THE UNDERPERFORMANCE OF STRUCTURAL FUNDING?

Last week, the BBC’s Dragon’s Eye programme revealed that despite billions of pounds of European funding, West Wales and the Valleys have become poorer during the last decade.

According to the programme, the latest official figures show that GDP per head in the region has fallen from 66.8 per cent of the EU average in 2000 to 64.4 per cent in 2008, the latest year for which figures are available.

The only other parts of Europe to see a drop in their relative prosperity over this period are Malta, two regions of Portugal and four regions of southern Italy.

Every other region that has received the highest level of European funding, including those in Greece, Latvia, Slovakia and Spain, have become wealthier over the same period.

This is a shameful indictment of the use of this vital funding package to turn around the Welsh economy during the last decade.

Defenders of the policies of successive Assembly Governments trot out the line that the first round of funding, known as Objective 1, was not focused enough and spread around too many projects. They then say that the current round of so-called Convergence funding, which will have fewer strategic projects, will make a bigger difference.

However, the facts from the Welsh European Funding Office (WEFO) that administers and manages the funding for the Welsh Government paints a very different story.

According to their latest data, the main Structural Funding programme – known as the European Regional Development Fund – has so far paid out £213 million in grants to various organisations.

And what are the outputs from this funding?

Well, as of May 2011, 4,849 gross new jobs had been created, which equates to a cost per job of £44,000. Believe it or not, this is higher than the amount received by LG during the ill-fated inward investment project.

Worst still, WEFO had estimated that, at this stage of the funding round, 7,348 jobs should have been created, so less than two thirds of the new jobs expected have come to fruition.

And if we look at what has happened geographically, we see that the European fund has had little impact on some of the poorest areas in Wales during the last five years.

For example, in Anglesey, only 246 new jobs have been created as a result of European funding, with 255 jobs created in Blaenau Gwent and 178 in Merthyr Tydfil.

With unemployment in Wales recently rising by 16,000, surely there should be a greater impetus within the programme on job creation.

However, it is not only in terms of new jobs that the programme is behind its targets.

During a month when the Assembly Government has appointed six new entrepreneurship champions, the number of new businesses being created through European funding is also well behind target. Instead of 3,019 firms being set up by May 2011, only 1,105 had been established i.e. only 36 per cent of the expected target.

The other major programme for learning and training – the European Social Fund – has also underperformed in key areas. For example, there are 44,000 fewer participants on European funded training programmes than expected. Of those who are have benefitted from taking part in education and training opportunities, only 32% of those estimated to enter employment are doing so.

Worst of all, there are 12,500 fewer young people being trained through the European Social Fund, which should not be surprising given that WEFO has only paid out £14.2 million to project sponsors against a commitment of £95 million. This is at a time when we have record unemployment amongst young people in Wales.

If WEFO was a business and such targets were being reported to the board of directors, there would be alarm bells ringing throughout the organisation and heads would roll.

Yet if you read the monitoring reports produced for various committees by officials, there seems to be no urgency to address this worrying set of results. In fact, the impression is that those in charge of the funding are more focused on spending the money so as to avoid clawback rather than on generating outputs that can positively benefit the Welsh economy.

This is simply not good enough. It is shameful enough that Wales will have to apply for a third round of funding. However, the woeful underperformance of the current funding programme is, frankly, unacceptable when businesses need vital support to grow and create jobs.

So what is to be done?

The new Minister for Business has made her mark with the business community during the last three months and, given her straight-talking no-nonsense style that is focused on delivery, I would expect that she would be appalled at such complacency.

Certainly, if this continues and no action is taken, I would expect the opposition parties to call for a full investigation by the National Audit Office into the performance of WEFO and the failure to hit key programme targets.

At a time when we have this additional money available to make a difference to the economy, it simply isn’t good enough to perform so dismally in terms of job creation, enterprise development and training for young people.

Wales, and the Welsh economy, deserves better.

Western Mail column 15th October 2011.

