Saving Wales

The aim is to turn Wales from a post-industrial backwater into a haven for the knowledge economy. But can Rhodri Morgan's old-style planning breathe new fire into the dragon? Stephen Cook reports.

Last Updated: 31 Aug 2010

Somewhere between the plastic meal and the in-flight movie on your next transatlantic trip with British Airways, the chances are that you'll see an ad in which the outline of a red dragon floats across a green valley and Larry Johnson, boss of General Dynamics, tells you in a soft drawl about why it's such a good idea to invest in Wales.

The decision of his US company to locate a 300-job military communications plant in the former coalmining community of Oakdale was undoubtedly a coup for the Welsh Development Agency, whose task includes attracting high-tech industries and financial services, opening business parks and 'techniums', and generally fostering enterprise and revival on the western side of the Severn bridges.

Despite small but conspicuous triumphs, like the relocation of the maverick T-shirt manufacturers Howies from London to Cardigan Bay, the brief to revitalise the Welsh economy must sometimes seem a Sisyphean task. Earlier this year there was delight when Logica announced 750 high-tech jobs in Bridgend, but gloom 10 days later when 550 aviation repair jobs near Cardiff were slated for the chop. 'A big blow for the community' was the well-worn phrase from the local Welsh Assembly member.

Figures from Brussels demonstrate the scale of the problem, showing that GDP per head in West Wales and the Valleys had slipped back from 73.1% of the EU average in 1996 to 69.4% three years ago. These figures are for an EU of 15 members, so don't include the 10 poorer countries that joined this year. The Welsh nationalist party Plaid Cymru pointed out that places like Ljubljana in the Slovenian republic were now wealthier than parts of Wales, where Britain's industrial revolution led the world some 200 years ago.

Headline stories like these don't necessarily give the full picture, but it is generally noted that Wales has too many people signed off sick, suffers from a brain drain, depends too heavily on the public sector and manufacturing, and is beginning to lose activities such as TV-making and call centres, which saved its bacon after the swift and brutal decline of coal and steel.

Few dispute that the principality needs to take yet another step away from the culture of heavy industry and manufacturing by moving further into the new knowledge economy, including financial services. More science and silicon are needed in the Valleys to provide a new sense of confidence and to give them an advantage over countries with lower labour costs such as China and eastern Europe.

In the meantime, however, Wales has a lingering image problem that is proving hard to dispel. But Rhodri Morgan, first minister of the Labour-controlled Welsh Assembly, cites the General Dynamics story to rebuff this. 'The image problem doesn't seem to affect foreign firms as much as people who inhabit the belt within the M25,' he says. 'I don't think any English-based company specialising in electronics or software would ever make the commitment that General Dynamics made on the site of a former coalfield.

'You have to have someone with a Canadian or American perspective who looks at the nearby countryside and says: My god, it looks like the Rocky Mountains. People from the M25 belt would say: Oh, it's an old coalmine, you'd never get the people. If they can't do it in Chelmsford, then they are just not interested.

'What's needed is a leap of the imagination and fewer stereotypes,' he adds. 'You can afford the houses here, you're close to the hills, Cardiff University is a great science centre.'

Under Morgan's leadership, the Assembly has adopted an economic development strategy that aims, over the next decade, to use £15 billion of public money to create 135,000 new jobs and raise the country's GDP per head from 80% to 90% of the UK average. It's a vision that has rather more sceptical economists emitting hollow laughter and muttering about hostages to fortune. Morgan admits that if the targets are to be met, a lot of things will have to go right - not least the level of the pound, the strength of which he sees as the single biggest cause of Wales's distress in recent years.

But he asserts that things will go to plan, including the currency level, and launches into an impressive list of projects in the pipeline: two natural gas installations at Milford Haven; the £550 million investment to build Airbus wings at Broughton in north Wales; a £280 million electricity link between Wales and Ireland; a £320 million film studio and theme park project at Valley Wood near Bridgend; an investment of £230 million that will win back some of the 4,000 steelworking jobs lost at Corus in Port Talbot over the past four years; another £230 million that will add 900 jobs at the Ford plant in Bridgend... the list goes on.

