Fourth Assembly In Focus : Economic Profile 2016

In about ten weeks weeks time, those of us who will bother to vote will elect a new Assembly and a "new" Welsh Government. My 2016 election coverage starts today with a mini series over three weekends focusing on three key areas of devolved public policy and how they've changed over the last five years : the economy, health and education.

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Wales : An Economic Profile VI - Strengths & Weaknesses

                     

• Part I - Primary Industries & Energy
• Part II - Manufacturing & Technology
• Part III - Services
• Part IV - Public Sector & Universities
• Part V - Wales in the global economy

Strengths

"Secure" resources

Industry requires copious amounts of both energy and water. Wales will have both long into the future - as long as the existing resources are not squandered or poorly managed.

I've put "secure" in quotation marks, because fuels like gas (Part I) will need to be supplanted at some point. To paraphrase what MH has said recently on the subject, we need to "use gas more cleverly".

"Secure" also means "safe". Wales is unlikely (but not completely so) to be a target for an act of terrorism, has relatively low crime rates and is in one of the strategically safest places in Europe - if not globally. That could attract some contentious employment – defence research for example, or yes, even nuclear weapons.

An office-based business can base itself anywhere, but this is one of the few trump cards Wales holds over London & SE England. For product development and manufacturing, Wales should be towards the top of many lists, seeing as we have the fundamentals in place. The question now is, what are the other reasons for us not being so?

Relatively high levels of graduates

As I pointed out in Part IV, Wales has a high (by EU standards) percentage of the working age population who have higher education qualifications (though this is still behind the UK average). It's quite likely that many of these are going to be public sector workers, in particular those working in health service professions that require degree-level qualifications (nurses, physiotherapists, radiologists etc.).

Numbers of graduates are likely to have been boosted by
healthcare professions like nursing becoming degree-level jobs.
How can we turn more graduates towards business?
(Pic : BBC Wales)

What this suggests, is that a chunk of Welsh population have a love of learning. What the Welsh Government need to do, is ensure that people are encouraged to aim higher academically for our future economy.

That doesn't mean pushing everybody into the sciences. It also means : better qualified lawyers to scrutinise devolved legislation, better business managers, professionalising the "third sector" (Masters of Social Business Administration), qualified coaches for sport, teachers with higher-level qualifications (Welsh Labour wanted to make teaching a "Master's Level" profession in their 2011 manifesto) and improving skills in the civil service.

I believe that people should learn for its own sake. Although some courses might be "questionable", and going to university shouldn't be seen as a "must", we need to see graduates as a resource. They need to be used effectively in the private sector and not expect the vast bulk of them to go into the public sector.

Cardiff & Deeside

In Cardiff and Deeside, Wales has two significant urban areas which continue to attract significant investment, perhaps for differing reasons. That's not a suggestion that we "put all our eggs in two baskets". We shouldn't ignore the fact that amongst all the doom and gloom, Wales has two well-performing areas economically, even compared to the rest of the UK.

Swansea could easily catch up with the right investment in its city centre, in addition to the university development mentioned in Part IV. There's a strong hub of IT-related companies developing in the Newport/Cwmbran area while Bridgend & Neath Port Talbot have always been major manufacturing centres. Providing better links between the likes of Aberystwyth and Bangor universities and their environs will no doubt boost economies too. There's hope yet.

Good business survival rates

One of the big myths I hoped to bust with this series is the belief that the Welsh are "not entrepreneurial" or "not business-minded". I think we are in a "be your own boss" sense, but Wales doesn't have a big money, individualist, "corporate culture". That can be a good thing, or a bad thing.

Business survival rates might reflect lack of competition
due to fewer enterprises overall, but Welsh survival rates are competitive
at a UK level, and Welsh youngsters are increasingly entrepreneurial.
(Pic : The Guardian)

Although enterprise birth rates in Wales were amongst the lowest in the UK in 2010, enterprise deaths, five-year survival rates and one-year survival rates were either at the UK average or exceeded it. Recently, it's been revealed that young Welsh adults were the most entrepreneurial in the UK.