ENTREPRENEURSHIP IN DEPRIVED URBAN COMMUNITIES - THE CASE OF WALES

I am really pleased that a new article, "Entrepreneurship in Deprived Urban communities - the case of Wales "- has been accepted for publication in the Entrepreneurship Research Journal (ERJ) from the Berkeley Electronic Press.

ERJ is an an international journal committed to publishing the very best scholarly research. It encourages a scholarly exchange between experts from all fields which demonstrate the vital role that entrepreneurship plays in determining the quality of lives, societies, and economies. The scope of the journal is unique in that it seeks to disseminate both theoretical and empirical evidence research that will facilitate the development of entrepreneurship as a field of study today, and in the future. A scholarly forum for new ideas that have the impact on broadening the traditional business model, the journal recognizes experts and their contributions from all fields including economics, business, psychology, sociology, anthropology, political science, engineering, physical and life sciences.

The paper was co-written with Piers Thompson of UWIC and Caleb Kwong of Essex University.

As it is always difficult to get a paper into an American-based journal. I am doubly pleased at this positive news because ERJ is a new publication that aims to be the leader in its field over the next few years - one of the editors is Chandra Mishra, who transformed the Journal of Small Business Management between 2001 and 2010, and both Howard Aldrich and William Baumol are on the advisory board.

More importantly, the study examines Wales as its case study to determine the potential of entrepreneurial activity for rejuvenating deprived communities.

Utilising data from the Global Entrepreneurship Monitor (GEM) in conjunction with the Welsh Index of Multiple Deprivation (WIMD), the paper examines the relationship between early stage entrepreneurial activity, entrepreneurial attitudes and attributes, with the different domains of deprivation.

Whilst it found some evidence that those living in the most deprived communities were less likely to be involved in early stage entrepreneurship, most of this could be accounted for by the individual characteristics of those living in these areas.

Interestingly, the lack of existing businesses or public services appears to play little role in dissuading prospective entrepreneurs and it would appear from this that there is no need to establish a critical mass of businesses to encourage new business starts within the deprived areas of Wales, as the attraction of low competition appears to play a role in encouraging new business.

Controlling for the endogeneity of the choice of location does not alter the results relating to early stage entrepreneurship, but after separating the ‘choice’ of living in a deprived area and the presence of entrepreneurial attributes, it is found that entrepreneurial social capital and the perceived presence of start-up skills are negatively associated with a number of domains of deprivation as might be expected. The results relating to the perception of good opportunities is mixed with some positive and some negative influences, although this potentially relates to the fact that whilst demand will be suppressed as in a prosperity pull style effect, the absence of competition also provides opportunities.

The paper finds that areas do have an effect, but so do individual characteristics, and since it is these selfsame characteristics that result in many choosing to live in the deprived areas, as well as creating the low social capital, bridging ties, and adverse peer effects, the three components are intrinsically interwoven.

This means that policies to help under-represented groups within these communities may be more appropriate than general business advice and support to overcome help firms grow in weaker economic conditions, but pinning hopes on this alone rejuvenating the area is perhaps asking too much given the role that in and out migration play. Bearing in mind that migration may result in little long term benefit for a deprived area, this does not mean individuals may not benefit.

Therefore, the question is whether enterprise is the most cost effective method of helping this minority of beneficiaries, especially if aspiring entrepreneurs are held back by their environment? A lack of role models, due to a large extent by a lack of tradition of entrepreneurship, is a considerable problem. One method of overcoming this would be through the provision of forums for interaction between entrepreneurs and the public.

The negative area effect on the perception of opportunities would also be tackled by instigating such fora with individuals being made aware of the possibilities open to them rather than being dissuaded by the lack of economic activity present in the area. Training programmes to provide general enterprise skills would be beneficial to not only help develop entrepreneurs but ensure that a greater number of the population are provided with the broad range of entrepreneurial skills suitable for working in small firms.

It is unclear from this study the extent to which specific finance provision is required for deprived areas, as those with lower household incomes have a lower propensity to start businesses although no further significant influence is found for income deprivation. This would imply that policies to help those out of work or on low incomes to start businesses will be adequate although raising entrepreneurship artificially in this manner could impact on the quality of entrepreneurial activity in an area.

The paper will be published in 2012.