'This is a whole range of very major projects that are going to generate construction and long-term jobs and tourism,' says Morgan. 'We just haven't seen projects like this in the last few years, and they will form a new backbone for the Welsh economy. At the same time, it's clear we have to move up the value chain as people like Sony and Hitachi and Sharp migrate to countries with lower labour costs, so we're trying to encourage spin-offs from the universities with an optics technium, a digital technium and possibly a biotechnology technium here in Cardiff.'

Just before the summer break, it became clear that Morgan's plans also include taking control of the Welsh Development Agency's beat, with the announcement of the long-heralded 'bonfire of the quangos'. Along with the Welsh Tourist Board and ELWa, the National Council for Education and Training for Wales, the WDA is to be wound up and incorporated into Assembly Government. These arms-length executive public bodies are deemed by Labour in Wales to be incompatible with devolved government, and Morgan said getting rid of them would create 'direct democratic accountability'. Put another way, this means greater political control - something that the WDA had prided itself on escaping. Either way, the WDA chief executive Graham Harker elected to throw himself into the fire, saying he couldn't muster any enthusiasm for taking it into the civil service. The agency's £350 million budget will now be presided over by new CEO Gareth Hall, until its formal abolition in 2006.

It seems almost incredible that the principality has managed to recover from the demise of coal and much of the steel industry (there are now only 1,000 miners left in Wales, from an industry that once employed hundreds of times as many). Indeed, Wales now has an unemployment rate of 4.6%, lower than the UK average of 4.8%. Furthermore, employment between May 2002 and May this year rose by 89,000, giving Wales the fourth-highest employment rate in the EU. But the problems remain of a high inactivity rate and below-average wage levels, and the consensus is that the priority is to increase the quality of jobs in Wales.

However, not everyone can become a biotech engineer overnight. The thrust at the WDA has been to create an escalator of paid employment that will take people upwards. The agency set itself the task of looking for the sectors that drive the economy and asking: Where's our edge? It tried to ditch public-sector habits and to be more businesslike, tailoring its services to what firms want rather than handing out a one-size-fits-all product. Rhodri Morgan says the commercial focus of the WDA will be preserved after the transition, but there is bound to be a question mark over some of the WDA's projects.

One of these is trying to foster entrepreneurship in a working culture where going on the dole is often seen as the only alternative to a job for life with a large employer. Wales has less than 5% of the the UK's VAT-registered businesses and a business birth-rate 30% lower than the rest of the UK, so for the past few years the WDA has been running its Entrepreneurship Action Plan (EAP) to boost business start-ups. The latest WDA-sponsored research indicates that entrepreneurial activity in Wales rose by 3% from 2002 to 2003, compared with 1% in the UK as a whole.

One small example of new businesses is a new company selling Penderyn, a Welsh whisky from the Brecon Beacons. Another is Air Wales, which employs 100 people running four 50-seater aircraft, calling itself 'the national airline of Wales'. It has scored hits with its routes from Plymouth and Cardiff to Newcastle and from Glasgow to Cork, and is now focusing on boosting sales of £49.50 flights between south Wales and London City airport.

One of the most important components of the EAP is Project Dynamo, in which 260 local entrepreneurs have been recruited to talk to secondary school children about their business and how they started it (see box, p67).

With the curriculum authorities, EAP staff are putting finishing touches to a course of lessons relating to entrepreneurship that will form part of the national curriculum for all 15- and 16-year-olds in Wales from this month. Daniel Jones, EAP's director of strategy, says this is a world first and thinks it will be widely used in younger classes as well.

Rather than tackling business questions head-on, the course will concentrate on helping to make pupils aware of and develop the personal qualities and attitudes that are desirable in themselves, but which are also vital in the creation and development of new companies. The teaching model is summed up by the acronym Acro - attitude, creativity, relationships and organisation.

Initiatives such as the EAP and Project Dynamo are considered good ideas by James Foreman-Peck, director of the Welsh Institute for Research in Economics and Development at Cardiff University. 'There's much to be said for having a lot of small enterprises, not least that they won't get the headlines when they start or fail,' he says. 'There are fewer small firms here than in the rest of the UK, and having everything in large units was one of the problems of the coal industry.

'Starting businesses is all bound up with changing people's attitudes, making sure they know more, widening the horizons of young people and giving them more self-confidence. I was struck by a recent study of the impact of sport, which found that travelling away to matches meant people got to see more places and simply learn more about the world.'

