THE TRUTH ABOUT ECONOMIC DEVELOPMENT IN WALES

Having just arrived back from Finland, I am finally catching up with yesterday's business news.

Of course, I am not surprised at all by the headline in the Western Mail business section regarding the Economic Renewal Programme which suggests that only 15% of businesses are positive about Economic Renewal Plan. In fact, more than 30% of businesses believe the Welsh Assembly Government’s flagship economic policy will have a ‘detrimental impact’ on the economy, a new survey suggests.


The ‘Welsh Economic Barometer’ unveiled by business services firm PwC was unveiled today at an Institute of Welsh Affairs conference held in Cardiff. The straw poll of Welsh businesses found that two thirds of businesses questioned admitted they had not read the government’s Economic Renewal.

Of the minority that had, 40.6% thought it would have no impact, while only 15.6% felt it would improve the competitiveness of the Welsh economy.

Whilst this seems of little surprise to those of us outside of WAG, it would seem that those working within the corridors of power have also extreme doubts about the direction of travel by the Department of Economy and Transport.

A couple of weeks ago, I was passed a note that had been sitting within the Western Mail offices since November. It purports to come from a group of dissatisfied (but anonymous) managers from within the Department of Trade and Economy and its contents are, frankly, dynamite.

Having read the detail over the last week, it is clear that it could only have been written by someone with an intimate knowledge of the department and I have no reason to doubt its provenance.

Next week, I will publish the details of these notes, most of which are still relevant. I am sure WAG's response will be a combination of denial and attack. Nevertheless, the analysis is detailed and is not only an indictment of the ERP and its development, but of the way that the Welsh economy has been run by Cardiff Bay for the last few years.

It shocked me and I am sure it will shock you as well.

THE CHALLENGE - ENCOURAGING ENTREPRENEURSHIP

“The Entrepreneurship Action Plan should be reintroduced to act as a focal point for encouraging new business start-ups across Wales.”

The Challenge  

Wales has experienced the largest decline in the number of new businesses being created since 2004. In order to create an enterprising and innovative economy, there is a need to encourage greater opportunity to develop entrepreneurship, especially within our more deprived communities.

The Evidence

The UK innovation agency NESTA released a new report on innovation indicators[1] which indicated that a dynamic enterprise culture is essential for innovation i.e. a high birth rate of new businesses will drive competitive markets. As discussed earlier, Wales has experienced the largest decline in new business starts of any UK region, a situation that could have a serious knock on effect on the innovative capacity of the Welsh economy, regardless of the increased spending on research and development within the University sector. A UK Treasury study reported that successful entrepreneurship has the potential to help deprived areas through lowering unemployment not only through residents creating their own employment, but also indirectly through multiplier effects in the community and via other social contributions. The decline in the number of new businesses across West Wales and the Valleys could impact upon the ability of these poorer communities to recover. If we are to create a strong and vibrant economy, then we need to see an increase, not a decrease, in the number of entrepreneurs in Wales.

Contrary to the current thinking within WAG, the statistical evidence shows that SMEs remain the major job creators within the economy. A recent study from the Kauffman Foundation[2] reveals that, in their first year, new firms add an average of 3 million jobs.  Similarly, WAG’s own data on firm structure[3] shows that, during the period 2003-2010, 70 per cent of all employment growth in Wales during the period 2003-2010 came from SMEs i.e. 68,000 jobs. There are also clearly geographical differences in the influence of large firms across Wales. For example, 46 per cent of employment in East Wales in 2010 came from large firms as opposed to 36 per cent in West Wales and the Valleys i.e. small firms are driving employment within our poorest communities, a fact that is yet again being ignored by policymakers in Wales.

The Way Forward

It cannot be a coincidence that the decline in the business start-up rate began after the abolition of the Entrepreneurship Action Plan (EAP) for Wales and the merger of the WDA into WAG’s Department of Economy and Transport. Whilst creating a more entrepreneurial Wales was at the heart of the WDA’s mission, predominantly through the successful implementation of the EAP and its promotion of an enterprise culture, it has been relegated to the fringes of economic policy by the new regime within WAG. This is despite the proud fact that Wales was light years ahead of any other part of Europe in terms of developing an effective regional enterprise strategy, a competitive advantage that was thrown away because of the whims of politicians and policymakers who failed to understand the long term strategy needed to create an environment in which entrepreneurs are encouraged and supported to flourish and create wealth and employment. Therefore, the Entrepreneurship Action Plan should be reintroduced to act as a focal point for encouraging new business start-ups across Wales and in developing social enterprise as a key part of the delivery of that strategy.

Case Study

ENTREPRENEURSHIP ACTION PLAN FOR WALES

The Entrepreneurship Action Plan for Wales (EAP) was established to help develop an entrepreneurship culture in Wales. To achieve this, three key elements were recognised as being important:

§  Recognising the Opportunity – creating a greater awareness of the opportunities and benefits of entrepreneurship in order to encourage more people to start a business or to grow the business they are in, and to develop a greater entrepreneurial culture within our institutions, communities and businesses;

§  Creating Enterprises - Creating a greater number of sustainable start-up businesses in Wales with potential for further growth, particularly by under-represented groups of society such as women, the young, Welsh language speakers, ethnic minorities and retired workers;

§  Going for Growth - Increasing the number of businesses in Wales that grow, thereby creating greater wealth, employment and opportunity.

At the beginning of the process, a private sector led steering group was established to deliver the Entrepreneurship Action Plan (EAP) for Wales. The group brought together entrepreneurs, educationalists and business support professionals to guide the development phase and oversee the appointment of consultants to carry out the work. The steering group met on a monthly basis and consultants produced desktop research that resulted in a set of six initial themes to explore and develop further. These were: (a) fostering a culture for entrepreneurship (b) unlocking the potential (c) enterprising communities (d) investing in knowledge and experience (e) bridging the funding gap and (f) reaping the rewards.

Whilst the strategy of the programme was guided by the private sector led steering group – the Entrepreneurship Implementation Panel – the operational part of the project was managed by a special enterprise team established within the Welsh Development Agency. Their main role was to commission work from a range of different organisations to ensure the delivery of the programme. Through co-ordinating the role of different organisations and providing the funding for activities, a more coherent approach to the development of entrepreneurship across Wales was established. Tens of millions of pounds of funding were made available through European structural funds to ensure the delivery of all aspects of the EAP, although the programme was abolished in 2005 when the WDA was preparing to merge with the Department of Economy and Transport within the Welsh Assembly Government.

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[1] NESTA (2009)The Innovation Index - Measuring the UK’s investment in innovation and its effects

[2] Kane, T. J. (2010) The Importance of Startups in Job Creation and Job Destruction, Kauffman Foundation, July 2010.

[3] Welsh Assembly Government (2010) Size Analysis of Welsh Business, 2010, October 27th