"Underlying our economic agenda for action is the need to make ourselves less susceptible to the whims of market changes and to carve out for ourselves a clear niche in the global marketplace. We will do this only by producing high quality, high value products and services, and not relying on low skilled jobs using yesterday’s technology which have been so vulnerable and cost us dearly in the past…Of course we need to make full use of the unique opportunity provided by Objective One funding. Over the period 2000-2006 around £1.2bn of European aid will be available to West Wales and the Valleys….We must grasp this opportunity with both hands…It will stretch our capacity and that of our partners to the very limit. But we have no choice. Either we grasp the opportunities offered by the new global economy or we become a backwater"

"But in these days without precedent and without promise, I must confess that I often succumb to what Aneurin Bevan once called, in capital letters, The Invasion of Doubt"

 In one of Maxim Gorki’s short stories, "The Bystander", a man watches a child skating on a frozen lake. The child is surrounded by other children and adults. Suddenly the ice breaks and the child falls through. The bystander runs towards the lake but by the time he can reach the scene the child has disappeared and the ice has again frozen over. No other skater remembers seeing the incident. Eventually, he too wonders if the event ever took place or was simply a moment’s imagination.

The Objective One Programme for Wales is in danger of emulating the child in Gorki’s short story. Will up to £2bn pounds of European and UK funding disappear into the "Welsh Lake", leaving little or no impression ? The previous funding for Industrial South Wales compared with its long term strategic impact, and the current debate with the Commission over the SPD targets does not tend towards easy optimism. Will the only future be to voice disbelief and walk away? This assumes an option not available to those below the "waterline". The purpose of this paper is therefore not to belittle the efforts of those who argued strongly and developed the case for Objective One status, but to place the level of funding and its potential for change in a realistic Welsh and UK economic context. It is an attempt to get beyond the political rhetoric and examine the real issues facing Wales.

Public pronouncements on European Funding, of which Rhodri Morgan’s example (although genuine) is one of many, have now become the new "Welsh Mantra", comfort on the journey from economic and social decline. It takes us through the reefs and rapids of "Globalisation", to the advanced realm of the Celtic Tigers. An Objective One for all seasons and the solution to all problems. It is perhaps a sign of Wales’s psychological inferiority as a nation that EU funding is so often welcomed as a "trophy" precisely because it is an external recognition of relative deprivation and economic under performance. ("A major lifeline has been thrown to some of the most economically depressed regions of Wales by the European Union…The hope is that one day Wales will have no need for cash injections from Europe and that we will eventually be able to stand on our own" – Wales in Europe: Western Mail 10.5.1999). Historical indifference from the UK government is therefore accepted as an embedded norm. The only demand made with any urgency is that Europe be "matched". Assistance and leverage at the margin, without power and influence at the core.

The irony of the post 1997 constitutional settlement is that the "Condition of Wales" has, in fact, long been "devolved" in the sense that central governments of all parties had other priorities and new target constituencies. Wales was broadly politically "secure" and Barnett could provide the necessary automatic financial adjustments stemming from an English expenditure baseline. The converse of constitutional devolution was that it confirmed the economic primacy of the South East of England and the agenda of the political class associated with it. Although Welsh problems were now presentationally and practically for Wales, the key financial resources and their fundamental dispensation remained elsewhere. As Alaister Campbell said of the Scottish Parliament, "They can re-arrange the chairs".

2. THE SOCIAL BACKGROUND

In March 2000 the Welsh Assembly published an extensive analysis of Poverty in Wales under the title "Mapping Social Exclusion in Wales". Its key statistics offer a stark picture of Wales in the 21^st Century. "Shocking reading "in the words of Rhodri Morgan.