Maybe this is just because of the plethora of grant and business support schemes offered by the Welsh Government. However, if you start a business in Wales, compared to the vast bulk of the UK, you're more likely to see it last longer and more likely to have your peers starting them too. Add this to the successes in university spin outs (Part IV) and it's safe to say that "failed in Wales" no longer applies.

Strong export record (in goods)

I hate treading old ground, but as I said in Part V if this is a strength of the Welsh economy, then we grasp every opportunity to guide and shape it with both hands.

The only downsides are that many up-and-coming Welsh SME's seem reluctant to look for opportunities beyond the UK, while goods exports are conglomerating in larger groups, becoming less diverse (a point raised in Offa's Gap). These are serious problems that needs addressing, but it's still overall good news.

It's important to note that this is in goods only – physical "things", not services. Wales will need to develop more balance between goods and services if the economy, as a whole, is to function better.

Weaknesses

Financial services "blind spot"

Bankers aren't the flavour of the month, but high-end financial services do provide high levels of GVA growth and, more crucially in the independence debate, high levels of tax income (when they pay them). First things first, I'm not advocating a "Welsh RBS". But is it so ridiculous a suggestion to have Welsh banks – based in Wales, investing both here (perhaps in energy projects) and around the world and providing highly paid jobs in Wales?

Wales does have a big success story in Admiral Group, but was it a fluke? Wales needs five or six "Admirals" to close the gap with the rest of the UK. The easy option would be to "bribe" one of the London companies to move to Cardiff. That would be a stop gap. Wales has to play the game (developing new financial service companies) instead of carrying the refreshments (branch functions).

I think insurance is one area Wales could look to build a critical mass in. It's less controversial than banking, we have success stories already, there's guaranteed markets (car insurance is compulsory) and in some cases it's fairly lucrative. Recruitment and training services, as well as niche consumer services like price-comparison websites, are other areas of potential.

Poor infrastructure, poor priorities

This has been done to death, but it needs attention drawing to it again. Wales is probably 20 years away from losing our only major airport if passenger figures continue to slide the way they are. We only have around 75 miles of motorway (though much more is "motorway standard"). We've had to wait God knows how long to have rail electrification put on the agenda. If you can't get goods, people and ideas to major markets quickly and efficiently, you end up being neither heard nor seen. That can even happen within the UK market itself.

The Welsh Government do invest in things like roads
and railways, but are they prioritising things correctly?
(Pic : Abayoflife)

I'm not convinced the UK or Welsh Governments take Welsh infrastructure anywhere near as seriously as they have to. I'm not restricting that to the "obvious things" like roads and railways. It includes all the hidden stuff, like a north-south inter-connector for electricity, 3G/4G coverage (now being addressed by the Welsh Government and the private sector - thumbs up) and even things like the structure and functioning of the civil service.

The Welsh Government's Infrastructure Investment Plan was a damp squib that prioritised waste management ahead of new transport links and energy. Using borrowing powers to fill pot holes/cover revenue spending is also rather silly. Their task in the face of swingeing capital spending cuts isn't easy, I'll acknowledge that, but there's no need to make things worse through their own lack of ideas.

Demographic shift to the economically inactive

This isn't just a case of pensionable-age "incomers" moving to rural Wales. It's also a case of younger people moving out of Wales because that's the only way to provide financial security for themselves. Lose the young, keep the old and immobile, top them up with migrant retirees. Pensioners, "good-lifers" etc. might well bring their savings with them - and they should have the right to move anywhere they choose - but they also have an ongoing cost that wouldn't be there otherwise. Wales can't afford to become a care home colony.

I'm willing to bet, per person in employment, productivity in Wales will be near enough the same as most parts of the UK (outside London and SE England).

If the Welsh Government really wants to improve Welsh economic output, they're going to have to come up with ways to retain talented people under 30 to balance things out a little – especially in rural areas. More people producing, production figures improve – simple.

Wales needs to become "noisier", and subtly discourage people from moving to Wales to seek a "quiet life." One way to do that is ensure there are enough well-paid jobs , social opportunities and affordable housing. And yes, we also have to target the levels of chronic long-term limiting illnesses in some Welsh local authorities – but that's more a health and social justice matter.

