Wales needs an industrial strategy built on localism

Alex Bevan argues that our home-grown foundational economy must be utilised to produce autonomous development from within

Earlier this year the Wales TUC commissioned an independent report by the New Economics Foundation which challenged how we go about winning prosperity for Wales in the wake of economic crisis. Towards a Welsh Industrial Strategy tracks the story of Wales’s economic fortunes since World War II and outlines the case for a whole government approach as part of a modern industrial strategy.

In the midst of the slowest recovery since the Victorian era and an utter refusal to rebalance at a UK level, Wales has little choice but to break with its past to practice a more active regionalism. While the debate rages at Westminster over the right macroeconomic approach and the Chancellor’s economic policy becomes increasingly contradictory, Wales cannot risk working on the basis that pre-2008 conditions will return.

Policy options for encouraging prosperity then will not be based on the pre crash parameters. The TUC has long argued that those parameters – set by an economic model obsessed with the financial sector – were deeply unsustainable and bad for Wales in any case. One statistic more than any other displays the sheer scale of the problem: between 1997 and 2007, banks extended £1.3 trillion in loans to the UK economy. 85% of this increase in lending went on commercial property, residential property and other finance companies, leaving just 15% for rest of the economy (see the recent Fabian pamphlet, The Great Rebalancing: How to fix the broken economy here, page 36).

Over the same period Wales lost 52,000 manufacturing jobs. This is before the onslaught of recession which saw a further 33,000 jobs in the sector disappear between 2008 and 2010. This period is best summed up by Andy Haldane, executive director for financial stability at the Bank of England who stated: “There was a great sucking sound as both people and monies were drawn into banking. Industries outside of finance were starved of sunlight.”

Unsurprisingly, employment in financial and insurance services in Wales shifted upwards by a measly 4,000 from the 1997 figure of 28,000. In no way has the financial sector created a boom in employment for Wales. Nor did it for the UK as a whole for that matter.

Within a macroeconomic analysis of Wales’s place in the modern UK economy, the New Economics Foundation concludes that:  “Wales is stuck on the wrong side of a divide that has privileged the accumulation of financial assets ahead of the creation of sustainable work”.

By now it is not radical to say that growth on its own is not sufficient for a true recovery. But the New Economics Foundation’s analysis is even starker. Putting London to one side, a more realistic measure is offered on the growth required to close the gap with the North West of England. This found that Wales “would need to grow at 2.5 per cent per year for ten years (with the North-West holding back at 1 per cent all the while) in order for Wales to achieve its goal. This is less implausible, but still represents a better economic performance over a longer period of time than it has ever managed before.”

The broader economic mistakes made by the UK Government are beyond the scope of this post but recent boasts of an ‘economy on the mend’ look as credible as earlier claims that we were ‘out of the danger zone’ ahead of a double dip recession, the fabled credit rating downgrade and countless missed Office of Budget Responsibility targets. TUC analysis has revealed just how fragile the recovery is. Recent growth has been reliant on a rise in consumer spending which coincided with a 43 per cent drop in household savings while median incomes face the longest squeeze since the 1870s. Meanwhile, the latest state sponsored housing bubble is described by Danny Gabay of the economic consultancy firm Fathom, as the “Help to Buy an Election” scheme.

While advocating alternatives for Welsh economic and/or industrial policy, the New Economics Foundation flags up the concept of the Foundational Economy developed by Karel Williams at the Centre for Research on Socio-Cultural Change at Manchester Business School. This refers to the 10 per cent or more of a local economy that is directly dependent upon local spending and the provision of the services necessary to enable any locality to function. The definition includes activities in the private and public sector and specifically those privatised services that rely primarily on populations and geography rather than more competitive market factors.

This novel yet practical approach arguably provides a better starting point for addressing the fragmentation of our economy and the broken supply chains within it. Williams discusses the Foundational Economy and the opportunity it presents Wales at a public lecture at Cardiff University available here. Elements of this thinking have important implications for how we support manufacturing in Wales. The Welsh Government rightly responded to the recession by offering strong and creative support for the sector with Proact and more recently the Economic Growth Fund which has benefitted this sector more than any other.

