Examination of Witnesses (Questions 220
- 239)
WEDNESDAY 11 FEBRUARY 2004
PROFESSOR GRIPAIOS
Q220 Albert Owen: You mentioned GVA
and household incomes. Which do you think is the best comparison
to use between England and Wales, the GVA or household incomes?
Professor Gripaios: That is a
very interesting point. If you take Cornwall, the household disposable
income there is 90% of the UK average. That does not seem to me
to be the poorest county in England, but GVA is 58%, so it is.
On that basis it is likely to be the only UK region which qualifies
for Objective 1 next time round. The Welsh case is much narrower.
The Welsh case is 79% for GVA and 87% for household disposable
income. Whichever way you look at it in the case of Wales it is
not that prosperous. It may not be as poor as GVA would suggest,
but it still does not compare very well. All the differentials
across the UK are narrow.
Q221 Albert Owen: That is with the
UK; you are talking about percentages for the UK.
Professor Gripaios: UK, yes.
Q222 Albert Owen: What about England?
Can you compare it directly with England.
Professor Gripaios: No, I cannot,
because I do not have the figures in my head. I could look them
up for you and supply a note. Generally England is getting more
prosperous relative to Wales.
Q223 Albert Owen: The whole of England,
not just the South East.
Professor Gripaios: The whole
of England, but you have to realise that what dominates the statistics
for England is the South East, because most of the wealth is generated
there and most of the people live there. The government is there,
for example, which is not true of all countries. To come back
to the original question about why Wales is getting poorer, it
is because it has not done very well in terms of getting high
value added jobs, it certainly had not attracted the quality jobs
in financial and business services. Many of the wealth creating
jobs have gone and a lot of those which have come in are low value
added ones and that applies to manufacturing and services. The
other key thing is that the growth in employment has not been
so high in Wales and Wales does not have so many people in work.
Why that nut is so hard to crack is a very interesting issue,
particularly when unemployment across the whole of the UK is pretty
low. There is a real problem there.
Q224 Mr Caton: You have just said,
and indeed in your written evidence you noted, that there is a
lack of high order functions in Wales and you talk about that
resulting in the leaking of money back to England. Do you think
this can be solved or even influenced by changes in government
policy or is it a case of historic accumulation which is very
hard to affect?
Professor Gripaios: It is very
hard to affect. I do not know, for example, when British Aerospace
and all that were located in Bristol. As far as I understand,
it was back in the 1920s and it was to get beyond the range of
German bombers. Bristol had a bit of luck there, but nevertheless,
because of that luck, the infrastructure was created there and
the design is done there. There is also the fact of size, that
Bristol has the size and has tended to have the big auditors,
for example, KPMG, PriceWaterhouse and so on. Some of those had
offices in Cardiff, some did not. They all have offices in Bristol.
One of the problems is that one of the results of success in attracting
manufacturing FDI to Wales is that they take over an existing
Welsh company or they compete with an existing Welsh company which
probably would have used local suppliers and financial services.
If a big company comes in and if they use KPMG in New York, they
will use KPMG when they come to the UK and very often they will
use the Bristol office or the London office; sometimes not, but
very often they do. This is not an easy thing to affect, but it
does not mean that more could not perhaps have been done to have
gone for high value added services to attract them, given that
in many cases, from our research, they do seek to cover what might
be called a greater Severn-side region. It would have been beneficial
perhaps if more effort had been put into attracting them to the
Welsh side of the bridge. I only know of one case, Barclays. What
has been happening is that you used to have a Welsh regional office
and a South West regional office and so on. Now you typically
have a region which covers all of Wales and the West, usually
serviced from Bristol. Barclays has an office in Cardiff, but
that is very unusual.
Q225 Mr Caton: The Welsh Development
Agency actually prides itself on helping foreign direct investment
make contact with suppliers in Wales and you get the add-on benefit
for the economy. From what you are saying, the big value added
things like financial services either fail to do that or they
have not given that the priority that perhaps they should.