Over-reliance on "big branch employers" & lack of innovation

Business demographics statistics (2011), show that while 98% of all enterprises in Wales were in the micro and small band (employ under 50 people), 72% of national business turnover (£68.04billion) came from medium and large companies, with £56.1billion of that coming from just 1,580 large (250+ employees) businesses.

I'm guessing that many of those will be a remnant of the WDA glory days. Well, they're not going to be here forever. With every closure of a big grey box on a valleys industrial estate, a large chunk of GVA and national turnover is going to go with it.

Are these jobs worth it? We don't do very much research and development here. We don't do enough to protect and patent innovations here. I think politicians concentrate on reducing unemployment figures, see someone promising to bring 1,000 jobs - while not considering what those jobs entail or what they are paid – and roll out the carpet. Then they leave a few years later for the next sucker economic region whose production costs can increase the margins for HQ .

Wales needs to come up with the products, patent them/licence them, manufacture them and do all the marketing and back-office/HQ functions. That's the recipe for good GVA growth. In terms of independence, it means loyal Welsh "brands" paying healthy amounts of business and corporation taxes into the national coffers. Saying this is easy, doing it is much harder.

Skills shortages

It's another "old chestnut" – "Employees lacking the prerequisite skills necessary for the modern workplace blah blah blah." I don't think the situation is as bad as it has been – the numbers of school leavers leaving with no qualifications are falling, the numbers of apprenticeships are rising and as mentioned above Wales has a relatively high proportion of people with advanced qualifications. The issue, is whether all these bits of paper are actually worth anything.

It applies just as much to employers. How many Welsh business people have the requisite skills to expand their companies? Do they have the ambition to do so? How many Welsh business people speak a foreign language? Do they have good management skills?

If the business community are stuck thinking in a dull, "numbers on the balance sheet", conservative way, then the whole of the Welsh economy lacks "spark". I think this can improve - and the Welsh Government are taking steps towards that - but it might be too little, too late. It should've been done in the 1980s and 1990s - the moment Conservative and Labour UK Governments decided heavy industries (coal, then steel) had no future. That's the lasting legacy Maggie, John and Tony left us. Gordon left us the bill and Dave moves everything back to square one, ready to repeat itself.

Opportunities

Universities playing a greater economic role

Universities shouldn't become castles for academia in small towns, they should play an active role in developing the economy of those places in more ways than bringing in student money. The Republic of Ireland managed to build its economy based off a steady stream of graduates coming out of a large number of higher education institutions with technical qualifications.

Does Wales need to bring back the polytechnics? Do we need a "Welsh MIT"? Could industrial estates in university towns be used as enterprise zones for spin-outs?

That leads me nicely into....

Harnessing and developing niche specialisms

The Welsh Government, universities and the Welsh business community need to try and identify areas where Wales can develop a European, or world-leading, specialism based on what we have currently. I don't think this is about backing certain businesses or certain sectors. As highlighted on many occasions, successful individual companies can come from anywhere.

What technologies and innovations will
Wales be helping to develop in the future?
(Pic : Autoevolution.com)

I think this is about taking a long-term view about what products Wales can develop over the next thirty years, and whether we can get there before other parts of the world do, or try to stake a claim with other nations – for example pan-EU initiatives.

What could those specialisms be? Wales already plays a leading role in aerospace and automotives that could be expanded (and enhanced at the likes of the new Swansea University campus). There's materials sciences – looking for environmentally friendly building materials and "smart materials". Energy research is another obvious one. Whoever finds a way to store and produce hydrogen safely as a fuel, without as much energy intensity, is going to become very rich too, I'd imagine.

There are still plenty of options on the table

There are plenty of things the Welsh Government could do, within months even, and without requiring the devolution of further powers.

They could turn Finance Wales into an investment bank or a sovereign wealth fund (though they wouldn't be able to regulate it). They could create a regional exchange to help pump capital into SMEs as a stepping stone to the FTSE.

They could turn Communities First clusters into social enterprises, while professionalising them and (hopefully) reducing corruption due to increased financial scrutiny as a result. There are other things mentioned further down.

