Daniel Evans says the focus on foreign investment is undermining the Welsh economy.
The Welsh economy is once again performing badly. The Welsh news has a distinct groundhog day quality, such is the steady stream of horror stories about Wales’ desperate economic situation.
This is not a new problem. Wales has been one of the most impoverished regions of the UK (and indeed Western Europe) for much of the twentieth century. Sadly, this is unlikely to change any time soon.
The Welsh Labour government has increasingly focused on foreign direct investment (FDI) as its main solution to Wales’ problems). FDI is widely celebrated in Wales and generally seems to be viewed as a panacea to all our woes. This way of thinking seems to be accepted by all parties.
And why not? After all, the term investment conjures up images of raising people up, of improving things.
But this way of thinking fundamentally misunderstands capitalism. Wales’ persistent poverty is not an unfortunate accident, but is an inevitable and indeed a necessary feature of the capitalist system. As Calvin Jones brilliantly noted previously on clickonwales. In order to change, we first need a grasp of history and the nature of capitalist development. In particular, we need to understand Wales’ function within global capitalism.
Capitalism constantly seeks to discipline the workforce, to keep it pliant. One of the main ways that workers are kept in line is through what Marx calls the ‘industrial reserve army’ of unemployed workers. The existence of this huge pool of surplus labour allows capital to set the working conditions that it chooses. So we work hard and accept poor working conditions because we know we are easily replaceable, because the alternative is even worse. Viewed in this light, unemployment is not an unfortunate accident of austerity, but rather a necessary and desirable outcome of efficient capitalism
Capital’s inherent mobility means that firms are never tied to one particular region. Once they have squeezed as much profit as possible out of a region, they have the ability to move to new regions at a moment’s notice. Moving around rather than settling in a particular place may seem counter-productive, but it is vital to realise that the current model of capitalism is based on a short termist version of carpet bagging. This mobility means that FDI can be thought of as a wave breaking on the beach: investment washes over an area, bringing jobs and development (exemplified by ‘boom towns’). Yet this development is necessarily temporary: once the region is no longer profitable (perhaps labour may be cheaper in a different area, or perhaps workers are attempting to organise themselves and to demand better working conditions and therefore eating into profit), capital will flee, leaving behind devastated communities, the detritus and sediment left behind by the retreating wave.
Capitalism ultimately creates for itself a ‘reserve’ of places, in a fashion analogous to the aforementioned industrial reserve army of workers. So just as more workers than necessary are required (so that the reserve workers may be thrown into the breach when required, and so that existing workers’ wages can be suppressed), so there are more regions (i.e. concentrated pools of labour) than necessary available to capitalism. There will never be enough work to go around, and this is particularly the case in our post-industrial epoch.
These places which are left behind constitute what Richard Walker calls the lumpen geography of capitalism. The term ‘lumpen’ comes from Marx’s concept of the lumpen-proletariat, and refers to a condition of perpetual marginality and precariousness. In other words, the ‘precariat’ tend to be concentrated in certain regions.
Just as different workers perform different functions on the production line, different regions perform different functions within the larger mosaic of capitalist production. So capitalism in fact needs these depressed, undeveloped regions- they are not an accident, just like unemployment is not an accident.
Firms ‘investing’ in Wales can enforce the employment relation they choose: whereas in other regions they may potentially have had to deal with higher worker expectations and a less desperate workforce which demands better working conditions, in Wales everything is entirely on their terms. So ‘investor’ firms can pay workers less, they can hire and fire workers at will, and so on. The permanently low labour costs in Wales means firms can make more of a profit.
Logically, the jobs which are created in lumpen regions will almost always be unskilled or semi-skilled, on top of being necessarily temporary. Again, this is the case in Wales. What’s more, firms can keep coming back to Wales- they know that if they need to establish a branch plant there will always be cheap, compliant labour here. Wales’ ‘product’, its ‘unique selling point’ is precisely its desperation.
Lumpen regions compete against each other for FDI, for the ‘privilege of being struck by lightning’.
