP and wealth – it’s like passing that pound note out through the window.
Leanne is surely
right to draw attention to that as an issue, and increasing local procurement
is something within Welsh control which can help to boost our economy. Local procurement also has environmental
advantages, of course.
The Welsh
government response was to say that setting a precise target for internal
procurement would be against EU law.
Well yes, I’m sure they’re right – but is that really an answer to the
question, or just the politicians' way of avoiding the issue?
Successive Welsh
governments – involving three of Wales' four parties – have
regularly talked about improving local procurement, but it’s been mostly talk with little action. And whilst the Minister in
one department talks about local procurement, his or her colleague in another
has been busy pushing Welsh public authorities into bigger and more
collaborative procurement arrangements which may well save money but would also
make it harder for small local companies to compete. Holding seminars to help those smaller
companies to understand large and complex procurement exercises is a bit
like trying to hold back the tide. Like
Canute, they merely demonstrate how ineffective the approach is.
There are things
that the Welsh government could do, and it would have been better had their
response demonstrated some understanding of that, and some willingness to act
rather than an airy dismissiveness.
The first thing
they could do is to simply stop doing those things which make it harder for
local companies to supply goods and services.
Cheapest isn’t always best.
The second would be
to look at what is being procured from outside Wales and ask why we can’t supply
that internally. There will always be
some things that we can’t provide internally, but there are many which we
can. And targeting economic development
resources at encouraging the production of goods and services for which we have
a home market is probably going to give us a more sustainable economy for the
long term than concentrating on activities which depend on producing and
selling goods and services for which there is no – or only a very small – home
market.
I was left with the
impression that dismissing any suggestion from an opposition party was seen as
more important than doing something positive.
Posts
14 comments:
At a time when the demand-side of the economy has been pulverised, the state is the biggest buyer left. We must ensure more of their purchasing goes to Welsh firms. I share your scepticism about the 97% odd figures. Wales should aim for similar levels to Scotland though. It's again very lazy to simply dismiss what Leanne had suggested.
Procurement issues are always surrounded by “smoke and mirrors”.
I assume that when you talk about “local suppliers” you are meaning those companies that have their HO in Wales rather than a local outlet of a cross Boarder Company. The question you have not answered is, are the Council Tax payers prepared to pay a “Welsh premium” to establish a more vibrant economy?
On a basic economic argument with a squeeze on disposable income, I suspect they are not. What needs to happen is a far broader issue about our plight and the need to secure our identity as a people, and then the economic weapon can be unleashed, so that everybody avoids spending money with companies/people who do not buy in to this aim. The truth of the saying that was so successful in Southern States of America during the 60`s is still good today – “wake up with a dollar in your pocket and you have power”.
I fear this would a step too far for the current leadership of Plaid, caught as they are between their allegiance to the English Crown and their own timidity and now only conditioned to work within the confines of the four walls in Collaborators Cove.
It's accessibility.
Few years ago, was tasked with re-fitting the corporate receptions of all offices in Europe. Sort of job ends up in IT because you've been there, and know the people. At the time I was working at the European HQ in London. I split the budget and told the receptionists in each location to do up their receptions. The result was Frankfurt reception looked like a Volkswagen showroom, all steal and lights. The Madrid office was all Spanish furniture, and an expensive Aundalucian rug. The Paris reception was like a tarts bordiore. The Rome reception consisted mainly of designer chairs from Milan. The Athens reception never happened but the cash was spent? The London office became a clone of page three of the Viking catalogue. It was quite evident the receptionists had just delved into office furniture websites/catalogues and picked out what was fashionable at the time, in that location. All the 'stuff' however, was mainly "local", and all had a distinctive cultural feel of that location, except London, which was 'nightclubby'.
After having read this entry on your blog, I tasked myself with how to procure a 'reception' refit online with 'mainly Welsh' products and firms.
It was difficult.