Admittedly, none of that would provide a solution by itself. It's still going to have to come down to ambition within the private sector and classic entrepreneurship. But, as we all know, the Welsh Government and civil service like to do things a "certain way".

The co-operative sector providing public services

How do you provide key public services - in particular things like health and social care - in sparsely populated areas with dwindling public funds? One solution might be to enact some of the recommendations in The Collective Entrepreneur report and have some services ran by co-operatives and not-for-profits.

I mentioned above that Communities First projects could become community social enterprises. It's a mooted model for the Welsh railways. You could even go as far as spin the NHS out on the Glas Cymru model.

There have been calls for a "not for profit" company to
run Welsh railways, but does this Glas Cymru model
need to stop at transport and utilities?
(Pic : BBC Wales)

There would be clear advantages and disadvantages. It might bring a business-minded approach to providing services (in terms of competition and waste), with those services remaining free/subsidised at the point of access – but it would still be a privatisation. It could lead to smaller hospitals and care homes being being kept open – but there's always the risk that they could close if they don't cover their costs. It would almost certainly lead to the creation of large companies that can compete on a European level to provide services, but is that what you want public services companies to do?

This would probably be too controversial to consider in the short term. However, if public spending is going to be squeezed, maybe it should be kept on the back burner until more detailed studies are carried out.

Fiscal sovereignty

You'd expect me to list this, wouldn't you? Can you can improve the economy within the current arrangements? The evidence over the last twenty years suggests this is going to be an uphill struggle, and Wales is going to need a significant change of tact. Or, do you need all the tools to create the conditions necessary to improve the economy? There's no guarantee that would work, but at least you'll be able to work to strengths and react quicker to shocks.

These two pieces by Russell Lawson over at the Walesbusiness blog (Wales' way out of the economic mire & Small is beautiful), list : accommodative monetary policy, fiscal policy focused on medium-term consolidation, tight grip on public debt, capital buffers, prudential bank lending policies, regulatory quality, enhanced liquidity in Europe and easing personal debt.

Hardly any of which Wales would be able to do without fiscal sovereignty or Independence – perhaps a separate currency too.

Threats

A continuing spiral of peripheral neglect

It's too risky for the UK Government to spend public money when there are no guaranteed of "returns". So instead of investing to provide jobs in Wales, they provide job replacements in the form of JSA and incapacity benefit – then some have the cheek to remind us that we're not pulling our weight.

The Welsh Government in turn acts like a palliative care nurse – focusing on quality of life – accepting that things are never going to improve dramatically economy wise.

Wales needs it, London gets it. It's a familiar story, but
you can't blame the UK Government for wanting returns on
big investments.
(Pic : The Guardian)

Preventing Wales falling into destitution is seen as "better for us" than having a fully functioning economy that can stand on its own legs - even within the UK. It's about stopping things from becoming worse, rather than taking risks (or responsibility) needed to create something better

Despite spending more per head on economic development than other parts of the UK, Wales shows no sign of rising off the bottom of varying "league tables". The likelihood is that it's being spent badly, on the wrong things, for the wrong reasons. I'm no longer convinced it's a money issue anymore, but down to a case of poor economic policy - and that goes for all parties, not just Welsh Labour.

It's always "someone else's problem", and we don't want to take the harder path because we don't know if it'll work or not. That's toxic.

Inward investment drying up

In 2011-12, only 23 inward investment projects, out of 1,406 in the UK, took place in Wales – just over 1.6%. Although these projects seem to be pretty big, protecting/creating some 2,800 jobs (remember what I just said about big employers).

We need a desperate change of tact here. We're so used to "someone else doing it", that we've become timid about going out to other markets, or obsessed with the internal market within the UK. Welsh businesses are probably going to have to do more outward investment, or target new export markets, than expect inward investment to travel very far down the M4 from Heathrow.

Our competitor isn't England, but all those small nations who can take extra steps to attract investment. In the future, we'll need to measure success by looking to Welsh companies taking over English/wherever companies - not the other way round. The question is, are Welsh businesses up to the scale of that challenge? I don't know.

