Three Key Challenges for Wales

Mr. Chairman, Lords, Ladies and Gentlemen,

I would like to say what a great privilege and pleasure it is to be invited to
address you this evening.

When the Secretary offered me alternative dates to speak to the Club early
last summer, the thought that April 12th 2010 would fall during an election
campaign did not cross my mind. I think it important to try and separate
business from politics and so I had hoped that what I say this evening is
said more from the perspective of a commentator, with a background in
economics, banking and social science than from someone who takes the
Conservative Whip in the House of Lords. I shall certainly steer clear of the
main issues of the general election but whether it is possible to separate
business from politics remains to be seen. I shall proceed therefore Mr.
Chairman cautiously and nervously.

I wish to look this evening at three key challenges facing Wales.

One is economic, one is political and one is cultural. They are not the
immediate short term issues being debated by the political parties in this
general election campaign but I believe they are highly relevant to the
medium and longer term nature of the Welsh economy, Welsh society and
Welsh nationhood.

A Radical Re-think of Economic Priorities

The first challenge is economic.

Although there are individual success stories of companies and projects in
Wales, the Welsh economy overall has not performed well over the past
decade. It is one of the slowest growing areas of the UK. It has the lowest
full-time weekly wages in the UK. The unemployment rate is the highest of
all of the nations of the UK. The manufacturing base has declined
dramatically since the mid-90’s. (from 28% of Welsh economic output to
18%).

And Gross Value Added (which is a measure of the value of goods and
services produced in an area) per head for Wales has actually declined
relative to the rest of the UK over the past decade from 77% of the UK
average to 75%. In other words Gross Value Added in Wales is lower than
in Scotland and Northern Ireland as well as in all of the English regions. It is
25% less than the UK average and nearly 50% less than that of London. In
West Wales and the Valleys GVA it is only 64% of the UK average.

Meanwhile the private sector in Wales has been hit badly by the recession:
between June 2008 and September 2009 private sector employment
declined by 45,000. During the same period the public sector employment
in Wales rose by 8000.

At the same time as the economy is languishing, the impact of cuts in
public expenditure for the UK as a whole are going to be a major challenge.
For the past nine years the annual growth in the block grant to Wales has
been roughly 6% in real terms per year. For the next three fiscal years after
this one, the best estimate (by Eurfyl ap Gwilym) that I have come across
based on leaked Treasury documents, is a cumulative reduction of 8.5-10%
in real terms. Little wonder therefore that Andrew Davies when Finance
Minister talked about the prospect of future Welsh governments finding
themselves up against “a brick wall” in terms of public funding.

Can anything be done about this? I believe the answer is yes but only on
the basis of radically re-thinking certain policies.

In the first place, there is the need to recognize that certain policies which
were implemented in Wales over the past decade simply have not worked
and need to be changed. The integration of the Welsh Development
Agency and the Welsh Tourist Board into the Welsh Assembly Government
does not seem to have created an economic dividend. Objective 1 funding
and the European Convergence programme has been more of a job
creation project for public sector workers than an infrastructure investment
yielding returns for the future. The refusal by the Welsh Assembly
Government to engage with public-private partnerships has led to under
investment in health and education.

Second I believe that there has been confusion regarding the role of the
civil service in economic development. I am not opposed to the civil service.
Any civil service has a critical role to play in government and during five
and a half years in advising the Prime Minister in 10 Downing Street I
hardly ever criticized the Whitehall civil service. However by its nature a
civil service must be cautious, prudent, meticulous in following rules,
ensuring full accountability for the way tax payer’s funds are spent. These
are strengths not weaknesses of the civil service. Civil servants are there to
see that the trains run on time.

By contrast economic development depends on entrepreneurs with fresh
ideas, taking risks and putting new capital to work. To extend the metaphor,
entrepreneurs will design new rolling stock, propose extensions to the
railway, open new stations, develop high speed trains, introduce new
technology, all of which make civil servants nervous, even alarmed.  Both
the civil service and entrepreneurs have an important role to play in Welsh
economic policy. However it calls for a different kind of partnership between
public and private sectors than in the past. The public sector must continue
to set the rules of economic life but it must outsource the delivery to the
private sector and allow it the freedom to get on and do it.

One of the greatest battles which was fought when I was an advisor in
Number 10 was getting the second Severn crossing built. The Treasury
whose raison d’être is to control public spending was hostile to the initiative
and had it not been for the Chancellor of the Exchequer being overruled by
the Prime Minister it would never have happened. I am not opposed to the

Treasury controlling public expenditure – indeed in recent years they could
have done better. The only point I wish to make is that a Treasury/ civil
service mindset is not appropriate to oversee the creation of an
entrepreneurial economy and culture.

