Thanks to the selling skills of development corporations whole areas of the country are being regenerated. And it's savings on operating costs rather than grants that has encouraged companies to relocate.
By rights Cardiff, the capital city of Wales, should have sunk without trace by now, having seen the industries which made up its historic economic base - coal, metals and the docks - die. Yet, far from being on its uppers, it is thriving. South Glamorgan (75% of whose population is accounted for by Cardiff) has a per capita GDP higher than the average for the UK and, according to a recent report on regional prospects by the European Economic Research and Advisory Consortium, Cardiff itself is expected to grow at around 3.4% a year between now and the end of the century - faster than London, Birmingham, Manchester, Edinburgh and Glasgow.
Whether by planning or serendipity - and there is evidence of both - Cardiff has transformed itself, reinvented its business base. What was once a city of coal hauliers, steel masters and sea captains is now an administrative, financial and commercial centre.
The city's manufacturing base has shrunk from around 45% of GDP in the heyday of coal and steel to around 18% now. Allied Steel and Wire is all that is left of the old industries and the new lighter industries - mostly investments by incoming blue-chip foreign groups such as Sony, Ford, Bosch and Dow Corning - are located not in the city itself but in the hinterland towns of Barry, Llantrisant and Bridgend. In the old days they were feeder towns for the voracious Cardiff. Today the early morning traffic is heavy both ways, carrying factory workers out of the city and office workers in from the valleys.
What Cardiff has lost on the manufacturing roundabout it has gained on the service swings. Over the last decade the city has built a reputation as a national centre for financial services and is now home to high-profile companies such as NPI (pensions and investments), N M Rothschild and Sons, the Banque Nationale de Paris, AXA (the French insurance giant), and the Dutch company, NCM Credit Insurance. It is calculated that business services now account for a quarter of employment in Cardiff compared with manufacturing's 11%.
It has also become a thriving retail centre. A survey earlier this year by DTZ Debenham Thorpe showed Cardiff to be the fifth most profitable shopping location in the UK, beating places such as Manchester and Glasgow.
This transformation didn't just happen. People have had to go out and sell the city.
Godfrey Jillings, director of the Financial Services Initiative (FSI), an informal partnership between Cardiff City Council, Cardiff Bay Development Corporation, South Glamorgan County Council, Newport Borough Council and the Welsh Development Agency (WDA), says the FSI has brought 6,000 new financial services jobs to the area since its formation in 1988. Over the next three to five years he aims to bring in a further 10,000 - 7,000 to Cardiff itself, the rest to the hinterland.
It isn't grants that attract the inward investors, says Jillings, but the growing realisation that relocation is going to save them a lot of money on operating costs. 'I reckon businesses in London can save up to 40% on their ongoing running costs by relocating to south-east Wales or setting up new operations there. Most people think about relocation as being an awful hassle and if they're only going to save 10% they question whether it is worthwhile. When I point out that we're talking about 40% savings that's a big enough number for them to ask whether they can afford not to look at it seriously, especially if they are in, say, the insurance sector which is under enormous pressure to cut costs at the moment.' The other part of Jilling's pitch is that the sort of advanced electronic communications most financial services companies now work with mean that geographic location is almost irrelevant. 'What you want to do if you want to run a successful financial services business is have a small head office in London but get the guts of the operation, with modern technology, as far away as you can. You want to choose a location with first-class communications and where you can pick up high-calibre staff.' If that approach continues to pay off then the place to see the results over the next few years should be Cardiff Bay where a massive plan to regenerate 2,700 acres of derelict docklands is under way. The bay area has been, until recently, very much the 'wrong side of the tracks', the bit of the city south of the London-Swansea railway line whose fortunes were most badly affected by the death of the docks and the closure of the East Moors steelworks.
Michael Boyce, chief executive of the Cardiff Bay Development Corporation, says that around £2.5 billion of public and private money will be spent on the project by the early part of the next century. 'The overall intention is that the public sector levers £4 for every £1 that it spends.' So far £561 million of private money has been invested. Among the big-name companies which have moved to the bay are NCM, the Pru and AXA. It would have been more, says Boyce, but for the interminable protests over the Taff barrage which will create a whole new waterfront for Cardiff. The delays have slowed down the creation of new jobs. The ultimate target is 30,000. So far the total is 5,000.
Boyce is not as dismissive as Jillings of grants - he can offer subsidies of up to £4,000 per job - but believes that the need for that sort of lure will tail off quite rapidly as the bay project gathers pace. 'If it's the right sort of employment opportunity and they are creating a lot of jobs, then at this stage of the development they might have expected to get a large grant, but as we go on it will become less necessary to give subsidies and grants and the time will come when people will pay for the privilege of being here. I suppose we're at the break-even point between those two situations now. There's a rapidly decreasing need in terms of subsidy because people can now see the product and want to be here.' Boyce defines 'the right sort' of investment as one that will produce jobs that are new to the region or, better still, to the UK. 'We're not in the job of moving the deck chairs around. Shifting employment from one part of the region to Cardiff Bay isn't doing anything for the economy so we don't do that.' The Bay is not just about office work. One of Boyce's biggest catches is a joint venture of Nippon Electric Glass of Japan and Schott Glaswerke of Germany which will make screens for local television and computer monitor manufacturers - bringing in 750 blue-collar jobs. It will be interesting to see how many of them go to those previously employed in the traditional heavy industries, for while Cardiff appears, in economic terms, buoyant, there are problems under the surface. The new jobs - both those in the new manufacturing industries in the city's hinterland and the service jobs in the city itself - are, by and large, not going to those who were made redundant by the steel and coal closures. Alongside the very positive growth figures and the tallies of new firms attracted and new jobs created, is a second set of statistics which shows quite clearly that the city has a developing underclass - people formerly employed in the heavy industries who are not finding re-employment in the new industries.
