As we wait with baited breath for a decision on the M4 so-called relief road, much has been made of the unforgivable madness of driving the road through the Gwent Levels. The damage to the environment likely to be caused by the new road is substantial and well argued; it is shameful that the Welsh Government (apparently committed to Future Generations…) appears to have forgotten its statutory responsibility to protect the environment.
The economic arguments don’t add up either. Much has been made of the need for inward investment and the vital role of the new road. This is a fixation with the failed economic mantra of the 1960s, reflecting both the paucity of ideas coming from the Welsh Government and an astonishing lack of contemporary economic development policies. The big, job-creating footloose employers of the past simply no longer exist; to suggest that they do is the economics of make-believe. A Welsh Government press release in June this year was extremely revealing – 53 inward investment projects supported by the Welsh Government created just over 3000 “new” jobs, which in turn was a 20% increase on the year before.
Investment is taking place – on the eastern side of the Severn Bridge. Take a drive along the M49 and observe the amount of new building taking place, especially of distribution depots. As part of this, a new junction is already under construction – courtesy of Highways England – to allow access. This development, a potential M4 relief road and toll free bridge means that the whole of south and west Wales is comfortably within a one day HGV return journey – so why bother to set up anything in Wales?
Sponsors of the new road might like to consider research on the effect of new roads. In 2014 The Economist reported research published by the University of California which found that GDP (measured locally) for areas linked to a new road declined by almost a fifth compared to areas that were not connected. Output shrank because goods could now flow in easily and quickly from the more advanced areas, consequently displacing local products. The upshot is obvious. New roads have the effect of sapping, rather than invigorating, the poorer areas that the road is supposed to benefit.
Traditional economic theory identifies regional weakness as locational and in this theory, Wales’ relative isolation is the fundamental economic problem, it therefore follows that transport links to the outside world, such as the M4, are the answer. Perversely, lessons from Europe, and indeed around the world, have shown that isolation is often an advantage. Many of the most successful European economies are on the fringe of the continent; Norway, Denmark, Sweden and Finland all have high GDP per capita together with a high standard of living. Interestingly, according to the IMF World Economic Outlook 2019, Ireland has the sixth highest GDP per capita in the world (a little less than Norway and Iceland, somewhat more than the USA), a lesson both in financial crisis recovery and growth, and this from a country once regarded as one of the poorest in Europe.
Why is this so? The contemporary approach to economic development associated with the American academic Michael Porter, recognises that paradoxically, the most enduring competitive advantages in a global economy are local. Geographic isolation is actually an advantage. The upshot is that economic development is essentially internal and that successful local firms go on to compete on a global scale. Consequently, the role of individual firms and the appropriate economic setting is fundamental to internal development and requires the best possible environment within which firms can be created, organised, managed and grown.
The role of local firms, new or existing, within this environment is crucial; they drive domestic rivalry and the consequent competitive advantage, which in turn lead to the creation of new businesses to create new competitors. Porter goes on to argue that local invention, innovation and entrepreneurship are at the heart of national advantage, what looks like chance in new business creation actually reflects appropriate, dynamic local economies.
For individual firms to develop and flourish, the economy requires a strong sophisticated and demanding home market with an international outlook. Businesses are sensitive to the demands of their closest customers, thus home demand is fundamental in driving competition. Particular emphasis is thus placed on home demand as the driving force to upgrade, innovate and compete. Pressure is brought to bear by local consumers on local firms to ensure they are innovative and responsive to changes, leading to strong competition among firms. Demand by industrial organisations within the local supply chain and the potential for joint developments that are difficult to copy by firms outside the local area is of particular importance.
A healthy local economy with sophisticated and demanding buyers, specialisation in products based on innovation, differentiation and segmentation by firms within the local area is the driving force. Intense local competition spurs innovation and as a consequence, successful firms seek a wider global outlet.
The lesson is clear; to be part of the global dimension of modern economies and business practices what Wales needs is Welsh firms driven by a strong local market, that become global players.
The conclusion therefore is this. Upgrading faster and more reliable means of transport out of Wales militates against high levels of domestic competition and the consequent successful development of local firms able ultimately to compete on a global scale. But that requires twenty first century thinking – I won’t hold my breath.
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