Development agency questionable on inward investment

Dr John Ball questions the evidence that the WDA and inward investment have been successful for Wales

Dr John Ball is a former lecturer in economics at Swansea University and an expert on regional policy. This article was prompted by a piece ran on ClickonWales last week by Dr Daniel Evans (http://www.clickonwales.org/2015/04/the-false-promises-of-fdi/) An earlier version version of this contribution appeared in the Western Mail in September 2012.

Visitors to St Paul’s Cathedral will see alongside the grave of Christopher Wren the words “If you seek his monument, look around you.”

These words could equally apply to Wales in a different context. “If you seek a monument to inward investment, look around you.” An economy in long term decline lacking in growth, skills and innovation, measured in terms of high unemployment and abject failure. The present parlous state of the economy is directly attributable to the failed and discredited policy of reliance on inward investment and placing such a policy at the centre of future economic development would be an act of incredible folly.

Since its inception in 1934, regional policy had two clear aims. The first, reflecting its genesis in the thirties, was the creation of employment and the second, diversification of the inherited industrial structure to achieve self sustaining growth. Success with this second aim would then of course no longer require an active policy; the problem has been that the first aim has been the easiest to address and the one that – worryingly – remains the idée fixe.

Much has been made of the success of the former Welsh Development Agency in attracting inward investment. However if inward investment and the WDA were so spectacularly successful, where is the evidence?

In an investigation in 1998, the Welsh Affairs Committee looked at industry in Wales and looked at the role of inward investment. I presented written evidence to that investigation and it is worthwhile re-visiting. In 1997 as part of research conducted for a master’s degree at Swansea Business School, the WDA was asked to provide a list of inward investment projects for the period 1986-1996. The list provided 208 ‘new’ projects which it was claimed had created 38000 jobs and safeguarded 25000 others. A further request for these firms to be identified individually resulted in a list of all firms known to the agency, irrespective of start date which totalled 391. A yet further request resulted in the names of the firms for the first list (the period 1986-1996) eventually being provided. A comparison of the two lists showed just 95 firms appeared on both lists. When asked to explain this anomaly, the WDA showed admirable imagination in suggesting three reasons. The first was that the original list of 208 “new” projects comprised “announcements” and the agency had no way of knowing which, if any, had come to fruition. The second explanation was even more imaginative, that some projects may have been announced in one name but gone ahead under another and that the Agency had assumed that the projects had progressed. Finally, that some projects might have gone ahead under the names of British subsidiaries. It was clear that claims of success by the WDA were at best questionable and at worst highly inaccurate, especially when other published statistics are examined. The (then) Council of Welsh Training and Enterprise Councils, commissioned research on the south Wales corridor and that report made reference to a claim by the WDA of no less than 434 inward investment projects in this geographic area alone for the five years from 1991 to 1996.

Of those inward investment organisations that completed the subsequent Business School research questionnaire, fully 30 per cent were actually acquisitions of or joint venture with existing Welsh firms yet were nevertheless claimed by the Agency as inward investment successes.

In its 1998 report the Committee expressed concern not only with the accuracy of these statistics, but with what the WDA actually termed as inward investment. Although traditionally seen as investment from overseas; any UK based business counts, as does expansion by any organisation already established in Wales and in some circumstances, even a Welsh owned company expanding its operations.

Supporters of inward investment have pointed to the advantages of the policy. New industries provide employment, develop new skills, have a strong multiplier effect through local purchasing and provide a pay premium. These advantages have not been realised.

Success was measured by the single criterion of employment, even though this reduced the possibility of success with the second aim of policy; self sustaining growth. Many organisations attracted to Wales did diversify the industrial base but did little to encourage the technical, managerial, supplier or skill base needed for self sustaining growth. Products were at the end of their life cycles, the skills required were basic, not transferable and pay consequently low. If inward investment has been a success, where is the pool of educated, skilled employees left in the wake of investors leaving and being swept up by new incoming investors?  In addition, the theory is that local businesses supply goods and services, thus increasing the effectiveness of the original investment. In reality, supplier contact and buying remained at the business’ headquarters and utilised existing suppliers based outside Wales.

These weaknesses apply equally to inward investment in financial services and retailing. In reality, success with financial services is based on call centres, themselves at the end of their life cycle, skills and progression are limited and organisation specific, part time work and minimum wage is the norm and by their very nature there are no local suppliers and thus no multiplier. This argument applies even more so to the retail giants being so actively pursued by local authorities. Part time hours, minimum wage and an even greater negative multiplier effect with the destruction of traditional shopping centres.

I am not suggesting the complete abandonment of a policy of inward investment. If properly assessed, such investment can be an important conduit for development, but future investment must be based on modern skills, modern processes and products and services at the beginning of their life cycles – and having the courage not to accept employment of any type at any cost. Yet again it needs to be said – no successful economy was ever built on external ownership. Is anybody out there listening?

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