New investment needed to generate jobs

Eluned Morgan argues that Labour must rethink its relationship with the private sector

With the Welsh Assembly now a reality and with full legislative powers in around 20 policy areas, we have an opportunity in Wales to rethink what type of society we want for ourselves in the wake of the current economic crisis. President Sarkozy was right when he suggested: “The economic crisis doesn’t only make us free to imagine other models, another future, another world. It obliges us to do so.”

Until now the Assembly has been fairly statist in its approach, swimming in a sea of plenty, expecting the state to solve our economic and political problems. However, with enormous cuts facing us, the Assembly now has to re think its relationship with business and build a society, which is genuinely sustainable.

In retrospect the first years of the Assembly will be judged as having been a time of plenty. The increase in the budget from £7 billion to £15 billion meant that public services were generously funded. But that was before we had a major crisis in capitalism. The consequence is that the public sector in Wales will take a massive hit, with a suggestion that 21,000 jobs could be lost in the next four years, particularly amongst women. The channels to support the disadvantaged are being threatened through economic pressures. People at all levels of society are really suffering, and real lives are being touched in ways that many of us cannot imagine.

The thing that drives Labour Party members generally is a passionate commitment to social justice and an attempt to reduce inequalities. We want a strong welfare system, but we are sometimes guilty of not paying enough attention to how this will be financed. The state will simply not have the money to provide all the answers in future. We will need to see some reform of our public services. We need to find a way of squeezing more efficiency out of the system or our services will be constrained, and the vulnerable will suffer. Our focus must be on outputs not inputs.

Jobs and employment are critical to an individual’s self-worth. Richard Layard in his book A New Science of Happiness gives empirical evidence to demonstrate that wellbeing is directly improved through employment. People are also generally healthier if they have a job, and children are more likely to achieve if their parents are employed. There are 129,000 unemployed in Wales today or 9 per cent of the working age population so this is an urgent question that needs a response.

But who today will be creating the jobs? We can be creative in our response to the crisis and find innovative financing methods to stimulate the economy. Interest rates will never be this low again so now is a good time to borrow. Some interesting models are being explored including using the powers of local government to borrow money, and cooperating with a building society to stimulate the housing market.  We should be leading the UK in demonstrating that jobs can come, in part, from public investment, but let’s be honest – it will be limited in the next few years, and the UK Government does not seem to be in a rush to give the Assembly the power to borrow money in Wales.

There may be scope for some job creation from the voluntary sector or through cooperative models of employment. But I think if we are realistic, we would have to admit that these would be relatively limited in numerical terms. The answer therefore has to be the private sector and, ultimately, the Labour Party will need to change attitudes and rethink its relationship with the private sector in Wales.

For me the changing relationship with business was the big break between Old Labour and New Labour under Tony Blair. New Labour understood the need to work with business although it is now accepted that the “prawn cocktail offensive” went too far, in particular in terms of relationships with the bankers and the city in London. Ed Miliband is trying to correct this now through distinguishing between good business and bad. Even if some individuals in the Labour Party in Wales understood and were interested in the private sector, I think it is fair to say that there was and still is, in some quarters, an enormous distrust of the sector.


I believe that it is essential for the party to redefine its relationship with the private sector, not just because we are desperate and are in a time of austerity, but because it is the right thing to do. We will achieve more if we do things together.

There is a cruel parody of the official anthem of the Labour Party that starts: ‘The people’s flag is deepest pink, it’s not as red as people think’. And that’s the problem – when Labour politicians start talking about links with the private sector, there’s a worry that we are somehow watering down our principles. It is understandable that this has taken longer for the Labour party in Wales to accept, where our whole history was based on the support for workers against business. From the early Chartist marches to the exploitation of miners by pit owners – business, and business leaders were seen as the bad guys.

Until recently, particular animosity has been quietly reserved for large businesses, despite the fact that fewer than 2 per cent of companies in Wales are responsible for 55 per cent of private sector employment. These big businesses would include supermarkets, utilities, banks, large communication companies and major manufacturers. The days of claiming that “we don’t like big business in Wales” must be over, and at least now there is recognition of this with the ‘anchor company’ strategy.

