Where is Wales? in need of

reinvention

Julie Froud, Adam Leaver,

Sukhdev Johal, Karel Williams

manchestercapitalism.co.uk

first report for ESRC project with

Federation of Small Businesses (Wales)

When Was Wales?

• Knowledge needs a sense of time and place; in Wales, turn to historians not social scists e.g. Gwyn Alf Williams (1985) whose perceptions have the same framing quality as Edward Said for post colonial Middle East:

Wales is not/never was a separate polity; defined itself in relation to England

Wales is now/ an invention of recent date; a people that has constantly reinvented itself to meet new problems; on industrial capitalism “no tradition offered any answer, they had to find their own”

• When was Wales? Written in mid 80s against the background of Thatcherism, deindustrialisation and the miners strike in the background;

• How would we rework in 2014 at another turning point? As anargumentfor renewal and reinvention

Where is Wales?

• Using standard metrics like GVA , Wales is just another economically laggard region, like the NE and others in England

• But Wales is in a different place; as Holtham’s “lean to economy”; disadvantaged by disconnects ie missing mittelstand + awkward topography which divides into sub-regions

• And the time is highly specific: at a structural turning point with the dismantling of a redistributive social settlement with bi partisan consensus on austerity as Wales recovers from recession

• First two sections of this presentation about the specifics of time and place; then note how Welsh gov. policies do not engage those specifics; before turning in the next two sections to argue the case for focusing policy on grounded firms + local obligations; finally note some complications and practical difficulties in this gestalt flip

Regional GVA per head compared to London in 1989 and 2009

(expressed as a percentage share of London's GVA per head. Source: ONS)

53

58 5760

5961

64

59

54

61

46

5048

51 49

54

61

53

43

58

0

10

20

30

40

50

60

70

80

90

100

North East NorthWest

Yorks &Humber

EastMidlands

WestMidlands

East London South East SouthWest

Wales Scotland

Re

gio

na

l GV

A p

er

he

ad

as

a p

erc

en

t o

f Lo

nd

on

GV

A (

%) 1989

2009

(1) Wales as a place:multiple economic disconnects

Missing mittelstand,micro firms + branch plants

• Wales’ obvious structural economic peculiarity? the missing Mittelstand with only 2,000 enterprises employing 50 -250; not unique, like other peripheral regions eg Scotland

• Dumb bell distribution of firm size in Wales (as in UK); 1/3rd of Welsh employ in micro firms employing less than 2 and with low turnover = largely labour only artisans vs 40% of employment in enterprises employing 250 or more i.e. large factories, call centres etc

• Missing middle indicates (a) non Welsh supply chains for global PLCs eg Ford, Tata and the rest with branch + legacy plants in the corridors leading out of Wales (b) financialization = exit strategies for local SME owners, leaving adjunct branches eg tinopolis will follow Gocompare, Halo and Rachel’s Dairy

Table 4: Average turnover and employment by size of firm

UK Wales UK Wales UK Wales

Average

turnover per

enterprise

Average

turnover per

enterprise

Average

number of

employees

per

enterprise

Average

number of

employees

per

enterprise

Average

turnover per

employee

Average

turnover per

employee

£ £ No. No. No. No.

2003 Micro (0 - 9) 94,975 79,845 1.8 1.8 53,907 44,479

Small (10 - 49) 1,565,873 1,110,926 20 19 79,014 58,513

Medium (50 - 249) 9,156,163 5,299,672 99 66 92,661 80,095

Large (250 +) 124,419,426 24,886,965 1,364 236 91,245 105,326

TOTAL 467,173 413,368 5.9 5.4 79,063 76,299

2013 Micro (0 - 9) 88,084 78,800 1.6 1.7 56,038 47,670

Small (10 - 49) 2,118,899 1,431,183 20 19 107,971 76,244

Medium (50 - 249) 12,785,189 6,768,275 98 65 129,929 104,586

Large (250 +) 203,919,649 46,379,660 1,442 256 141,373 180,833

TOTAL 520,957 526,932 4.8 4.7 108,354 111,486

Source: StatWales

An economy of corridors,without benefit of agglomeration

• Topography i.e. mountains in the middle; hence two

corridors Newport/Cardiff and Wrexham/Flint;

• Wales is connected but in the wrong kind of way i.e. by a

fast road out of Wales; cefn gwlad/ fro gymraeg in rural west

has little connection with the Rest of Wales and miserable per

cap performance on GVA

• No big Welsh agglomeration + absence of any major urban

centre of affluence; Cardiff + Newport are smaller + poorer

<£22k GVA per cap; not high GVA like Edinburgh, Glasgow and

Aberdeen £30-36k GVA which match Swindon or Milton

Keynes;

Welsh economic system or statistical artefact ?