The establishment of the Welsh Assembly has given Wales a head start over, say, the North of England in this race to the bottom. Welsh politicians fall over themselves to attract this ‘investment’, offering lower land rates and other grants to investors. Wales’ ‘trade missions’ which claim to be ‘selling Wales to the world’ are essentially pimping Wales out, trumpeting how cheap its workforce is. One of the pillars of the Assembly Government’s plans to secure FDI is advertising the fact that salary costs of Welsh workers are 40% cheaper than the UK average
Where desperation is all pervasive, whoever secures these ‘jobs’ through ‘investment’ will necessarily win over the populace. This is why attracting FDI very much suits the Welsh Assembly. It does not matter that such investments are unwise. Mark Lang poses the question ‘why grow your local economy in a sustainable manner when you could just attract multinationals and create 2726 new jobs instead?’ The answer is simple: the desire to attract headlines and to maintain political control of Wales.
Whilst Wales’ stagnation is not good for the folk who live there, it is extremely virtuous for capitalism and for local political elites. As long as there is a vested interest in it remaining poor, Wales’ poverty will continue.
FDI is a false idol. The decision to invest in Wales is not benevolent, as portrayed in the press, but driven solely by profit. It is parasitic: firms come in, make a profit, then leave. They only stay if the Welsh government, desperate to avoid bad press, provides them with ridiculous subsidies from the public purse. It is imperative that we ask radical questions and interrogate the neo-liberal orthodoxy which has caused misery for much of the world’s population.
Quite so, ‘…. there is a vested interest in remaining poor, Wales’ poverty will continue’.
Ill-bred, under-educated, talentless youth roaming the streets while the parents relax at home drinking and smoking away the proceeds of their weekly welfare cheques.
Cardiff Bay rules okay!
Whilst capital is mobile so is labour, you don’t mention the counter impact of this. If people don’t choose to ‘get on their bikes’ then local supply quickly exceeds demand suppressing wage levels. Remember all those electricians and fitters who worked down the mines ? Well the smarter ones went out to work in Australia and are doing very nicely thankyou working in Australian heavy industry and running vineyards in the Barossa valley as a sideline.
I do agree that public subsidy to industry is counter productive. Too often, particularly here in Wales, economic development funding goes into basket case initiatives/enterprises that are flawed from the outset and wouldn’t get off the ground in a pure market. Let’s face it if you are of the calibre of one of our captains of industry or of a leading private equity executive you are unlikely to be found kicking your heels in somewhere like Pembrokeshire County Council’s Economic Development Unit ! Public bodies are inevitably going to have second rate players in this area so will always lose the game. Best thing in those circumstances is not to be in the game.
Government involvement in this field should stop at building communications infrastructure (including telecoms) that facilitates movement of people to work.
Interesting article, thank you.
Genuine question: How would you spend the FDI budget instead to achieve long term sustainable economic growth?
At Last!!!!
I congratulate Dr Evans on his contribution. I’m not going to comment at length, my views on the failings of FDI in Wales are well known and have been widely published. Indeed as long ago as 1996 the Western Mail published an article written by me entitled “How Inward Investment is Failing our Economy..” Not surprisingly it received considerable negative response, not least in a radio interview with Vincent Kane who attempted to rubbish my argument.
To paraphrase the words on Wren’s grave at St Paul’s Cathedral “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.”
The thinking percolates down to a council level. Tesco and M &S are seen as the primary engines of growth for Aberystwyth I suggest to the detriment of more sustainable long term jobs underpinned by a excellent (not withstanding ….) University and a body of dynamic of people in the area who if they had the infrastructure would start to create some quality jobs, rather 6.50 an hour for 12 hours a week at Screwfix.
Infrastructure is key.
Karen’s observations may raise a grimace of recognition and resonate with discussions around under-achievement and lack of ambition. Daniel’s Marxist critique of FDI is no more than just that. Wales lacks the funds to dig itself out of the current hole. For the foreseeable future it will rely on FDI so we better get better at it. Bring back the WDA and require Welsh Labour to issue a self-denying ordinance on interfering with business, with which they have no affinity. They have enough to do addressing Karen’s “talentless youth”.
