Other parties’ economic policies do not address the structural problems Wales faces, argues Mike Hedges AM.

The Conservatives’ economic strategy is to cut the Welsh government’s income while increasing expenditure. This would be more credible if they produced a balanced budget.

Reform’s policy appears similar but with substantial tax cuts for the very rich and unrealistic savings.

The Plaid Cymru economic strategy is to give everyone everything they ask for and ask the rest of the British taxpayers to pay for it.

The Welsh economy has problems, many of them structural. The Welsh economy is performing poorly compared to the rest of Great Britain and has done for many years. Gross Value Added per head in Wales is approximately three-quarters of the UK figure, the second lowest of the UK countries and English regions.

London had the highest GVA per head, followed by the Southeast of England. Regions like the Northeast and Northern Ireland have GVA  closer to Wales. This highlights the economic disparity between different regions and nations of the UK, with London and the Southeast being much wealthier than the other parts.

The economic differences between regions, such as those observed in the UK’s GVA per head, can be attributed to a variety of factors:

Industrial Structure: Regions may specialize in different industries, with some focusing on high-value sectors like finance and technology, which exist in London, while others may have a greater proportion of lower-value industries such as tourism. In Wales, we have lost nearly all our higher-paying coal mining, metal production and manufacturing jobs.

Investment Levels: Higher levels of investment in infrastructure, education, and business can lead to greater economic growth. London, for example, benefits from significant investment but Cambridge and Bristol also benefit from high investment.

Workforce Skills: Areas with a more skilled workforce tend to attract higher-paying jobs, which contributes to higher GVA per head. This underlines the crucial role universities play in economic development as well as providing high paid employment.

Economic Policy: Government policies can affect regional development through investment in local services. However, if companies must be bribed to come, they almost certainly will not stay long.

Geographical Factors: Proximity to markets and connectivity can influence economic activity. The development of fast broadband reduces the need for proximity to markets, which we see, for example, with computer games manufacturing in Dundee.

Historical Factors: Historical industrial bases can shape the current economic landscape. When industries decline it is important that replacement employment is created. The movement of government departments such as he DVLA to Swansea boosted the economy.

These factors listed above interplay in complex ways to create the economic landscape leading to disparities in wealth and development across different regions. Understanding these can help in formulating policies aimed at reducing regional economic disparities.

Wales has a greater proportion of its population working in manufacturing, public administration, health and social services, and agriculture. Wales has a smaller proportion of its workforce in ICT, real estate activities, administrative and support services, professional, scientific and technical activities, arts, and entertainment than the UK, and especially London and the Southeast of England. All of these have above average pay levels.

The shortage of employment in higher paid sectors such as ICT and professional, scientific, and technical activities is one of the causes of a lower Gross Domestic Product and GVA. Successful economies have a mix of inward investment from international companies and locally developed companies.

Major universities are very important to developing the economy. The key growth areas of life sciences and ICT are important to successful economies. These can grow out of university research and grow into major companies. There are examples of this throughout Europe and North America.

Examples of companies starting as SMEs and then growing into large companies are Hewlett Packard founded by Bill Hewlett and David Packard in a one-car garage in Palo Alto, and Google which started as  a research project in 1996 by Larry Page and Sergey Brin, two  PhD students at Stanford University.  Grand Theft Auto began from humble origins at Scottish developer DMA Design.

Continuing to have a search for the ‘golden bullet’ of economic development has not worked. There have been successes and failures with each strategy, but not enough successes – apart from the relocation of government departments and agencies. We need to learn from successes such as Admiral in Wales and successes in other part of Europe. Building advanced factories, even giving them a new name such as Technium, does not work.

Actions

Five key actions are needed:

• Produce a strategy to increase ICT employment in Wales via inward investment and growing Welsh firms.
• Produce a strategy to increase life science employment in Wales via inward investment and growing Welsh firms.
• Negotiate with the Westminster government the relocation of UK government services, with employment at all levels, to Wales.
• Hold a summit followed by an action plan with the universities in Wales on developing companies from university research.
• Set a target that each year Welsh GDP will increase by 1% compared to the UK and plan accordingly.

Mike Hedges is the Senedd Member for Swansea East and a former Leader of Swansea Council.

Image: Mike Hedges. Author: Steve Cushen, licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.