Professor Gripaios: They probably
have not given it priority, because I am sure I have seen documents
where in the last few years they said they had changed their policy
and tried to turn towards attracting more services. They probably
were rather late in that game. Whether they would have been successful
is another issue. I do not know the answer to that. They certainly
might have tried. You can understand why people go for the short-term
fix. They have unemployed steel workers, therefore they think
perhaps they have to go for a particular type of job and we all
know the type of job which is coming to Wales. It has been extraordinarily
successful in getting FDI and manufacturing, even the last figures
show 18% of the total which comes into the UK, but it only got
two or 3% of the services FDI which came into the country.
Q226 Mrs Williams: I should like
to refer to point 14 in your memorandum, where you refer to harnessing
innate potential within Wales and raising the aspirations of both
the population and policy makers. Where do you think this potential
lies and where do you think we have been remiss in not having
high enough aspirations in the past?
Professor Gripaios: What strikes
you very forcibly, if you look at the statistics by local area
in Wales, is that some are so much worse than others. There is
a problem overall and that seems to be in the statistics. For
example, the proportion of people who are staying on in school
after GCSE is much lower, one of the lowest in the whole country,
possibly the lowest in the country. If you look at areas such
as the Aberavon constituency in particular, or the Valleys, it
is extraordinarily low. The economic activity rate is low, earnings
are low, and the proportion of people going on to higher education
or even sixth form education is very, very low. I have read most
of the documents which are around over the last few days just
to prepare myself for this cross-examination and it seems that
all the policies anyone could think of which might be relevant
are there in terms of having to train more people, having to encourage
R&D, the same as you would find in Cornwall and the same as
you would find in the North East; I am sure they are doing the
same thing in Merseyside. What strikes you at the end of the day
is that it is a battle for hearts and minds. The people have to
want to do it. You can put the training places there but it is
a hard nut to crack. Somehow we have to move from the tradition
of the job at the end of the street. They used to say in Birmingham
that most people worked in the factory at the end of the street.
Those jobs are not there any more and to do the jobs which are
going to be high value added does involve education. It does require
much higher skills and somehow we have to get the motivation to
do that. I do not live in Wales any more but I have the impression,
and the figures support me, that a lot of people have just dropped
out completely. That is the worry. That is what you have to crack
and that is why I say it is a battle for hearts and minds.
Q227 Mrs Williams: Can you say a
little more about these aspirations which are not high enough
to which you have been referring?
Professor Gripaios: You have to
get the message across and I do not know how you do this. You
have to say to people that those jobs in the factories, the collieries
have obviously all gone. The jobs even in the factories which
have been brought in are very vulnerable. Wales is probably more
vulnerable than anywhere else in the UK because of its very success
in attracting foreign direct investment. It got it on the basis
of grants, it got it on the basis of low wages. It is the same
with the work which has come in financial and business services.
An awful lot of it seems to be call centre type operations. All
of this is very vulnerable to being moved to the low labour cost
locations which are about to enter the European Union. Somehow
we have to get the message across to the school kids, exactly
as the witness from British Aerospace was saying. The only answer
for the British economy and the Welsh economy is to move upmarket
continually and if you are going to be able to do that, you have
to have very highly qualified people. Somehow we have to raise
the aspirations of the people who are not going on to sixth form
and so on. It is not just a problem for Wales, but it seems to
be acute in Wales and it seems to be particularly acute in the
former mining and steel working areas.
Q228 Dr Francis: I was struck recently
in relation to work which we are doing on carers, those people
who look after people who are disabled and elderly people, unpaid
by a statistic that in my local authority we have 22,000, the
highest per head of population of any county, in the whole of
the UK and also the highest proportion of heavy end carers, those
who look after people for over 50 hours a week and there are 25,000
students in Cardiff central. Looking at those two statistics and
the paradox of it all and the low take-up in higher education
in my area. In a way that low take-up is a function in part of
the number of people who are ill and those who look after them.
Have you every thought about that? Has that statistic ever struck
you?
