The Future of Wales

The Future of Wales Julian Hodge Institute of Applied Macroeconomics Annual Lecture Given by Gerald Holtham World region ranked by prosperity Fig 1 18000 16000 14000 12000 10000 8000 6000 4000 2000 Gerald Holtham presents to the invited guests 0 Wales Source: Holtham, G & Huggins, R (2017). What accounts for the success of regions? Welsh Economic Review 25, pp 1-8 *See text for explanation Annual Lecture Given by Gerald Holtham Let me say first of all that I have absolutely delineate the two points of view which are recent performance been like? In doing that for them. It’s mainly Gross Value Added per no idea how the Welsh economy is going to out there, to point out the difficulties with I’m grateful to Professor Robert Huggins at head (GVA), the GDP measure, but we have evolve over the next two or three decades, so both and to see whether there’s any synthesis Cardiff University who has built a database also put in activity rates and wages, so we can if you’re expecting a crystal ball job, you will which would make for a consensus as to of nearly 500 regions around the world, see whether the prosperity is fairly general. be disappointed. I want to focus on the fact how we do try to take this small country sub-state regions ranging from Bridgeport, Figure 1 ranks these regions from the rich to that within the policy community in Wales forward in economic terms. Before I do that Connecticut, very wealthy to Uttar Pradesh the poor and you’ll notice there’s a kink in the and among those people interested in Welsh I suppose it would be as well to set the scene, in India, not so well off. We’ve got the data middle of the distribution. policy, there’s an emerging debate about the to ask the question: where is Wales at the for these 450-odd sub-state regions and we right way to take things forward. I want to moment in the world economy, what has its have constructed a sort of prosperity index 2 3 That kink turns out to be statistically prosperous regions. Our neighbours are How does the UK as a whole look on this very low population densities. We did hit the significant. Cluster analysis reveals that Puglia, Calabria and Brandenburg in East ranking? This exercise has cured me of ever front briefly, in the 1820s or ‘30s or when we regions on either side of the kink have much Germany - that’s the area just east of Berlin. talking about London and the South East. had the two largest industrial plants in the more in common with each other than they The top three are Bridgeport, Connecticut, The South East has got nothing to do with world, Cyfarthfa and Dowlais making iron. do with those on the other side of the kink. Luxembourg and San Jose, California, the London, it’s more like Scotland. London It was industrialisation based on extractive Basically the world does divide into the Silicon Valley area. Our GVA per head, (this ranks 23rd in these 450 regions; it’s one of the industries and it was all financed by foreign relatively well off, and the relatively poor data is a year or two old) at $25,000 is a richest areas in the world. The South East is capital. Crawshay, Fothergill, Guest: these in terms of characteristics and also in what third of these rich regions, rather similar the next highest UK region but it is at 138, are not Welsh names. The money came from seems to determine their position within their to Brandenburg and a little bit more than much closer to Scotland at 152 than it is to outside and when the extractive industries own group. Now, that red line there is Wales Puglia. If you look at monthly earnings it’s London. London is completely detached from ran down, they left the spoil tips, but the so the good news is we’re in the rich group. the same story. There’s not much difference the rest of the UK economy. Most English money had mainly gone. The bad news is we’re right near the bottom in economic activity rates but there is in regions are in this 170/180 area and then of it, we’re at about 208, and that kink is productivity. Our labour productivity is at 52, there are three laggards, the North East, The UK as a whole presents about 225, so we are in the relegation zone. the rich regions are up at 157, three times as Northern Ireland and Wales all about the a very disparate picture and much. These are material differences. We’re 200 mark. The UK as a whole presents a very of course this is one of the Figure 2 compares Wales and three not just a little bit worse off, we’re roughly at disparate picture and of course this is one of things that’s led to political regions that are rather like it in terms of a third of the level of the richest regions in the things that’s led to political controversy the prosperity index with the three most the world. recently. There’s a view going around that controversy recently. globalisation has brought great benefits to the world but it has led to an increase in Wales has been in relative decline certainly inequality. We know GVA per head in Wales since the late 19th Century. The big fall in Comparing Wales and its peers with the richest regions is 71% of the UK average but within Wales relative Welsh incomes in more recent years Fig 2 if you go to Anglesey or Blaenau Gwent, was in the 1980s and ‘90s with the final you’re talking about 50% of the UK average, collapse of the coal industry and with the Mean Gross GDP/Head Monthly Economic Labour and such low average incomes are associated continued emaciation of steel. Before we get ($) Earnings Activity Rate Productivity with lots of indicators of multiple deprivation. too gloomy, let’s look at growth this century ($) Wales’ GVA per head is 71% of the UK, but it in Figure 3. Now, you can look at this in Bridgeport-Stamford-Norwalk, CT is 40% of London, which is 72% above the UK two ways. If I were in the pay of the Welsh 87,444 8,773 69.9% 157,344 Metropolitan Statistical Area, US average. government I’d say look, we’ve stopped the Luxembourg, Luxembourg rot. The UK economy has grown by 31- 32% 83,646 8,212 56.6% 180,337 Now some people say this is terrible, this is a since 2000, the Welsh economy has grown San Jose-Sunnyvale-Santa Clara, CA scandal, why is Wales so poor? Yet the fact at 32%, so no further loss in relative position. 80,105 8,984 67.6% 149,680 Metropolitan Statistical Area, US is there is no mystery in the history. Wales That’s faster than half of the regions of Wales, United Kingdom has always been poor. In the pre-industrial England. The north has done fairly well, 24,908 2,558 58.2% 52,418 era we didn’t have much arable land. There growing at 38%; London of course has done Puglia, Italy was a little bit in Anglesey and a little bit in well and Scotland has had a clear devolution 21,503 2,549 40.9% 61,926 the Vale of Glamorgan and otherwise you’re dividend. Since I am not in the Welsh Brandenburg, Germany talking about pastoral farming in upland government I would say I’m not sure whether 26,475 2,278 62.2% 48,188 country and very low population densities. we have stopped the rot, but we haven’t made It’s very difficult to have rapid growth with any relative progress. 4 5 Growth this century Hyundai, etc. If I asked you to name big manufacturing to becoming expert in Fig 3 Japanese companies you could reel them off, manufacturing techniques, to knowing how Fujitsu, Sony, Toyota etc. Can you think of a to design products for manufacture. They Regions % change 2000 - 2015* large Taiwanese company? Probably not, and climbed up the value chain. UK average 31.6 think about the position of Taiwan at the start North East 40.2 of this period. A classic case of this is that icon of American North West 38.0 innovation and inventiveness the iPhone. Yorkshire and The Humber 30.7 It has no natural resources. The Kuomintang The numbers in Figure 4 are the numbers East Midlands 29.6 came in after the Chinese civil war and of suppliers in an i-Phone, but those 42 West Midlands 23.4 imposed themselves on the local population Taiwanese suppliers provide more than 50% East of England 25.3 so creating plenty of room for friction. They of the value added in that phone. That’s how did have a land reform which was good. They Taiwan did it. They didn’t build big brands London 38.3 have achieved, however, a higher income but they became indispensable in globalised South East 26.8 per head than Japan which means it’s a lot supply chains. The lessons that one might South West 30.4 higher than the UK and let’s not talk about draw from that are: that exporting is key, Scotland 38.5 Wales. It can be done from apparently it keeps you competitive; you’ve got to use Northern Ireland 21.0 unpropitious circumstances.

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