APPENDIX 14
Memorandum from Professor Graham Day and
others, University of Wales, Bangor
SUMMARY
— Establishing an economic development
policy that reaches all parts of Wales is a difficult task.
— The problems in doing so perhaps
explain two contrary tendencies. First, a tendency to overstate
the economic recovery of Wales and to "talk up the Welsh
economic miracle". The modern, emerging Wales is much identified
with an economic base that is heavily dependent on overseas plants.
Second, a tendency to emphasise the limitations of economic recovery
and to claim that concentration on attracting overseas investors
has been to the detriment of indigenous growth. With Inward Investment
spatially selective opportunities and incomes become uneven within
Wales
— Wales has been the most successful
of the UK regions in terms of Inward Investment. That investment
has been important to employment recovery and to income growth.
It has given Wales a presence in industrial sectors that are relevant
to the end of the twentieth century.
— Inward Investment has been important,
but it is and can be only a partial response. Wales remains, on
a number of measures, the poorest of the Great Britain regions.
Inward Investment has been spatially selective, with little impact
on West Wales. Inward Investment has, on occasion, been notably
expensive in relation to jobs promised: jobs created rarely equal
jobs promised. There are problems in countries that have concentrated
their European investment in Wales. There is the possibility of
more intense competition for potentially mobile plants.
— Inward Investment is both important
and limited in what it can deliver. Our paper demonstrates this
in the context of a contrast between Clwyd (high Inward Investment)
and Gwynedd (low Inward Investment). Clwyd's improvement in relative
prosperity and Gwynedd's relative decline indicate both that Inward
Investment has effects and that some parts of Wales need a broader
approach.
— We conclude with a consideration
of some of the measures being taken to improve the performance
of the economy of north West Wales, and the part that education
and training can play in creating a general environment more favourable
to economic success.
INTRODUCTION
The impact of inward investment, and more particularly
foreign inward direct investment (FDI) upon the Welsh economy,
and society, has been so significant a factor, for so long, that
it has become caught up inevitably within controversy. Evaluations
of the course taken by the economy, and perceptions of its successes
and failures, often hinge upon views about the role of inward
investments, and this has generated two competing stories or myths
about the effects of such investment. Both stories tend to over-simplify,
often for polemical reasons, but each contains elements of the
truth. The role of inward investment is both more complex, and
harder to evaluate, than either tends to suggest. Because it is
a multidimensional phenomenon, with a variety of social and political
as well as economic consequences, there is probably no definitive
answer to the question of whether it is a "good" or
"bad" thing for Wales—much depends on perception,
and on the standpoint from which it is viewed. No matter how it
is judged, inward investment is bound to form part of any realistic
development strategy, and is therefore an unavoidable element
of the mix of solutions that have to be devised to meet the economic
needs of Wales. The two "myths" are as follows.
TWO `MYTHS'
ABOUT INWARD
INVESTMENT
Myth 1
The optimistic story is that inward investment,
and especially FDI, has played a crucial role in the regeneration
of the Welsh economy. Foreign investment in Wales has totalled
more than £10 billion since 1983. It has led the way in restoring
a healthy manufacturing core to the economy, and saved Wales from
the near terminal collapse of its earlier "traditional"
industrial base (agriculture, coal, steel). Currently foreign
investment accounts for a third of all industrial investment in
Wales, and is very largely concentrated in the manufacturing sector.
The exceptional success Wales has enjoyed in attracting far more
than its share of such investment —certainly when related
to its size of population —has moved Wales from being a
problem region to a situation of relative power, enough to entitle
it to take its place as a close affiliate of the "motor regions"
of Europe. From being near the bottom of the league, Wales has
risen to become a trail-blazer for the economic development of
the rest of Britain. Although there has been some slackening in
the pace of FDI in Wales in recent years, the share of British
inward investment coming to Wales (11 per cent) is still more
than double what might be expected on a per capita basis (5 per
cent).
Myth 2
The alternative view is far more gloomy. It
accepts the facts of the inward investment record but challenges
many of the conclusions drawn from them, and asks whether the
transformation has been deep enough to make a real difference.
It sees inward investors as using Wales for their own ends—e.g.,
to gain access to European markets—only so long as Wales
offers advantageous (and often demeaning) terms. It questions
whether their commitment to the Welsh economy is strong enough
to weather hard times, or to withstand growing enticements from
elsewhere, and it disputes many of the specific claims made on
behalf of inward investment, with regard to such matters as numbers
of jobs created, quality of work provided, and injection of beneficial
new values and attitudes. Contrary to the vision of a dynamic,
proactive modern Welsh economy, it depicts a humdrum, "screwdriver"
economy, of low wages and limited opportunities. On this view,
the advocates of FDI are more preoccupied with public relations
and the marketing of Wales abroad than they are with dispassionate
appraisal of the facts.
The alternatives have been deliberately couched
in rather exaggerated terms; but the assertions contained within
the rival descriptions can all be documented, along with supporting
evidence. Quite obviously, each version is selective with regard
to the things chosen for emphasis, and the approach taken to evidence.
Each has its advocates, whose preference for one or other of the
stories can be explained usually in terms of their own situation
and perspective—there are those who are concerned professionally
to "boost" Wales, and "talk it up" (such as
those in or close to the development agencies), whereas others
have an inclination towards the cynical or critical stance. Often,
they are addressing different audiences, within Wales or on the
larger stage. Between them, in a polarised fashion, the
two perspectives provide a framework that enables the issues to
be set out clearly.
THE GLOBAL
CONTEXT
The way inward investment has impacted upon
Wales can not be understood in isolation from broader themes.