• Four fifths of the land in Wales is designated as "Less Favoured Areas" by the European Commission
• More than one in four people of working age are deemed economically inactive – The highest at 35% in Merthyr Tydfil; 34% in Blaenau Gwent
• The GDP of workers in Wales is on average 18% lower than the EU average
• In the Central Valleys workers earn 64% of the EU average
• Around 16% of the Welsh population are suffering from long term illness or disability. In Merthyr the figure is 22%
• 50% of 11 year olds in Wales fail to reach expected figures in core subjects. 62% in Blaenau Gwent.
• In 1997, 22% of people of working age in Wales had no qualifications. 37% in Merthyr; 33% in Blaenau Gwent. (compared with 18% in England)
• 46% of working age people had received no training in the year to August 1998
• More than 50% of all households in Wales have an annual income of less than £10,000 (hence lack of demand)
• More than half the households in Rhondda Cynon Taff, Merthyr Tydfil and Swansea have no savings
• Across Wales, 39.6% of people have never saved (hence lack of mobility)
• 20% of Welsh people now claim housing benefit.

"The Rhondda was symbolic of coal, but now there is a generation of children that has no personal knowledge of the mining industry…The idea that there is going to be a return to full industrial employment is just not possible" Professor Huw Beynon, Cardiff University - comments on the above : "Independent" 9.3.2000

So, against this background, what future direction is proposed? If not full industrial employment, then the obvious future is the service sector – but at what level ? Is Wales to be the Call Centre capital of Europe ? We take your calls. No social exclusion there. From anthracite to answerphone in two generations. Or are we (typically) pitching our ambitions too low. Is it to be the "New Economy" – Wired Wales - The Weightless Valleys dot.com ? If Wales can’t yet achieve decent housing in the 21C, then at least it can dream of terraced telecottages. If this appears as a cynical or flip response, it is not based on any nostalgia for a lost past of heavy industry. The valleys, for all the collective activity and drive provided by coal and steel, were never "green" and romantic only in retrospect. Wales does indeed need to modernise and develop industries and services based on advanced technologies, structures and networks. The real question is whether £2bn will effect that transformation or even stimulate a moderate beginning. If not, then that fact is better faced with realism now, not in 2006, and an alternative strategy and politics developed.

 3. THE ECONOMIC BACKGROUND

The one striking growth industry in Wales of the 1980’s and 1990’s has been the production of academic and agency reports analysing aspects of the Welsh economy. A fitting replacement for the slate industry. Unfortunately, they notably failed to produce a Comprehensive Regional Economic Strategy for Wales in those years. No doubt that would have constrained much of the WDA’s creative drive. However, with the prospect of an Objective One windfall, no month is complete without another recycling of the statistics. (This present paper is certainly no exception). One of the better recent summaries was produced in December 1999 by the Institute for Welsh Affairs – "Building a Knowledge Driven Welsh Economy" – "Making a success of the EU Structural Funds 2000-2006". This at least provides us with a description of where we are – and again "the reality is stark"

• During the 1990s, the GDPs of Wales and the North East region have grown more slowly than that of any other UK economic regions
• Wales GDP per head has fallen steadily since 1976 and is likely to fall further from today’s level of 82% of the UK average
• There are only 40,000 more jobs in Wales than there were in 1971 and the number of fulltime jobs available for men has fallen by 30%
• The number of jobs in manufacturing in Wales fell to an all time low of 200,000 in 1999
• Over the past ten years there has been a 5.5% increase in the number of jobs in the UK but only a 2% increase in Wales
• Wales generates a smaller percentage of GDP from the private sector service industries than the UK as a whole and lacks jobs in Knowledge based services
• Expenditure per head on research and development is one of the lowest of any region in the UK
• The proportion of manufacturing output contributed by small and medium sized firms is the lowest in the UK
• Wales stock of VAT registered businesses has fallen by 5% since 1994 and, in 1998, Wales was the only part of the UK where the number of de-registrations exceeded registrations for VAT