Foreman-Peck points out that things in Wales are not nearly as dire as some outsiders think: incomes have nearly doubled in the past 30 years, and people in the South Wales corridor have a relatively high standard of living, partly because of the link to the west of England by the M4 and the Severn bridges. But it's very different in the Valleys, where the mines were concentrated.

'It's not just a matter of ill health and a low participation in work, but a whole nexus of deprivation, including drink and drugs and the highest rate of teenage pregnancies in the UK,' he says. 'There's a rump of kids without any qualifications, and it's said there's a culture of unemployment there. There is an argument that taking jobs to the Valleys won't necessarily help with all those problems, because the jobs are likely to be filled by people commuting in.'

As for the National Economic Development Strategy, Foreman-Peck thinks Rhodri Morgan would be well advised to abandon his targets before they come back to haunt him. 'The trouble with trying to plan the economy is that it's difficult to get the whole picture at any time, which is a reason for allowing market forces to have their wicked old way.

'But to understand the Welsh economy, you have to know that Morgan is old Labour, which means taxing people to subsidise others and building up the public sector in the process. Lobbying government is the main way to make money round here, and from the latest figures it looks like Government now accounts for half of the country's economy, compared to more like 40% in the rest of the UK.

'Wales isn't being supported as much as Scotland or Northern Ireland.

But I'm not sure how good it is for any country - as for any adult - to be permanently supported like this. It leads you to think you can always get someone else to pay for what you want to do. And the longer you go on paying people to do what they're doing, the longer they will stay as they are.'

Perhaps this is the part of the image problem that Rhodri Morgan doesn't mention - the perception that Wales doesn't pay its way, that huge amounts of public money have been spent attracting jobs that haven't always become self-sustaining, that the main growth industry is the public sector, and even the road signs cost twice as much because they have to be bilingual.

There may be compelling political and social reasons for all these things, and in the short term they're unlikely to change. In the longer term, there may be benefits from the new confidence associated with the creation of the Welsh Assembly, for which the Richards Commission recently recommended legislative and possibly tax-varying powers along the lines of those of the Scottish Parliament. Combined with a determination to create a new kind of economy, will it bring us what Morgan's development strategy calls 'a winning Wales'?



Inner London 263.0

Edinburgh 180.2

UK average 115.3

West Midlands 112.5

North Yorkshire 102.5

West Wales and the Valleys 76.1

Gwent Valleys 69.7

Northumberland 66.8


Brussels 217.0

Hamburg 171.0

Berlin 89.9

Corsica 79.9

Cyprus 77.8

West Wales and the Valleys 76.1

Gwent Valleys 69.7

Slovenia 68



Mark Roche pulls an enormous bull whip out of his bag and cracks it loudly: it's one of the high points of his classroom presentation, and a sure-fire way of grabbing the attention of a group of sceptical 14-year-olds. 'I'm going to sell this to your teacher afterwards,' he jokes.

Roche runs a small firm called Dragon Leather Products. As a participant in Project Dynamo, he's come to Cymer Welsh School in Porth, a former coalmining town near Merthyr Tydfil, to tell the children about how he started his own business and that they might one day do the same.

'Starting a business isn't for everyone,' he says. 'But there's no such thing as a safe job now, and there's always an idea for a business just round the corner. You can go and work for someone else first, then branch out on your own. And soon you could be employing people, helping the economy and everyone's prosperity.'

Mark asks the children about the pros and cons of starting a business: 'You can go bankrupt' is the first reply, followed by 'You've got more control'.

Afterwards, 15-year-old Gavin says the session was interesting, but his main concern is getting his GCSEs. Kayleigh, 14, says it was useful, as she's already planning to start a business - a club or a hairdressing salon - after first training as an Army nurse.

Lisa Williams, head of year 8 at Cymer, says that the kids do discuss these sessions and get ideas from them. 'They might well plant a seed that will bear fruit in 10 years' time,' she says.

There are now 260 Project Dynamo entrepreneurs, who all receive training in classroom presentation. Last year, 50% of 14-year-olds in Welsh schools had a Dynamo course, and this year the figure will rise to 80%.

'A lot of children in south Wales lack self-esteeem,' says Natalie Hazell, Dynamo project officer for Mid-Glamorgan. 'If they hear directly from local people who've made it in business, they're more likely to think they can do it too.'

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