Viewed more widely, it represents an aspect of the increasingly
large and complicated flows of money (capital) and resources across
space, and over and through national and regional boundaries.
Like all other regions, Wales is experiencing the consequences
of globalization, and one of the emergent conclusions of
work done on this powerful contemporary trend is that, paradoxically,
the strengthening of global ties and the opening up of connections
across space has the effect of heightening, rather than eradicating,
the importance of local differences and variations. Indeed, these
become crucial considerations in the way in which investment movements
make use of space. This has implications not only for the place
of Wales within the world, but also for variations within Wales
itself. Globalization also casts doubt on the extent to which
it continues to be meaningful to distinguish between investments
according to their supposed place of origin—see inset I.
INSET I : CAPITAL
MOVEMENT ACROSS
FRONTIERS
I. What is Foreign Investment?
Purchase of shares by companies based abroad
to add to their portfolio of assets. Thus the purchase of shares
or bonds in UK companies by, say, a Malaysian pension fund with
no change in management will show up as foreign capital flow into
Britain. The pension fund will have added some UK equities/bonds
in its portfolio of assets. A distinction is made in the literature
between portfolio and direct investment, but the demarcation line
is not precise.
Examples of Foreign Direct Investment:
(i) Investment undertaken by a non-resident
or a company registered with headquarters abroad. The source of
funds is irrelevant. Thus a German company opening a factory in
Wales with finance raised from a UK bank will have undertaken
foreign investment in Wales.
(ii) Any investment undertaken by a non-resident
or a company registered with headquarters abroad through partial
or complete acquisition of an hitherto UK company also counts
as foreign investment.
Studies of the effect of foreign investment
in Wales need to take on board some of the problems of definition.
II. Trade and Capital Flow
Movement of capital across national boundaries
is a logical extension of free trade. Many kinds of benefits can
arise:
(1) Investment is directed on the basis of
comparative advantage, thus increasing world production.
(2) New technology—new ways of doing
things—is introduced.
(3) New markets are opened up which might
otherwise not have been recognised.
(4) New markets are opened up which might
otherwise not have been accessible.
Studies about the effect of foreign investment in
Wales should focus on calculating and comparing the share of different
types of benefits. These comparisons could inform the choice of
strategy for attracting new investment, since distinct effects
would be associated with distinct policy implications.
We have to be very careful therefore not to
mistake aggregate patterns which apply to Wales as a whole with
the detailed effects which are occurring "on the ground".
To some extent, this accounts for the gap between the two versions
of recent Welsh developments. The optimistic version makes a great
deal of sense to those who are oriented to changes happening in
the south east or north east corners of Wales, whereas those in
the rural "heartlands" or in the south Wales valleys
are more sensitised to some of the negative elements of the second
version of events.
THE BENEFITS
OF INWARD
INVESTMENT
If we try to dissect the features of the mythologies,
we can begin to distinguish some of the main dimensions of the
debate relevant to any consideration of alternative strategies
which might be adopted. The imputed gains from inward investment
include some or all of the following: many of them follow "automatically"
from the fact that inward investment represents "new"
development, ie change from existing conditions.
Jobs—the most immediate benefit
of incoming business is that it provides employment for Welsh
people. The "headline" claim is usually couched in terms
of jobs created: e.g., that Lucky Goldstar's new plant in Newport
would mean anything between 6,000 (direct) and 18,000 (direct
and indirect) new job opportunities for south Wales. As in this
example, new inward investment projects almost always bring with
them significant blocks of jobs; so they have a dramatic
impact, unlike the slow and gradual accumulation of jobs via other
routes, like business growth and expansion, and they are accordingly
"exciting" (and newsworthy) events, visible as achievements.
Attracting a new job into Wales appears to be an accomplishment
in a way that maintaining an existing job would not.
New kinds of Jobs—Inward investment,
and FDI, helps change the balance of the economy by introducing
jobs in growing areas and sectors, replacing declining forms of
work. This means the actual jobs tend to be different from existing
ones, and so more "modern". For example, FDI is closely
associated with the growth of the electronics industry in Wales,
involving jobs which appear to be at the "cutting edge"
of modern work, effectively replacing "obsolete" work
like that of miners or farmers. Novelty, and "up to datedness"
also tend to be accentuated in public discourse as features of
inward investment. The new jobs may also be more modern in the
sense that they involve contemporary hours and working conditions—e.g.,
they conform to new "flexible" labour.
New Technology—closely associated
with the point above, new firms and new industries bring innovations
with them, and new capital and equipment replaces old, so moving
the technological frontier forward and helping set an example
to or stimulate other, indigenous, industries into emulation.
Japanese investment in Wales has been particularly valued for
this reason, but also key engineering inputs such as Bosch and
Siemens. Any new development, of course, provides an opportunity
and occasion to upgrade facilities, equipment, etc, especially
if assisted by grants and subsidy which factor out other costs.
New Attitudes and Motivations—along
with new organizational forms, the possession/adoption of these
by incoming firms again sets an example, provides a model, or
poses a challenge, which helps generate new dynamism across the
economy as local business is compelled to respond. Bringing these
cultural or behavioural shifts about by means of their introduction
from outside where they are already fully formed and tested can
be seen as a way of overcoming the internal limits of the existing
economy and society—e.g., a lack of "entrepreneurialism"
or readiness to take risks.
New Markets—inward investment may
be associated with the development of new markets or improved
access to existing markets which , for whatever reason, local
companies were unable to enter. These would include markets in
which the new investors are already active.
Once instilled, these general tendencies to
modernise and stimulate can be expected to "rub off"
or diffuse beyond the immediate sphere of the inward investor.