"It is against this gloomy litany of under performance that the (Welsh) National Economic Development Strategy proposes that our target should be to increase GDP per head in Wales to 90% of the UK level by 2010 and to increase the number of jobs by 136,000.It is impossible to see how Wales is going to grow at the rate necessary to achieve this closing of the gap without radical departures from past policies"

"Suppose, for example, that the agreed long term target for the Welsh economy was to increase Welsh GP per capita to 90% of the U.K. average by the year 2010. Then, given existing expectations about changes in Welsh GDP, and the long-term trend in UK GDP, this implies that real GDP in Wales must grow by an average of 4.4% per annum over the first decade of the new century. This compares to Cambridge Econometrics’ forecast rate for the UK of 2.7% per annum, and with their estimate of an average real growth rate of less than 1% for Welsh GDP over the last ten years. Improving the relative position of Wales’s poorest areas implies that they in turn must grow at a rate in excess of the Welsh average. Transforming the Welsh economy cannot be an overnight task – any initiatives and investments in physical and intellectual infrastructure must take time to work. Wales has many deep-seated structural weaknesses: overcoming these is a long-term process."

 The targets for the future of the Welsh economy are formally set out in a series of papers and reports produced for and by the Welsh Assembly. In turn, they are reflected in the Draft Single Programming Document prepared for the Objective One period 2000-2006. The WDA’s Corporate and Business Plans also compliment them. Although these papers are intended for different audiences they share common broad assumptions. The inconsistencies lie in the detail.

Two examples are given below :

The National Economic Development Strategy (NEDS) July 1999

GDP: 84% of the UK average by 2002 (75% in OB1 Areas)

Employment: 40,000 additional jobs by 2002 (34,000 in OB1 Areas)

"Better Wales" Consultation Paper (to year 2010) January 2000

GDP: 83% of UK average to 90% UK average by 2010 (All Wales)

Businesses: 35,000 increase in the number of businesses by 2010

Employment: 135,000 additional jobs in private and social sectors by 2010

Employment: 40,000 additional jobs by March 2003

It is difficult to see from the published documents how these projections are arrived at. For example, NEDS states 40,000 extra jobs by 2002, whereas "Better Wales" slides the target a year on to 2003. The solution probably owes more to the political cycle than to hard analysis. "Better Wales" was produced in response to the demand for a "Vision Statement" for the Welsh Assembly, and for Alun Michael’s leadership in particular. There is also the issue of slippage in the drafting of the Objective One programme. The jobs target is therefore politically "flexible" to the Assembly, a fact not unnoticed by the European Commission.

There is also the question of budget and outcome. Crudely, What will a £2bn injection over seven years "buy"? The WDA’s Corporate Plan 2000-2003 - "Promoting Prosperity" (Feb 2000) includes a section on the capital injection/employment effects of inward investment.

"Since 1983 inward investors have brought in excess of £12.5bn of new capital investment, generating or sustaining (n.b.) over 187,000 jobs. Analysis of these investors shows that they typically invest more per worker, have higher levels of productivity, pay relatively high wages and invest more per worker on training". (above p8). These then are precisely the kind of jobs referred to in Rhodri Morgan’s statement at he opening of this paper. What has been their cost ?

1983-2000 (c. 17years) £12.5bn capital expenditure

Average per year: 0.73bn

Therefore: 1bn = 14,960 jobs

The Objective One programme has at its disposal a maximum of £2bn over 7 years. Using the above WDA factor, admittedly a very crude measure, that indicates a figure of 29,920 jobs, far short of the above projections. Objective one is of course in not a "stand alone" initiative. The Assembly also spends c £355,021 per year on Economic Development (inc. the WDA budget). Even if that total budget is added to the OB1 average per year (£285,000) the combined figure is £640,021, this still falls short of the necessary "multiplier to achieve the targets claimed. Again, the WDA figures obscure an emphasis on the non Ob1 areas - The coastal Belt or M4 Corridor. Significant and strategic employment creation in the Valleys and South West Wales is likely to be far more difficult. The WDA’s avtivities also cover a 17 year period, one of significant inward investment in response to the Single European Market in 1992, again a period unlikely to be repeated on a similar scale.

