In the week that we had only the second change of government in three decades, the economic challenge facing the new Conservative-Liberal Democrat administration was made stark when unemployment data showed that the number out of work in the UK had risen by 53,000 to 2.51 million, a level last seen in 1994.In Wales, we now have 133,000 people who are officially unemployed, an increase of 57,000 since 2008.
So what is to be done to turn around this recession?
Not surprisingly, reducing the budget deficit is to be given priority, there seems to be very little detail in the agreement between the two parties on what the Government will do to promote growth within the economy, although there was plenty of potential policies on entrepreneurship, financing of businesses, innovation and the development of the green economy in both parties’ manifestos.
This may suggest that there is scope for further policy development, especially when many are asking what can be done to support job creation in this country, particularly within the private sector.
During the next month, the Western Mail will be launching the twelfth Wales Fast Growth 50 competition. The aim of the project, yet again, will be to identify those businesses that have demonstrated growth in sales and employment and have the greatest potential for further growth in the future.
Since launching the Fast Growth 50 in 1999 I have emphasised, time and time again, the need for policymakers to focus on supporting such companies if we are to grow the Welsh economy, a plea that has largely fallen on deaf ears within the Welsh Assembly Government (WAG).
Yet, a recent report suggests that fast growing entrepreneurial companies are those that have the greatest potential for job creation. A study released last week by Ernst and Young’s Item Club (hat-tip A Change of Personnel) concluded that it was vital that public policy is geared up to tap into the employment and GDP growth potential of the UK’s fastest growing companies.
The special report, “Entrepreneurs: powering job creation in the UK”, showed that fast growth businesses – those that start with a workforce of at least ten people and increased this by over 20 per cent per year for at least three years – created over 1.3 million jobs in the last economic upturn between 2005 and 2008.
Indeed, as the authors emphasise, whilst the case for increasing greater entrepreneurship in the economy in undeniable, there is a strong case for supporting those companies that have grown after several years of consolidation, and that are able to achieve the levels of sustained fast growth that disproportionately contributes to output and employment and ultimately the growth of the UK economy.
To a large extent, it will be a stable tax policy coupled with a more benign regulatory environment that will allow such companies to grow quickly as we move out of recession.
The commitment of the Conservatives, within their manifesto, to create the most competitive tax system amongst G20 nations within five years by cutting the rate of corporation tax and simplifying the tax system will be welcomed by all businesses.
However, that is just one step in the right direction.
If we are to encourage those small businesses with the highest potential to grow further, then funding must be made available to those mid-sized businesses to get the finance required for further expansion.
That is why it was encouraging to see the Liberal Democrat support for financial mechanisms such as Regional Stock Exchanges, which could be a route for high potential businesses to access equity funding critical for growth without the heavy regulatory requirements of a London listing.
Does the development of such policies at a UK level call into question the effect of devolved administration on the growth of the economy?
Given that there was a stark commitment from the Conservative Party to “increase the private sector’s share of the economy in all regions of the country, especially outside London and the South East”, will it only be policies from Westminster, rather than Cardiff Bay, that will really begin to make the difference to the Welsh economy?
I sincerely hope not, as I am a strong believer that devolution could, and should, lead to the development of more innovative local solutions that can help drive forward the Welsh economy. The problem is that there is little evidence of this happening on the ground, especially given the fact that Wales seems to have been hit hardest when it comes to job losses during the recent economic downturn, suggesting that many of the policies developed during the last decade were largely unsustainable.
Certainly, the case can be made that, during the last three years, there has been a clear policy vacuum when it comes to growing the business sector in Wales.
With the exception of ProAct, which has focused largely on supporting jobs within large companies, there seems to be have been little attention in supporting those businesses with the greatest growth potential, especially at a time when they needed that support.
Rather than targeting ways in which to grow the economy, our government has instead put its energies into developing a bureaucratic nightmare for businesses to access support.
Despite the warm words of politicians, any “economic renewal programme” will, unfortunately, not change the fundamental philosophy of business support in Wales where process comes before potential, form filling takes precedent over innovation, and avoidance of risk is the overwhelming mantra of policymakers.
Clearly, macroeconomic policies at a UK level will play a large part in securing the future recovery of Wales, but there could and should be a major role for WAG if it finally realises that helping the private sector to grow is not about the administration and bureaucracy of the business support process, but about releasing and realising the entrepreneurial potential of our growth businesses across Wales.
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