Both directly, and perhaps more importantly indirectly by example
and competition, inward investors raise the standard of business
activity in Wales and teach valuable lessons. For instance, they
may make demands with respect to labour quality, or on standards
of production, which competitors have to meet if they are to survive.
Beyond the first wave gains, proponents of the
inward investment model anticipate more general, and lasting,
benefits— e.g., stimulation for the formation of new Networks
of Innovation or Dynamic Centres, the raising of Levels
of Skills and Qualifications, the spread of different and more
beneficial Work Cultures. These are the kinds of benefit
which are also expected to flow from Wales becoming associated
with such leading European regions as Rhone-Alpes, Baden-Wurttemburg—a
sort of development by osmosis.
In many ways, it does not matter intrinsically
for these processes whether the incoming firms are inward investors
from elsewhere in the UK, or from overseas, although the presumption
has tended to be that certain foreign investors are more likely
to represent the "leading edge" of current activity,
just as certain national or regional economies do. Both kinds
of inward investment raise similar issues as to whether control
and power are being located elsewhere, whereas Wales continues
to occupy a position of dependence. Arguments frequently adduced
during the 1960s and 70s against "branch-plant" development
led by English-owned companies often seem to be suspended when
investment comes via a subsidiary component of a foreign firm.
Since, as already suggested, in a global economy, it actually
becomes harder to decide what "national" identity, and
loyalty, any of the major economic actors have, and what significance
this has for their behaviour, to that extent, the fading away
of concerns about issues of ownership and control may be simply
a recognition of reality—the battle to maintain `local'
control has been lost.
CRITICAL ASSESSMENTS
OF FDI
FDI clearly can do all of the above, and more.
Enthusiasts applaud it for moving forward simultaneously in all
respects —producing more and better jobs, technological
stimulation, motivational pull, dynamic leadership. Those who
have reservations will suggest a set of countervailing propositions.
Many of the jobs derived from inward investment prove to be relatively
low grade, routine work with limited prospects of improvement.
Indeed, many of the promised jobs fail even to materialise. (The
downturn in the South Korean economy at least raises doubts about
the more optimistic predictions of Lucky Goldstar's impact). Furthermore,
it has been pointed out that the vast majority of jobs associated
with foreign investment are not newly created, but secured through
acquisitions and mergers; at best they are safeguarded jobs. A
high price may have to be paid to achieve this—through the
substantial incentives given to firms to locate in Wales, which
are usually in the form of infrastructure provision, such as roads,
sites, subsidised buildings, but also training schemes, and help
with various business services. The Welsh Office and the WDA have
been highly successful in arranging appropriate packages of incentives,
and in outbidding other competing regions in Britain, but this
can make such jobs expensive in terms of public support.
Some argue that a major incentive, and explanation,
for the relative success of Wales in attracting new investment
is the availability of relatively cheap labour, since despite
the transformation of the economy, earnings in Wales remain obstinately
low (some 15 per cent below UK norms). Wage levels in Wales until
recently were below those prevailing in South Korea. They are
particularly low in the rural parts of Wales, and in the valleys,
where rates of unemployment are also high. This can create a vicious
circle of low wage/low skill work, which puts Wales into direct
competition with equivalent places abroad—such as the Far
East, Latin America, and increasingly, eastern Europe, where there
exist large pools of under-employed labour with low wage expectations.
If so, measures taken to deal with this (wage minima, raising
skill levels etc) may be counter-productive in driving investors
away from Wales.
THE LIMITS
OF INWARD
INVESTMENT
As suggested at the start of this report, the
truth about inward investment falls somewhere between the two
opposed images. Even if estimates of the number of jobs created
and the impact on employment patterns has to be tempered with
a sharp dose of realism, it has made a very real contribution
to the restoration of Wales' economic fortunes. It has enabled
Wales to take on a manufacturing configuration more appropriate
to the end of the C20, and to establish a presence within some
key industrial sectors—electronics, communications—as
well as bringing about a significant participation in the motor
industry. With the help of a great deal of hype, it has accomplished
a transformation in Wales' image, both at home and abroad, to
such an extent that the country may now be paying a price for
its own success, witnessing withdrawal of state assistance at
both national and EU levels.
Over time, some of the weaknesses of the initial
push for "jobs at any price" have been addressed, and
there are welcome signs of movement towards a more balanced skills
profile, and the emergence of higher-order functions from within
the FDI base. It would be grudging and absurd to pretend that
Wales would have coped nearly as well during the prolonged phase
of recession and restructuring of the 1980s and 1990s without
the injection of investment from outside, and from foreign sources.
However, the longer the Welsh experience of the effects, the stronger
the awareness has grown that inward investment alone does not
have all the answers; and there is now a fair level of consensus
as to what it does not, and perhaps can not deliver. Its
limitations can be well observed through some local contrasts
inside Wales.
The short journey from Cardiff/Newport to the
south Wales valleys takes one from heady prosperity and the vision
of a future at or near the heart of Europe to the depths of industrial
dereliction. The same experience can be obtained by travelling
from Shotton to Bethesda in North Wales. There is now a vivid
sense of this type of difference and disjunction within Wales,
which is partly spatial, partly social and economic—different
parts of Wales are very nearly "worlds apart".
The thriving areas are those which have gained
most directly from inward investment and industrial success: the
emerging city-region around Cardiff (Severnside) and north-east
Wales. These two areas have accounted for the lion's share of
FDI, and have seen the potential for further and continuing development
around new clusters of economic activity. Far from coincidentally,
they are the parts of Wales best connected to the outside world—
via the M4 corridor in the south, and the A55/M6 motorway network
to the English North West and Midlands. Around them, there has
formed a vigorous, metropolitan, middle or "service"
class which is firmly located in a milieu of economic and social
success and confidence. But the spatial reach of this success
is narrow; as soon as the main communication routes are left behind,
the vibrancy of the local economy starts to decline. Thus all
of the anticipated jobs coming from the Lucky Goldstar development
are likely to be filled by people living within 25 miles of its
Newport site.
