Development agency questionable on inward investment

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

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?

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.

10 thoughts on “Development agency questionable on inward investment

  1. A memory trip for me JB as during the period you have covered I was heavily involved with the WDA and WO in my capacity as a Director of a German MN negotiating company’s investment into North Wales (manufacturing).

    At the time, I did observe some worrying aspects that you’ve highlighted in the context of our due diligence process including some bizarre infighting within WDA’s senior personnel ranks.

    In fairness to them they did have many schemes that were both visionary and revolutionary that helped many Welsh SME’s get a foothold in export markets and sadly that aspect no longer features in WG’s management of Welsh economic development.

    In my case ‘History’ intervened – The Berlin Wall fell down and my Board cancelled the Welsh project wanting to use money on asset stripping what was East Germany at the time. I refused recall to Germany, I resigned and my life took a different turn… (No regrets)!

  2. All you have really demonstrated here is that the record keeping of the WDA was unfit for purpose – anybody who has spent more than about 5 minutes considering their activities should come to that conclusion for nowt! All the broken ‘development agencies’ seemed to use similar flawed statistics to try and justify their existence when most of them were pretty close to useless but that has more to do with the fact that they were largely staffed by risk-averse public sector types with no business experience. That fate also overtook the WDA though in its early days (1980s…) it was a very effective organisation for putting private sector investors in touch with mentors from the private sector and it made things happen. As did the Mid Wales Rural Development Board before it.

    This doesn’t mean that FDI is a failed concept which seems to be the extrapolation you are trying to make. Correlation is not causation – except in academia an alarming amount of the time…

    As I pointed out before, FDI did not fail Wales. Wales, particularly the WG and its advisors from academia, failed investors from wherever they came!

    Just out of curiosity, has anybody ever managed to work out the value of the property portfolio the WDA managed to accumulate over the years? And where it all is now?

  3. Dr Ball is quite right that certain sorts of inward investment do relatively little for the economy and it is not worth subsidising them to any great extent. it is equally true that the traditional focus on ‘jobs’ led to the subsidisation of such low-grade investment in the past and was often a waste or of strictly temporary benefit. I am sure he is right too that the WDA exaggerated its successes. If we take GVA per head as a guide, the worst period of decline in Wales standing relative to the rest of the UK was in the late eighties and 1990s, when the WDA was in its pomp. Welsh relative GVA per head has broadly stabilised in the post-devolution era, albeit at a dismal level.
    While acknowledging the soundness of Dr Ball’s critique, it is important not to draw the wrong lessons. Yes we want to encourage indigenous businesses and develop as much technical and commercial know-how in Wales as possible. It is unlikely that we can do that entirely from our own resources; sometimes we shall need to import expertise or technology to complement our local endowments. That is likely to mean the right sort of foreign investment. Moreover identifying the right needs and opportunities and putting people together with appropriate inducements is a function where a public agency could help. That agency is not the Welsh civil service – for a host of reasons. Some agency like the WDA is needed, whatever you call it. Developing successful businesses rooted in Wales is the objective but it cannot be done by being exclusively inward-looking. We have to learn the lessons of the past, many ably outlined by Dr Ball, but not burn the whole bed to kill the flea. i believe he would agree.

  4. For God’s sake, ” I am not suggesting ….’ Which translates as “Yes I am but I’m too gutless to say so”. Cake and Eat = The Bakery pays my salary.

    In the academic positioning of the Country of the Blind the clueless and sightless all become self styled “economists”. With “a plan”. And the rest of us facepalm.

    How many more years must this guff be recycled?

    Well, “I am not suggesting”!

  5. Only UKIP, the true party of England and Wales, can make major changes. They are the only party that understands small businesses, and will promote local economies. We are nearly at the point of no return, but a massive vote for UKIP will positively assist the English nation and the Welsh region.

  6. Those of us who have a firm understanding of the power and potential of free markets have always been sceptical of the whole notion of ‘regional policy,’ but, faced with the massive and too-long postponed transitional changes of the 1970s, 1980s, and early 1990s, simply doing nothing what was not an option.

    So it was, paradoxically, under the most pro-free market of British governments, under Margaret Thatcher, that regional policy in Wales reached its zenith. Although those then in charge of running regional policy were well aware of its limitations, they ran it fairly well. However, they were under no illusions: they always understood that what they were doing was more like battlefield surgery than long-term recuperation.

    The transitional period, the battlefield surgery phase, can probably be said to have ended in the 1990s: the 70-year decline in Welsh heavy industry was over, not least because many of those industries were gone and the others had been restructured. The problem is that nothing since then has taken its place. Wales never transitioned into anything.

    The only way to prosper is to build businesses that provide goods and services for which others are prepared to pay. There is absolutely no reason why Wales could not do this – indeed we have many natural competitive advantages – but we need to commit to building a true enterprise culture.

