The Welsh Economy: On Solid Foundations?

  (Pic : via geograph.org.uk
© Copyright Kev Griffin and licensed for reuse under the Creative Commons Licence.)

The latest backbench member's debate – held this afternoon – focused on the "foundational economy". No, I'd never heard of the term either, but if you care about the future of the Welsh economy it's worth paying attention to.

The Issue

There's a more detailed summary from the Assembly Research Service.

The foundational economy - a term coined by Prof. Karel Williams - consists of "mundane but essential" roles that keep the state ticking over, and whose services are used by everyone regardless of social status. It's all those working at, or near, the bottom of the service (tertiary) and industrial (secondary) sectors, including: retail, food processing, logistics, utilities, health, education and welfare.

In areas (like Wales) where there's been a rapid industrial decline, the foundational economy is usually all that's left. As the services are inherently local, they can't be easily outsourced and jobs are often resilient to economic shocks.

There are problems too: foundational economy jobs are often zero-hours, low-paid or part-time (as they're taken up by women in greater numbers this plays a role in the gender wage gap); big players like supermarkets dominate producers like farmers; the sector is neglected when compared to manufacturing and financial services in wider discussions on economic development.

The Motion

Calls for the Senedd to:

• Note that approximately 40% of the Welsh workforce are employed in the foundational economy.
• Note the sector's resilience to economic shocks and potential to generate greater local value from providing local goods and services.
• Regret that many foundational economy roles are marked by low pay and insecure work.
• Call on the Welsh Government to maximise the impact of the foundational economy across Wales as part of their new economic strategy.

Key Points

Lee Waters AM (Lab, Llanelli):

• Recent debates over Ford and Tata show the Welsh economy is vulnerable to decisions by multinational corporations and shocks like Brexit. Communities need to build resilience, with GVA-per-head barely shifting in 20 years.
• "Look at what's hiding in plain sight" - the unglamourous local companies that underpin the social fabric of our communities being forced out by global ones, resulting in increased spending on anti-poverty measures.
• One in every three pounds we spend goes to the foundational economy. It offers a chance to reverse the leakage of money out of Wales and reduce the environmental impact of long supply chains.
• Local businesses need support to win public contracts, and short-term financial gains should be de-prioritised in favour of longer-term benefits.
• 700,000 jobs in Wales alone are threatened by automation, so while jobs at the top end of the knowledge spectrum will be more attractive, the other end needs to benefit too.

Adam Price AM (Plaid, Carms. E & Dinefwr):

• It's important to create space for new thinking; there's a word in Welsh for repeating same things over and over again: "twp".
• The foundational economy is the mirror opposite to conventional thinking. There are two core elements: sheltered local markets and grounded firms. We've been focusing too much on global markets and foreign-owned firms.
• The prevailing wisdom is deeply embedded (i.e. taking the retail sector out of the apprenticeship levy when it can drive up skills in a low skill, low wage sector).
• There's a "missing middle strand" problem in Wales where we create successful medium-sized businesses, but without a succession plan in place they lose their "grounding" (i.e taken over by foreign investors or companies and/or re-locate).

Julie Morgan AM (Lab, Cardiff North):

• People moved from rural Wales to the valleys because of coal mining, which resulted in pit villages developing associated services for the growing population.
• The main variable that determines whether places in Wales prosper or not is what replaced heavy industry.
• We could learn from American cities which "create a buzz" from hosting major public services like state capitols or state universities to provide a good environment for spin-outs.

Russell George AM (Con, Montgomery):

• The UK Government's industrial strategy recognises the social function of business in terms of skills, plus the establishment of university technical colleges introduces an entrepreneurial element to vocational qualifications.
• The Welsh Government's new economic strategy should address regional economic disparity, and ensure SMEs are supported – such as via high street regional investment and development banks; different parts of Wales have different needs and require a local approach to business support.

