GROWING THE PRIVATE SECTOR IN WALES?

In the various speeches that the First Minister has given to Welsh business since assuming his role last December, he has argued that Wales does not have a large public sector.

Instead, he has tried to make the case that the size of the ‘public sector’ is about right and, instead, we have to grow the private sector in Wales.

Such a position has led to a discussion whereas some, mainly in the trade union movement, have claimed that any reduction in the public sector should be minimised and that, instead, there should be tax increases across the board for individuals and businesses.

In contrast, the private sector has suggested that, given the savage beating that businesses have taken during the recession, it should be the over-manned public sector that should be target of government cuts i.e. it is not the private sector that is too small but the public sector that is too big.

The depth of feeling amongst company chiefs that it is time that the public sector shared the pain of the downturn with the private sector was best epitomised by last week’s ‘revolt’ over the Chancellor of the Exchequer’s proposed increase in national insurance by the bosses of some of the top companies in the UK, supported by a range of business organizations including the CBI, IOD and the Federation of Small Businesses.

Does business have a valid point or is the public sector, as one leading trade union leader pointed out last week, “already on the frontline of recession”?

An analysis of economic indices show that the UK economy declined by 6.1 per cent between June 2008, when the recession officially began, to September 2009, which was the last quarter to show any decline in GDP. This was, as the Chancellor of the Exchequer himself pointed out, the worst decline in the economy since the 1920s.

So what happened to employment in Wales during this period?

According to statistics from the Welsh Assembly Government (WAG), overall employment in Wales declined by 38,500. However, if we compare the differences in employment between the public and private sector, then the picture is somewhat contrasting.

During the recession, the number of those in employment in the private sector in Wales declined by 45,000. This is despite programmes such as Pro-Act and Re-Act being in place.

In contrast, those employed in the public sector actually went up by 8,000 during this fifteen month period.

Therefore, whilst Welsh businesses has shed tens of thousands of employees during the worst recession for ninety years, there seems to be little evidence to show that the public sector been affected during the economic downturn.

Some may argue that current Governments in Cardiff Bay and Westminster have made the choice, rightly or wrongly, to protect those working in the public sector at a time of recession.

Yet, from the evidence presented by a range of organisations, the next UK government will have little choice but to look for savings in public expenditure with knock on effects for Wales.

For example, the Institute for Fiscal Studies believes that Whitehall departments would have to find savings of up to £45 billion by 2015 whilst the European Union has stated that the current deficit, currently at 11 per of GDP, needs to be cut more rapidly.

Indeed, even Alastair Darling has suggested that his cuts will be worst than anything experienced during the 1980s.

The Welsh Assembly Government (WAG) has already started reducing departmental expenditure dramatically as compared to the previous year’s final budget.

Such cuts will, in all probability, lead to a considerable reduction in public sector employment after nearly a decade of unprecedented growth.

If that is the case, then it is critical that WAG has the right strategy in place to ensure that the private sector grow to compensate for these losses.

Clearly, it won’t be easy at a time when we have the lowest proportion of those employed in the private sector than at any time this century.

The stark reality of the situation facing politicians is that private sector employment in Wales has declined by 45,000 in the fifteen months of the recession.

Worst of all, 78 per cent of this reduction in private sector employment has occurred within the fifteen local authority areas that already qualify for £2 billion of Convergence funding from Europe and are rated amongst the poorest in the European Union.

Simply put, our most deprived communities have been hit the hardest during the recession.

Back in 2001, 73 per cent of those employed in Wales were in the private sector. By September 2009, this had fallen to 69 per cent, demonstrating the challenges facing those in power in Wales if, as they suggest, we are to grow the private sector over the next few years.

Whilst a large part of the economic recovery is in the hands of the next UK Government, there is still a major role to be played by politicians in Cardiff Bay.

One can only hope that the First Minister and his government turn their rhetoric into action by developing and implementing an ambitious vision to create a more entrepreneurial and innovative nation and ensure, unlike the previous decade, that it is the private sector that grows and drives forward the Welsh economy in years to come.