Stick to the knitting

The private sector response to the Welsh Government’s Economic Renewal Programme consultation demonstrates remarkable unanimity. Representations from CBI Wales, the Institute of Directors, Venture Wales, the South Wales Chamber, and the IWA sing from a very similar hymn sheet. The foremost demand is for the Government to start focusing its efforts almost exclusively on policies and objectives that drive economic development. There is also wide agreement that the business support function, currently being delivered by FS4B, the so-called ‘flexible support for business’, should be drastically slimmed down and its main services delivered by an arms-length, private sector-led, delivery model.

Why? Because the private sector genuinely believes that a focus on economic growth offers the only solution for Wales’s social problems. And the private sector remains unconvinced that FS4B’s overly bureaucratic business support model will be able to deliver the step change in competitiveness that Wales needs to improve prosperity levels.

A related theme is that the civil service must move away from its current concentration on strategy, process and compliance and focus instead on delivering outcomes. In particular, it must stop producing overweening economic strategies like Winning Wales (2001), and Wales: A Vibrant Economy (2005). In the decade since the Assembly and Welsh Government were established, about £5 billion has been spent on ‘economic development’ but with no discernible improvement in economic performance. Indeed, little evidence is produced by the Welsh Government on the allocation of economic development expenditure, and even less evidence on the effectiveness of this spend.

The internal performance measures used were undemanding and almost meaningless. Moreover, they were used to assess activities rather than outcomes. It seems that economic policy is being driven more by politics than economics.  The lack of transparency in Welsh Government expenditure means that an independent ‘Office for Budget Responsibility’ along the lines of the new Whitehall body is needed in Wales even more than the UK. One response to the calls openly for a Business Champion to be appointed inside the government to ensure transparency and greater focus on economic development issues.

At the same time as improving delivery mechanisms right across the public sector, the Welsh Government needs to maximise the use of the economic levers at its disposal to support economic growth. This requires a focus on:

• Streamlining procurement and planning.
• Reducing regulation.
• Developing important sectors like the creative industries and renewables.
• Investing in infrastructure.
• Providing more resources for education and skills.

The call to radically improve procurement practices reflects Wales’s reputation as the most difficult place in the UK for public procurement. To make it more effective, and to support the private sector, procurement should be integrated into other business support functions with the aim of capturing long-term benefits.  But to make headway, and to more effectively support small companies, the Welsh Government will need to raise the skills of staff working in this area. On public procurement there is a call to radically improve procurement practices by integrating procurement with other business support functions to capture long-term benefits and more effectively support small companies in Wales.

Another crucial area is skills and innovation. Like the Economic Development and Transport, the Education department needs to be streamlined and given a new objective to allow businesses direct access to funding for skills development. The Welsh Government needs to involve private firms in determining investment spending in skills for their areas and sectors. Currently there is a lack of innovative thinking in skills development and independent evaluations of previous policies are almost non-existent. Where evaluations have been undertaken the results have often been unduly ‘influenced’ by the government or not been made available to outside scrutiny.

To focus economic development spending on the drivers of innovation and business competitiveness there is a suggestion that we remodel financial assistance along the lines of the Innovation Voucher Scheme. This would allow demand-led collaboration between the private sector and universities. Wales should also consider using Business Rates and Single Investment Fund monies to encourage re-investment by Welsh firms and to foster innovation. A ‘Welsh business embassy’ in London is called for to promote Welsh exports, encourage venture capital and attract inward investment.

Finally, every organisation is pleading for the Government to invest in 21^st Century infrastructure and transport networks. Extensive research by the OECD and World Bank has highlighted the direct impact that infrastructure investment has on economic growth. The cancellation or postponement of major projects like the new M4 and the Heads of the Valleys Road means that devolution has failed to create the competitive business environment that Wales desperately needs. Even more worrying, current transport plans are not focused on connecting Welsh companies to their major markets.

The investment needed to enhance our future competitiveness and underpin business growth will inevitably require partnership with the private sector.  Hence the Welsh Government’s antipathy to Public Private Partnerships and the exclusion of private sector deliverers from the health service in Wales is not only exasperating for Welsh companies but it directly undermines the private sector.

Finally, every organisation is pleading for the government to invest in the modern infrastructure and transport networks that Wales needs to create a competitive business environment. There is broad agreement that the scale of capital investment needed to underpin business growth will require partnership with the private sector.  Hence the Welsh Government’s antipathy to Public Private Partnerships and the exclusion of private sector deliverers from the health service in Wales is exasperating for Welsh companies and directly undermines the private sector.

In the current period of austerity, the government’s antipathy to private finance is also self defeating. The scale of the investment required to make Wales the ‘best place to do business’ will inevitably require private partnerships. At the same time government will need to eschew its peripheral spending policies – particularly untargeted universal benefits like free prescriptions. They are expensive and unaffordable in the present climate. Moreover, they have been ineffective in solving social problems. Instead, the focus must be on collaborating with the private and third sectors to grow the economy.

The fourth term of the Assembly is in prospect and Wales does not need another term spent on strategy, policy, consultation papers and legislation instead of effective service delivery, greater engagement with the private sector and downsizing the bureaucracy. The Welsh Government should be positioning Wales to make more effective use of the increase in public funding when the current period of austerity ends in, say, 2015. We should use the current period to rebalance the economy and refocus the £16 billion block grant. The expenditure largesse of recent years has allowed government to avoid making hard choices and assessing difficult priorities.

In summary, business advice is eschew the usual lengthy strategy document that strives to be all things to all people. Produce instead a short sharp action plan which encourages us to stick to the knitting, to stop inventing new things on which to spend money, and make growing the economy the overarching aim of the economic renewal programme.

In this action plan the Welsh Government should outline exactly how its objectives are going to be delivered. The private sector want to see what activities the government is going to prioritise, what it will spend money on and what it will not, and in particular which policies and initiatives will be scrapped. There is unanimity that at the very least FS4B needs to be radically slimmed down and handed over to a private sector-led organisation, providing an arms-length delivery model outside the bureaucracy.

Without taking bold, imaginative steps in the direction indicated by these private sector organisations, everyone agrees that the Economic Recovery Plan will have no credibility. People are genuinely worried that in ten years time there will be no economic legacy on which to build. In fact, this is the main complaint of the private sector: why, is there so little to show in terms of economic performance after a decade of the Welsh Government, and well over £100 billion of public expenditure?