How to kick start the economy

The performance of the Welsh economy is well below expectations, particularly taking into account the application of Objective 1 funding for west Wales and the Valleys since 2000. Gross Domestic Product remains stubbornly fixed at around 80 per cent  of the UK average. In fact, gross value added (GVA) has declined from 84 per cent  in 1995 to 78 per cent in 2004. Indeed,  in west Wales and in the Valleys, it has gone down from 74 per cent  in 1995 to 65per cent  in 2004.

We are republishing this article, which originally appeared in the Spring 2008 issue of the IWA’s journal Agenda as a tribute to Lord Livsey of Talgarth, who died last week. A keen member and supporter of the IWA, Richard Livsey was a rare politican who had friends across the political spectrum. He became MP for Brecon and Radnor at a by-election in 1985. He held on to the seat with a majority of just 56 over the Conservatives at the 1987 general election, lost the seat to the Conservatives in 1992, but won it back comfortably in 1997. He was an important figure in the Yes campaign that won the National Assembly referendum in 1999.  A fuller biography can be found here.

At the same time, public spending per capita on economic development has risen from 133 per cent of the UK average in 1999 to 263 per cent in 2005-2006. During this period, most of the growth in new jobs came from the public sector. Family disposable income stands at £21,182 per family, or £11,900 per head, compared to £15,000 in London. Five out of the top ten UK areas where people remain on benefits for more than five years are to be found in Wales. For many, housing is unaffordable.

Although 50,000 more people were in employment in 2006 than was the case in 2000, rates of pay remained low. Net disposable incomes are not sustaining a buoyant economy. The challenge we face is whether we are prepared to go out and initiate a new generation of Welsh entrepreneurs, or be content to continue on this downward economic decline.

Growth of the knowledge economy is overtaking traditional production processes. The proportion of knowledge workers  reached 35 per cent of total employment in the UK by 1990, and is expected to reach 50 per cent by 2020. It is in this sector where entrepreneurship and innovation are most likely to develop in the coming decades. However, only 37.2 per cent of those employed in Wales are engaged in knowledge occupations.

Academics inform us that the synergy of Universities such as Stanford in California,  has been the catalyst for the growth of Silicon Valley. Likewise, the Science  Park and St. John’s Innovation Centre at Cambridge University have provided high-tech firms with solutions for the innovative process. Nonetheless, experience in such contexts is that innovation is not an orderly or predictable process. There are at least 50 times more losers than winners when attempts are made to transfer good ideas, from developing cutting-edge technologies to the production process itself.

Economic strategies thus far deployed by the Welsh Assembly Government have been too focused on public sector jobs. There has not been enough attention given to innovative entrepreneurial private and social economic activity. If this had been the case, GVA per capita would have advanced rather than declined.

One only has to look at the Irish experience to confirm the case for an indigenous, innovative economy. Large-scale inward investment from multinational companies can no longer be expected in today’s world of globalisation. Our challenge is to create innovative, indigenous enterprises.

During the 1960s, I worked for ICI as a development officer in its agricultural division giving farm management advice to go-ahead farmers wishing to achieve financial goals within a jointly-created business plan. ICI’s objectives were met by more of their fertiliser products being purchased by successful farmers. The farmers we advised became entrepreneurs in their own right, in the top 10 per cent of profitable agricultural businesses, developing new systems that were demonstrated at open days attended by as many as 500 people hoping to emulate their success.

In the 1970s, I lectured on farm management economics at the new Welsh Agricultural College in Aberystwyth. Students came from all over Wales and beyond, demonstrating they could plan ahead and construct business plans for real farms. In those days, the students had to be interviewed by bank managers whom they had to persuade to provide the investment capital to create a profitable business. Lateral thinking was to the fore, with diversified new enterprises at a premium. We created a new generation of entrepreneurs, many of whom went on to become very successful businessmen and women.

Six years ago I joined the Board of Prime Cymru, part of the Prince’s Trust. The objective was to get people over fifty into business start-ups with the help of a small team of business advisers. We calculated there were 250,000 economically  inactive people in the 50-65 age bracket in Wales. So far, in the space of five years, 1,284 new businesses have been created with matching risk capital. The connecting theme is innovation, ranging from the production of organic chickens, dog beauty parlours, and making Welsh harps, to finding your Welsh ancestry on the internet. They demonstrate that, given the chance, people of any age can be creative.

Signs of hope can also be found in organisations like Planed, the Pembrokeshire Local Action Network for Enterprise and Development at Narberth. Over the past 20 years through sheer guts, hard work and some European money Joan Asby and her team have been promoting an entrepreneurial culture throughout the county. They operate through 15 Community Enterprise Groups supported by a range of specialist agencies. Together they identify what needs to be done to unlock the potential for enterprise.

At the Welsh level we have a strategic  opportunity to take a big leap forward in generating indigenous business through using the £1.3billion European Convergence  fund programme. It is a golden opportunity to create new businesses and quality employment. Innovation and infrastructure must be the key factors for the Assembly Government in pursuit of its Entrepreneurship Action Plan. The Irish experience has demonstrated that further education and technical training to promote a skilled workforce, alongside business parks, can produce a progressive, business-orientated society.

