Monday, 18 September 2017

Embracing the chaos

Published in the Western Mail on September 18th 2017


The metaphor of the perfect storm has become overused, but it is difficult to think of a better one to describe the potentially calamitous confluence of a Hard Brexit and the disruptive destruction of automation. And that’s the context in to which the Welsh Government will this week launch its long-awaited new economic strategy.

But as Rahm Emanuel - Obama’s colourful Chief of Staff at the time of the 2008 slump - famously said, you should never let a serious crisis to go to waste. Chaos offers an opportunity to do things previously unthought of.

Both automation and Brexit will transform our communities. The choice we have is whether we try and shape these forces to support people who have been largely left behind by globalisation, or whether we try to struggle on to preserve the status quo.

In the past our obsession with following conventional templates has meant we’ve fixated on roads, business parks and attracting foreign firms to Wales. And the results have been clear – in nearly twenty years of devolution, the wealth gap we have with England remains the same; the value of the goods and services we produce is just three-quarters of what it should be.

Turning this around is clearly not easy. Our current GVA figures are not for the want of trying. But the lesson of the last two decades is that we need to ruthlessly focus on a small number of interventions that will make a difference.

There are five things I think we must do to enable the new economic strategy to stick.

First off, we must be alert to the challenges coming our way. The robotic and digital forces being unleashed through the fourth industrial revolution will re-shape our world of work, and the speed of change is unprecedented.

The automation we’ve witnessed replacing workers in our factories is turning to new professions. The ability for computers to process huge quantities of information at the touch of the button and to ‘learn’ from each other means that we’ll be turning to robots and mobile apps for anything from house-buying to x-ray results. Finance officers, admin workers, pharmacists, doctors, accountants and lawyers are all at significant risk - an estimated 700,000 jobs are predicted to be lost in Wales alone over the next twenty years.

We must be mindful of these changes as we consider the jobs we are creating and attracting. And in the skills we are teaching in our schools.

But this technological innovation isn’t something to be halted, it’s something to be harness. Our assumptions of what is possible are constantly being challenged and we must exploit these. However our window of opportunity is short – we are already behind many other countries, and reversing our laggard reputation will require significant investment. Crucially, not every emerging technology will prove lucrative – countries, and other regions of the UK, have already established early dominance in some. For example, we are not the only ones who are trying to grow our Life Sciences sector, and we are going to struggle to try and compete with the so-called Silicon Fen between Oxford and Cambridge.  

The new economic strategy must be supported by a clear analysis on where we have existing expertise – agriculture, car manufacturing, compound semiconductors, insurance, creative industries and bonded composites amongst others – and how best these will be leveraged in emerging markets.
The second area for focus is efficiency.

I welcome the regional approach the strategy is said to be taking. The ability of the Cardiff area to attract investment has left wider parts of Wales scrabbling for scrap ends. And it’s right that regional teams will be best placed to decide what the priorities of their communities should be to try and catch-up.

But in an era of increasingly pressured budgets, the pursuit of new opportunities will require a rationalisation of existing investments. Ken Skates, the Cabinet Secretary for Economy and Infrastructure, has spoken about the need to slim down the absurd nine ‘priority’ areas that feature in our current nationwide economic plan - but this hard-headed approach could well be stymied by the devolution of decision making to regional areas. We can’t sidestep the tough task of prioritising and there is little point moving away from an unfocused national approach to an unfocused regional one
It’s crucial that regional authorities are tasked not just with identifying which sectors should be prioritised, but which specific sub-sectors should receive precedence.

We must also ensure that a localised approach doesn’t diminish our ability to be ambitious nor compound Wales’ ability to innovate. The disparity in the quality and creativity of the Cardiff City Region and Swansea Bay City Region bids – for example - demonstrates how Welsh Government, whilst able to facilitate innovation, has to date failed to drive it. And it is deeply worrying that just one of the three Regional Skills Partnerships, tasked with analysing the economic challenges their region faces, references automation as a source of future risk. And equally troubling that when tasked with setting out their plans under the Future Generations Act, none of the Welsh Councils identified automation as an issue.
We need to find a way to get people from different regions and from different areas of industry to sit around the same table. Unless we put in place measures that identity future growth threats and seize fast-emerging opportunities then we will simply be treading water. This will require extensive technical expertise and expert dexterity - something our civil service has so far failed to demonstrate.