"Mad" economic policy

Economic policy in Wales can be boiled down to a few simple tenets:

• More jobs, regardless of how well they are paid, highly-skilled or what the job entails, is better than no jobs.
• It's better to play a bit-part (making components) instead of coming up with new products and IP-protecting them.
• Everything has to be led by the government because the private sector is too small/can't be trusted.
• See what England is doing. Ignore what the rest of Europe or the world is doing. Try to copy what England is doing because you have no ideas of your own/it's obviously the "right way". Hilarity ensues.
• Come up with fantastic new strategies and plans, then when they don't work, rearrange the words slightly.
• "Insert sector of the economy here" is the future! Then don't look at qualifications, case studies, necessary infrastructure, long-term projections, competition at home and abroad, fast growth businesses within Wales in the sector, constitutional powers, fiscal powers....it'll "just happen"! (Yes, I've probably just done that too.)
• Trying the same thing over and over again and expecting a different result.

Desperation, short-termism and pessimism

Let's say you were the CEO of a foreign business looking to invest in two areas.

The first has good international links, a fairly decent ratio of public spending to GVA and a reasonable level of public sector workers. They have major centres of renown and an ambitious government that presents themselves with confidence. They assure you that you can find everything you need (if you want it). They have established companies is high-value added sectors and have a good track record in economic theory and promoting themselves abroad.

Scotland has managed to become successful within the UK,
and not entirely down to oil. Perhaps we should be asking
questions as to why Wales hasn't?
(Behance.net)

The other has no solid international links, has as much spent on it by the government as it produces each year and has low numbers of jobs created overall. They have a government either practically begging you to set up there - almost suffocating you with the amount of support or grants – or they hardly make any effort. You're not entirely convinced the government are serious, as they seem just as keen to promote links with other places, than concentrate on their own unique selling points.

One looks like an up and coming, business-friendly destination. The other looks as it it doesn't have any economic mojo at all. Now call them "Scotland" and "Wales".

I'm going to contradict myself, but equally damaging is the belief that we can't do anything right, and that there's something inherently wrong about the Welsh. Anecdotally, that's an incredibly depressing and commonly held belief within Wales – even if the evidence says differently. Talk about a colonial mindset.

Fiscal sovereignty

Having full economic powers is a double-edged sword. I mentioned earlier there would be opportunities, there would also be significant, potentially disastrous, risks too.

Fiscal sovereignty doesn't mean independence. But, with public spending as such cripplingly high levels, any measures that could see a reduction in the amount of pork heading our way would be opposed (see Mike Hedges recent comments on tax devolution). Quality of life could well sharply fall (i.e. harsh reductions in public spending). Though we wouldn't fall into the abyss - as the economy as a whole would likely remain exactly where it is. Public spending isn't the same thing as production.

The risk is this. Wales will have all these wonderful new powers, but then wouldn't use them "correctly". We might create more barriers to business, increase the amount of red tape, screw up business rates reforms or general business taxes (or even shy away from using them) and carries on micromanaging little schemes that they can't bear to put down because they don't want to be seen to be "wrong".

The gap between east and west Wales doesn't narrow, businesses lose confidence in economic prospects as well as the Welsh government, Welsh public policy and our civil service remain stuck in a nepotistic and innovation less-time warp and our economic figures fall through the floor.

It might even go the opposite way and become embroiled in a neo-liberal race to the bottom. It's not too ridiculous a suggestion - considering some of the things that go on here already - that we could end up with a Welsh Charles Haughey or Bertie Ahern.

Theoretically speaking, if that happened post-independence, people like me swing from lampposts or get put up against walls and shot.
Now read that dystopian economic commentary again.

If we wouldn't tolerate it post-independence or under devo-max, why have we tolerated it for the last thirty years?
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I hope you've enjoyed this series of blogs. What I wanted to show was that the Welsh economy certainly has weaknesses, but they are not all attributable to the Welsh as a people. We also have many success stories, but we really need to get a grip on these wider issues if Wales is to succeed economically.

That might mean taking more fiscal responsibility for ourselves, it might come down to one person having a brilliant business idea and having the assistance to take it forward.