Third, I believe that despite the rhetoric of innovation and numerous
schemes to support businesses such as Business Connect, Business
Gateway, Business Eye and Flexible Support the political leadership of the
Welsh Assembly Government has been more committed to the re-
distribution of wealth than to its creation. Noting that there has been the
emergence of a distinct policy agenda in Wales, Ron Davies former
Secretary of State for Wales and an Assembly Member summed it up as
follows:

“Unfortunately the initiatives pursued are having the effect of
creating a dependency culture. Free prescriptions, free bus
passes and free school meals are a form of welfarism
specifically targeted at propping up the Labour core vote. It is
not a progressive agenda”

I believe there has been an inherent conflict between the policy agenda of
the Welsh Assembly Government based on free handouts, taxing success
and detailed government interference in economic development and the
creation of an enterprise economy which rewards risk-taking. One of the
most depressing statistics from the perspective of creating an enterprise
economy is that the top 10% of public sector jobs in Wales pay on average
more than the top 10% of jobs in the private sector.
Wales is part of a global economy and if the Government is serious about
reversing the relative economic decline of Wales over the past decade, the
priorities of government need to be radically re-thought. Wales has too
readily embraced the European social model while the rest of the world
regardless of their ideology – China, India, Russia – have rejected it.

I believe there are practical steps which could be taken and which would
make a difference:

One, seize the opportunity offered by public-private partnerships to
bring increased capital investment to Wales, especially in education
and health: such an initiative would also bring with it the management
skills of the private sector: the transfer of public sector employees to
the private sector is not an obstacle.
Two, increase the provision in health, education and welfare of
services from private suppliers: the Welsh Assembly government
would still pay and set standards for patient care and curriculum but
competition from the private sector will drive up standards
Three, give parents more choice over schools and remove the
monopoly of local education authorities over their running
Four, set as a priority renegotiating the Barnett formula for Wales
which is frankly a disgrace, and which should have been tackled
years ago. This should add at a minimum £300 million of public
funding to Wales from Whitehall
Five, allow universities and colleges in Wales the freedom to set their
own fees and either provide an incentive to set up funds for
scholarships through matched funding or require a proportion of the
extra revenue to be used as bursaries or low interest rate loans to

help those who otherwise would not be able to afford higher
education

In the longer term Wales must be given greater fiscal powers. In this the
work of Gerry Holtham in Wales and Calman in Scotland looks promising.

If Wales is to thrive we need a more radical vision of what is possible but
we also need the tools to do the job.

The Future of Devolution

This brings me to the second key challenge facing Wales, namely the
future of devolution.

For many years I was skeptical of the benefits of devolution. When I taught
at the London School of Economics a colleague who was French Canadian
and an advisor to Trudeau developed on the basis of his experience living

in Quebec an economic theory of nationalism. He argued that resources
devoted to the development of nationalism were an investment in a public
good, the main pay-off of which was a redistribution of income from those
on low incomes to those on higher incomes – from the working class to the
middle class. Applied to Wales this meant the creation of jobs for Welsh
speakers, especially in Cardiff, paid for by English speaking workers in the
valleys, coal mines and steel mills of South Wales. Allied to which was the
prospect of a Welsh Assembly dominated an anti-business outlook.

The reason I changed my mind was that I came to see the government of
Wales would be much better if discussion of the issues took place in Wales
itself. A defining moment was a discussion early one evening in the Prime
Ministers study in No. 10 between Mrs. Thatcher, Wyn Roberts and myself
regarding the Welsh version of the national curriculum, which dealt
especially with the teaching of the Welsh language and Welsh history. As
the meeting went on I became convinced that the discussion would have
been far better informed if it had been held in Wales and not in London.

The 1997 referendum on devolution was won by a wafer thin majority.
Since then the Assembly has been enthusiastically supported by all political
parties and established itself as the effective Parliament of Wales. It is the
symbol of the emerging political culture of the nation, is much closer to the
electorate than Westminster could ever be, and has changed its structure.
Instead of being a beefed up version of a local authority as originally it
started it has evolved into a competent legislature and to a separate
executive supporting cabinet government. It has had authority transferred
to it in twenty fields including education, skills, health, local transport,
planning, community empowerment, marine and coastal access and local
government.

Although devolved government has not been a success for the Welsh
economy, I believe it has been successful in a number of ways:
– it has created a stronger sense of Welsh identity, in particular Welsh
political identity
– it has strengthened the role of the Welsh language

– it has supported the burgeoning of the creative arts, music, opera,
theatre, ballet, media in Wales and in particular the National Theatre
“as a forum where a country’s past, present and future can be
explored, imagined and debated!” (John McGrath, artistic director,
National Theatre of Wales)
– it has improved significantly the quality of the debate over potential
policy changes in areas such as education and health

In some areas such as the speedy response to the recession it has led the
way in the UK. Under the £48million Pro Act scheme companies on short
term working can receive up to £4000 per employee, half as a wage
subsidy and half as training subsidy in order to keep them employed. So far
more than £24million had been extended to over 200 companies across
Wales supporting 9200 jobs.

I believe that this success is reflected in the changed Welsh attitude to
devolution.

– In the referendum of 1979 people were fearful of devolution and it
was rejected 80% to 20%
– In the 1997 referendum people were skeptical but it was carried by
50.3% to 49.7%
– By 2010 opinion polls suggest that only 13% of Wales want to see the
Assembly abolished.

This is a remarkable turnaround in a little over a generation. It is now
unthinkable that we could return to the previous system of government in
which a Secretary of State and two Ministers, not one of which need be
Welsh, had complete control of policy in Wales.