Throughout Wales, one finds now the close proximity
of places which appear to be favoured by current developments
and those that seem to be being left behind. The more fine tuned
one's analysis, the more this is likely to be appreciated. Many
places and communities in Wales have seen little of the benefits
of the "economic miracle", and some might well contend
that they have actually been its victims—e.g., those judged
by agencies and policy makers to lack the wherewithal to succeed,
which have consequently been starved of support, or expected to
"feed" more promising places. The recent government
Rural White Paper A Working Countryside reiterates the
suggestion that there are places whose future needs to be considered
against a "more concentrated" pattern of population.
As a generalization however, it is obvious that
the further west you go in Wales, and the more you penetrate its
rural locations, the less reassuring the economic picture becomes.
To the extent that the successes of recent years have been built
upon the maintenance of low wage work, and the extension of more
"flexible" or less secure jobs (part time, short term,
casual, unskilled), then these limited options tend to be located
spatially as well as economically at the margins —in the
more peripheral spaces. Development agencies have struggled to
achieve a more balanced outcome, and have shifted their attention
progressively towards the more neglected areas (e.g., DBRW's policy
declaration to "Think West") but have found investors
extraordinarily reluctant to move into "deeper" Wales.
There are many factors which can account plausibly
for this: limited population and/or unsuitable demographics, low
skills base, poor communications and transport, distance from
major centres, the possibly repellent effects the Welsh language
has for outside investors. When added to the continuing crisis
of agriculture and the long term decline of the traditional rural
economy, these factors mean that the bulk of Wales, geographically,
and a significant proportion (at least a quarter) of its human
population, have not seen huge benefits from a development strategy
focused on inward investment. Nor has there been enough by way
of "trickle down" or spread effects to lead them to
expect that this will come about, given time. Rather, many have
become acutely conscious of the gap between their own experiences,
and those felt or at least proclaimed by others within Wales.
In the rural context specifically, benefits
have been concentrated in the Newtown/Welshpool area, and around
Carmarthen, and to a lesser extent Aberystwyth. Many other rural
districts still show the effects of persistent unemployment, weak
labour markets, and exodus of young people. In north Wales, since
the early 1980s, the former county of Clwyd has seen manufacturing
employment grow by 12 per cent; Gwynedd over the same time lost
about a quarter of its manufacturing jobs. Estimates of jobs associated
with FDI projects confirm this uneven pattern: Clwyd had 86 overseas
owned units, and 15,000 jobs; Dyfed 22 units, and 4000 jobs; while
across the whole of Gwynedd and Powys there were no more than
15 units, and 1,800 jobs. These contrasts are developed more fully
in Inset II.
INSET II: INWARD
INVESTMENT AND
ECONOMIC DEVELOPMENT—A
SEARCH FOR
BALANCE
Contrasts within North Wales—the old Counties
of Clwyd and Gwynedd
As discussed above, considering the balance
appropriate to economic development within Wales is a tall order.
The "right approach" varies as between different parts
of Wales and over time. We can illustrate this more fully by describing
the contrast in experience as between North West Wales (the old
county boundary of Gwynedd) and North East Wales (the old county
boundary of Clwyd).
In both North and South Wales, overseas inward
investment (and also inward investment from other parts of Britain)
concentrates in East Wales, on locations close to the motorway
network and within easy reach of the border with England. The
difficulty in relying on inward investment is that it is highly
selective and rarely reaches:
— The parts of Wales that voted for
an Assembly
— The more remote parts of Wales.
The early 1980s recession had a stronger impact
on Clwyd than on Gwynedd. The loss of major employers was more
severe, the fall in output was more pronounced and the climb in
unemployment was steeper. By 1981, on a number of measures, Gwynedd
was the healthier economy:
— GDP per head (Gross domestic product,
a measure of output or value added in the local economy) in Clwyd
was only 92 per cent of the Gwynedd level.
— Unemployment in Clwyd was more than
3 percentage points higher than in Gwynedd.
But during the 1980s and early 1990s (and after allowing
for differences in population).
— Clwyd was the most successful of
all the Welsh counties in terms of inward investment (from overseas
and the rest of the UK).
— Gwynedd, by contrast, was the least
successful.
— A measure of employment creation
in new plants, (plants introduced between 1979 and 1994) gives
Clwyd a success rate 8x the Gwynedd level (after allowing for
differences in population).
— The huge difference in investment
levels and in employment creation largely follows from differential
success in attracting inward investment.
The contrast between the two adjacent North
Wales counties indicates how selective inward investment is and
also gives us a guide to the importance and impact of inward investment.
— Between 1981 and 1993, full-time
equivalent employment (full-time employees and self employed count
as 1, two part-time employees count as 1) increased by over one
fifth in Clwyd, but the improvement in Gwynedd was only 2 per
cent. Full-time equivalent male employment rose by 9 per cent
in Clwyd, but fell by 12 per cent in Gwynedd.
— Between l981 and 1992, Clwyd GDP
per head climbed from 8 per cent below the Gwynedd level to 27
per cent above it.
— Unemployment in Clwyd was significantly
higher than in Gwynedd in 1981. By l985 the positions were reversed
and by 1993 Gwynedd unemployment rates were 2 to 3 percentage
points higher than in Clwyd.
— The unemployment measure becomes
less reliable as a measure of labour market slack over time, but
hidden unemployment is generally more severe in parts where claimant
unemployment is high.