At some point early in 2013, I'll look at local government and independence, which I was originally going to do so this time around.

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Wales : An Economic Profile V - Wales in the global economy

What does the economy look like within Wales? What
is Wales' role in the UK, European and global economies?
(Pic : Wikipedia)

• Part I - Primary Industries & Energy
• Part II - Manufacturing & Technology
• Part III - Services
• Part IV - Public Sector & Universities

The economic geography of Wales

It's worth taking a look at the overall spread of the economy within Wales, and how it's changed over the years.

Firstly, in terms of average gross (before deductions like taxes) weekly earnings. Only eight local authorities - clustered in three areas - had an average weekly wage above the Welsh average in 2011 (£519.40) and that shows on the map below.

The three clusters are : the M4 corridor, north east Wales and Pembrokeshire. Pembrokeshire is the 2^nd highest on the list, and there are obvious reasons why, one being well paid contractor work at the various petrochemical terminals.

Gross weekly earnings by Welsh local authority
(Click to enlarge)

The M4 corridor is another obvious one, though it's surprising that Monmouthshire doesn't seem to get much out of it. Being "close to England" doesn't appear to be that much of a factor – look at Powys, Monmouthshire and Wrexham.

This might suggest that the south Wales economy is more self-contained that commonly believed. Other local authorities have taken advantage of vacant, flat land next to motorway junctions down the years for industry – especially in authorities like Bridgend and Neath Port Talbot. Cardiff's place is obvious, and the Vale of Glamorgan likely acts as an upmarket/attractive overspill for people commuting to Cardiff.

Flintshire is home to many large employers, so its high wages are not a surprise. People from Denbighshire are probably likely to commute there to work, and it's also where Ysbyty Glan Clwyd is. What stands out is that Wrexham doesn't appear to have had any knock-on from this - despite having one of the largest industrial estates in Wales. Average weekly earnings in Wrexham are, in fact, lower than Merthyr Tydfil and Rhondda Cynon Taf (which are both below average themselves, but not spectacularly so).

Pembrokeshire aside, almost all of the rural parts of Wales have average wages below the Welsh, and even south Wales valley, averages. Carmarthenshire was the highest-placed "rural" authority at £495.10, but the likes of Anglesey, Powys and Ceredigion were all below £470. One suggestion might be that higher population densities, equals more demand for services and more attractive locations for businesses – an agglomeration effect.

Where are those businesses? I decided to map the density of the Top 100 largest companies in Wales (from the 2011 Top 300) and the 2011 Fast Growth 50. This is imperfect, as some companies are listed in both and have been counted twice.

Density of largest and fastest
growing companies in Wales
(Click to enlarge)

In this case, the Cardiff-Newport area and Deeside-Wrexham appear to be the main business hubs. But perhaps surprisingly, the south Wales valleys – in particular Rhondda Cynon Taf, Caerphilly and Bridgend – do rather well. Authorities like Swansea did much better on the Fast Growth list than the Top 100 list.

One other thing stood out. More than half of the top 100 and fastest growing companies (92) were based in just six local authorities : Cardiff (32), Flintshire (15), Newport (12), Caerphilly (11), Bridgend (10) and Swansea (10).

You would think this suggests that urban areas outperform rural areas, but that isn't necessarily the case. Gwynedd (7), Powys (6) and Vale of Glamorgan (5) do quite well. The only two local authorities without listings were Ceredigion and Conwy, while urban authorities like Blaenau Gwent and Merthyr Tydfil (both 1) did poorly too.

Wages do seem to be higher in areas where there's a greater density of large businesses. This radiates out into neighbouring authorities – for example, the Vale of Glamorgan has some of the highest wages, but not a spectacular business density, perhaps reliant on Cardiff commuters living there.

Going back to Part IV for a moment, there doesn't seem to be any link/pattern between levels of public sector employment, average wages or "lack of businesses" – it appears to be quite random.

Pembrokeshire only had 2 companies on the business list, pays some of Wales's highest wages, but had one of the lowest public sector employment rates. Cardiff, Bridgend, Swansea and Rhondda Cynon Taf had some of the highest public sector employment rates and businesses densities, but varied in average wages.
Any suggestion that the public sector might affect the private sector's competitiveness in Wales doesn't appear to have any legs.

