Wales faces a lost decade

Alex Harries argues that only a determination to invest in Wales’s infrastructure will counter the impact of the down-turn

As unemployment reaches 8.4 per cent Wales is performing worst of all the UK countries, with up to 20 claimants chasing every job. Yesterday’s news that the economy may have re-entered recession did nothing to sweeten the pill. The coming public sector spending cuts, combined with our relatively under-developed private sector threaten Wales with a ‘lost decade’ of economic stagnancy, unemployment and a heightened gulf with the rest of the UK.

Plainly a shift in direction is required and it may be worth turning our attention towards one area of Wales which has weathered the economic storm better than most.  Carmarthenshire was the last unitary authority to enter into recession, in May 2008 almost a year later than Blaenau Gwent and several months later than Cardiff. Moreover, the length of the recession it experienced was a full year shorter than that of Blaenau Gwent. (See Michael Artis and Marianne Sensier’s article in the latest issue of the IWA’s journal Agenda for a more detailed breakdown).

Coupled with an unemployment rate which has consistently remained low during the downturn and is now less than half the Welsh average (currently just under 4% compared to over 8% nationwide, according to Welsh Government Figures for July 2011), this would suggest that Carmarthenshire is doing something right. One explanation might be the county’s 2006 Economic Development Strategy which focused on job creation, tackling youth problems, and investing in infrastructure.

For Wales as a whole, a lack of infrastructure investment has stunted growth and rendered the country unattractive for inward investment. Improved infrastructure provides jobs and is an incentive for further training, increases productivity and attracts businesses. Public sector investment can generate long-term private sector employment and growth.  Indeed, in the most recent issue of Agenda, economist Gerald Holtham argues in favour of strong investment to counter the risk of “high, perhaps rising levels of unemployment and economic inactivity.”  In the past week, this risk became a reality. Further, with demand slipping and nationwide recovery seemingly stunted, investment seems more appealing than ever.

Holtham points to the need for “good infrastructure that only the state can provide”. So, Carmarthenshire’s decision to take the lead in investment and job creation was a sensible response to the problem. In particular, enhanced broadband networks have made the county an easier, more attractive place to do business. Its willingness to invest in youth projects in order to “retain” the potential of a future workforce has been a useful step towards ensuring that the most qualified and able workers do not leave at the first opportunity, leaving jobs unfilled or staff under qualified.

The Welsh Government policy document Delivering a Digital Wales underlines the vital role of ICT in creating an employable nation arguing that it should be given a greater place in the school curriculum. How can these aspirations, conducive to private sector growth, be realised without public sector investment?

Investment in other communication networks, whether they be well-maintained roads or an electrified train service between Cardiff and Newport, would serve a similar role. As the recent Welsh Transport Strategy argued, “congestion costs businesses many million pounds a year.”  Thus, improved public transport should reduce this pressure as should improvements on road networks.

Equally, with “poor access” remaining an underlying factor in some unemployment, particularly in the Welsh Valleys, an improved road and travel network should serve to increase the employment opportunities available to individuals in the most impoverished areas, both directly and indirectly. Once again, these goals can only be achieved with direct state intervention.

Not only should they boost long-term employment, but they should help create and subsequently consolidate a Wales which is conducive to employment. It is vital that such schemes are followed through and that the benefits target the areas currently struggling with unemployment and deprivation (unsurprisingly, those lacking in infrastructure). Despite the borrowing costs and inflationary risks, these projects are arguably preferable to a nation-wide lost decade.

An obvious criticism of such a policy is its incompatibility with the plans to reduce the UK’s bulging deficit. However, as Holtham rightly notes, “the government would not be meeting the full cost of debt servicing” due to the potential for tolling and also for private sector involvement.  Further, in the long-term, such projects should pay for themselves through increased tax receipts and a Keynesian multiplier effect.

Despite some short-term economic worries, the overall economic prognosis would certainly be a gradual remedy for this ‘sick patient’.  Let us contrast that with the alternative. Failure to invest and secure long-term economic recovery and stable employment could be catastrophic both socially and economically, exacerbating trends of unemployment, deprivation, inequality and poor opportunity. A failure to invest in the present could blight the socio-economic landscape of the future, with pared-back public services failing to capitalise upon future, improved economic circumstances.

Holtham is not alone in arguing that austerity cannot come at the expense of investment in both the present and future. Christine Lagarde, newly appointed Managing Director of the International Monetary Fund, has argued in favour of what The Guardian termed a “Goldilocks” approach to the economic crisis, recognising the need of consolidation balanced with the investment necessary for job creation and securing long-term economic well-being. A willingness to invest in the future capabilities of both the private and public sectors is the medicine Wales needs to ensure economic recovery.

Alex Harries is a student about to study history at Oxford who is gaining work experience with the IWA

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