What's wrong with Wales?

The Welsh economy has been in decline for the last 4 years. Not only that Wales has been hit hard by the recession since 2008, it also seems to be caught in a vicious cycle. Since inward investment is difficult to come by, economic activity in general is low in Wales which makes it an unattractive place for any investor to be. On top of that, the economic policy of the Welsh Government does not help. The Labour government under Carwin Jones has mainly one objective: to keep the public sector as large as possible since it is public sector jobs that form the main electoral pool for his party, and because public sector employment is often the only mechanism to address structural unemployment in some areas with low economic activity.

The result of this devastating policy and the long term structural problems of the Welsh economy are reflected in the economic figures. In almost all indices of economic activity Wales lags behind all other regions, whilst it leads the four home nations in almost all statistics of government expenditure. Government spending in Wales as a share of GDP has been 57.4% in 2007/8. The comparable figure for London (with plenty of government activity!) was 37%. That's a 20 percentage point gap between the two areas.

But look more closely and the figures reveal an even more shocking picture. Wales also lags behind in terms of productivity. The gross added value in Wales compared to the whole of the UK (100) is 74, leaving Wales way behind any other region as one of the least productive of the UK.

How difficult it is to break out of this vicious cycle of enormous government expenditure and low economic activity has sparked a lively discussion amongst economists and policy makers. The only person who seems to show little interest in tackling the deep seated problems of Wales is the First Minister himself, Carwin Jones, who explained in a recent interview with the BBC that, I paraphrase, everything is just peachy and, once Wales will have internet broadband in 2015, she will pull ahead of the other home nations (at 43 mins into the interview).

The poor performance of Carwin Jones as a First Minister and his government is widely acknowledged amongst commentators and reveals one fact above all. They still have no strategy how to pull Wales out of this mess which they have permitted to develop over the last 12 years in power. There are plenty of possible solutions. None of them however appeal to Labour politicians since they would damage their long term electoral strategy in Wales. The most attractive way out of the situation would of course be to shrink the public sector and to free up governmental expenditure to invest in the upgrading of infrastructure in Wales. There can be no doubt that the current ratio of governmental spending stifles private investment and economic activity. The state in Wales has become the Leviathan that devours all else.

The other way to improve Wales' economic future would be to stop introducing petty legislation through the Welsh Assembly. Since the Labour dominated Welsh Assembly has been created it has either idled its way through the decade or engaged in matters, at best, peripheral to the state of the economy, at worst, detrimental to its growth prospects. Part of the explanation is that Welsh Assembly members of all parties are of fairly low calibre. Any politician with political talent tries to get a Welsh seat for the House of Commons rather than wasting their time in the Welsh Assembly. With a severely restricted talent tool for the Welsh Assembly, debates are often either painfully partisan and tribal, or focussed on politicians' pet projects such as the organ donor legislation or legislation to make it compulsory to install sprinkler systems in newly built houses. Needless to say that neither of those are of any consequence to the Welsh economy.

The main response of the Welsh Government so far has been to blame others for the state of Wales. Carwin Jones and his Labour ministers are habitually pointing the finger at Westminster when they are criticised for their poor performance. It is London, so their story goes, who should shoulder the blame. The statistics however belie this argument as a cheap attempt to avoid taking responsibility for their own actions. Wales receives much more from the treasury than it puts into the coffers of the chancellor. In 2006/7, according to official figures, £19.3 billion were raised in taxes and duties in Wales, whilst governmental spending reached £28.2 bn in the same year. Which makes Wales a net recipient of public money.

It seems that as long as the Welsh Government is in denial about its own responsibility for the devastating economic situation in Wales and as long as the Labour party clings to the mirage that public sector employment is the only way to tackle socio-economic deprivation, little will change in the land of Glyndwr.