Then you look at how Welsh production has changed over the last decade or so.

GVA compared to the UK by NUTS3 region 1997-2009
(Click to enlarge)

Only three NUTS3 areas in Wales experienced an increase in GVA relative to the UK between 1997 and 2009 : Cardiff & Vale of Glamorgan (+2.9%), Anglesey (+7.6%) and Gwynedd (a rather modest +0.2%). Only Cardiff & Vale of Glamorgan had a GVA above the UK average average in 2009.

Some NUTS3 areas experienced wild changes over the period. Bridgend & Neath Port Talbot was 82.6% (UK=100) in 1997, this fell to 67.6% (-15%) in 2003, then recovered to 71.3% in 2009 (-11.3% on 1997). Swansea was the opposite - falling, then rising, then falling.

The most dramatic relative decline though, has been in Flintshire and Wrexham, where GVA relative to the UK has fallen from 99% in 1997 to 80.3% in 2009 (-18.7%). Maybe this explains the Wrexham anomaly in wages from earlier.

Wales within the UK

As highlighted above, there is a widening gap in productivity between Wales and the rest of the UK – this was the crux of Plaid Cymru's Offa's Gap report earlier this year.

Relative GVA of the UK's constituent nations 1997-2010
(Click to enlarge)

Welsh GVA per capita has fallen from 78% of the UK average in 1997 to hovering around 74% in 2010. However, this is a much slower slide than in the early 1990s. Northern Ireland also experienced a slightly sharper drop (from 81% to 76%) over this period. England remained relatively stable at around 102%, while Scotland's GVA per capita rose from 96% in 1997 to 99% in 2010 – perhaps boosted by North Sea oil. Most of the UK's GVA growth has been driven by England - in particular Greater London and SE England.

The depressing fact is that GVA per capita in Wales actually grew over this period, from £9,774 in 1997 to £15,145 in 2010. Despite this, Wales is rooted at the bottom of the 12 nations and regions of the UK.

Some people will say all Wales has to do to close the gap is match pace with whatever the rest of the UK is doing. If Wales did so, you would expect us to be much better off, wouldn't you?

Welsh GVA is economic growth matched pace with the UK 1996-2010
(Click to enlarge)

Well, if Wales had matched the UK's average growth rate year-on-year (including the recent downturn) since 1996, Welsh GVA per capita would only be £1,253 higher (+8.3%) than it is currently. Better, but not dramatically so.

Presuming all the other nations and regions remained unchanged, Wales would only move up two places in the "league table" to 10^th – above NE England and Northern Ireland and just behind Yorkshire & Humber. Welsh GVA per capita would've stayed static at around 80-81% of the UK average throughout the period.

So even in more favourable economic circumstances within the UK, Wales might never be able to realistically breach that 80-81% "ceiling".

It was once Rhodri Morgan's stated aim to get Welsh GVA to 90% of the UK average. A similar pledge was in the Welsh Conservative manifesto in 2011. So, Rhodri would've missed the target even if Wales matched pace with the rest of the UK. It's lucky we in Wales don't punish politicians for making promises they couldn't possibly keep, isn't it?

Wales is, first of all, starting off from a much lower base - the "precipitous decline" in the 1980s-1990s saw to that. For Wales to close the gap with the rest of the UK, the Welsh economy would not only have to match pace with UK growth, but significantly exceed it. Wales would have to try and close the gap without possessing a large financial service sector, having a sparse population and with a one-size-fits all monetary, tax and fiscal policy.

As I hope these pieces have demonstrated, there's not much fundamentally wrong with the Welsh private sector, but there are gaps that need to be filled. All those things Wales needs are currently based in and around London : great international links, a large financial service sector, excellent and extensive public transport and agglomeration.

To close Offa's Gap, Wales would need to become the fastest growing nation/region in the UK - sustained for at least 30 years. Your guess as to how Wales, in its current state, would be able to do that is as good as mine. Maybe the Welsh economy needs a big game-changing shock to the system. Something really dramatic to kick start it.

