Lee Waters AM introduces the Foundational Economy and why this world-leading initiative has the potential to change the way we think about our economy.
Over the last year we’ve been concentrating on putting into practice some of the ideas that have been championed by parts of civil society to strengthen the foundations of our economy.
In his manifesto to become First Minister Mark Drakeford emphasised that his Government would nurture and grow the everyday parts of our economy, with a focus not just on the economic outputs but on the quality of people’s experience of everyday life.
My colleague Ken Skates set the direction for this new approach in the Welsh Government’s Economic Action Plan, with a recognition of the need to shift away from a sector approach to economic development to one focused on place – making the communities we live in stronger and more resilient. The plan places a greater emphasis on tackling inequality and signals a shift away from big grants to a ‘something for something’ relationship with business.
Of course we should continue to defend our tradable competitive economy but we must pay more attention to the foundations of our economies which locally delivers the goods and services that serve our everyday needs. The industries and firms that are there because people are there. The food we eat, the homes we live in, the energy we use and the care we receive: those basic services on which every citizen relies and which keep us safe, sound and civilised.
These aren’t small parts of our economy. Estimates suggest they account for four in ten jobs, and £1 in every three that we spend – and in some parts of Wales represent the bulk of activity.
They are also critical to our wellbeing, because the interruption of their supply undermines safe and civilised life, but they are also more resilient to external economic shocks. Even if a change in the global economy tips the attitude of a large multinational company against investing in Wales, the foundational economy remains. And nurturing it is within our power.
We don’t simply want to grow these parts of the economy, we want to disrupt them – to change and improve the ways they work. Too often the Foundational Economy is dismissed as being characterised by low skill and poor productivity and therefore undeserving of attention. I want to challenge that. In reconnecting our local economies with the people who live there, and using what we already have to greater effect, we can reshape the way local economies work.
Rather than seeing this part of the economy as a backwater I want to explore how can improve it, for example how we can apply Artificial Intelligence (AI) and digital innovation to improve productivity and user experience in these sectors, and crucially, how we promote a culture of Fair Work. We don’t want more of the same, we want better. An important part of that is considering how we can upskill people through job progression.
A national level approach
To do this we have to view and value these activities anew. This demands a more sophisticated understanding of the way the real economy works and inter-relates. We don’t simply have one economy, we have multiple economies. And Government has a role in nurturing this eco-system of loosely coupled and inter-connected parts through creating alliances.
Wales is now a part of a movement that is taking place in cities and regions across the world – in Barcelona the city region is developing a strategic plan for foundational basics, in Austria their Trades Union Congress (TUC) has a foundational campaign under the slogan “good life for all”
But Wales is the first country in the world to adopt the foundational economy approach at a national level.
Our first step is ‘Experimenting’ with our Foundational Economy Challenge Fund. There is no exact template we can lift and shift to support Welsh communities. The Fund is to trial different approaches, develop a strong Community of Practice, an ‘Alliance for Change’ that will stimulate debate and help spread and scale learning on what works.
The Fund’s budget of £1.5 million, originally agreed as part of a budget agreement with Plaid Cymru, was increased to £4.5 million as a result of significant interest and quality of applications we received.
As a result we’ve been able to support 52 innovative projects across Wales, from food and social care, to construction and regeneration, and from applicants in the public, private and third sectors.
These sit alongside projects in the the Arfor innovation fund, also agreed with Plaid Cymru as part of a budget agreement. These schemes, focused on supporting the Welsh language though the local economy fit comfortably within the foundational economy approach. Indeed, the foundational economy approach should help deliver our target of 1 million Welsh speakers and allow our Welsh speaking communities to thrive by providing good quality work locally.
Pan-Wales pilot projects
Of the 52 experimental trials some are exciting and risky, others are more mundane, but all all worthwhile.
For example, we are backing Circular Economy Wales to look at adapting the Sardinian Sardex model for Wales. This new “currency” tries to embed co-operation and trust into local economies and build relationships between businesses that can help them in the long run. The system also enables wealth and skills to be retained locally. I know from my experience that businesses in Llanelli often operate in complete isolation from other local businesses that have complementary skills and strengths, and I hope this project might be a way to help break down those barriers.
Project Skyline, across Treherbert, Ynysowen, and Caerau in the Rhondda Valley is looking at the potential of community transfer of public land. Building on a model from Scotland, The Green Valleys CIC want to transform this community’s relationship with its environment, and unlock the potential of the surrounding land to generate revenue through forestry, tourism and green energy. This project aims to explore the ways in which we can make the most of the public land and provide income to rural communities, drawing on successful work in this field in Scotland.
Cwmni Cymunedol Bro Ffestiniog, an umbrella social enterprise in Blaenau Ffestiniog, are also being supported to employ a full time Community Connector, who will support the organisation to develop businesses in the areas of community tourism, renewable energy and digital media – all with the aim of increasing good employment locally and cut down on commuting miles. They will also develop the approach with the intention of adopting a similar community enterprise model elsewhere in Wales.