I did manage to find a wooden table with slate inlay. Natty clock. A welsh woollen rug, and a 'fitting firm' mainly using imported items. A steel sculpture made locally as centerpoint. All made in Wales. It was possible, but not 'off the shelf'. I also had to spend time search for it to be within a similar budget.The point is that there was not a 'one-stop-shop' for refitting an office reception providing mainly products made in Wales, and certainly not a cluster of products that you could create a reception with a Welsh cultural feel. There are 'fitting' firms, but they are 'regional' branches of UK concerns.
I therefore suggest that the issue is not 'making things' or even availability or price. It's accessibility. Having performed a dummy run on such a task, it occurred to me that renting a small industrial unit bringing all these together, establishing a USP, and certainly with a baseload of public sector trade, it might be a viable proposition. The reality is, however, is that such an enterprise would be difficult to get off the ground, and certainly it would not be a priority in government assistance to business.
I would imagine every firm in Wales, and local authorities, given a 'procure in Wales' motive would have an big 'accessibly' issue.
B2B networks and all that.
I think your missing the point and the sting of Leanne's attack on one of your tnagents here John:
"That doesn’t mean that I was entirely convinced about all aspects of the question. Whilst I have no reason to doubt the accuracy of the figures quoted (Germany 98.9%, France 98.5%, the UK 97%), the precise figures may not be particularly helpful. I doubt that they tell us much more than that a larger country with a bigger population and a more diverse economy will be able to meet more of its needs internally than a small country. And I wouldn’t be at all surprised if a breakdown of the German figures, for instance, by region and municipality showed an increasing level of external spend."
Whether or not this is the case, the point of the attack was to highlight Labour's lack of knowledge. They used their new puppy, Ken Skates, t claim that such a policy would be illegal. Here is one of his Tweets as an example:
"Glad to see @Plaid_Cymru have ditched their illegal procurement target of 75%. There's still a massive £1bn blackhole though! #plaidfail"
Regardless of state size, it surely therefore is not Illegal, as claimed by Skates, because it is being practiced by the central members of the EU.
Spirit,
"are the Council Tax payers prepared to pay a “Welsh premium” to establish a more vibrant economy". Not just council tax payers, of course - we're talking about Welsh Government, Health Boards etc as well. Whether it's a really premium or not, and over what timescale is a question I can't actually answer - and it's a lot more complex than simply considering today's price in Wales compared to today's price elsewhere. Retaining the pounds and pennies spent by Welsh public authorities helps to boost GDP and employ people locally. Even if there were a price premium at a point in time for one buyer, it might be worth paying if the overall impact was positive (or even simply less negative). The 'mistake' that procurers make (for what looks like the best reasons to them) is to get the best price deal for their employers at a point in time. Whether that's the best deal for the Welsh economy as a whole is not a factor they seem to consider.
Anon 12:04,
Your points are interesting and well-made. There may be a bit of chicken and egg here, though; a little bit of political will might help.
Anon 13:43,
"I think you're missing the point and the sting of Leanne's attack on one of your tangents here ... the point of the attack was to highlight Labour's lack of knowledge." And there was I, assuming that Leanne was making a serious point, and taking it seriously myself, when I should have seen it just as a means of attacking Labour for their lack of knowledge. Is that really what you mean? That doesn't sound like the Leanne I know.
My point about the statistics was a very simple one. We need to compare like with like; figures for Germany, France and the UK are not comparable with Wales. Scotland's figure is more comparable, and regional figures from Germany would be more comparable. They'd show less divergence from the Welsh position, I suspect - but there'd still be a divergence and the underlying point about the need to close the gap is still valid. Why spoil a perfectly good and sound argument by quoting figures which are open to dispute?
"Regardless of state size, it surely therefore is not Illegal, as claimed by Skates, because it is being practiced by the central members of the EU."
It's not illegal, or even a target. It's an aim, a policy choice. Scotland has reached 75% self-procurement. If Wales even reached that figure, rather than the 90's, then using the Value Wales multiplier (not Plaid figures originanlly) that accounts for 48,000 extra jobs in Wales.
The lack of an internal market, even one in proportion to our small size, is one of the main problems hampering the Welsh economy.