Never having heard of WISERD, two conclusions about it are possible on the basis of this article: (1) someone really wanted a title to fit the acronym; (2) it must be an organisation dedicated to the revival of 19th century Marxian economics – a bit like a less benevolent version of CAMRA.
Yet, if one ignores its dated underlying assumptions, the article does make some good points. Above all, in an overpopulated world, a nation or region that relies solely on the provision of cheap labour to foreign investors is not going to prosper.
However it fails to go on to the complete conclusion, which is that the foreign investment should therefore be considered not as an end in itself but as a stepping stone in the development of an indigenous enterprise culture, which need not rely on cheap labour.
Foreign investment should therefore not be despised, because it is a useful first step – but only a first step. Without foreign investors, building an enterprise culture would be much harder – indeed, the Welsh economy would collapse further.
Wales wasted a century whinging about global ‘capitalism’ – a better strategy would be to emulate those nations which learned to use it.
I guess this is a problem in Scotland, and in Cornwall, as well as in Wales, and that lots of people here think that Wales should develop its own businesses, small, medium, and large. I tend to think so too. It’s difficult to avoid thinking that we are seen as a go-to place for pliant political administration, and appreciative cheap labour. Sadly, we are probably not alone; aren’t there a number of fdi firms in England too? Isn’t cheap labour just one of the criteria for fdi? I would ask what the other criteria are.
There are plenty of excellent teachers in Wales doing their best to educate young people. Post-sixteen training and education, and in-work skills development seem more patchy and fragile though. A willingness to exploit the young, and to devalue their potential doesn’t help restore the economy.
It is not every day I agree entirely with JWR but his final sentence summarises everything that needs to be said on this topic. After all, comrades, what are the alternatives: get our local capitalists to do everything the rest of the world is doing, unaided? Or lead a global proletarian revolution? Time to stop shadow-boxing and face reality.
Clive King
Or if you have a really refined sense of humour, try the Bath House Road scheme in Cardigan. Ceredigion did everything they could to force the scheme through even though at every step it was evident that the site had all sort of problems. Well, the super-duper market was meant to open in 2011 and as of 2015, they have even given up saying when they will stop waiting for the site to settle down. There is something distinctly odd about wanting to build a supermarket on a steep, unstable slope above a flood zone.
I trust the local sense of exasperation about this absurd approach does not settle down.
For me, the key paragraphs in JWR’s intervention are 3 and 4. FDI has often been portrayed as being the endgame which leaves Wales in a somewhat passive position vis-a-vis economic activity. The practical question is how does that investment get retained here and who would have custody of it? One option is that of the Welsh Treasury which will come online in 2018. Also Wales does not have a National Bank though there are a few commercial ones and the recommendation of a regional investment bank in the pipeline. That said, there is a great deal more thought that needs to be given to this idea, but it is, in essence, the right strategy.
JWR is also right to say that FDI should not be despised. It is easy to slip into a victim mindset when we are a poor nation and badly in need of investment. The difficulty with resenting FDI is that it easily slips into a resentment of our need for it. Unfortunately that is a form of self-hatred that can only be corrosive.
FDI worked well for Wales on paper between the mid 1980s and the mid 1990s. Presumably English companies come under foreign as well – they are certainly made to feel foreign in some parts of Wales.
It wasn’t FDI that failed Wales it was Wales that failed foreign investors because Wales could not give them the competitive environment in which to work they had been promised when they were lured here by the WDA.
Poor planning procedures, excessive red-tape, excessive interference from anti-capitalist groups like environmentalists, poor transport infrastructure, diabolically poor digital infrastructure, poor general and specialist education at all levels, pressure to embrace the dead Welsh language, poor availability of skilled staff, higher wages for skilled staff than they had been led to expect because they had to compete for labour with the bloated public sector, blah, blah… So many of them cut their losses and left. Right decision! They wised up but, overall, the public sector in Wales arguably never has…
It nearly worked but the plain fact is that Wales is not a competitive place to run a business and it never will be under current mismanagement and current mismanagement includes an alarming amount of the so-called specialist advice coming out of academia.
