It’s the economy stupid

Since the inception of the National Assembly in 1999 the sad reality is that Scotland’s economic performance has moved closer to the UK average Wales, together with Northern Ireland, has continued to lag behind. Figures 1 and 2 do not make pleasant reading and may signal a wider malaise evidenced by the poor PISA results in education, and disquieting social trends such as increases in child poverty and teenage pregnancy.

Figure 1

Figure 2

Professor Kevin Morgan of Cardiff University is unequivocal about the economic outcome of devolution. Reviewing the National Assembly’s first decade in the Spring 2009 issue of the IWA’s journal Agenda, he declared:

“It is time to recognise devolution’s dirty little secret – there is no necessary economic dividend to political devolution”.

Whilst acknowledging that Westminster still holds the main economic levers and that everyone is subject to global events, he pointedly remarks that people in Wales were entitled to have expected more from the devolved government. Let’s reflect on Morgan’s view by considering a number of themes before arriving at a conclusion.

Creating a positive business environment: If the IWA’s first National Economy Conference, held in February 2010, was used as a proxy for the answer to whether an economic dividend had been delivered as a result of devolution, the answer would be a very loud ‘no’. It wasn’t just the torrent of depressing statistics but the unanimous conviction that the government had failed to deliver a coherent strategy. This was highlighted twelve months earlier by Professor Brian Morgan’s incisive critique about economic dynamism being frustrated by the Ministerial logjam, or ‘bureaucratic centralism’. A coherent economic strategy must be the absolute priority rather than opportunistically latching onto strategies associated with success.

The IWA’s response to the Welsh Government’s Economic Renewal consultation in 2010 was an indictment of its attempt to deliver an economic dividend in the decade since devolution. The IWA made very clear recommendations on how to improve the economy, especially the need for the private sector to play a far greater role in the delivery of economic development. This would mean a move away from the current Government’s ambivalence about the role of the private sector, which is preventing the effective application of business expertise. The culture of the civil service is one of ‘no risk, no ripples’, attaching greater importance to ‘process and not outcome’. Such a culture is inimical to the Welsh economy. The IWA report concluded that:

“The creation of one or more bodies, combined with outsourcing of certain delivery functions to private sector-led organisations, is central to the effective implementation of economic development strategies”.

In deliberations about the economic dividend, it must not be forgotten that a key policy divergence – the ‘Clear Red Water’ impulse – was the decision to abolish the economic development quangos in what amounted to a growing politicization of economic strategy in Wales. The ‘bonfire of the quangos’ rendered Wales the most state-centric of all devolved territories in the UK. This was a contributory factor to the lack of an economic dividend.

Transparency and accountability: Former First Minister Rhodri Morgan justified the ‘bonfire of the quangos’ by saying that “It will give us far more firepower … and less a distinction between policy and implementing it”. However, the apparent ‘Democratic Deficit’ has come back to haunt the Welsh Government. The two principal rationales for the mergers were increased accountability and greater efficiency. IWA Research Officer Stevie Upton’s research into the relationship between spend and performance arising from opaquely named funding streams revealed a lack of transparency and reduced accountability: “no annual reports, no reporting of spend by detailed programme, no external evaluation of the effectiveness of individual programmes”. Despite spending more per head than any other UK economic region on economic development, a raft of statistics – including competitiveness, GVA, R&D – place Wales at or near the bottom of UK rankings.

Sustainability: This is one area where the Welsh Government has diverged from Westminster. In May 2009, the Welsh Government published One Wales: One Planet, declaring sustainable development to be its central organising principle. It also requires all supporting bodies in Wales to commit to sustainable development. The likes of Jonathan Porritt have applauded Wales for it’s pro-active approach while others have wondered whether Wales has been over zealous compared with other countries.

Innovation: Innovation has a vital role to play in regional renewal and the potential to assist in delivering an economic dividend. On this there are two points. Firstly, a central pillar of the Welsh Government’s innovation strategy concentrated on developing Techniums throughout Wales. This policy has been substantially ‘watered down’ following a report from property management company DTZ, which found that the project cost of the network was at least £150 million. There was a lack of a clear set of objectives and targets for the network. Furthermore, DTZ were unable to source documentary evidence to confirm any robust project appraisal or business planning.

Secondly, Professor Dylan Jones-Evans, of the University of Wales, and Dr Gillian Bristow from Cardiff University reviewed the performance of the Welsh Government’s European Innovation Programme and found that only 17.9 per cent of it’s innovation programmes were targeted directly at supporting the private sector. Concluding their review, they suggested that there had to be a different approach to supporting innovation and not just repeating the same policy. This is a key finding when one considers that the Competitiveness and Innovation Programmes are meant to coincide with key aims within the Government’s Economic Renewal programme, including R&D and innovation.

Mutualism and social enterprise: Despite the growth of mutuals in housing as a result of stock transfer, one might have expected to see a stronger mutual sector in Wales after a decade of devolution. The potential for social enterprises to play a key role in, for example, Communities First Areas and in matters other than housing such as food, energy, finance and dignified elder care should have been nurtured from an early stage.

Procurement: The social and economic significance of procurement is high, while its political status is low. Yet it could be a powerful strategic driver of jobs, innovation and social justice. In the last decade the Welsh Government has not made the ‘step-change’ connection between the power of public spending in Wales and an indigenous economic dividend. This was acknowledged last year in the Welsh Government’s new strategy Economic Renewal – A New Direction. However, one has to wonder why it has taken ten years for this opportunity to be properly realised.

An economic dividend was one of the primary goals of devolution. But it has not been delivered. Paradoxically, if there is a positive that arises from this fact, it is merely that it coincides with a review of academic literature: devolution does not necessarily lead to an economic dividend. Some commentators suggest that in fact Wales has declined into ‘homogenous mediocrity’ whereby ‘Wales has simply become more equal in its poverty’. The Welsh ‘bonfire of the quangos’ was a retrograde step resulting in less accountability, less efficiency and poorer public debate.

The consequence was to make Wales more heavily ‘state-centric’. The policy failed to deliver a coherent, results driven economic development strategy and failed to engage effectively with the private and third sectors. Of the six themes considered here, the Welsh Government has only succeeded on one of them: sustainability.

Whilst raising economic prosperity levels is not the be-all or end-all, aspirations for improving the health service, achieving educational excellence and other social objectives will be much easier to achieve on the back of a competitive economy. Unless there is a step-change, the ‘dirty little secret’ will linger for the next decade. Whilst one can accept that devolution is a process and not an event, the Welsh Government needs to address the economic malaise, engage proactively with the private sector, and deliver.