Given this, one would have expected senior officials within the Department of Economy and Transport, in drawing up its plans for the Economic Renewal Programme (ERP), to have carefully considered all information regarding job creation and then developed their plans accordingly.
However, it would seem that someone forgot to read a statistical article, which is ironically on WAG’s website, which examines changes in employment by business size for the period 2003-2006. Unfortunately, this has not been updated by WAG statisticians but it nevertheless demonstrates the different roles of large and small firms to employment growth within Wales.
According to the data, SMEs (small to medium-sized enterprises) accounted for 56 per cent of the increase in employment during this period. If we examine the impact of large firms on employment growth, what we find is that the so-called “anchor companies”, so beloved by the CBI, accounted for around 13,700 new jobs, which is roughly a third of the job growth within all Welsh-based businesses.
However, nearly 10,000 jobs were also created by large firms not headquartered in Wales, which include multinational banks such as HSBC and retail giants such as Tesco.
Many would argue that the primary aim of economic development policy, at least at a political level, is to encourage wealth and employment across all parts of the nation.
As we all know, two thirds of Wales – West Wales and the Valleys – is classed as being amongst the poorest in Europe and is in receipt of around £2 billion of Convergence funding to close the prosperity gap. Given this, it is worth examining the relative impact of SMEs and large firms on employment growth in both the relatively prosperous parts of Wales, which include Cardiff, Newport, Monmouthshire, Wrexham, Flintshire and the Vale of Glamorgan, with the poorer region of West Wales and the Valleys.
The results are startling.
It demonstrates that within the poorest areas of the Welsh economy, large firms only accounted for 29 per cent of all employment growth between 2003 and 2006. This is despite a grant regime that is more generous than for any other part of Wales. In contrast, for those more prosperous parts of Wales that have a limited ability, due to European regulations, to offer grants and support to business, large firms accounted for 63 per cent of all employment growth.
Simply put, the SME sector has been critical in creating jobs within the poorest parts of our economy whilst the majority of large firm employment has been created within those areas of Wales that have limited provision for grants.
Given such facts, one would have thought that the natural policy implication would be to support and strengthen the SME sector within those more deprived areas, whilst continuing to operate a laissez faire policy towards companies within the more prosperous areas such as Cardiff, focusing on other factors such as the quality of life, access to the university, and relatively good infrastructure.
Yet, for some reason, it would seem that those who have written the ERP have largely abandoned those job creators within our poorer communities and, worst still, will only be providing grants to large companies that seem to create the majority of jobs within our prosperous areas?
Does that make any sense at all when the vast majority of job losses during the recession were in areas such as the South Wales Valleys?
Given that there is a desperate need to create more jobs within such communities, one would have thought that WAG would do everything in its power to ensure that the job creating parts of the economy within those poorer areas are given every support possible to continue this role.
Yet, small business support has been largely abandoned within the ERP and grants limited only to those large companies who have created less than a third of jobs within the Convergence area. For example, the £30 million growth programme to help SMEs expand their operations within the poorest parts of Wales has recently been abolished by WAG officials.
As I have stated time and time again, small and large firms are critically important to the Welsh economy. It is shame that the CBI in Wales have ignored that fact and continue to push the line that it is only anchor companies that can revitalise the Welsh economy.
More worryingly, senior policymakers within WAG have simply not done their homework in developing a new economic strategy that addresses the different needs of the regions of Wales and, as a result, those areas in desperate need of regeneration will face the consequences, in years to come, of such a limited vision for the Welsh economy.
Comments
Do these idiots really think that large firms will come to the poorest parts of Wales because of grants.
Ieuan tried to offer a grant to a company in the Neath Valley to stay and they told him, like Bosch, did, to sod off.
As these stats show, we need to support Welsh businesses to create jobs in the South Wales Valleys. Does WAG just hate welsh firms?