Professor Gripaios: I have not
but I saw the papers which were only sent to me last week. There
is an advisory committee on economic research in Wales and I noticed
that one of the topics they were looking at, which I thought was
a very sensible thing, was the reasons for the low take-up rate
of higher education and sixth form education. No, I have not done
any work on that. That is where the focus should be now. The supply
side is there and the politicians have done what can reasonably
be expected. They have been very successful in getting funds of
a certain type for Wales. The schemes are there, all the right
noises about encouraging entrepreneurship, encouraging small firms
and so on. The rates of entrepreneurship/small business creation
in Wales are terrible, but the problem seems to be recognised.
We have to get behind that and find out why people are not doing
it and that is the difficult bit. You are in the realms of sociology
there and that is beyond my competence. You probably think lots
of things are.
Q229 Mr Edwards: Let us compare Bristol
for a moment. Would you say that the success of Bristol as a headquarters
site was due to identifiable real economic factors such as supply
of skilled labour, geographic centrality to the Super Region,
or is it more a case of less tangible factors?
Professor Gripaios: This is always
a very tough one for economic researchers, because you can send
questionnaires out and ask whether they are going to Wales because
of the grants, whether they are going to so and so because of
the beautiful environment and they wish to appear rational, so
what they never tell you is that they actually went because they
liked the look of the local golf course, or because the wife liked
the look of the shops. Unfortunately all of these factors are
important. It is very difficult to get to the tangible things.
It might be the fact that most of the money, however you look
at it, is in England and there may be a perception that they prefer
to stay one side of the bridge rather than the other. We have
already talked about the aerospace issue. There is the scale issue
that it is a bigger labour market. Bristol is a much bigger city
and therefore presumably, if they are covering a big Super Region,
they wish to be close to the majority of their clients and if
there are more in Bristol than there are in Cardiff, I guess the
push is to be there.
Q230 Albert Owen: You talked about
the success of Wales in attracting FDI and the fact that it is
not at the higher end of manufacturing. How do you think Wales
and particularly the WDA could do better in attracting that? When
we have met them on a number of occasions, they have been saying
they are hugely successful, but you are saying the opposite.
Professor Gripaios: I have sat
in conferences a number of times and I have heard people from
Wales, often academics, saying they have been wonderfully successful,
they have got all this FDI. I always ask why the GVA is so low
then. I never seem to get a satisfactory answer to that question.
A few years back, it was almost as though there had been a Welsh
economic miracle and no-one ever seemed to say "Hang on a
minute. Are we storing up problems for the future here? Are we
really getting the quality stuff? Should we perhaps be more discriminating
and say we will target the grants to this rather than that?".
There has always been a tendency to get it in. I understand why.
Q231 Albert Owen: You said earlier
that they are making the right noises now, so what is going wrong.
If they are making all the right noises, the grants are there,
the WDA says—
Professor Gripaios: Events have
moved on, have they not? It has become very difficult to get any
FDI at all. FDI in the UK in total has dried up, partly because
of recession in America, but partly because they all came in quickly
to get into the European market, partly because of the recession
in Japan, partly because they are not so worried about going to
English speaking countries and countries like France and they
are much more welcoming, partly now because of Eastern European
countries who have much lower wages and can offer the same benefits.
In a way they have had to turn to other things and the sorts of
things they have turned to mean we are all going to have to rely
on making more of what we have and that includes the businesses
which are already in Wales, but also the talent which has to be
there. You have to make the most of your population and that is
where we come back again, encouraging that population to have
higher aspirations in terms of the educational qualifications
they are going to require, the skills they are going to require,
the attitudes to entrepreneurship, they have to be hungry.
Q232 Albert Owen: So education is
top of that list.
Professor Gripaios: It is very
important. I do not worry, to be honest, there is plenty of room
in the world for the barrow boy who makes it, but there are different
routes. Let us have the barrow boys as well. We want those.
Q233 Albert Owen: Taking the Irish
example and the Irish tiger, talking to Irish economists, they
put education very much at the top and grants lower down the list
of priorities. Would you say that is the right way to proceed?
Professor Gripaios: I think it
is now, yes, definitely.