Importantly, a truly efficient approach to growth will mean grants to private businesses must only be used in the rarest of circumstances, instead we should prioritise low-cost favourable loan agreements that are easier to access and that are ambitious in their criteria. Partnering with firms by taking an equity stake and having a representative on the board ought also be encouraged.

The third test for the implementation of this new strategy is its relevance to the so-called post-industrial communities, those ‘left behind’ when heavy industry departed and nothing took its place. We mustn’t simply rebrand the status quo, we have to move beyond the conventional approach and support our communities to be more resilient to future shocks. A number of my Welsh Labour colleagues have called for a greater focus on the economy of the everyday, the so-called foundational economy; the ‘mundane’ industries and businesses that are there because people are there - the food we eat, the homes we live in, the energy we use and the care we receive.

The drive to reduce administrative budgets has led to the domination of large-scale, privatised companies in the delivery of our public services – at the cost of small, localised businesses. And the consequence of a focus on attracting Foreign Direct Investment to Wales has also meant too little emphasis and resource has been placed on spurring indigenous growth. Quick wins have too often been allowed to overshadow slow-burners.

Take two widely-touted examples of economic success over the past few years - Airbus and Ford. Two very large employers in Wales (together employing 8,000 people across Wales) who have both recently admitted they’re a flight risk in the face of Brexit; and yet both companies continue to be in receipt of substantial Welsh Government support. Over the past ten years, Ford has received more than £24m in support; Airbus has received £33m in the last eight. In 2016 alone, Ford’s pre-tax profits were close to £8bn, and Airbus’ were more than £2bn.

So reports that the foundational economy might feature in a future economic strategy for Wales are very welcome. But my concern is that the term will be misappropriated or diluted without any meaningful commitment to doing things differently being embedded into our economic practice. We need a sincere commitment to trialling different approaches which support the Foundational Economy. Interventions must be at both the demand and supply side of transactions, and mustn’t just focus on the support supplier firms need. Brexit offers us a potential opportunity to exploit the £5.5bn the public sector spends every year buying in goods and services to Wales to boost our foundational economy. But to achieve this we will need to urgently address the skills shortage in public procurement. And we need to face-up to the fact that working with multiple local, smaller, suppliers will be more expensive in the short-term.

Of course, to achieve such a radical shift in economic policy - both in terms of the ambitious market capture of emerging industries, and in shifting our focus to the foundational economy - we need to be honest about the scale of the challenge faced and ready to admit failure. This is the fourth test for the strategy to achieve meaningful change.

There is no silver bullet for economic development; anyone who argues otherwise is attempting to advance their own, specific agenda. And theories of economic growth remain untested in this new industrial landscape.

In unpredictable times we need to focus on rapid, agile approaches which adapt easily to changed circumstances. But with this will come risk, and with risk will come some failure. The new strategy should prepare us for this, and should have a clear, consistent and transparent monitoring strategy that will enable us to quickly scale up initiatives seen to be working, and quickly put an end to those that are not.

The final, fifth element that the new strategy must embrace is that it must have a positive impact on the things we actually care about.

Success that is only measured by increasing GDP or jobs figures fails to consider the quality of the jobs generated, or the extent to which national wealth is shared. Rising levels of in-work poverty and inequality in Wales demonstrate how inadequate this approach has been to date.

In fact, most families in Wales don’t give two figs about Wales’ GDP or GVA figures. And the age-old adage of the rising tide lifting all boats has consistently been proven false. People care that they have decent jobs, that their families are healthy, their communities are close-knit, their town centres are lively and that their kids go to a good school.

If Wales is to truly set ourselves apart, this is how we should measure economic success. It’s a bold move, but it’s one that’ll mean the effort and money we invest is best spent for the results we ultimately want to achieve.

Some of the biggest economic challenges Wales has ever faced are coming at us at an alarming speed. We have an opportunity to prepare for them, to cushion the blow of harmful knocks, and to position ourselves at the forefront of emerging opportunities.

But to achieve this we need to be brutally honest - on the state we’re currently in, the challenges coming our way and the risks we need to take if we are to emerge not just unscathed, but strengthened.

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