The economies of North East Wales (the former
Clwyd) and North West Wales (the former Gwynedd) are rather different.
— In North East Wales, manufacturing
accounts for more than 1 job in 3 (well above the UK average);
in North West Wales for less than 1 job in 8 (well below the UK
average).
— Tourism and leisure development are
important throughout North Wales, but tend to become more important
to the local economy as one moves from East to West Wales and
from the English border to more remote Wales.
— Agriculture is important to North
Wales and particularly to the North West. Agriculture is often
understated in accounts of the local economy. This follows from
descriptions of employment structure which are based on employment
and ignore self-employment (particularly important to agriculture);
from ignoring the jobs that depend on agriculture and from a lack
of imagination and vision. The nature and form of agricultural
development are important to the beauty of Wales and to the attractions
which draw leisure income.
— Public administration, education
and health account for 1 in 4 jobs in North East Wales, and for
as many as 1 in 3 in North West Wales. The more remote parts of
Wales are attractive locations for higher education. The successful
move of the headquarters of the Countryside Council for Wales
to Bangor points to the potential for administrative devolution
within Wales. The location of government is an important source
of jobs, income and influence. The Assembly could be the first
step in a devolution movement which has to embrace more than Cardiff.
Inward investment has been selective even within
the old county boundary of Clwyd, concentrating on the parts close
to the English border. Not only are employment gains more difficult
to discover in West Wales, earnings for those in work are also
lower. When North West Wales is compared with North East Wales,
average earnings for male manual employees are about 13 per cent
lower and the differential for non-manual employees is even higher—about
20 per cent.
The table below uses the New Unitary Authorities
to move from East to West in North Wales:
| Claimant Unemployment Rates Percentage January 1997
| | | |
| |
| | |
| | |
East
| | Mid
| | West
|
|
| Wrexham | Flintshire | Denbighshire
| Conwy | Gwynedd | Anglesey
|
| | |
| | |
| 6.4 | 5.1 | 7.7
| 7.4 | 10.2 | 11.4
|
Experience within North Wales points to both the importance
and the limitations of inward investment as an all Wales development
strategy. It has been important to jobs and earnings, but its
impact is highly uneven. It fails to address the problems of important
parts of Wales.
In fact, there are quite strong grounds for arguing that
inward investment works to the detriment of many parts of Wales,
and some sections of Welsh society. The creation of a few strong
centres almost invariably works to draw in resources and opportunities
from the surrounding areas, at least as powerfully as it projects
benefits to them. Urbanization had this effect on the countryside
in the past, and today the tendency would be similarly for developing
"nodes" and "clusters" of activity to pull
in employees, shoppers, seekers after recreation etc from a wide
hinterland, and so undercut existing provisions in the larger
area. This encourages the separation of spaces for work and recreation
from the domestic and "community" spaces of home and
family —creating not just dormitory villages but entire
dormitory zones devoid of significant productive activity. While
not new, this split would assume a different shape and possibly
a deeper significance than in the past. Already much of rural
Wales resembles a leisure and theme park for outsiders, while
the local population either service them at poor rates of pay
or commute out to find themselves better jobs and opportunities.
The young, and the qualified, often leave permanently as soon
as they become independent.
ALTERNATIVE STRATEGIES
Given the constraints imposed by what is already there, the
prospects for dealing with these problems by further inward investment
are slight, and this seems to have been tacitly, if not openly,
acknowledged by recent adjustments to policy. Agencies clearly
have difficulty filling, and keeping occupied, the existing stock
of factories, offices and business parks made available for incoming
businesses. For each success story, there is usually a counteracting
failure—one business opens, another closes. This is why
the importance of finding "indigenous" pathways to development
and growth has risen steadily up the policy agenda, as a substitute
for over-reliance on inward investment.
How one reacts to this depends rather upon how convincing
one finds the initial development scenarios. If it is true, as
the first model suggests, that Wales must rely upon outside sources
for the injection of the necessary elements of modern employment,
technologies, motives and values, then salvation is unlikely to
appear from within—because comparatively little has been
done to awaken these desirable factors among the native population
(of people and businesses). If however one is sceptical about
the extent to which FDI actually possesses these energising powers,
then it is equally valid to seek them out locally. Hence the rise
to prominence of an alternative strand, or philosophy of development,
which can be found expounded now in varying degrees right across
the policy arena, including a variety of endorsements from agencies
and organizations which might have dismissed it in the past (e.g.,
Morgan 1996). This approach lays stress on the potential for Wales
of local, "grassroots", or home-grown development.
Although it is usually conceded that this is a difficult
route to follow, which lacks the "big bang" aspect of
the successful inward investment project, it can also be held
to have some compensating strengths which balance the weaknesses
of FDI. Firstly, it may not require such enormous amounts of directly
targeted support and stimulation, responding more to the broader
ethos and conditions across the board than to specific incentives—
e.g., rather than training for the specific skill needs of an
inward investing employer, the requirement would be to raise the
general standard of education and qualification in the hope that
among the beneficiaries would be some who would respond by showing
business drive and determination. Secondly, growth which stems
from within is arguably more anchored to its place of origin,
less susceptible to the ebb and flow of external pulls, and therefore
more dependable. Thirdly, and relatedly, indigenous business may
owe more to the particular circumstances of the place, and its
traditions and characteristics, and therefore lend itself better
to the formation of bonds and connections from which further growth
might ensue than an import from outside. These kinds of possibilities
lead to suggestions that locally based growth is more reliable,
"appropriate" and "sustainable" than activity
introduced from outside—it is more locally "embedded",
and more attuned to local conditions, even if less spectacular.
Development based on such assumptions would start from where
people and firms already were, rather than having to wrench local
conditions into conformity with externally induced needs and requirements.
