Economic Renewal – cheers come later

When governments signal in advance a major change of direction in policy, it is not unnatural that expectations are raised. The risk is always that those expectations are not met. Thus it was yesterday with the Welsh Government’s announcement of a new direction in its programme for economic renewal.

All the right noises were made. The Deputy First Minister, Ieuan Wyn Jones, was keen to reassure his audience at the Panasonic factory in Cardiff, that the government had been listening to the business sector, which has been fairly comprehensively critical of economic development policy for the best part of the last decade.

On the face of it he was announcing what business (and the IWA) had, unanimously, asked for – namely, “that economic renewal will see a fundamental shift from direct and generic support for companies to a focus on creating the right environment for businesses to succeed.” That is, better infrastructure – roads, rail and next generation broadband – a streamlined planning system, and more money for research and development

Out go grants, in come loans. Out goes the Single Investment Fund, with half its money going instead to support infrastructure investment, and half going to tackle the six chosen sectors that the Government wants to target – creative industries, ICT, energy and environment, advanced material and manufacturing, life sciences, and financial and professional services.

So, why was the audience at this policy launch so subdued? Why were they not cheering in the aisles? The answer may lie in the fact that this is a policy document that supposedly presages substantial funding changes but which contains not a single number. And businessmen and businesswomen like numbers. They live by them day in day out.

Here was an audience wanting desperately to believe, but nervous that this might be a replay of the rhetoric/reality gap that has plagued too many government strategies. That nervousness will persist until more meat can be put on the rhetorical bones.

For example, business will want to see just how much money will be released from the Single Investment Fund for infrastructure, and what difference it is intended to make. If it is to be around £50m – as some of my IWA colleagues estimate – it will not go far across roads, rail and next generation broadband. That would be only the first of many unanswered questions that will have to wait on further announcements and reviews.

Surprisingly, what was also missing was not just detail on changes to government expenditure but a stronger expression of a desire to involve the private sector in delivering for government. For instance, the millions that a strapped Welsh Government can make available for infrastructure, could be dwarfed by the scale of private capital that could be available to help with housing or transport. Since the Welsh Government is already working on one such scheme on the housing front – a housing bond – it was surprising that the opportunity to emphasise it as an exemplar was lost.

There is a desperate wish in the private sector that this new direction on the economic front will not turn out to be something equivalent to the Welsh Government’s famed Spatial Plan, that has had such difficulty in turning itself into the useful tool it was meant to be.

The issues that will decide the ultimate verdict surround detail, implementation and accountability. In the next few months the business audience will want to see real details about the streamlining of planning. Jane Davidson, the Welsh Environment Minister, who spoke in support yesterday, talked of finding the ‘policy sweet spot’ between the demands of climate change and the construction industry, but let’s face it many business people are happy to decry any planning system that does not give them carte blanche.

Businesses will also want to see whether the proposed ‘independent sector panels’ are really going to be private-sector led or steered by officials. The new Digital Wales and Creative Wales Boards will be a first test. There is also that promise of a reduction in bureaucracy in public sector procurement. Will that really produce a reduction in the civil service headcount? And what of other reductions? What ultimate headcount do Ministers foresee in the Department of Economy and Transport, now that ‘we believe our role to be an enabler of growth rather than a direct deliverer of services to individual companies? Even a hint of the scale of reduction would have done more than anything yesterday to establish the credibility government intentions with its economically harassed audience.

Accountability will be a final test. The IWA’s research has demonstrated conclusively just how much transparency and accountability was lost when the industrial quangos went to the stake. Our team, like others has had immense difficulty in finding out just where the money on economic development currently goes. The Deputy First Minister would take a huge step forward if he were to commit to publishing an annual report on the workings of his department that detailed all programme expenditures and, most importantly, outcomes.

There seemed to me to be two other significant unaddressed issues. First, if it is true that ‘the culture of direct business support through grants has run its course’ (i.e. been unsuccessful) what does this say about official and political capacity to evaluate success or failure rather sooner than has been done in this case. Second, if success in this field requires a whole government approach, perhaps we should not forget that that also involves the UK, who hold by far the most important levers.

We certainly need the more focused policies than yesterday’s report  promised, but we also need a little more debate about how UK government policy affects economic changes outside the south east of England.