The issue facing Wales now is the extension of law making powers for the
National Assembly, something which is already on the face of the 2006
Wales Act, as Part 4 but which needs to be triggered by a referendum in
Wales. The All-Wales Convention in its report on the feasibility and
desirability of a referendum concluded that

“We are convinced that Part 4 offers substantial advantage over
the present arrangement in Part 3. It would offer greater
efficiency, permit a strategic approach to the drafting of
legislation, provide greater clarity, be more consistent with the
rule of law and democratic tradition and reflect the emerging
maturity of the National Assembly of Wales”

Not unimportantly they also stated that it would also be cost-neutral.

This conclusion has the backing of Cymru Yfory/ Tomorrow’s Wales which
in its Declaration for Welsh Democracy set down five criteria:
– be efficient in its use of time and resources
– be comprehensive and transparent
– promote wide participation by the public and civil society
– respect the autonomy of the National Assembly as the elected body
which represents the people of Wales

– offer constitutional stability and thus a means of concentrating on the
implementation of a policy programme that can get to grips with the
problems and release the potential of Wales.

In February of this year a trigger vote on the desirability of a referendum
was held among Assembly members: all 53 from all parties voted
unanimously to approve it.

I would however go much further than triggering the implementation of Pt.4
of the Wales Act. Not until Wales has the opportunity to design its own tax
system – separate from London – can Wales aspire to liberate itself from
dead hand of European corporatism.

The third challenge I wish to raise concerns culture.

From many perspectives the cultural life of Wales has rarely been more
vibrant or diverse: alongside the traditional eisteddfodau we have the

growth of small theatres, the opening of the National Theatre with its
promise to provide different kinds of theatre in different locations the
success of painting and crafts, new awards such as the Dylan Thomas
Prize for the best creative writing for people under the age of 30 anywhere
in the world and the Artes Mundi prize in art the development of the
Millennium Centre as well as strength in opera, ballet and music. In the
media independent production a well as production by the BBC, ITV and
S4C is flourishing. Wales is currently producing many talented actors and
actresses, painters, musicians and film makers.

The arts are important to a society because they challenge the values
which hold us together as a community and by which we ourselves live our
lives. They provide an uncomfortable mirror which hides no disguises.

I have argued this evening in favour of wealth creation and greater
devolution. But what then? Will prosperity simply lead to a culture of
consumerism? Will greater devolution simply produce new elites and
different conflicts? When I say today I am proud to be Welsh, of what
values does that speak to the rest of the world?

In a poem, Choruses from the Rock (1934), T.S.Eliot posed questions
which speak to us today.

“What life have you, if you have not life together?
There is not life that is not in community,
And no community not lived in praise of GOD.

And now you live dispersed on ribbon roads,
And no man knows or cares who is his neighbor
Unless his neighbour makes too much disturbance.
But all dash to and fro in motor cars,
Familiar with the roads and settled nowhere.

And the wind shall say: “Here were decent godless people:

Their only monument the asphalt road
And a thousand lost golf balls.”

When the Stranger says: “What is the meaning of this city?
Do you huddle close together because you love each other?”
What will you answer? “We all dwell together
To make money from each other”? or “This is a community”?

Oh my soul, be prepared for the coming of the stranger.
Be prepared for him who knows how to ask questions.”

What is the “the community” that is Wales today? And what are the values
which inspire that “community”? Wales is a nation and made up of many
communities – the little platoons of Edmund Burke, the thousand points of
light the first President Bush, the mediating structures of Berger & Neuhaus.

What are the values which hold together our families, schools, trade unions,
business, rugby teams, charities?

At a personal level and in the world with which I work this is something I
have wrestled with over the past two years. Is the financial crisis simply a
mechanical failure of the worlds banking system – comparable to the
breakdown of a machine? Or does it have deeper roots? Is it the
expression of something deeper, a culture driven by greed?

Certainly Sir David Hare’s latest play The Power of Yes, the production
Enron and Mike Moore’s film Capitalism a Love Story suggest it is. As do
the comments of church leaders and those of other faiths.

Part of the problem is that no area of the UK today, certainly not the City of
London but also no part of Wales, can opt out from being a part of the
global economy in which prices, wages and bonuses are not simply
decided on these islands.

In a global world it is difficult to buck the market. But life is also much more
than the market. And the market itself needs to be founded on and infused
with values – integrity, community, solidarity, decency, respect and
diversity – which can only come from outside the market.

For me the critical question therefore is where do these values come from
in Wales today?

Of the three challenges facing Wales today this is by far the most profound
and at the same time the most difficult, because it is beyond the reach of
economics and politics. There are no simple levers we can move to change
it. But we are not helpless. It requires the rediscovery of values which are
rooted in our history, generous to new comers but strong enough to give us
a self-respect and a purpose which goes beyond being mere consumers.

Let T.S.Eliot have the final say.

Oh my soul, be prepared for the coming of the Stranger
Be prepared for him who knows how to ask questions.

When the Stranger puts the question to us? What is the meaning of our
community, our country, of Wales today?
What will we answer?