  7. Deary me Stephanie Brown! Even I am offended at your description of Wales as a region in the same sentence as you describe England as a nation!! Whilst people may entertain the idea that Wales isn’t/wasn’t until very recently a country or is a principality ad infinitum but I didn’t think there was anyone on this planet who would dispute that Wales is a nation.

  8. Fantastic article and expose.

    “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”

    This is precisely the issue. This of course all comes back to politics. ‘Jobs’, regardless of their longevity or quality, attract headlines and allow elites to present themselves as champions of the people. It is short termism at its worst.

    Dr Ball’s article also raises another central question which should accompany any analysis of Wales’ economic strategy and performance: where is the media?

    Why should it take the digging of one academic to expose the lies (and that’s what they are, lies) of such a massive public body? Doubtless the ‘achievements’ of the WDA were simply reported uncritically at the time. Part of Wales’ problem is that the horrendous decision making (and, let’s face it, corruption) of its political elites is simply not scrutinized.

  9. The argument of whether Wales is a region or a nation are significant not so much in the terms of individuals opinions, but in respect of how perceptions influence local and national policy. In practical terms for UK policy Wales remains a region having emerged notionally from being an occupied territory with the unification of law. But in the consciousness of those in power Wales remained a territory to be exploited and largely ignored the rest of the time. For most of UK’s population Wales is an irrelevance, where some people choose to continue to speak an anachronistic incomprehensible language that at best fosters resentment and sometimes paranoia.
    Welsh leadership working through the major national parties has always placed the interests of Wales in the context of the greater UK, and that means English, agenda, or in the case of Plaid Cymru shaped its policies through inherited idealisms. What it has not done is look at the potential of Wales and the opportunities to develop economically; learned from the experiences of similar states; and then developed a national strategy to advance the interests of Wales. It is a challenge for Wales for in real terms there are no real allies in UK. Scotland in large part mirrors England with wealth & power centred in Edinburgh, it is another Anglo-centric state with Gaelic being spoken in a few marginal areas where Gaelic immigrants conquered the indigenous British. Northern Ireland has its own political scene that has no commonality with Wales, and the political parties are closely linked either with the English establishment or political structures in Eire. So Wales is on its own.
    The natural resources are gone and the profits migrated to London, with almost no investment in Wales. So Wales finds itself marginalised and asset stripped.
    Wales has failed to capitalise on potential influence via expatriate Welsh communities. The Irish and the Zionist Jews invested considerable resources in developing identification with the homeland among their dispersed communities, and in the case of the Zionists this continues to prove to be very effective. Welsh nationalism, with its romantic idealism, has sought links with various other national movements across the Third World. Despite these efforts to build links, they are unproductive because, although the Palestinians and Venezuelans are happy for any suppoirt, they have neither the power nor the interest to reciprocate.
    Wales as an isolated and marginalised territory must be much more pragmatic about attracting inward investment and support. Other marginalised but successful territories like Taiwan and Israel are obvious candidates, even though some political aspects are challenging for Welsh nationalist idealism, which is often profoundly misinformed. Equally there is a need to reach out to expatriate Welsh communities in the Americas and Australia and New Zealand to foster greater identity with the Old Land, and to encourage decision makers and influencers to place Wales on the list for any inward investment / relocation opportunities. What Wales needs is hi-tech new industries that do not relay on vast flat space and a high developed physical infrastructure.
    The other problem is that UK politics has failed to provide a vision for the working class to invest in education and skills, and still too many people are not realising their potential. For Wales this is especially critical because it is only through a high performing workforce, better than the UK / EU average, can Wales expect to attract the industries it requires or develop its own industries.
    Ultimately Wales will not progress until it recognises that reliance on UK Plc to promote it is wholly misplaced. Wales is so far down the agenda that it never gets close to becoming important. Wales must take control of its own destiny, not through independence immediately, but by gathering up its resources to promote Wales as a place to do business across the globe. This means promotion activities run on a shoe-string independent of the UK / London based government organisations. The latest technology reduce the requirement of interventions by the machinery of state, and permit very effective low cost / scale activities to occur.
    The first step to doing this is to shift from being highly introspective and self-pitying, and progress to being outward looking, assertive and pragmatic. Once Wales achieves this, it’s identity will shift from being a subservient region to a nation can be achieved.

  10. SeaMor: i think you are in the majority on this one. In census returns and when on holiday the Welsh split on whether they call themselves British or Welsh. But they don’t call themselves English. The historian John Davies, who died recently, wrote: “After 400 years of Roman occupation, the Welsh forgot that they were not Roman. During over 700 years since Edward Ist’s conquest, they have never forgotten that they are not English.”

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