From the private sector, we’re supporting Mon Shellfish to work with their local college to develop new products with a longer shelf life – increasing their ability to meet the strict hygiene requirements of schools and hospitals. The CYFLE shared apprenticeship scheme in Carmarthenshire is creating structured opportunities for proper work experience in the construction sector, and Gower Gas & Oil are providing placements for people who fall between gaps in education and employment. There are also a number of projects designed to help small firms win work from large public sector organisations and social landlords.
In social care, a project to develop the co-operative provision of back office functions is being developed that we hope will ease the administrative burden on Wales’ network of small care providers. This will increase productivity in the sector, and allow organisations to focus on providing quality front line care.
In Gwynedd, a housing association is looking at using smart home technology to support domiciliary care, enabling residents to stay in their homes for longer. Similarly, Denbighshire are exploring the use of AI to support people in their homes and tackle loneliness and isolation.
I’m anxious to avoid 52 pilot projects that fizzle out. That’s why our second focus is on ‘spreading and scaling best practice’. Wales has led the way before, but pilot projects and good initiatives have petered out and failed to spread. That has to change.
The Foundational Economy agenda is a practical expression of the principles laid out in the Wellbeing of Future Generations Act. So I am working with the Public Service Boards (PSB) as key partners to help apply what works to all parts of Wales; and in parallel with the Future Generations Commissioner to reform the use of procurement.
Initially we will focus on spreading the success achieved by Preston Council in using local purchasing power to build local wealth. This is an area where Wales has pioneered, but has been overtaken by an English borough Council that has shown commendable leadership. It’s now time that we reclaim the leadership, and go further.
We are appointing a partner organisation to assist PSBs to maximise the social value of procurement. Together they will identify local providers for goods and services in their areas to maximise local spending. But we need to be smart. We must avoid a postcode ‘invoice counting’ approach, which may produce flattering figures but simply displaces spending from one deprived area to another. Instead we need to develop a ‘relational’ approach to procurement that emphasises supporting grounded firms across the whole supply chain and throughout Wales.
Although we’ll start with spreading the lessons from taking a progressive approach to procurement, the foundational economy agenda is far wider than local purchasing. This is reflected in the diversity of the projects we’re supporting through the Foundational Economy Challenge Fund. The big test we face in this venture is to closely monitor the trials being undertaken and to spot successes that can be scaled quickly. This will not be easy.
‘Building the road as we travel’
To give us the best chance of success we need to work across Government, and to that end I have now created a cross-departmental delivery board in the Welsh Government with the Finance Minister Rebecca Evans.
We don’t have a fully worked out plan, instead we are, as the Basques put it, ‘building the road as we travel’. We need the honesty to admit that we don’t have a fully worked out blueprint at this stage, and the courage to adopt an experimental approach. Some of our trials will succeed, and others will not, but there can be value in failure – so long as we learn from it. Our intention is to track and capture the emerging learning in an Enabling Plan for the Foundational Economy.
The third pillar of our approach is crucial – supporting ‘grounded firms’, building the so-called ‘missing middle’, and aggregating local demand to help do so.
My aim is to increase the number of firms rooted in their local economies, including micro firms, Small and Medium Enterprises (SMEs), social enterprises, co-ops and community interest groups, which in the tradable sectors are capable of selling outside Wales, but have decision making grounded in our communities.
Too often growing Welsh firms are lost to us in a succession of ownership change. Through our Development Bank, and through Business Wales, we are already doing a lot to build and retain firms in Wales. And I’m working with a sub-group of our Ministerial Advisory Board to see what more we can do as we design our next generation of business support services, and I’ve created a sub-group of the Valleys Taskforce led by Josh Miles of the Federation of Small Businesses, to see what more we can do to support SMEs in the Valleys to take forward the ‘Foundational Economy’ approach.
Our primary emphasis is on action, but this agenda presents a policy challenge too. Inevitably, given that we are the first country to adopt the Foundational Economy at a national level, we are innovating as we go. The approach throws up policy tensions as well as delivery challenges, and we are working these through one at a time.
Good progress has been made so far, but as we implement this new approach, it is demanding new relationships and new ways of working within and across Government, as well as between Government, businesses and communities.
The structural challenges of de-industrialisation many of our communities have faced over the last forty years have deep roots. This is not a ‘silver bullet’ to those issues, but it is an important part of the re-building work that needs to be done – alongside stronger transport infrastructure, enhanced skills support and effective digital connectivity – to make our local economies more resilient for the future. It can be a progressive response to many of the underlying issues that drove people to vote the way they did in the EU referendum of 2016.
The Welsh Government is kick-starting change. But the dividend will only come at scale if we have alliances for change. We must see co-ordinated working across departments in government, and between public bodies, and from civil society.
That’s why I’m glad that the IWA are actively working in this area, alongside other work being undertaken by the Foundational Economy Wales network, the Bevan Foundation, the TUC and the Federation of Small Businesses.
We’re seeing a real will from inside and outside of Government to make this work and push the boundaries of what we can do.
We will need input from every corner of Wales to ensure that we’re able to change the way in which the Foundational Economy works in Wales, for the good of everyone who lives and works here.
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