Q234 Mr Caton: Have you had a chance
to have a look at the "techneum" sort of approach which
is now being developed in Wales? This seems at least to be an
attempt to address two things you have pointed out in your submission
to us: one, that we need the high value employment; second, that
we are going to have to look for home-grown answers rather than
any more foreign direct investment. Do you think that working
with the development agency, local authorities and the universities
to try to incubate high-tech jobs is part of the answer?
Professor Gripaios: Yes, I do
think it is. I looked at a report on higher education about the
spin-off from higher education and I was amazed to find that even
in MIT and Harvard and so on, spin-off from universities in actually
very small. Nevertheless, there are examples, and Cambridge is
a good one, where there has been considerable spin-off. In the
case of my university, there is quite a lot of success with the
medical school and a spin-off on a medi-type science park. You
have to explore every route you can and that was certainly one
of them. I just get a little uncomfortable when I hear people
talking about Cardiff firms going to Cardiff University and Cardiff
University offering services to Cardiff firms. I should like to
think that Cardiff University expertise in whatever it is could
be offered to firms throughout the UK. You do not want to get
too narrow in this. It does not actually make a big difference
whether they go to Cardiff University, Swansea University or Warwick
University. None of them is very far away.
Q235 Mrs Williams: But do you not
accept that because they are so close to the university, it is
a natural progression for this relationship to build up?
Professor Gripaios: If it is and
it is to everyone's mutual advantage, I do not have a problem
with it.
Q236 Mrs Williams: So what problem
do you have?
Professor Gripaios: I do not have
a problem with British Aerospace, which happens to be in North
Wales, going to Loughborough. If that is where the expertise and
best source of advice for them is, that is fine. Sometimes we
are in danger of getting too much back into a statistics economy.
Q237 Dr Francis: Objective 1. Looking
across to Wales from Plymouth you must have been quite intrigued
by all the political debates about Objective 1 in the Assembly
and other European grants as well. To what extent do you think
that Objective 1 can influence and has influenced regional performance
overall?
Professor Gripaios: It is certainly
far too early to say whether it has had any effect in Wales or
Cornwall or anywhere which has just received it this time. They
are only half way into their spending programme and it is certainly
too early to evaluate the results fully on this. Any source of
funding is potentially valuable if it is well used. I did a very
interesting interview on this for BBC down in Plymouth and this
was about Objective 1 in Cornwall. It turns out that if you look
at the figures, Cornwall is getting something like £310 million,
much less than Wales, but nevertheless a big sum of money. That
is less than half the cost overrun on the Trident refit programme
in Plymouth alone. In the context of all government expenditure,
it is not massive. I understand in the case of Wales that it is
about one fourteenth of the Wales Office budget. If well used,
it is not to be sneezed at and it is up to the Welsh to make the
most of it. I saw the interim evaluation which is in the public
domain now and it did not seem to be all that complimentary.
Q238 Chairman: If you were advising
government where to put its Objective 1 funding, if you had that
power, where would you put it?
Professor Gripaios: Do you mean
in terms of areas of the country or to get maximum benefit?
Q239 Chairman: Maximum benefit.
Professor Gripaios: It needs a
long-term view. It would be very, very easy to dissipate it over
a whole range of programmes and a lot of very small projects where
everyone wants their bit. A wonderful story was told about Cornwall
and the guy who got it. As you probably recall, there was a bit
of sleight of hand, as indeed there was in Wales, to separate
Cardiff from the Valleys. To separate Devon from Cornwall was
not easy and it would not have qualified. The guy who was instrumental
in getting it is reputed to have said that they would either use
it sensibly or they would use it to re-roof every scout hut in
Cornwall. I think there is a danger that the latter approach happens.
I have looked at the Cornish case—I am sorry to bore you
with this—and I would question the extent to which it has
been used strategically. Some of it is going to the combined universities
in Cornwall and you could argue that was strategic. Some will
probably go to trying to get maximised spin-off at another stage
of the Eden Project, which is a magnificent thing and it is of
strategic importance, but I suspect a lot of the Objective 1 money
there and in Wales is going to pay the salaries of the people
who put in the bids.
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