• Welsh economy = both statistical aggregate and artefact

produced by adding everything behind political boundaries.

• Wales is a kind of polity; territory with representative

institutions (albeit with one permanent party of government

in the Assembly which reinforces the post democratic

tendency and the Cardiff centring of administration)

• But it is an economy of disconnects; supply side

characteristics + topography = this is not an economic system

whose internal characteristics and connections would

spontaneously distribute, retain or generate prosperity

(2) Wales in the present:the end of a redistributive settlement

Wales (+ rest of UK) in hard times:cyclical, political + structural

• Cyclically, recovering from the post 2008 recession.• Politically: less than half way through a damaging

programme of public expenditure cuts with cross party Westminster consensus on austerity; after autumn statement IFS calculates £55bn of cuts to come on top of £ £35 billn achieved; this implies “a fundamental reimagining of the role of the state” + questions over ring fencing of health, education + pensions.

• Structurally: the dismantling of the new Speenhamlandcreated by combining American style labour markets spreading low pay + European style social protections subventing wages; 30 years have shifted balance between tax paying and benefit claiming households so it is hard to raise taxes and easier to cut benefits; late 70s 25% of non retired households get more in benefits now nearly 40%

Wales is politically vulnerable:subsidy dependent

• Wales is amongst the most heavily subsidised regions if we compare all households (retired and active) across the regions, on taxes paid vs benefits received,

• This ONS calculation is incomplete but indicative: only 55% of taxes can be allocated to households + expenditure on roads, defence and environment is excluded

• Economically flatters London which pays taxes on a GDP swollen by inflows from the provinces.

• But politically indicates the extreme vulnerability of Wales to political and structural pressures for benefit cuts + end of ring fencing when a redistributive settlement is being abolished

Exhibit 2: Total regional household income, taxes raised, spending and net outcome in 2011-12

Original

income

(plus) Cash

benefits

(plus)

Benefits in

kind

(minus) All

taxes

Final

income

Net gain or

(loss) all

benefits

minus taxes

£bill. £bill. £bill. £bill. £bill. £bill.

North East 28.1 7.7 7.5 11.5 31.7 3.7

North West 82.6 17.9 19.8 34.0 86.3 3.7

Yorks & Humber 59.6 12.9 15.3 23.8 64.0 4.4

East Midlands 57.7 10.3 12.5 22.6 57.9 0.2

West Midlands 60.8 13.5 15.2 24.3 65.1 4.4

East 85.4 12.7 16.1 34.0 80.2 -5.2

London 131.3 17.6 24.3 49.1 124.1 -7.2

South East 129.0 19.5 24.7 51.9 121.3 -7.7

South West 68.5 13.5 15.4 27.7 69.6 1.2

Wales 32.4 7.9 8.8 12.8 36.4 3.9

Scotland 72.9 13.3 15.0 28.6 72.7 -0.2

All Households 808.0 146.9 174.6 320.4 809.2 1.2

Source: ONS

Notes: The underlying study does not distinguish between income through employment from

the State or the private sector. Approximately 55% of taxes are directly allocated to households.

Government spend on military and civil defence, roads, justice, environment, foreign aid etc are excluded.

The underlying methodology assigns taxes and benefits to households where there is a

robust conceptual basis for allocation.

Note 2: The underlying data includes all households. The North East has lower economically active rates

and the lower tax takes reflect lower original income.

Note 3: Low income households are spread thinly across the UK and not specifically in one region

Note 4: Tax includes direct, indirect and intermediate taxes. Tax rate is calculated as a percent of disposable income

which is original income plus cash benefits

Note 5: Includes economically active and non-active households

All households ranked by Government Office Region (average per household)

(3) Welsh gov. economic policy: not engaging specifics

Official economic policy:underdeveloped and scattered

• WG’s brief is health and education; it has no programmatic economic policy eg nothing like Re-industrialising Scotland (2013)

• Welsh economic policy is scattered all over the place

specialist reports on sectors with consensual aims + worthy recommendations e.g. Micro Business Group Report (2012) or the Manufacturing Supply Chain Demand Study

single institution recommendations; eg finance for industry as a “ bolt on” in Dylan Jones Evans report pro Development Bank for Wales to replace the present underachieving Finance Wales.