What it is crucial to understand also is that the percentage of procurement staying in Wales has already gone up. It's a case of going even further, rather than reinventing the wheel. This was increased under a Labour-Plaid government by altering some of the rules and getting what the McClelland report calls the right policy in place. It's not a case of Labour "not knowing" about it- they definitely DO know about it. The attack on Leanne is just to prevent a debate from taking place and to dismiss the opposition. Labour needs the Tories to be the main opposition in Wales because they are so poor.
Was your lecturer's example supposed to represent the economy?
If so, wouldn't each of the participants have had to pay tax on their "earnings"? Which would of course be money out of the window. I fear by the time it had done the rounds there would have been very little left of the £10.
I prefer my example. A Gardener and bricklayer do some work for each other. They pay each other, the GDP is enhanced but they both pay tax. They are both slightly poorer. If the bricklayer does his own garden and the gardener builds his own wall GDP does not go up but both are better off.
I'm surprised that a Welsh Government spokesman says a 'local' procurement policy would be illegal. In England, it's government policy, and has been since the Communities and Local Government procurement strategy of 2008.
http://www.communities.gov.uk/documents/localgovernment/pdf/725180.pdf
Whilst it's illegal, for example, for the South East of England procurement hub to specify contracts as "cannot be French", but what it can do is specify that procurement through the hub must have a sustainability consideration, and this includes distance of supply. For Kent, this would exclude the 22 mile English channel but include all other home counties and London.
If such a policy was implemented in Wales, it the procurement would be wholly Welsh and it a consideration was made to place contacts outside Wales, Dublin (55miles) would be 'more sustainable' than London (120miles). I suspect that is the gripe the current 'administration' has in Cardiff, nothing to do with legality, but more to do with 'British Unionism'. It would be quite in order for a London firm to be excluded from a Welsh council tender, if it can be sourced in Wales, on the same basis as the existing procurement policy of the Department of Communities and Local Government in England.
It's public policy in England. Why not Wales?
Glyndo,
It was, of course, grossly over-simplified. But tax is only money out througfh the window if an economy allows its taxation revenue to be siphoned off elsewhere; if it's recycled within the economy it further increases GDP. I take your point about the gardener and the bricklayer; it highlights the way in which GDP doesn't always measure 'wealth'. For those who can neither garden nor build walls however, it's an oversimplification.
Anons,
What is or is not illegal is usually open to a degree of interpretation, at least until challenged by the courts. What's lacking in the Welsh Government is a will to try and be a bit more creative. It's easier to just bleat and blame someone else.
The idea of 'buying locally' has a lot of intuitive appeal. However, on reflection it strikes me that the main goal of public procurement should be securing value for money for the taxpayer, by which I mean the best possible trade off between price and quality. Introducing a new consideration - call it 'locality'? - which trumps price and quality inevitably means that the taxpayer either pays a premium and/or receives a lower quality product or service. Now the additional cost or quality penalty could be small or it could be large. Cumulatively across all public sector procurement in Wales I suspect it would tend towards the latter. And that would mean foregoing some other spending on worthy things like public services and infrastructure, which in themselves generate an economic benefit.
Anon,
"the main goal of public procurement should be securing value for money for the taxpayer, by which I mean the best possible trade off between price and quality.", and
"[local procurement at a high premium] would mean foregoing some other spending on worthy things like public services and infrastructure".
That's a commonly-held viewpoint which drives much of public procurement today. But I find it oversimplistic, because it takes a narrow view of the economic benefits. Don't forget that having a large pool of unemployed people, who could be producing the goods and services we need, also forces us to forego other spending because it reduces the tax take. Whilst I wouldn't advocate buying locally regardless of any extra cost, I would argue that taking a view of benefits at a 'whole economy' level would lead to a different view of what level of 'premium' is acceptable.
In essence, I'm challenging the (usually implicit and unstated) assumption that optimising the economic benefits at organisation level necessarily optimises the economic benefits for the whole. In fact, the opposite can be true.
I'd also add that we need to understand what the level of any 'premium' is, and the reasons for it. To look at a possibly extreme example, if it were because the goods we buy are made by people working in conditions close to slavery, for instance, would you still argue that as long as the price and quality criteria were met, all is well? What are the reasons which prevent us producing the right quality and price on our doorstep rather than transporting goods over long distances? To return to the original post, why aren't the Government asking those questions rather than dismissing the idea?
