Monday, August 2, 2010


The new approach of the Welsh Assembly Government to the economy should have become obvious last year when, during the Welsh Labour leadership campaign, Carwyn Jones announced that his primary economic policy was to “use the larger companies in Wales as a basis for attracting more business and more investment”.

Whilst this statement was made prior to any consultation regarding the Economic Renewal Programme, this may begin to explain the zeal with which the Department of Economy and Transport seems to have interpreted the First Minister’s focus on large businesses as a sign to abandon general support for small businesses in Wales.

Last week, this column discussed the abolition of financial support to the general small business population in Wales, a change of policy that the Welsh Assembly Government (WAG) has singularly failed to communicate properly to the business community in Wales.

By focusing its new repayable grant system on six key sectors predominantly within high technology industries, WAG has turned its back on the majority of small businesses in Wales.

If we are to create jobs as we come out of the recession, then surely we must focus on every opportunity that arises from the economy?

Wales is the poorest region in the UK, has the highest unemployment rate of any of the four home nations and has lost over 45,000 private sector jobs during the worst economic downturn for a generation. Is now the time to abandon financial support for the one part of the economy - the small business sector - that will create the majority of jobs as we come out of recession?

However, it is not only funding that WAG has stopped for the majority of small firms. It has also decided to close down its business support activities that were previously administered through its FS4B programme. This will mean that there will be little, if any, support for small businesses across Wales to grow and develop after March 2011.

What exactly is the rationale for abandoning business support to small firms in Wales?

Could it be that there is no case for the existence of such services to help businesses grow and develop?

Failure in the supply of information and advice is a recognised market failure problem for small firms not only in Wales, but across all developed nations. Even in the USA - the bastion of free market economics - there is a dedicated agency - the Small Business Administration - whose role is to provide support for entrepreneurs across America.

Could it be that business support in Wales simply wasn’t working?

There is certainly backing for that proposition, given the recent critique by the head of Welsh Assembly Government’s corporate governance division. As was widely reported earlier this month, this damning report stated that the DET did “not have in place a fully effective framework of control", that there were management weaknesses identified which had exposed the department to "significant risk" and that only a limited assurance could be provided on its overall arrangements for risk management, control and governance.

As a result, the auditors concluded that there was a major risk of "loss, fraud, impropriety, poor value for money, a failure to achieve objectives" and there were "significant concerns" about the way the department was being managed.

Yet, does such abject failure by senior management within DET actually justify the abandonment of WAG’s entire small business policy? Is this wholesale change being used as an excuse to do what a number of senior civil servants in DET have privately wanted for years, namely to abandon any interventions to support the small business community in Wales and hide their own shortcomings in managing such a policy?

Yes, there are challenges in delivering business support during this period of economic austerity but that does not mean you get rid of the policy entirely. Instead, there should have been an increased focus on improving the quality and appropriateness of support with limited resources, keeping in touch with the changes in the small business community and managing the network of Welsh private sector expertise.

Whilst small business support should have become simple to administer and deliver, all DET did during the last three years was create a bureaucratic nightmare that has ground the whole system to a juddering halt. What was therefore needed was a complete rethink of business support, not its abandonment due to failings within WAG.

As we come out of recession and firms begin to consider further investment opportunities, the demand for business support is likely to increase substantially in Wales.

Whilst the private sector – such as accountants and lawyers - may well take up the slack in some of the more prosperous areas, it would be expected that there will emerge a gap in support within rural areas and those areas which are currently in receipt of European Convergence Funds.

If an increased number of firms do not get support, then it will give them less chance to maximise their potential for job creation and reduce their competitiveness, thus compounding the low levels of economic activity within these more deprived communities. Indeed, WAG has indicated that its £30 million growth programme to support businesses in the poorest areas of Wales will come to an end in March 2011 and the funding reallocated to the six identified priority sectors of the economy.

To go against conventional wisdom and abandon support to small businesses in the most deprived region in the UK and instead spend the £240 million saved on superfast broadband could be an inspired vision.

On the other hand, it could be the single biggest economic mistake ever made by an elected administration in recent times.

The jury is clearly out and we will wait to see the result.

However, one thing is certain, namely that if this strategy fails to generate the jobs so desperately needed by the Welsh economy over the next few years, then WAG will have no-one else to blame but itself.