"The paradox of modernisation in Wales can be expressed very simply: for all the progress that has been achieved to date, and especially since the trauma of the inter-war period, when Wales was the hardest hit by the depression in the coal and steel industries, this has still not been enough to overcome the deeply entrenched economic problems within Wales and other UK regions" Kevin Morgan/Adam Price : "The Other Wales" IWA July 1998

This paper has outlined some of the major problems facing Wales and the designated Objective One areas within it. The latter comprise 65% of the land mass and c 2 million of the population. The issues are therefore of major significance for all Wales. The central thrust of the paper is that even if £2bn of EU and UK funds are committed in full (and this is still uncertain), it will be inadequate to achieve the goals and targets publicly claimed.

In its critical response to the Draft Wales SDP in February 2000, the European Commission drew attention to the 3 "quantified objectives and main impacts" of the programme. It is worth quoting the Commission in full:

The Commission also noted the cost of the programme against jobs. "It may be noted that the programme is the most expensive (e.g. in terms of cost per job) of the Objective 1 SPDs in Great Britain. According to the measures presented, this does not seem to be as a consequence of the effort of sustaining high profile, sustainable jobs. On the contrary this outcome would appear to be more related to the (capital) infrastructure) bias of the programme. In these circumstances the Commission is seriously worried by the coherence of the targets which are indicated and the compatibility of the programme to raise the level of GDP as foreseen. These aspects have to be examined thoroughly in the final text of the SPD"

A further report, by the Commons Select Committee on Welsh Affairs - First Report on the Structural Funds: February 2000, again drew attention to the relative scale of the OB1 resources. "The Structural Funds money which will be available to Wales should not be exaggerated. A the Assembly Secretary (Rhodri Morgan) said, this "is not a bonanza… At best it is less than 10% of public expenditure in Wales with full matched funding". The funds available to Wales are significantly less than, say, the money available to the Republic of Ireland in the last period".

The reference to Ireland is pertinent. Much has been made of Wales as a potential "Celtic Tiger". Far less has been said of the resources and capacity required to achieve this. For example, for the period 2000-2006, Ireland's National Development Plan will involve an investment of £40.6bn from public, EU and private sector sources. The EU will contribute £3bn with £36.7bn Government funding and £1.9bn from Public Private Partnerships. In the previous funding period 1994-1999, Ireland received a total of 11.9bn ECU from the EU. Economic regeneration became a national priority for a nation state.

In summary, the necessity to transform the economic and social base of Wales is not in question. What is debatable is the ability of the Objective One programme to achieve this alone. The situation itself is not "static". Recently the competitiveness of the Welsh economy has been compared to that of Chile or Israel, with a currency valuation working against the interests of present and future inward investment performance, a level or declining public sector, and a lack of growth potential SMEs, particularly in knowledge based industries. If this argument is accepted then the terms of the debate must change radically. The UK regional economy is severely skewed towards the economic and political interests of the South East. The region is seen as the sole "driver" for the UK economy, despite the increasing evidence that this policy is now impacting adversely on the totality of the UK. Devolution has not changed this emphasis , in fact it may have allowed the condition of Wales to become a "local" issue.

To reverse the UK's economic imbalance will require a major change in national policy, and by implication, politics. The pressure for this may appear insignificant until it is realised that even the English regions now have major concerns over a SE centralised policy and limited financial distribution. Economic failure has a cost both in financial and political terms. The "fallout" in Labour's traditional heartland regions has already become a political reality. In the "Nations" it is a threat to the future of a Labour majority at a devolved if not yet at a UK level ( Although the omens are there). Perhaps the real benefit of the "Objective One" debate is that it will be seen as having forced the "regional" issue firmly back to the top the political agenda.