Small companies, including micro-businesses, have a major contribution to make to our economy. Micro businesses employ less than 10 people but account for 94 per cent of all enterprise active in Wales, from hairdressers to Indian takeaways. On average the number of people employed per micro-business is less than two. If you own a hairdressing salon, your interest is in maximising your profit, not necessarily in expanding the number of staff you employ. We need to focus on the growth of firms, large or small, that are willing to increase employment. We must also ensure that the third sector plays an active role in contributing to jobs growth.

Many in the private sector have sensed the animosity of the Labour party in the past and have been reluctant to engage. But the private sector must also take some responsibility for not interacting more deliberately with the National Assembly. Both sides need to learn to speak one another’s language. The two big beasts need to start understanding the motivations and incentives of one another.

It is not just the private sector which is frustrated. The trade unions in Wales are also concerned. Let’s not forget that large companies in particular, provide a rich source of membership for trade unions. If anyone wants to see the private sector flourish it is the unions. Good trade unions in the private sector today are very often involved in helping management to increase productivity and provide an environment in which business can grow and recruit more staff.

Attracting and encouraging employers requires pro-active engagement, courtship, encouragement and an educated and trained workforce. It does not need much money or new legislation. We need to focus our education system on courses which are useful to the economy. We need to ensure that we know exactly what skills employers are looking for and deliver them. We need to refocus our energies on the STEM subjects as suggested in the manifesto – Science, Technology, Engineering and Maths – remembering that 350,000 Indian engineers come into the market each year and that the Chinese have increased their Research budgets by 20 per cent per year over the past five years.

We need to offer a committed and skilled work force with relevant qualifications, a rapid and predictable planning system, a stable regulatory framework and we can also offer a beautiful place to live. Offering a long-term framework for a quality of life is an attractive offering for business. And we must be careful in our requests for further devolution, if the impact on jobs is likely to be negative. If any request is likely to harm job creation – we should tread very carefully. This is not about ability or ideology – it is about resources and improving the material well being of the people of Wales. Do we have the expertise and the capacity politically, economically and technically in the Welsh Government to give a service over and above what can be done if it is led by the UK government?

The Labour Party should not view the whole sector with suspicion but it should ensure that the private sector works in partnership with society. There is a need to focus on decent jobs with high and respectful working conditions for workers, where training and skills are encouraged and where there is a commitment to long-term investment and support for research and development, and a situation where a living wage for high quality work is the norm. But we must be brave and go further and make a unique case for investing in Wales. We must provide a vision that demonstrates our commitment to a sustainable society and act on the central building block of the Welsh Government’s approach – sustainability.

One of the shocks for me on moving into the business world is that some in the private sector are ahead of the politicians on this issue. According to Raymond Gilmartin the ex-chief of Merck pharmaceutical company, “Shareholders benefit most when bosses maximise value for society and act as agents of society”. It is in the business interest to work with society not just for profit. Governments are judged constantly on economic growth as almost the sole measure of success, but we need to change that in Wales.

The Stiglitz Report suggested that we should re-set the measuring sticks of how politics is judged. It should not be based entirely on growth but on improving wellbeing. The policy of the Tory government is that the UK should be the best place in Europe to start, finance and grow a business. While we share this aspiration, for us in Wales it must be of equal importance that this is the best place in Europe in which to work, thrive, and grow a family.

Baroness Morgan of Ely is a Labour Peer and a former Welsh MEP. This is an extract from her inaugural Patrick Hannan Lecture delivered at the National Library last month. The full text can be found in our Lecture Library here

One thought on “New investment needed to generate jobs

  1. These comments are well-timed and insightful. While it might be painful for some in Wales to perform a political and economic about-face, the priority here in the coming years must be the creation of jobs. Any avenue that offers this is worth our time, on the left as well as the right.

    ‘We must also ensure that the third sector plays an active role in contributing to jobs growth.’

    I myself work in the third sector, and while we see increasingly that certain public service functions are coming our way, I am unsure myself of exactly how the sector can help with the push to create jobs. Any economists out there who can give some insight on this?

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