If you trawl through various government publications, you sometimes come across a real gem of a paper which should have considerably wider readership than the narrow number of policymakers to whom it was originally intended.
One such paper is “Understanding productivity variations between Wales and the rest of the UK”, from the Assembly’s Economic Research Programme. Yes, it sounds extremely academic but has some important findings which very few of us were actually aware of, and I am surprised that its results have not been discussed at length by the Assembly, especially its Enterprise Committee, given their potential impact on the future economic wellbeing of this nation.
By using London as the leading benchmark region in terms of productivity (measured as the output per employee), the study shows that there is a productivity gap of around 42% between Wales and the capital region. Whilst the size of this gap reflects the fact that London is well ahead of all the other UK regions, the difference is still considerably worse than for the next worst regions i.e. the North East and the South West are both 33% behind London with Scotland being 27% behind.
Many will find this gap in productivity shocking. Whilst Wales might be not expected to be doing as well as some parts of the UK, the gap between our economy and other regions is considerable. This is despite having the ‘devolution dividend’ in extra money from the Treasury and European funding at our disposal. The fact that the new Department of Enterprise, Innovation and Networks will, in 2007-2008, spend £1.5 billion (or 10 per cent) of the Assembly’s budget every year should concentrate a few politicians’ minds as to where this funding should be spent.
The paper has a few pointers to how the productivity gap with the rest of the UK should be reduced. The first is to improve capital investment within Wales, which would reduce the gap with London by 9 per cent. This is clearly something that can be improved, especially within our poorer regions. For example, unlike the first programme of European funding through Objective 1, there could, and should, be greater focus on upgrading the capital infrastructure of businesses within the majority of Wales. Many firms would like to have cutting edge equipment within their premises and it is up to the Assembly Government – through innovative funding programmes that mix loan and grant schemes – to provide the right type of financing that will enable our manufacturing sector to upgrade their ability to compete effectively. This should be accompanied by investment in under-capitalised sectors such as hotels and catering, building on the excellent support provided by the now defunct Wales Tourist Board through its grant scheme.
The paper also points out that the approach to innovation support by the Assembly Government has been misplaced. It suggests that the adoption and dissemination, of innovation in terms of process technologies is probably more important to productivity growth than the generation and adoption of leading-edge innovation. However, the latter is where Wales has tended to concentrate most of its innovation support during the last eight years, which may explain some of the problems within our business sector. Imagine if only half of the £60million spent on Techniums had instead been invested in improving the technological processes of around 100 key indigenous firms to make a long term and sustainable difference to their competitive position.
Perhaps the greatest worry is the finding that productivity in Wales is higher than it should be as a result of previous investment by overseas multinationals. Inward investors have increased the quality of management and work practices across the region, especially in those indigenous businesses within their supply chains, many of which had no choice but to raise their game to get valuable contracts from the big players. It also demonstrates that despite its detractors, the WDA did make a difference to Wales during the 1980s and 1990s. There is an enormous task ahead of its successor, International Business Wales, in improving our economy through attracting the right type of investor in the face of enormous competition from other regions and it clearly needs the support to do so.
Improving productivity remains one of the key challenges for Welsh businesses and that there needs to be a greater focus by policymakers on this area over the next few years. Like many others, I hope that the Assembly will work closely alongside our business sector to ensure that they can help develop any successful intervention tools that will make a real difference to their business and, in turn, improve the wellbeing of Wales as a whole.
One such paper is “Understanding productivity variations between Wales and the rest of the UK”, from the Assembly’s Economic Research Programme. Yes, it sounds extremely academic but has some important findings which very few of us were actually aware of, and I am surprised that its results have not been discussed at length by the Assembly, especially its Enterprise Committee, given their potential impact on the future economic wellbeing of this nation.
By using London as the leading benchmark region in terms of productivity (measured as the output per employee), the study shows that there is a productivity gap of around 42% between Wales and the capital region. Whilst the size of this gap reflects the fact that London is well ahead of all the other UK regions, the difference is still considerably worse than for the next worst regions i.e. the North East and the South West are both 33% behind London with Scotland being 27% behind.
Many will find this gap in productivity shocking. Whilst Wales might be not expected to be doing as well as some parts of the UK, the gap between our economy and other regions is considerable. This is despite having the ‘devolution dividend’ in extra money from the Treasury and European funding at our disposal. The fact that the new Department of Enterprise, Innovation and Networks will, in 2007-2008, spend £1.5 billion (or 10 per cent) of the Assembly’s budget every year should concentrate a few politicians’ minds as to where this funding should be spent.
The paper has a few pointers to how the productivity gap with the rest of the UK should be reduced. The first is to improve capital investment within Wales, which would reduce the gap with London by 9 per cent. This is clearly something that can be improved, especially within our poorer regions. For example, unlike the first programme of European funding through Objective 1, there could, and should, be greater focus on upgrading the capital infrastructure of businesses within the majority of Wales. Many firms would like to have cutting edge equipment within their premises and it is up to the Assembly Government – through innovative funding programmes that mix loan and grant schemes – to provide the right type of financing that will enable our manufacturing sector to upgrade their ability to compete effectively. This should be accompanied by investment in under-capitalised sectors such as hotels and catering, building on the excellent support provided by the now defunct Wales Tourist Board through its grant scheme.
The paper also points out that the approach to innovation support by the Assembly Government has been misplaced. It suggests that the adoption and dissemination, of innovation in terms of process technologies is probably more important to productivity growth than the generation and adoption of leading-edge innovation. However, the latter is where Wales has tended to concentrate most of its innovation support during the last eight years, which may explain some of the problems within our business sector. Imagine if only half of the £60million spent on Techniums had instead been invested in improving the technological processes of around 100 key indigenous firms to make a long term and sustainable difference to their competitive position.
Perhaps the greatest worry is the finding that productivity in Wales is higher than it should be as a result of previous investment by overseas multinationals. Inward investors have increased the quality of management and work practices across the region, especially in those indigenous businesses within their supply chains, many of which had no choice but to raise their game to get valuable contracts from the big players. It also demonstrates that despite its detractors, the WDA did make a difference to Wales during the 1980s and 1990s. There is an enormous task ahead of its successor, International Business Wales, in improving our economy through attracting the right type of investor in the face of enormous competition from other regions and it clearly needs the support to do so.
Improving productivity remains one of the key challenges for Welsh businesses and that there needs to be a greater focus by policymakers on this area over the next few years. Like many others, I hope that the Assembly will work closely alongside our business sector to ensure that they can help develop any successful intervention tools that will make a real difference to their business and, in turn, improve the wellbeing of Wales as a whole.
Comments
I am waiting to see who Rhodri puts in charge of the economy and business.
One good outcome from the rainbow option was we could have had people who understand how an economy should work and how to support and evaluate its impact.
If we don’t get some priority about creating wealth in Wales we will carry on going down the tube.
The WDA have almost been subsumed ----they look like the Borg. While the opposite is going on in England .The RDAs are being strengthened and given more and more devolved power.
Looking at the Labour AMs there is no one with enough background or credibility with business.