Although slower, such development might be less disruptive, more
compatible with its environment, and subject to greater local
control. There is growing awareness of the need to go beyond FDI
in any case: the current themes of the development agencies (WDA
etc) are the importance of building networks, capturing supply
chains ["Source Wales"], upgrading skills and in general
encouraging the formation of the value-added and multiplier linkages
around FDI which do not always flow spontaneously. There is also
an acceptance that the legacy of FDI in Wales is too skewed towards
manufacturing, and not oriented enough to services, especially
the vital producer services (R & D, marketing, legal and financial
services, etc).
Inset III elaborates some of the arguments which lie behind
the emergence of new perspectives on the balance of economic developments,
and applies them to the situation of north west Wales.
INSET III: BUILDING
REGIONAL COMPETITIVE
ADVANTAGE
An understanding of variations in regional economic performance
and inward investment can be gained by applying Porter's (1990)
model of the development of competitive advantage to a regional
scenario. The proposition, to be considered at the level of individual
industrial sectors, is that the potential for innovation is based
on the initial endowment of factors of production (land, labour,
capital, and the entrepreneurial spirit), and the subsequent choices
made at the macro- and micro-level about the method of their exploitation.
![](82111.gif")
Porter's framework argues that four principal determinants
dictate competitive economic advantage:-
— Endowment of Factors of Production. The
economy of North-west Wales was originally built on its endowments
of natural resources—land for agriculture, and the underlying
deposits of minerals for quarrying. As quarrying waned tourism,
an alternate use of the landscape, increased. Although employment
in agriculture has declined, it continues to be important in many
parts of north-west Wales for its contribution to language and
culture in rural areas, and for the potential to add value through
the processing within the local economy of raw ingredients. The
relative advantages of the area continue to be in such aspects
as natural endowment, environment, and the social and cultural
aspects of rurality. Geographically isolated, the area has historically
supported very limited manufacturing industry. Investments in
infrastructure, generally limited to the coastal belt, have improved
the potential to transport products out of the area. However,
these have also facilitated the leakage of services and human
capital out of the area. Education has always been valued, often
as a passport to employment outside the region. Ongoing upgrading
of education and training in the area has been funded by national
government, and by local government use of targeted EU funding.
— For the development of economic competitive advantage
at the national level, the nature and sophistication of domestic
demand is considered to be important. This is principally
governed by the nature of industry within the nation, and the
spending patterns of the population. The purchases of Government
(national and local) may also be an influence, e.g., R&D and
defence technology. In most cases, the flow of goods across national
boundaries provide the measure of `demand' at the national level.
Such an approach is not possible in the context of `demand' within
a region, where flows occur but are not captured separately from
aggregate national statistics. Given the low levels of personal
income within Wales, consumer demand is relatively unsophisticated
in the area. Inward investors can be considered to make an important
contribution to enhancing demand, as they often serve demand in
markets beyond the region.
— Existing Industry Structure. Historically,
north-west Wales could be considered to have competitive structures
which served to introduce innovation in the sectors of agriculture,
quarrying, and tourism. Attempts to introduce `new' industries
necessarily mean there is limited competition. This might be interpreted
as reduced pressure for innovation, but all `open' regions are
connected to broader national and global economies which ultimately
provide the impetus.
— Appropriate support Industries are necessary
to the survival of existing economic activities within a region,
but also to the attraction of `new' investments. Again, historical
sectors develop their own support infrastructure for the supply
of goods and services. It is often argued that, in a market economy,
`new' support activities will not be supplied until the corresponding
demand is created. The challenge is to create a flexible network
that provides support across narrow sectoral requirements.
Three secondary determinants of competitive advantage are
emphasised:
— Chance events, which by their nature cannot
be predicted. Examples include oil price shocks in the 1970s,
the Chernobyl fallout in the 1980s, both of which had important
effects on the Welsh economy.
The level and nature of Inward Investment. Companies
re-locating to a region may do so to serve the local market, or
to access productive factors within the region. For the most part,
inward investment to North Wales is in pursuit of productive capacity.
It may be considered to stimulate economic development through
the introduction of any of the following—new processes (production
and management); new technology; the demand for new skills, services,
and component parts; but most importantly due to stimulation of
competition within the economy, and provision of access to more
sophisticated demand outside the region (Daniels and Radebaugh
1998). Concerns continue that control and decision-making about
R and D, purchasing patterns, etc reside outside the local economy.
Historically, in the context of north-west Wales, inward
investment was believed to be limited due to the peripheral location
of the region, but perhaps principally by perceptions of a lack
of the skills and support industries required by the inward investor.
Research in 1993 for the foundation of the Snowdonia Technopole
indicated that high tech companies were able to recruit in the
local labour market using a mix of strategies that involve short
term and long term training of new recruits, often supported by
funding from development agencies. But anecdotal evidence suggests
that concerns persist about the range and level of support services
available within the local economy. Even for companies based locally,
the result is a pattern whereby services ranging from financial
advice to processing of component parts are purchased from distant
parts of the UK.
— Government is seen as having a supporting
role to play. It cannot create competitive advantage by itself
where basic factor endowment is absent. However, it can support
the development of productive capacity through selective investments
in physical infrastructure (advance factories, and support for
capital equipment); upgrading human capital; the attraction of
inward investment; and the development of support industries.
Building on this framework, the remainder of this discussion
document will focus on the aspects of support industries and small
firm development, the provision of appropriate skills and the
role of education, especially HE and the University.