• WG practice mixes old habits with (half understood) new industrial policy language

eg encouraging inward investment though the WDA is long gone

list of 9 key sectors of future including life sciences, “ anchor firms” and “regionally important firms”

The romance of FDI:(vs amazon warehouse)

• Welsh government boasts of proactive success in attracting record FDI: counts benefits by listing (a) jobs without wages data (b) projects including M & A and property investment © no net calculation after subsidy or liabilities

• Romance because the advantage is with the FDI investor not Wales: FDI often comes at cost to the tax payer because mobile investors are

offered hidden subsidies, tolerance of tax avoidance etc High quality FDI in life sciences or IT will generally cluster in Cambridge

or the M11 corridor, leaving Wales pitching for the rest Will FDI bring well paid jobs? recent Welsh success is in Amazon

warehouse, Jersey Marine at £6.50 an hour, with casualization around agency work etc

• Symptomatic of not having thought things through in any area egrelevance of building supply chains in a corridor economy oe egabsence of Welsh brands related to exit strategies for mittelstandowners

business friendly = “what more can we do for you?”

• Welsh Government ministers (like their Westminster counterparts) want association with grand projects which make the TV regional news eg Edwina Hart at Pinewood’s Wentloogstudios; Swansea bay as the next photo opportunity

• Glossing over the closure of established plants eg Murco refinery or Avana bakery with promises of advice and training for the disemployed and a little local investment;

• Also not pausing for thought on how many large corporates are doing very little for little for Wales eg sobering conclusion of the 2012 ming supply chain report that “ welsh based FDI based companies lack the means and authority to innovate” (p 113)

• What (more) can we do for you?“ is the Welsh Government’s business friendly question for big corporates; no record of WG asking “what have you done for us”, entirely accepting the prevailing definition of CSR as a discretionary matter for the board

(3) Changing the frame(a) grounded firms in Wales

grounded firms: tied to places

• Some firms are tied to place, by a variable combination of (a) stable ownership (b) management cadre/local human capital (c) regional supply chain or district capability (d) distribution or network requirements

• As in Sweden: major companies with international subsidiaries named after small home towns like Husqvarna (pop. 21k) or Sandvik (23k); or niche players like Lyungby Maskin (15k) or majors sustaining branches like Volvo press at Olofstrom (7k) in Blekinge

• Ownership doesn’t ground firms in Wales; eg Welsh Global Ultimate Owner Cos (highest tier in chain has office in Wales) are a small rag bag; led by utilities (2 = foreign owned) + one recent success with a couple of family owned retail firms which haven’t sold out (Days + Brains) plus a freak i.e. Amerisur

ungrounded firmsin endless restructuring • Endless restructuring by ungrounded firms in Wales: moveable employment in footloose global and financialized

companies like Tata and Ford with global options who can pull out e.g. Sony Bridgend did in 2005 leaving only a shadow of an operation which once employed 4,000

precarious employment in medium sized companies in food processing like Two Sisters over the Avana closure who survive by responding with branch closures to active order switching by retailers

pass the parcel employment in SME’s where founders sell and the company passes fairly quickly through a succession of corporate owners with different strategic priorities and management spread sheets e.g. Rachel’s Dairy has been successively American and French owned, Halo foods went via Leeds to Raisio Finland

foundational firms:tied by networks and branches

• Foundational orgns and firms ( public sector and for profits) are grounded by the branches and networks which deliver goods and services to local population

• 30% of Welsh employment is in public sector and para statedelivering tax funded health, education and welfare free at point of use

• Plus another 10% is in private sector pipe and cable utilities, transport food processing and distribution etc.; more than 10% in thousands of micro businesses which feed off local opportunity

• A handful of middling SMEs who behave as grounded are often exposed via ownership e.g. Ifor Williams HQd at Corwenemploying 350 as UK’s leading trailer manufacturer with on site galvanizing etc has a Mabchester registered office and is owned vis Jersey

(4) Changing the frame (b) local obligations

“ raise the ask” of all larger grounded firms

• “The ask” = like social licensing of mining companies: grounded firm behaviours on employment and sourcing are a

primary lever for generating lWelsh benefits; leverage ex 40% of employ base and a large proportion of output and purchasing power

all larger grounded firms (public and private) should attend to what they put back in return for local demand: not just local authorities but universities and hospitals plus supermarkets and utilities in the private sector

vary community obligations/ what they put back as relevant ( not just construction) e.g. supermarket regional supply on fair contract terms; NHS payment of living wages. Investment of LA pension fund

• Do more aggressively what we are already half heartedly doing in pubic procurement as eg recommended in 2012 micro business task group

Re-focus on the mundaneas broader opportunity

• Open up broader strategic possibilities for social innovation

For welfare measures beyond GDP + growth: a civilized society delivers a basket of mundane goods to all citizens; cf growth benefits upper income households (top 20% vs bottom 20% of non retired:

For new kinds of intervention to rectify specific local deficiencies in supply of foundational goods and services (local problems of eg housing + more general problems eg of adult care)

For financing foundational assets in a post shareholder value lower return economy because social responsibility has its costs for large corporates and for public organisations; Dwr Cymru as a prototype vs retail banks targeting 15% return on capital

(5) Implications: economic and political

A new economic vision is not a paradigm shift• Proposal is for a gestalt flip not a paradigm shift ( seeing

something different not replacing one sci framework with another eg Ptolemy to Copernicus)

• Paradigm shift is not desirable or possible in economic policy as long as there are distinct domains of policy :

• (1) visionary economic policy: eg post ‘79 vision of the benefits of a state planned world of competn and markets cf our different vision of experiment with social obligation + improved foundational supply

• (2) crisis economic policy; eg post 2008 non standard monetary policies of low interest rates and QE to keep things going (combined with fiscal austerity in the UK) = large scale experiments with uncertain outcomes + unintended consequences

• (3) domain of everyday policy; eg road improvement, school building, paying for the eds and meds salaries etc with much log rolling + pork barrel politics

Our econ. policy challenge:(a) connect the domains • The failure of Osborne + the austerity consensus = crisis policies

undermining the everyday; or the B of E non standard policies boosting the financial markets not the real economy; all of it compounding crisis in ways which require a vision of local and regional gov. doing something more than implementing cuts

• The intellectual challenge for Welsh progressives is to bring the different policy domains into harmony eg can we bring the visionary + the everyday into mutual support:

The everyday is important in itself eg the importance of details of tax policy or transport improvement like railways for désenclavement in the Gwent valleys; but detail needs vision eg of futility of a race to the bottom

Changing the vision can increase the leverage of auxiliary policies egfinance for business via a development bank needs SME building firms with local gov contracts or food processors whose profits will not be taken away by supermarkets.

The vision is of everyday benefits which need specifying eg what could and should universities do for the local community

Political preconditions: new coalition + discourse

• Need a political coalition for change to overcome resistance + opposition (a) led by regional and local government whose electoral mandate gives legitimacy with (b) civil society of employers + orged. labour “raising the ask”

• Plus a discourse to challenge the assumptions of structural reform and competition by highlighting Keynes “roundabout repercussions” ( chap 19 of GT):

We need a new discourse about social floors under competition because job creation via low wages and casualization creates an unsustainable bill for wage subvention

We need a new discourse about a level playing field for big and small business because post 1979 “business friendly” government create a double standard: large, footloose corporations (Amazon, Starbucks etc) are privileged vs SMEs have to pay taxes and fill in the forms plus pay at the toll booths that big business and organised money sets up

Our econ policy challenge: (b) build on the new localist imaginary

• Building on unofficial reports, inquiries and polemics which make a new localist argument about how Wales could and should make better use of what remains at local and sub regional level:

• eg How Wales can Win (2012) the nef report for Wales TUC ( 2013), Adam Price on the Fro Gymraeg for Arfor (2013) and the Deep Place report on Tredegar (2014)

• By challenging the assumptions of structural reform and competition + highlighting what Keynes called “roundabout repercussions” ( chap 19 of GT):

• By a new discourse about social floors under competition because job creation via low wages and casualization creates an unsustainable bill for wage subvention

• By a new discourse about a level playing field for big and small business because post 1979 “business friendly” government create a double standard: large, footloose corporations (Amazon, Starbucks etc) are privileged vs SMEs have to pay taxes and fill in the forms plus pay at the toll booths that big business and organised money sets up

Our political challenge:a political coalition for change?

• Where is Wales? in need of economic reinvention with the end of the redistributive settlement

• But that depends on a political coalition for change to overcome inertia as much as resistance + opposition

regional and local government to “press the ask”because only an electoral mandate gives legitimacy with

civil society of employers + orged. labour to “raise the ask”

• How can intellectuals encourage the Welsh political classes to act? and motivate civil society to press for change?

for policy insiders a recipe: enough vision to be strategic, enough continuity not to be frightening;

for outsiders a rhetoric: about doing more of the same purposively

Acknowledgements

• This presentation was first given at a research seminar at WISERD, Cardiff University, on December 9th 2014

• It reports preliminary research for a project on Welsh economic policy jointly funded by the ESRC and the FSB (Wales) under an IAA award held at the University of Manchester

• The authors gratefully acknowledge the advice and Assistance of the FSB’s Iestyn Davies and Rachel Bowen; while emphasising this is a preliminary report by independent researchers which does not represent the policy of the FSB or the views of its officers