However, Williams refers to a need to look afresh at our economic assets and abilities in Wales to ensure we benefit from far more of the value that is created here. Food processing is a recurrent example with large and complex supply chains within a sector that is now the largest consumer of machinery in the UK. Localising supply as far as possible and embracing cooperative models is a lesson drawn from the success in the Emilia Romanga region of Italy. James Meadway at the New Economics Foundation writes:

“Building on a solid base of small and artisanal manufacturing, the regional administration encouraged the establishment of cooperatives amongst small manufacturers, enabling them to access economies of scale and cheaper financing. It also encouraged the creation of support networks of secondary services, again aiming to reduce the cost to businesses. Six in ten residents of Bologna, Emilia-Romagna’s principal city, are now members of a cooperative, while one in ten residents work in one. Imola, a town of 100,000, has 115 co-operatives that account for 60 per cent of economic output. Just over half of its residents actively invest capital into these firms. The regional government was central in establishing a dialogue between businesses, residents, and trade unions in developing a co-operative vision for Emilia-Romagna.”

Towards a Welsh Industrial Strategy ultimately calls for a better networked Welsh economy with sections from mobilising credit more effectively and new forms of banking to food production and renewable energy. Any industrial strategy should work across government and the broad subjects covered within this report support the assertion that the whole should be greater than the sum of its parts.

Austerity, and the nature of this historically weak recovery, is compounding our longstanding structural problems while the UK Government turns its back on previous commitments to rebalance the economy.

It is the case now more than ever that the Welsh Government requires powers over tax and borrowing as part of a reserved model. This has already been supported by the Wales TUC in its submission to the Silk Commission.  But whatever the shift in powers and constitution, an industrial strategy should be given serious consideration as a means by which to create a more resilient and productive Welsh economy.

Alex Bevan is Policy Officer with the Wales TUC.

6 thoughts on “Wales needs an industrial strategy built on localism

  1. The combined economic ‘intelligence’ of the utopian left is a significant part of the reason why the economy of both the UK generally and post-devo Wales in particular is in the mess its in!

    Let’s face it – how many traditional UK primary and secondary added-value industries have been rendered uncompetitive by Trades Union activity promoting unaffordable wage deals, restrictive practices, and over-manning? Trades Union activity is a major part of why the UK economy became unbalanced and too heavily reliant on the financial sector in the first place! And also why we lost so many traditional manufacturing skills and facilities which cannot simply be re-activated – doubly so with a dumbed-down education system over which the Unions also seem to exert too much influence.

    So now we’re expected to believe that leopards change their spots?

    Unfortunately the lines between Unions and Labour and politics have all but disappeared – common purpose comes to mind… Between them they seem to be better at ruining the economy than running the economy!

    Having trashed their traditional industrial stamping ground, and having brought theoretically viable nationaised industries to their knees, they have now moved on and they have started to trash the administrative side of the public sector and front-line services. It is difficult to conclude that modern Trade Unionism is doing anything other than damaging peoples’ lives. What are they for except to keep their chosen few officials in the luxury to which they have regrettably become accustomed and to sponsor Labour Party politicians using their members’ money?

  2. These are all good ideas, but fail to consider the basis of credit issuance which will fund these new direction for the Welsh economy. As you point out early on in the article:

    […] between 1997 and 2007, banks extended £1.3 trillion in loans to the UK economy. 85% of this increase in lending went on commercial property, residential property and other finance companies, leaving just 15% for rest of the economy

    This is the outcome of the concentration of the power to issue credit in a small group of private corporations (the ‘Too Big To Fail’ Banks), who have focused on the Finance, Insurance and Real Estate (FIRE) sector in their exercise and distribution of credit. As Louis Brandeis states in his classic work ‘Other People’s Money and How Bankers Use it’ (1914), in a quotation attributed to President Woodrow Wilson:

    The growth of the nation […] and all our activities are in the hands of a few men, who, even if their actions be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who, necessarily, by every reason of their own limitations, chill and checkand destroy genuine economic freedom.

    Plus ça change, plus c’est la même chose – except in our situation we need be less equivocal about the actions of our financial oligarchy (as Brandeis describes the bankers) being either honest or in the public interest.