Hefin David AM (Lab, Caerphilly):

• He has an academic interest in the role small firms play in the economy. He visited a high street in Bargoed to reflect on the businesses operating there: cafes, garden supplies and a carpet store.
• Indigenous businesses that are "buffer but unbowed" are a necessary foundation to the local economy. Small firms are less likely to leave and are embedded in local communities.
• The concept of "social capital": people benefit from knowledge of their own environment; small businesses connect with each other in ways larger companies can't. This transfer of knowledge supports growth, but the topography of valleys has prevented companies reaching out to surrounding valleys.
• As part of a committee inquiry into the new rail franchise, an expert witness said transport spending doesn't necessarily lead to economic improvements. Nevertheless, "social capital" connections are needed between the "northern valleys".

David Melding AM (Con, South Wales Central):

• Growing up in Skewen he remembered being sent to do shopping and telling a butcher, "we need meat for the weekend" and the butcher knowing exactly what he meant; this level of "remarkable service" we now miss.
• People in Western societies feel dislocated and worthless, with a gulf between the economically successful and "the rest". "Take Back Control" was about much more than Brexit.
• Social care and child care as examples of areas of growth in the foundational economy, but we're not rewarding skills as many roles don't offer a living wage. Despite this, the care sector invites innovation due to the range of services required. Plus, we don't always ensure these (often state sponsored) jobs even go to local people.

Jenny Rathbone AM (Lab, Cardiff Central):

• There's talk of business rate support for pubs in England, but she hoped we can be more discerning about the support in Wales; greengrocers are vital to communities as opposed to alcohol and the problems that come with it. She cited a Llanedeyrn greengrocer who won't be able to afford rent once a shopping centre is redeveloped.
• Wales is major trainer of health professionals, but we have persistent shortages of those who want work here. The only people benefiting are employment agencies charging large sums to provide locums. Abertawe Bro Morgannwg health board are seeking to recruit more Welsh students because they're more likely to stay.
• Automation should be used to enhance the foundational economy, not eliminate staff and cut services; the people replaced should be trained to perform important jobs like home upgrades/energy efficiency.

Jeremy Miles AM (Lab, Neath):

• Public bodies are huge economic actors as well as service delivers, possessing the capacity to stimulate local economies through procurement.
• He's heard of contractors shut out of bidding when public contracts were too large; they could've been broken up to be more accessible to local companies.
• Public bodies and pension funds should invest locally in things like social housing, while communities are detached from their own capacity to generate energy despite fuel poverty.

Rhianon Passmore AM (Lab, Islwyn):

• The foundational economy offers poor terms and conditions, particularly for its majority women workforce. Improving this can improve the economic base and is vital as we seek to address poverty in an age of austerity. There are high levels of in-work poverty and it's one of the most common issue she sees from constituents.
• Private sector employers should be encouraged to introduce a living wage.

Welsh Government Response & Summing Up

Economy & Infrastructure Secretary, Ken Skates (Lab, Clwyd South):

• When going around Wales it struck him that the economy has many world-class features, but it's also very clear people and communities feel insecure.
• The economic model needs to be re-engineered to ensure regional and local economies are more sustainable; we need to "not build economies but build places".
• Instability will increase and intensify in the coming years. The cross-party consensus will help, while the new economic strategy will include a very strong role for the foundational economy.
• Improvements could be made in: management, closing skills gaps and encouraging better pay and conditions.

Vikki Howells AM (Lab, Cynon Valley):

• A focus on the foundational economy will allow us to address bespoke needs for different parts of Wales by embracing the "benefits of the everyday".
• A key challenge for Wales is developing exportable international brands. Penderyn Whiskey in her constituency is an example of a successful one. Thinking outside the box and appropriate business support will allow us to access niche markets and become a world leader.
• With a strong foundational economy, economic needs and quality of life will go hand in hand due to stronger local connections; big companies won't be able to run roughshod over local suppliers and firms.

The motion was agreed unanimously.