Sunday 16 September 2012

What's wrong with Wales?

The Welsh economy has been in decline for the last 4 years. Not only that Wales has been hit hard by the recession since 2008, it also seems to be caught in a vicious cycle. Since inward investment is difficult to come by, economic activity in general is low in Wales which makes it an unattractive place for any investor to be. On top of that, the economic policy of the Welsh Government does not help. The Labour government under Carwin Jones has mainly one objective: to keep the public sector as large as possible since it is public sector jobs that form the main electoral pool for his party, and because public sector employment is often the only mechanism to address structural unemployment in some areas with low economic activity.

The result of this devastating policy and the long term structural problems of the Welsh economy are reflected in the economic figures. In almost all indices of economic activity Wales lags behind all other regions, whilst it leads the four home nations in almost all statistics of government expenditure. Government spending in Wales as a share of GDP has been 57.4% in 2007/8. The comparable figure for London (with plenty of government activity!) was 37%. That's a 20 percentage point gap between the two areas.

But look more closely and the figures reveal an even more shocking picture. Wales also lags behind in terms of productivity. The gross added value in Wales compared to the whole of the UK (100) is 74, leaving Wales way behind any other region as one of the least productive of the UK.

How difficult it is to break out of this vicious cycle of enormous government expenditure and low economic activity has sparked a lively discussion amongst economists and policy makers. The only person who seems to show little interest in tackling the deep seated problems of Wales is the First Minister himself, Carwin Jones, who explained in a recent interview with the BBC that, I paraphrase, everything is just peachy and, once Wales will have internet broadband in 2015, she will pull ahead of the other home nations (at 43 mins into the interview).

The poor performance of Carwin Jones as a First Minister and his government is widely acknowledged amongst commentators and reveals one fact above all. They still have no strategy how to pull Wales out of this mess which they have permitted to develop over the last 12 years in power. There are plenty of possible solutions. None of them however appeal to Labour politicians since they would damage their long term electoral strategy in Wales. The most attractive way out of the situation would of course be to shrink the public sector and to free up governmental expenditure to invest in the upgrading of infrastructure in Wales. There can be no doubt that the current ratio of governmental spending stifles private investment and economic activity. The state in Wales has become the Leviathan that devours all else.

The other way to improve Wales' economic future would be to stop introducing petty legislation through the Welsh Assembly. Since the Labour dominated Welsh Assembly has been created it has either idled its way through the decade or engaged in matters, at best, peripheral to the state of the economy, at worst, detrimental to its growth prospects. Part of the explanation is that Welsh Assembly members of all parties are of fairly low calibre. Any politician with political talent tries to get a Welsh seat for the House of Commons rather than wasting their time in the Welsh Assembly. With a severely restricted talent tool for the Welsh Assembly, debates are often either painfully partisan and tribal, or focussed on politicians' pet projects such as the organ donor legislation or legislation to make it compulsory to install sprinkler systems in newly built houses. Needless to say that neither of those are of any consequence to the Welsh economy.

The main response of the Welsh Government so far has been to blame others for the state of Wales. Carwin Jones and his Labour ministers are habitually pointing the finger at Westminster when they are criticised for their poor performance. It is London, so their story goes, who should shoulder the blame. The statistics however belie this argument as a cheap attempt to avoid taking responsibility for their own actions. Wales receives much more from the treasury than it puts into the coffers of the chancellor. In 2006/7, according to official figures, £19.3 billion were raised in taxes and duties in Wales, whilst governmental spending reached £28.2 bn in the same year. Which makes Wales a net recipient of public money.

It seems that as long as the Welsh Government is in denial about its own responsibility for the devastating economic situation in Wales and as long as the Labour party clings to the mirage that public sector employment is the only way to tackle socio-economic deprivation, little will change in the land of Glyndwr.


  1. From a Welshman living in England, 'danke'. I have followed the self inflicted travails of my fellow countrymen for many years. The attitude is, I'm afraid, that it's always someone else’s fault. Coming top of the world league tables for obesity and bottom for education is the fault of food companies and a competitive school environment. The solution to deal with poor exam results is to drop SAT's tests, so nobody finds out how bad it is until it's too lat; and of course chose an exam board which promises really easy exams and lots of C' grades without working too hard.
    The result is, from my own experience, that a high proportion of middle managers in Welsh industry are of such low calibre their intention is to mark time, keep their heads down, not make meaningful decisions and stay in the job for a couple of years. The loss of job is then not by sacking due to incompetence but by redundancy as the company cannot generate a profit.
    Any form of competitive emphasis is talked down in the assembly. The assembly members, have jobs for lives as long as they don't vote for anything which would mean their constituents making an effort. Keep them voting with free stuff. Prescriptions, travel, tertiary education. Start "initiatives" to combat social and health problems which are led by famous rugby players. More bureaucracy

  2. Chris,

    many thanks for your thoughtful comments. Yes, I agree. There is a strong tendency to point the finger at others. And as you mentioned, many in the economic and political elite are lacking the ability to 'think big'. Aspirations are often discouraged, rather than encouraged. I lived in Swansea for a couple of years and came across what Dylan Thomas said about Swansea, which may just be true for so much of our attitudes towards achievements: 'The graveyard of ambition'. Let's think about how to change this!

  3. Well of course we have reason to blame others it normally England that shut down the factories, and the jobs then again of course you can go back to Germany many of us are stuck here. My old man came from Gera.