'We have huge council estates with unemployment blackspots worse than anything else in the country,' says Brian Morgan, chief economist of the WDA. The WDA and other agencies cannot, at the end of the day, dictate who comes to Cardiff and there is scant hope of attracting the kind of heavier manufacturing companies that might re-employ the longer-term unemployed. So the only real solution is to make the unemployed more attractive to the incomers by providing them with new skills.
'Our attempts to change the economic structure are fraught with difficulties,' says Morgan. 'What we need to do is to see that there is re-skilling and up-skilling of the workforce to make those people capable of taking on the jobs that are being brought in.' It will not be easy. The ring of prosperous light manufacturing companies such as Sony and Panasonic at the periphery of the Greater Cardiff region are very competitive, highly price-sensitive and very choosy about whom they employ.
On the principle that a problem shared is a problem solved Cardiff's planners could do worse than to drive north-east to Leeds where city strategists are scratching their heads and trying to resolve almost exactly the same conundrum. Leeds' employment base has been expanding very healthily, but (like Cardiff) very few of the new jobs are going to those in the deprived inner city - the young black males under the age of 25 and the middle-aged white males previously employed in manufacturing.
John Siddall, chief economic development officer of the Leeds Development Agency, believes that the city will probably have to place greater emphasis in future on developing its own land holdings to attract the sort of companies which might bring jobs for this dispossessed group. The kind of firms which could help correct the balance are those in areas like distribution, warehousing and transport. That may mean a change of emphasis from the strategy of the past few years which has been to go hell-for-leather for office-based employment, particularly in financial and business services. The city still wants to attract inward investment in these sectors, but such is their strength already that it seems very likely the expansion will continue under its own steam, without much need for intervention.
Nobody is quite sure how it happened, but somewhere about the mid-1980s the financial and business services sector took off in Leeds. It seems to have been that the growth of retail financial services and of associated legal and other professional expertise reached a critical mass, so that the city became a magnet, like attracting like.
Whatever the reasons, between 1981 and 1991, according to the national census, employment in financial and business services in Leeds grew by 68% (from 27,500 to more than 45,000) and, within that total, legal services jobs grew by 108% and accountancy 91%. To put that in perspective, employment in Leeds' traditional industry - clothing - which employed more than 50,000 people in the 1950s, is now only 12,000.
People like Siddall might not know exactly why the upsurge in financial business services came about but they did know how to capitalise on it. In 1990 the city launched the so-called Leeds Initiative, a partnership of public and private sector bodies whose aim was to make Leeds the country's most successful local economy, and a key part of that now is the Leeds Financial Services Initiative whose objective is to make Leeds the leading regional financial centre outside London and Edinburgh by the year 2000.
It has been extraordinarily successful. Recent arrivals include the motor and home insurance company, Direct Line, fund managers Newton Investment and chartered surveyors Jones Lang Wootton. Alongside the financial services companies, says Siddall, the city has also attracted major public-sector employers - most notably the NHS's Management Executive and the Benefits Agency.
The one thing that Leeds doesn't offer potential inward investors is subsidies, says Siddall. 'There are no grants in Leeds, so our sales pitch to people has to be that we are demonstrably the most successful local economy in the UK. We say, "If you want to know why, we'll tell you. If you want to be part of it, we'll help you. If you want to take grants and go somewhere else that's inherently less successful, then good luck to you". People respond to that.' Leeds did have its own development corporation, which recently wound up having overseen the creation of 9,000 new jobs in the city. The Government's decision to set up the corporation was not particularly popular, says Siddall. 'Leeds felt it was something of a slur to suggest it needed a development corporation because it wasn't run-down on the scale of a Sheffield or a Cardiff or a Merseyside. However we had it and it's done some good things and now it's part of the history of the city.'
Regenerate the run-down and encouraging the enterprising.
England has 11 Urban Development Corporations - public bodies set up with government backing (and funds) to help regenerate run-down areas by bringing land and buildings back into use.
One of the main ways the UDCs operate is to encourage businesses, especially from overseas, to invest in the area. They provide grants for commercial and industrial development. Since they were first set up - the oldest is Merseyside UDC, in March 1981 - they have created more than 140,000 new jobs and attracted over £10,000 million of private sector investment to their areas.
In Scotland, the main vehicle for inward investment is 'Locate in Scotland' (LIS), a joint operation of the Scottish Office and Scottish Enterprise, the body responsible for encouraging economic development in Scotland. The Scottish Enterprise Network comprises Scottish Enterprise National and 13 Local Enterprise Companies: Moray, Badenoch and Strathspey; Grampian; Tayside; Fife; Lothian and Edinburgh; the Borders; Lanarkshire; Dumfries and Galloway; Ayrshire; Glasgow; Renfrewshire; Forth Valley; and Dunbartonshire.
'Locate in Scotland' and the Scottish Office industry department between them helped attract 97 investment projects in the year to 31 March 1995. That represented planned investments worth £1,100 million and was expected to create or safeguard some 12,300 jobs.
The Welsh Development Agency recorded 115 inward investment projects for Cardiff in the 12 years from April 1983 to April 1995. These involved an estimated capital investment of £656 million, the creation of nearly 8,300 jobs and the safeguarding of a further 2,800.