"I'm challenging the (usually implicit and unstated) assumption that optimising the economic benefits at organisation level necessarily optimises the economic benefits for the whole."
John, what I really wanted to do in my post at 13:08 was to encourage you to think about the *opportunity cost* of your proposal. Let's assume that paying above-market rates for local procurement, or excluding other suppliers, costs Wales - say - £100m per year (purely notional, it could be any given sum). Is that the *most effective* way that the government could spend that £100m to promote employment and social welfare? Or would we generate more jobs if we procured things in a more conventional way and used the money saved to cut business rates, subsidise commuter rail services, or provide apprenticeships?
The EU commissioned some research on the effects of cheaper public procurement. They found that the savings create 'fiscal space' that the government can use to do other things - reduce taxes, increase its own investment, or pay other subsidies - and some of these can have a beneficial long-run effect on GDP and employment.
http://ec.europa.eu/economy_finance/publications/publication16259_en.pdf
"What are the reasons which prevent us producing the right quality and price on our doorstep rather than transporting goods over long distances?"
A small country with a narrow productive base, closely integrated with a larger neighbour, is never going to be able to be autarkic. David Ricardo's had the insight that comparative advantage means that it makes sense for countries and regions to specialise in particular sectors, just as individuals specialise in particular trades and professions. One of the key results of European economic integration is not just that trade has increased but that some industries have become more concentrated in particular places.
http://ideas.repec.org/a/cai/recosp/reco_533_0469.html
Anon 11:50 I think you have missed a very important factor here - the procurement rules that cut in once a contract exceeds 170,000, where ethe barrier to entry (ian terms of capitalisation and size) is set too high for most Welsh SMEs (and most Welsh companies are SMEs). We saw recently - last year I think - that Anglesey had awarded a contract for grass cutting to a company from Leicester, because the LA had amalgamated all its grass cutting contracts into one ITT, of more than 170k, which meant that all the perfectly capable local firms were not eligible to bid. This is obviously nonsense on many levels.
Anon,
"Or would we generate more jobs if we procured things in a more conventional way and used the money saved to cut business rates, subsidise commuter rail services, or provide apprenticeships?"
That's a good question to which I'm pretty certain that no-one can give a definitive answer - which means, of course, that we're dealing in opinions rather than facts. And those opinions are based on premises and on assigning weightings to such facts as are available.
However, as I noted in an earlier comment, I think we need to understand why the price of locally-produced goods and services is higher than those bought in (if it's really price which is the factor - the points made by others above about access to the procurement process are relevant here as well). That's an issue which isn't only relevant to the goods and services being purchased; it's also highly relevant to the question of whether and to what extent the 'fiscal space' which you refer to could actually be used effectively, or whether other economic activities would be blighted by the same problem.
I also admit that I have an ingrained preference towards localism. The current globalised approach seems to me to be inherently assuming that energy and environmental costs of goods and services will continue to form a small part of the overall cost. If that assumption is wrong - and I believe that the question is not whether it is wrong, but how long we have until it is obviously demonsstrated to be wrong - then an economic strategy based on a globalised response is foolish.
Having said that, I also entirely agree that "A small country with a narrow productive base ... is never going to be able to be autarkic"; (and I think the phrase that I deleted in that is irrelevant, because the statement is just as true without it). Indeed, my scepticism about the relevance of the German, French, and UK figures in the original post was an expression of that. Or at least, I agree with it if we still want to enjoy the range of choice we currently have; being autarkic is probably economically possible, but would also lead to a very drab and boring lifestyle.
The question, though, is to what extent we can be more autarkic than we currently are. I don't doubt that we can meet more of our own needs locally. Nor do I doubt that other economies are doing better at that than we are. I think it's desirable that we try it; which brings me back to the original post - my problem with the Welsh Government's response is that it doesn't really touch on any of the issues debated in this thread, it's solely an attempt to diss an idea put forward by the opposition. It's a political, not an economic, response. I'd have had more respect for it if it had attempted to engage with the sort of issues you raise.
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