    It is for this reason that we need to develop regional publicly-owned banks with a mission to produce productive credit for the real economy, as happens in the German sparkasse/landesbank and Kreditanstalt für Wiederaufbau (KfW) institutions or the Bank of North Dakota in the US (my own short article for the Western Mail on the topic can be found here: Plaid Cymru have already adopted the idea of a public bank for Wales as part of their economic vision for Wales and key figures in IWA such as Geraint Talfan Davies have rightly been vocal in their support of a regional banking institution for Wales. My own organisation Arian Cymru will be hosting the first of a series of events entitled Banking and Economic Regeneration Wales (BERW) on 26th September at the Victor Salvi Room of the Millenium Centre, Cardiff which will aim to discuss these issues with economists, politicians and a cross-section of the Welsh public. The first event will be sponsored by the PCS union and will feature Ann Pettifor (nef/PRIME Economics), Marc Armstrong (Public Banking Institute, US), Leanne Wood and Pippa Bartolotti (Green Party Wales) and tickets can be found here: . I would hope that anyone interested in these issues will attend the event, which should prove to be a refeshing discusion of alternative economic directions for Wales. Also, as Arian Cymru are a non-profit organisation realiant on contributions, sponsorship and proceeds from events such as this, it only with your support that we can continue to organise events and attract such a high calibre of speakers to Wales.

  3. Finance certainly has too much weight in the political economy of the UK but I’m not sure a public bank in Wales is the answer. What would be its deposit base? It would struggle to be as big as the Principality Building Society, itself a tiddler. So it would rely for funds on the wholesale money markets. Moreover it couldn’t be publicly owned because its borrowing would then reduce the Welsh block grant so it would have to be a mutual – just like the Co-op Bank. You would have to find someone to run it better than that was. But none of that is the real problem. The reason current bank loans are all for property is because that’s where the loan demand is coming from. In Wales we have five property entrepreneurs for every one
    doing something else. Even successful people who make money in other businesses take it out and put it in bricks and mortar, like the Thomas brothers of Cardiff. Perhaps it’s a lack of the technical know-how to run businesses based on other sorts of expertise. I don’t know. But a lack of enterprise backed up by technical skills is the root of our problem. If we had more of those it would not be hard to find finance. Especially with bank rate at half a per cent.

  4. I’m not sure that R.Tredwyn fully appreciates the seriousness of the disastrous effects of banking deregulation and tax ‘reforms’ over the last 30 years on the real productive economy or the potential range of structures available for a public for a potential public bank in Wales: but at least he isn’t still blaming workers and the Labour movement for the state we’re in after 30 years of Neoliberal rapacity, as in the somewhat inexplicable comment by John R. Walker. Perhaps he would like to attend our event at the Wales Millenium Centre on the 26th September and discuss some of these issues. Tickets for Banking and Economic Regeneration Wales are £10 and can be found here:

  5. Ian Jenkins

    It doesn’t sound as if you have ever spent any time actually working (perhaps I should say trying to get some work done…) in any of the many industries that Union activity has crippled – e.g. British Steel, British Leyland, and many others like them. Well I have spent time in several of them trying to work around one restrictive Union practice after another….

    We used to do breakdown work on British Steel plants ‘pre MacGregor’ and it was a standing joke that they lost LESS money when the plants were broken down than they did when they were working! It wasn’t the fault of the management or the workers who were mostly quite happy to work on the rare occasions the Unions would let them… Yes – it really was that bad!

    So you go talk the talk in Cardiff (wherever that is? – 5 hours away at the end of a nightmare bumpy twisty road…) and I will stick to walking the walk by financing businesses through crowd-funding… I do believe we’re getting better at it and one of my great joys is that more and more of the loans we fund are offering businesses additional credit ‘to take out the banks’ and free them from the shackles which bind them to these greedy, questionably competent, and increasingly irrelevant legacy institutions.

    We need more banks, and a ‘Welsh bank’ in particular, like we need a hole in the head – they are a big part of the problem and not a particularly efficient part of the solution. As always there is an exception which proves every rule… We certainly need people who can accurately assess the viability of business development opportunities but, again, I have seldom found these people working in banks or fincos or in the public sector.

    Looking at the list of featured talking heads for the BERW event I see Leanne Wood but I don’t see anybody from the real world business community! What’s it to be – more of the same old failed pie in the sky/jam tomorrow rhetoric? More waffle about Welsh solutions for Welsh problems? While the rest of the world leaves the dinosaurs running Wales behind… To put it bluntly, I doubt if my blood pressure would even survive your event even if I had the time to waste…

  6. John Walker, are you a general? Because you are certainly fighting the last war or indeed the one before last. You are referring to the 1960s and 70s – forty years ago! British Leyland and British Steel are long dead. Union membership in the private sector has collapsed and union restrictive practices are not an issue anywhere much. The wage share of GDP has been falling since the 1980s and the real value of wages has been declining this century. Care to join us in the present day? The failures of the banking system are undeniable but do youreally think that banks can be entirely replaced by crowd-sourcing and business angels?

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