Tackling Welsh Economic Competitiveness

On the eve of the IWA’s inaugural national economy conference, Robert Huggins and Stevie Upton argue that a lack of policy-making capacity is holding our private sector back

Despite more than a decade of political autonomy and a substantial economic development budget, boosted by European funding, the competitiveness and economic performance of Wales continues to plummet. Economic development spending by the Welsh Government has been consistently higher than that of the English and Scottish regional development agencies. Yet on a wide range of measures Wales remains at the bottom of the competitiveness rankings. Economic development spend in Wales for 2009/10 is estimated to amount to approximately £107 per person, compared to £97 in North East England, £76 in Scotland, and £61 in Yorkshire (see table below).

Economic Development Spend Per Capita Across the UK

Regional Development Agency Approximate Spend per Capita

2009-10 (£)

Welsh Government Department for Economy and Transport 107
One North East 97
Scottish Enterprise / Highlands and Islands 76
Yorkshire Forward 61
North West Development Agency 58
Advantage West Midlands 55
London Development Agency 50
East Midlands Development Agency 36
South West Regional Development Agency 30
East of England Development Agency 24
South East England Development Agency 20

Sources: Department for Business, Innovation and Skills, Scottish Enterprise, Highlands and Islands Enterprise, Department for the Economy and Transport

The intractability of Wales’s economic performance in the face of prolonged investment raises questions about the approach followed by the Welsh Government. Unfortunately, it leads us to conclude that we do not have the sophisticated policymaking capacity needed to effectively develop our economy. The danger for the Assembly as a whole is that this weakness in such a key area could undermine its case for further powers.

Worryingly, the high levels of economic development spending in Wales are not matched by clear lines of public accountability, making any assessment of real progress virtually impossible. At the time of the 2005 quango reforms, the Welsh  Government claimed that the mergers would enhance accountability. In reality, society’s capacity for effective scrutiny has actually been much reduced. Unlike regional development agencies in England and Scotland, the business plans and evaluations of the Welsh Government’s Department for Economy and Transport are not made publicly available.

Also, the reduced detail of published departmental budgets in recent years, coupled with the channeling of funding through a small number of opaquely named programmes – such as ‘Flexible Support for Business’, which now accounts for 40% of the economic development budget – makes scrutinising progress even more difficult.

To our minds, there is a clear lack of strategic direction in the distribution of economic development spending. For example, eighteen months after the publication of the revised Wales Spatial Plan, the promised delivery framework for national priorities is still to be unveiled. It is hard to see how priorities can be coordinated, let alone monies spent, without such medium- to long-term planning at the national level.

The Government is currently preparing an Economic Renewal Programme to rebuild Wales in a post recession environment. This represents a significant opportunity to put in place the strategies and interventions to convert Wales to a more high-performing knowledge-based economy. As part of the process of preparing the Programme, the Government is seeking to undertake substantial consultation with the business community. While this is a worthy and necessary task, one wonders what our policymakers will really learn:

  • Small businesses believe there is too much red-tape?
  • Failing businesses in mature industries think access to public sector funding will change their fortunes?
  • Fast growing businesses believe there to be a lack of suitable office or industrial premises?
  • start-up companies require better access to financial capital?
  • All companies think they pay too much in property rates?

These are undoubtedly key issues for many companies in Wales, but in a sense they are the well-trodden day-to-day operational factors which government needs to address on an on-going basis. They do not to any great extent relate to the strategic vision for the Welsh economy that we so badly require. The role of business managers is to ensure the future competitiveness of their company, and it is right they lobby government as best they can to achieve this aim. However, the role of the Welsh Government is to ensure the future competitiveness of the Welsh economy as a whole, and this requires hard-nosed policymaking that may not always align with the wishes of all businesses.

The Government considers that Wales should seek to specialise in those areas of the economy where it has some potential competitive advantage. We would agree with this intention, but would also point out that as well as providing additional support for these areas, it may also mean no longer supporting some areas of the economy. Although the business voice must be heard, an effective Economic Renewal Programme will require the Assembly Government to formulate a vision of how our economy should look in future, and the strategy for achieving this.

Although many good businesses have been lost in the current recession, the overall global impact of the recession has been to accelerate the flushing out of many companies that are no longer competitive in their chosen markets and industries. The impact of the recession in Wales highlights the invidious position economic policymakers often find themselves in – the requirement for short-term policies to retain jobs (such as the introduction in Wales of the ReAct and ProAct initiatives), as opposed to the long-term policies required to improve future prosperity.

However, these short and long-term requirements are not necessarily incompatible. How is it that the small US state of Rhode Island (a population of approximately 1 million) is able to develop a coherent innovation strategy for building its Green Economy (for those interested, a web search for A Roadmap for Advancing the Green Economy in Rhode Island will take you to the document), whilst Wales appears to be incapable of creating a coherent innovation strategy of any kind?

We consider that gaps in the economic expertise of the Welsh Assembly have made the need for some form of autonomous body/agency, with the necessary capacity we mention, essential if Wales is to move forward. Whilst the Welsh Development Agency undoubtedly had its faults, its arm’s-length status set policy creation and implementation at some remove from the capriciousness of politics.

At the current rate we are in danger of ending up with an Economic Renewal Programme that lacks innovation precisely where it is needed. Given the lack of strategic thinking it’s not difficult to understand why Wales has such a difficult job attracting private sector investment and capital.

Robert Huggins is Professor of Management and Policy and at the Cardiff School of Management, UWIC, and is director of the Centre for International Competitiveness. Dr Stevie Upton is Research Officer at the Institute of Welsh Affairs. This is an extract based upon their address to the Institute of Welsh Affairs’ National Economic Conference, being held tomorrow Friday 19 February, at the Parc Hotel, Cardiff. Places are still available at the conference. To book contact Clare Johnson on 029 2066 0820, email [email protected], or click on the Events button on this website.

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