Our natural resources – including the native wit and intelligence of our people and our stunning landscape – should provide fertile ground for developing new entrepreneurs and new businesses. But there is a missing link. This is a lack of political will to assist the private sector to succeed. With community regeneration projects, this often means co-operative structures, and the creation of community enterprise companies, alongside private enterprise. The need for education in business skills and technical know-how alongside such initiatives is vital.

A further deficit is the means of providing risk capital for investment in new business initiatives. A Wales-wide banking infrastructure must be created to back up entrepreneurial enterprise. The Welsh Assembly Government should work out a master plan, and negotiate with the Bank of England to set up a new Bank of Wales. the prejudice which existed against this in the City  in the 1960s to 1980s must be broken down, and the time is now right. In the past, the likes of Julian Hodge could not breech these Walls of Jericho. However, surely now with our rugby teams playing against opponents sponsored by the Bank of Scotland, the Royal Bank of Scotland, the Ulster Bank and the  Bank of Ireland, the mood music has changed fundamentally for the better.

My experience of living and working in Scotland – with ICI, and then managing a 1500-acre farm estate in Perthshire – taught me that there are other ways of building capital. dealing with local businesses there, I frequently discovered that the owner had once worked in  Africa, Canada or the Far East for a decade or more. Often, they had worked for multi-nationals, or run their own businesses. But their overriding ambition had always been to return to Scotland with enough capital to start up their own business. These people had also gained the confidence of the Scottish Banks.

The extraordinary success of Ireland in the past 20 years should be an inspiration to Wales. This is the first time in the history of Ireland that an indigenous, moneyed class has emerged as a result of a long economic boom. The Bank of Ireland estimates that compared with a few hundred Euro-millionaires 20 years ago, there are now 300,000. Ireland has a well-educated labour-force, and a strong demand for labour in well-paid jobs. An in-depth study of the Irish experience, and the application of the principles involved could provide a blueprint for Wales.

We have a fine tradition in Wales of egalitarianism and social responsibility. These are precious values, but they should not blunt our ambition for our people to succeed. We ought to be able to construct an entrepreneurial society, based on the principles of both David Davies, Llandinam, and Robert Owen. Enlightened entrepreneurship can encapsulate both co-operative and private enterprise. John Lewis’s has promoted partnership enterprise with employee share ownership and participation. There is no reason why entrepreneurs of all shapes and sizes should not emerge for the benefit of all the people of Wales.

There are many contemporary examples of successful Welsh individuals and companies in Wales, some of them profiled in the IWA’s 2007 publication Roaring Dragons – Entrepreneurial Tales from Wales. They include:

• Rowecord, a steelwork engineering company which employs 1,000 people in Newport. Among is many world-class projects are the city’s new £4.9 million footbridge across the Usk and the huge Concast facility at Corus’s Port Talbot steelworks.
• Biotrace in Bridgend, the sixth largest manufacturer of industrial microbiology products in the world.
• Ifor Williams Trailers which, with 600 staff at its headquarters near Corwen, makes it one of the biggest north Wales employers.
• The Wynnstay Group, at Llansantffraidd-ym-Mechain in Powys, a former  farmers’ co-op  and now a diversified agriculture supplies manufacturer and distributor, with 400 employees.
• Picture Financial, the secured loan provider in Newport which, though only founded in 2004, now has 200 employers and a £100million income.

Entrepreneurship is an individual thing. Every story is different. Take just two from my own experience. While working for ICI, I had a colleague, Glyn Williams, from  Holywell who was higher up the management chain. At the time he worked in the west Riding of Yorkshire. Driving to work every day he passed a young council road man, who had tethered a dairy cow of his own to graze the roadside verge. One day there were two dairy cows grazing, and later, three. Glyn concluded that here was a budding farmer with ambition. So he stopped to talk to him and discovered that  he did aspire to be a farmer. Glyn contacted the county council, and after some negotiations secured him the tenancy of a county council smallholding. Together they drew up a business plan. Within four years, he was milking 60 dairy cows on his 75-acre holding. He never looked back.

During the 1950s, aged 19, I worked on a 450-acre farm in Carmarthenshire, and jointly milked 120 cows with another young cowman named Ieuan Davies, then aged 17. He was very good at his job and we got along very well. Every Sunday evening he went off to a religious revivalist chapel in Llanelli,  from which he always returned with plenty of hwyl. But he remained essentially a very shy person.

Twenty-five years later, when I was a lecturer at the Welsh Agricultural College, I went to judge a grassland farming competition with Twynog Davies of the Adas advisory service. While visited four working farms in southern Ceredigion and Carmarthenshire I told him about Ieuan. “I know him,” he said. “In fact, he lives next-door to me.

“He still goes to religious revivalist meetings, but he is now a house builder in Cardigan, has 52 employees, drives a BMW and holidays for a month in the winter in the Canary Islands.” I met Ieuan and he told me that when he started, there was a 40 per cent  grant on building silage pits. After milking his cows, he went every evening to learn how to lay concrete blocks, and build silo walls. He became an expert, and eventually did it full-time, and that was what set him up in business.

The moral of these stories is that, with imagination, hard work and application, you can transfer your skills. Entrepreneurial skills can be learned and applied from a young age, and can result in success which can benefit many others. We should aim to produce enough new entrepreneurs to drive our economy forward.