The failed unsustainable uncompetitive status quo in Wales does not favour capitalism it favours the unproductive snouts in the trough in the public sector, but only for as long as the English taxpayers choose to finance the style to which too many of them have become accustomed…
Hi all. Thanks for the comments: I’ll try to address some of the issues which have been raised.
Firstly, to Karen and Robin Lynne: I feel you have drawn the wrong conclusions from my article. The problem with lumpen regions such as Wales is not the lack of ambition/talent within the region. That is an argument about fecklessness which is usually applied to the ‘undeserving poor’ (i.e. those demonized for being on benefits) and extrapolated to a whole country. My point is exactly the opposite- people in Wales, just like Wales as a whole, is not poor because of any inherent ‘attitude problem’ but because our continuing poverty is beneficial to capitalism and to local political elites. When your function within the world is precisely to remain poor, so that you may be exploited again and again, this is an accident of historical uneven development which has been perpetuated by politics, rather than a character defect.
Brian: I get your point, but I would argue precisely the opposite. Lumpen regions remain poor and people remain there precisely because they are not mobile. Individual people may emigrate, sure, but most of the communities are stuck and dependent. In theory perhaps it may be possible for large swathes of whole regions to uproot and move- this has happened in Ireland and in the South of Italy in the past- but this will never be enough to change the character of the region. If anything, the people who move are the young, something which will depress the region even further. So my point is that you can’t extrapolate from a few individuals. Walker in fact argues that labour in these regions is held hostage by global capitalism- people stay precisely because they are desperate and they think (correctly) that low paid employment (but employment nonetheless) will be just around the corner. Little do they know that any jobs that move in will be low skilled and temporary. But of course people who need to put food on the table cannot really afford to think long term, they do not have that luxury.
JWR: Thanks for your comments. Far from being outdated, my article is a very condensed and simplified version of the work of very contemporary human geographers such as David Harvey, Richard Walker etc That is, capitalists and socialists alike agree about the nature of capitalism and uneven regional development- they disagree about what is to be done.
On one level I agree with your point about an ‘enterprise culture’. I obviously disagree that Wales’ poverty is caused by a lack of ambition or entrepreneurial spirit: it is caused by structural weaknesses in its infrastructure and its position within the global market. Where I agree is that Wales has to begin to stand on its own two feet, but this first requires recognizing the barriers that stand in the way of this. First and foremost we must realise that Wales is, as Calvin Jones has pointed out, a dependent region. This is of course a legacy of colonialism and our uneven relationship with England. This is a fact that Labour historians and politicians will not accept. This dependency is exemplified by our horrendous transport links- George Monbiot has pointed out that only in former colonies do all the railways run like rivers to the metropole. This is the case in Wales where the rail network was (largely) created to serve the movement of raw materials from Wales to England. So now we have a situation whereby it is easy for people to travel West to East from Wales to England, but impossible for people in West Wales to get to North Wales without having to go to England. It is a ludicrous hangover and one which has to be corrected.
You can have the best enterprise culture in the world but without a proper rail, road or communications infrastructure you will get nowhere. The only way to (eventually- it will take decades) to reverse dependency is to invest in infrastructure and education.
The main thrust of my original article, but which was cut out of the final draft, was that the Labour party lack the political will to invest in these long term, unglamorous investments. Since they are obsessed with retaining their political hegemony in Wales at all costs, they instead will always seek short termist vote winning, headline friendly investments (low quality work or white elephants such as the moto track in Gwent or Wylfa). This short termism is desperately damaging to Wales’ economy and natural environment but it allows the Labour party and their allies in the Welsh media to perpetuate the narrative that they are creating jobs (true, but the small print is these jobs are awful and temporary) and that anyone who contests their plans (i.e., Plaid), therefore hates working class people, doesn’t want to bring prosperity to local people etc etc (witness their behaviour over Wylfa).