SMALL FIRMS
IN THE
ECONOMY
Despite some of the highest levels of persistent unemployment,
north-west Wales has one of the lowest rates of new firm formation
in the UK. High levels of self employment are found in remote
rural districts, perhaps confirming the suggestion that areas
of high unemployment `push' individuals into self employment in
the absence of a genuine alternative.
It is often argued that high levels of firm formation are
required to compensate for the 40 per cent of new firms that will
fail within four years of birth. This is seen as recognition of
the `resource poverty' in which most small firms are born and
survive. Such poverty encompasses lack of finance, skills (including
management), information, and time.
For north west Wales to enjoy a larger share of the Welsh
economic fortune, there is a general need to expand the support
industries available locally within the region, to help new
firms overcome these obstacles, and to sustain one another through
mutual assistance. The nature of much of the required support
makes it suitable for provision by smaller organisations, and
at the very local level by self-employed individuals. It would
include the expansion of some of the key producer services which
are lacking throughout Wales.
For some years CELTEC has successfully operated a `Contract
Shop' with the aim of building links between buyers and suppliers
already in the region. This is also understood to have been used
in identifying sources in the supply chain for inward investors.
The North Wales Supply Chain Group is currently emphasising this
issue in its seminar series "developing supply chain relationships".
Such initiatives are particularly important as many firms already
operating in North Wales, perceive, rightly or wrongly, that the
attention of the larger development agencies is focused solely
on inward investment, and on the big economic players. Small firms
also express difficulty in identifying specific types of assistance
geared to their immediate needs. There is a strong case to be
made for improved co-ordination of policies between agencies—both
to avoid unnecessary overlap, but also to plug any gaps.
The activities of several organisations are attempting to
stimulate firm formation. For example, Snowdonia Business and
Innovation Centre provides support in the evaluation of business
ideas, reviewing sources of finance, and development functions
including new product development and marketing, while several
enterprise agencies (including Antur Menai, Antur Dwyryd
Llyn, etc) offer practical skills training to would-be entrepreneurs
in their local area. Many focus on the specific sectoral needs
of their local economy, and some, eg. Antur Dwyryd Llyn, pay particular
attention to specific types of entrepreneurs—eg. women into
business.
EDUCATION AND
TECHNOLOGY AND
INFORMATION TRANSFER
As well as these initiatives particularly dedicated to the
needs of the SMEs, there are additional ongoing developments in
FE and HE which aim to serve the broader needs of the individual
and of industry at large. These range across full-time education
and training, to the provision of short-term and day release programmes.
The content of many courses is guided by the findings of the Annual
Labour Market Report which identifies potential skill gaps. Others
are specifically developed to meet the needs of individual companies.
While the effects of expenditure on health, welfare and education
are more diffuse than the more targeted aid which can be provided
to relocating industries, in the long run they may still prove
as significant, if not more so, for their impact on sustainable
and harmonious forms of growth. This can be illustrated with respect
to technology transfer, one of the prime advantages attributed
to inward investment. There are numerous ways that technology
transfer might take place, but the one that especially interests
us here is the way in which it can be enhanced if there is a sufficiently
vibrant higher education sector. Here also, certain myths need
to be dispelled before informed discussion on technology transfer
can take place. The first is that high technology firms are bound
to introduce higher level of technology into the country. This
is not necessarily so. The comparison of Taiwan and India by Lall
at Oxford Institute of Economics and Statistics has shown that
low technology foreign investment can successfully generate higher
levels of technology in the recipient country, providing the appropriate
infrastructure of educational institutions and communications
facilities is there. The second assumption to be challenged is
that low wages are needed to attract industry. Low wages are not
synonymous with competitive unit labour costs. The tables attached
to the end of this report illustrate this, by showing that movements
in wages rates are not necessarily synchronised with changes in
employment.
There is an agreed view that the role of education in creating
prosperity is two-fold: a) it allows successful absorption of
new technology and b) it enables local innovation to improve the
technology. There is a one-off effect in the level of output with
each new introduction/absorption of technology. That is the `old
growth theory' (Solow's explanation of historical trends recognised
in a Nobel prize). The `new growth theory', allegedly fashionable
in New Labour circles, goes further. Education which facilitates
the introduction and innovation of new technology may lead to
a permanent increase in the rate of growth. Whilst the evidence
on this stronger claim is not robust, the `old growth theory'
is well-tested. Even under the proposition of the `old growth
theory', a vibrant educational sector which allows for technology
absorption and innovation is vital. It is far more important for
long term prosperity than attempts at attracting high technology
firms. It is better to attract overseas (or outside) firms that
match available skills, so long as there is a local environment
conducive to the improvement of skills. Speaking as we do from
the higher education sector, this is naturally an argument which
appeals to us, and we believe that our own institution, in its
various industrial and "community university" programmes,
is working to that end, just as the relative successes experienced
in some others parts of rural Wales such as Aberystwyth, and Carmarthen,
can be explained in large part by the local presence of HE and
FE establishments.
— University of Wales Bangor (UWB) has a
very active and developing involvement in economic and business
services. Its Centre for Learning, Development and Training
runs short graduate placement programmes of up to 12 weeks duration
to raise awareness of the potential for employment in SMEs
— Infinet conducts management courses to
facilitate an introduction to supervisory and management roles,
some of which lead to Certificate, Diploma and MA awards.
— UWB is a partner in the Capital Challenge Programme
"Bangor—the learning city" with local authorities.
This includes the development of a new technology centre at Parc
Menai, a fund for new business startups for graduates, and the
installation of an optical fibre network.
— UWB is in the top ten UK universities awarded
Teaching Company Schemes by the DTI
— Despite its rural location, UWB is unique in having
won DTI awards for two of its departments.
— UWB has more centres of excellence recognised
by the WDA than other Welsh HE institutions.