The trouble is, there is little evidence that grant schemes and other forms of direct business support actually make much difference to the success of SMEs OVERALL - when you take account of firms that get nowhere after receiving a grant, firms that would have succeeded and grown without a grant, and firms that don't get a grant (the vast majority) and are disadvantaged relative to those that do.
Wouldn't a better strategy be to try to improve the environment for ALL businesses rather than to have schemes that favour the few - with all the difficulties that come from civil servants picking winners and distorting markets? Surely economic success will come from better transport infrastructure, better skills, labour market flexibility and competitive pay, a simple business-friendly planning system, sensible regulation. If it's about injecting money into the SME sector, any conceivable WAG grant scheme is dwarfed by public sector procurement (which must be £4-5 billion in Wales). Why not focus on making procurement more friendly to SMEsand facilitating Welsh SMEs to gain access to contracts in England?
I'm not an expert on all this, but I'm not sure the argument here stacks up. It assumes that WAG has abandoned SMEs - but only because it has changed its approach from subisidising individual firms. You must admit that it is at least disputed that subsidising individual firms is the best way to support SMEs.
Dan Carter
Isn't the danger of using anecdotes to justify policies is that they tend not to cover the full picture - looking at the individual company rather than the economy - including uninteneded consequences... nor do they tend to consider the counter-factual very carefully.
Here's a thought... Would those Invest Wales officers have put their own money into this company as shareholders or venture capitalists? The danger of government grants is that those distributing them can get too comfortable taking low-return, high risk commercial investments, but with other people's money. It looks good if some - like this one - appear to come off, but what about the rest? It would be interesting to know what the overall return on capital (including social costs and benefits and impacts on non-participating firms) has been for all the grant funds that have gone in from WAG.
Even if you could show that these grants were - overall - a good thing for the economy (and I'm still doubtful about that) wouldn't you also need to show that this was the best way to spend the money compared to the other things that might boost SME or even non-SME performance in Wales? Isn't that why it would be important to count the failures as well as the (apparent) successes.
Dan Carter
But i'm not 100% with you on the logic of your argument, DJE.
When you say that SME's or Big Business or whoever are responsible for this percentage of jobs, I'm assuming that you are only talking about direct employment. Are there statistics, for instance, to show jobs created in SME's by Big Business expansion? I don't have your expertise or your access to figures, and I accept that WAG appears to be a bit mixed up on the whole issue, but I would very much like to know if you're argument is as black-and-white obvious as it seems at first.
However, WAG officials have made a 'lob sgows' of the implementation of the strategy and their message of 'no grant support' to individual firms has been blown out of the water by the CBI continuing to insist that large foreign investors should still receive taxpayers money whilst SMEs are relegated to repayable grants and only if they are in the right sector. In fact, WAG is so rattled that the are rolling out IWJ this week to explain how small firms will be funded. I look forward to dissecting it on Saturday.
Isn't it a bit pathetic or delusional to assume anyone who does not agree with you about grants must be working for WAG? The view that grants are a distorting and anti-market waste of taxpayers money is quiet widely held among economists and I think is now the policy of the Conservative-LibDem UK coalition - so it's hardly an extremist view. On this blog, which seems to attract a most of its comment from people who want grants or provide consultancy about grants, you could be forgiven for thinking that there is a consensus that grants are the way to build an economy. But there isn't - and for the reasons I suggested in earlier comments. Wales has been doing grants for years but economy as a whole seems to lag - I think it's the fundamentals that matter.
But I agree with some of Dylan's earlier postings about government direct spending on broadband and the risk of getting captured or seduced by large firms.
Dan Carter
I agree about looking at the return on investment - but you need to look at the whole system. Not just the successess and failures, but where there are successes you need to know what would have happened without the grant so you can tell what the grant added overall. The 'what would have happened without the grant' case would need to include other firms meeting the demand, what the firm would have done without the grant, and the impact of what WAG could have spent its money on instead. So not an easy calculation. But as soon as you start to think about grants this way, the case for the positive economic impact overall isn't as straightforward as the impact on the single business.
Dan Carter