Measuring our economic success and failures

As the latest figures are released Matt Williams warns of putting too much emphasis on the results.

It’s December and it’s raining, which must surely mean it’s that time of year when politicians, economists and arm-chair critics pore over Wales’ GVA figures. No one who follows the Welsh economy will be shocked to learn that Wales remains bottom of the pile when it comes to GVA in the UK, and the bottom ranked region in the UK for GVA per head remains West Wales and the Valleys.

Explanations for this will vary depending on perspective, but are relatively unlikely to be changed by what the GVA figures show and what they measure. After all, GVA figures are a reflection of transactions and productivity – not a measure of policy input and successes.

Plus ca change, the narrative is well established.

The headlines are likely to run on the bad news, they often do – and sometimes for good reason. There are significant systemic issues within the economies of Wales – and people’s experiences of the Welsh economy are far from ideal.

However, GVA as a measure can be blind to some significant issues such as topography which are hard, if not impossible to change. For instance, our transport infrastructure and population density limits agglomeration effects (generally good for GVA figures), our agricultural productivity is low because much of our farmland is upland grazing. There are a number of physical reasons why our GVA might be expected to be lower than other parts of the UK.

That said, Wales also has specific social issues which are problematic for our GVA figures – we are still a nation dominated by the public sector, and austerity has squeezed wages and growth in this area. We still have higher numbers of economically inactive people, in general we work (slightly) fewer hours than the rest of the UK, and we have a relatively higher number of pensioners in many of our rural areas. However, where unemployment used to be an issue, this appears to be taking a backseat to the quality of the work people are doing.

It’s also important to note that the Welsh regions also cause GVA to be carved up in specific ways. GVA per head is bad at measuring commuter flows. The West Wales and the Valleys region doesn’t include the contribution of those that live in the region but work in Cardiff or the Vale of Glamorgan.

This is arguably a feature of where the borders are drawn rather than a particular picture of economic failure in those areas. Even the name West Wales and the Valleys is misleading – how useful is it really to include Bangor and Blaenau Gwent in the same unit of measurement?

There are some good news items in the statistics though – the version of the Welsh economy measured by GVA has grown strongly compared to much of the rest of the UK, and despite failings in interpreting the measure, growth in GVA is to be welcomed.

It is also true that Wales appears to have distributed its GVA growth more equitably than much of the rest of the UK, and continues to have a small gap between the richest and poorest regions as compared to the rest of the UK.

These measures might point to a message of social cohesion and equity which is often missing from the debate on GVA and economic performance. Even within our poorest region, West Wales and the Valleys, growth appears to have been less volatile than elsewhere – Cornwall and Isles of Scilly seem to fluctuate relative to the UK average far more than than West Wales and the Valleys, possibly a feature of the dominance of tourism in the former and its seasonal and annual variability.

Success in growing GVA also doesn’t always paint a picture of economic success in ways which we might want to encourage. This year’s 3 per cent growth in GVA doesn’t tell us about the vibrancy of the high street in Port Talbot, or the increasing wage packets on the streets of Aberystwyth.

Indeed, the cautionary tales from Ireland’s Celtic tiger or the story of Nigeria’s overnight 89% growth show us that it’s entirely possible to grow GVA relatively rapidly in a way which has a mixed impact on people’s everyday lives.

So instead, let’s talk about the kind of economy we have and would like to have in Wales and how we measure its success. The Welsh Government is currently drawing up an economic strategy for Wales and we have a chance to define what success and failure looks like. GVA should undoubtedly be an important indicator as part of this, but in my view it shouldn’t be the only indicator – and measures relating to economic wellbeing and resilience might also be important.

Wales has never lacked entrepreneurial zeal and our small businesses have always been an engine of growth and employment. But how do we develop these into medium-sized companies, the kind that are rooted in their communities, sell their products internationally and maintain sustainable growth like the renowned German mittelstand? How do we measure the successes of the policies we ought to put in place to support that in the future? GVA is not necessarily the most appropriate measure.

We can’t afford to rely on inward investment alone to build this vision. Instead, we need a reassessment of what growth, sustainability and resilience mean to the Welsh economy. We need a set of economic policy tools that support the full breadth of Welsh business, no matter their location or size. Perhaps when next year’s GVA figures are published, we’ll have a better understanding of its place in delivering the economy we’d like to see.

Matt Williams is Policy Adviser for FSB Wales.

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