In this context, it is worth emphasising that inward investment,
and the public support which underpins it, is only one arm of
public policy and finance relevant to developments in the economy.
Its impact on rural Wales, and "remoter" Wales, has
to be set alongside other major public commitments, of which support
for agriculture (via the CAP) and for the major public services
such as education, health and welfare, as well as expenditure
on social security, are the most obvious. These have not always
pulled in the same direction in the past (for example, a long
standing productionist bias in agricultural support systems has
encouraged the displacement of labour from the industry, and so
removed jobs and rural population precisely when other policies
were aimed at maintaining them). There are direct, and at times
unwanted, connections between policy decisions made in the various
sectors—for example, support for industrial investment may
be given at the expense of potential funding for key public services.
Although the integrated nature of these effects is obvious, they
are not always recognised within the institutional and sectionalised
framework of government and the policy community. This has been
a recurrent problem for an area like rural Wales. The creation
of a Welsh Assembly may facilitate a more integrated perspective
on public policy; but it is important that this pays due attention
to variation within Wales and seeks to overcome some of the unevenness
of current policy outcomes.
CONCLUSIONS
Allowing for population, Wales has enjoyed more success in
attracting inward investment than any other region within the
UK. The reasons are not fully understood, but important to this
record are:
— The expertise of the WDA and the financial assistance
available
— The co-operation of the Welsh TUC
— Geography and convenient access to the rest of
the UK and to Europe
— Early success, the locations that attract plants
build a reputation. Inward investment shows a strong tendency
to follow established streams, with distinct clusters of Japanese
plants, German plants, American plants.
Inward Investment remains important to Wales, but there are
qualifications:
— It is spatially selective and fails to reach much
of Wales.
— Wales remains, on a number of measures, the least
prosperous of the British regions.
— The overseas economies that have been important
to inward investment in Wales include economies that are now in
substantial difficulties.
— Competition for inward investment may make success
more difficult in the future, with that competition including
other parts of the UK and also an extended Europe.
— Some inward investment projects are alarmingly
expensive in relation to jobs delivered.
For these and other reasons it would be sensible to consider
a development strategy that emphasises more than Inward Investment.
— Such a development policy needs to embrace human
development: the education, training and retraining of the labour
force.
— No sustained economic development is possible
without simultaneous growth of human capital.
— The dynamic forces in development are simply the
dynamic factors in human life and they include the quality of
the population, the capacity for technical progress and the wisdom
to recognise that the productive needs of the economy have to
be balanced with the social needs of its human resources. Social
needs include employment, the standard and healthy way to gain
access to goods and services.
| Index of Wage Rates in manufacturing converted into US dollars
| | | |
| |
| | |
| | |
| USA | Japan
| West Germany | UK | Republic
of Korea
|
| | |
| | |
| 1970 | 100.0 | 100.0
| 100.0 | 100.0 | 100.0
|
| 1971 | 106.6 | 128.8
| 124.7 | 120.0 | 98.4
|
| 1972 | 114.0 | 155.2
| 138.4 | 125.5 | 104.8
|
| 1973 | 122.1 | 207.8
| 181.8 | 140.2 | 124.0
|
| 1974 | 131.9 | 243.5
| 227.1 | 165.7 | 137.9
|
| 1975 | 144.2 | 268.5
| 226.2 | 185.8 | 175.2
|
| 1976 | 155.8 | 313.8
| 268.2 | 187.4 | 236.0
|
| 1977 | 169.6 | 418.7
| 323.9 | 219.7 | 315.8
|
| 1978 | 184.2 | 551.9
| 392.8 | 277.3 | 424.2
|
| 1979 | 199.7 | 474.4
| 437.1 | 348.5 | 545.6
|
| 1989 | 214.9 | —
| 411.8 | 437.7 | —
|
| | |
| | |
Sources:
UN Bulletin of Labour Statistics, 1980 and 1982-84 (Table 8).
UN Year Book of Labour Statistics, 1980 (Table 18).
UN Monthly Bulletin of Statistics, September 1981 (Table 62).
UN Monthly Bulletin of Statistics, September 1977 (Table 67).
| | | |
| |
Below we look at the employment level in manufacturing in
these countries to establish whether increase in wages are unambiguously
related to loss of employment.
| Index of employment Manufacturing
| | | |
| |
| | |
| | |
| Year | USA | Japan
| West Germany | UK | Republic
of Korea
|
| | |
| | |
| 1970 | 100.0 | 100.0
| 100.0 | 100.0 | 100.0
|
| 1971 | 96.2 | 101.0
| 99.3 | 96.6 | 96.4
|
| 1972 | 98.9 | 101.0
| 97.7 | 93.3 | 115.8
|
| 1973 | 104.1 | 105.2
| 97.7 | 93.9 | 145.3
|
| 1974 | 103.7 | 105.0
| 96.2 | 94.4 | 173.1
|
| 1975 | 94.6 | 99.5
| 90.6 | 89.9 | 194.1
|
| 1976 | 98.1 | 99.0
| 90.3 | 86.9 | 233.5
|
| 1977 | 101.6 | 98.4
| 89.8 | 88.1 | 247.7
|
| 1978 | 105.7 | 97.0
| 90.1 | 87.6 | 271.6
|
| 1979 | 108.3 | 96.8
| 90.6 | 86.6 | 265.7
|
| 1989 | 103.8 | 100.0
| | 72.9 |
|
| | |
| | |
Source: UN Bulletin of Labour Statistics, 1980 and 1982-84 (Table 3A).
| | | |
| |
Professor Graham Day, Professor Ross Mackay, Shanti Chakiavarty
and Stephen Jones
University of Wales, Bangor
8 June 1998
|