Wales in three scenarios : current, matching pace
with the UK and the "Flotilla Effect"
(Click to enlarge)

The Flotilla Effect report suggested, on a population-based model, that if Wales became independent around the same time as the fall of the Berlin Wall, and followed the "right" economic policies:

• Welsh economic growth would have been between 2.2% and 2.5% per year (compared to the actual 0.9%)
• Wales would be 39% "wealthier" now than it is currently.

If this were true, and presuming all the other nations and regions stayed the same, then Welsh GVA would be (approximately) £21,052 in 2010 – the 3^rd highest nation/region compared to the UK, and above the UK average, only behind London and SE England. If Scotland were independent, then maybe they would be above Wales, perhaps the overall English figures will have been dragged upwards too. More on that further down.

Before you read on, I think the Flotilla Effect figures are an over-estimate. I'm convinced GVA would probably be higher because Wales would have needed to prioritise economic growth. My guess is it would probably be halfway between where we are now and +39%, but I'm not an economist. It's unclear what impact independence would have had on things like the public service sector, the public sector/public spending, exports, employment law etc.

For now though, the Flotilla Effect is the best thing we have to base an estimate on. I fear it's going to become a Welsh equivalent of the McCrone Report, except written with the benefit of hindsight.

Wales within Europe

Rough estimate of Wales' place within the European Union in 2011
Based on the "three scenarios"
(Click to enlarge)

Based on 2011 figures (so not 100% accurate, as my GVA figures are from 2010), Wales would be, alone, the 19^th wealthiest EU nation, with a GVA per capita at $24,534 (based on mid-2011 dollar conversion rates). Wales would also be the second poorest nation in what we would call "Western Europe" or "Old Europe", snuggled between Malta and Portugal. It's around 78% of EU-27 average GVA per capita ($31,607).

This isn't an awful place to be in compared to some of the EU nations ranked below us. Using football terminology, you could say Wales is in the "lower half of midtable."

"Poor" within the EU is a relative term. The only parts of Europe - including non-EU nations - you could genuinely describe as poor are places like Albania and Moldova.Wales also significantly outperforms the vast bulk of Eastern Europe, including EU members, on a nation-to-nation basis.

Notice that bit of orange where West Wales is (and Cornwall)?
But there's also a bit of green too - which is good.
(Pic : Eurostat)

However, on a regional basis, West Wales and the Valleys does compare unfavourably to some parts of the former Warsaw Pact (as you can see above), while East Wales compares relatively favourably to the European mainstream.

Based on Wales matching pace with UK, Wales would only move up two places to 17^th - above Greece and just below the Czech Republic. Wales' GVA per capita of $26,565 would also be boosted to 84% of the EU average. Wales is still in that "midtable" position, but closing the gap with "twin countries" (nations that are similar to Wales in many respects) like Slovenia.

Now the Flotilla Effect figures. Wales would be 11^th place, with a GVA per capita of $34,101 (108% of the EU-27 average). Wales would be pushing very close to the productive mainstream of the EU : Finland, Germany, Denmark, as well as above Spain and Italy. All of this is conjecture, as I noted above.

It's unclear what effect independence, or matching pace with the rest of the UK, would have on the intra-Wales regional differences. Would West Wales & Valleys be wealthier? Would all the economic growth have come from East Wales? You can't really tell.

It's worth noting that presumably, were Wales independent, the UK would cease to exist. Thus, England, Scotland, Northern Ireland (and at a stretch Cornwall and the Crown Dependencies) would be in the list in their own right. You also have to take into account other stateless nations like Catalonia, the Basque Country, Wallonia, Faroe Islands and Flanders.

Rough estimate of Wales' place amongst the "stateless nations" of
Western Europe
(Click to enlarge)

Where would Wales place amongst these? The above is an estimate based on various sources and timescales, so it's only a rough guess. I'm also including the Brussels city region as they are neither Flanders or Wallonia and have been mooted as some sort of EU "federal district" should Belgium split.

Catalonia and the Basque Country perform particularly well alongside England and Scotland. Wales, Brittany, Cornwall and Northern Ireland less so. Greenland isn't in the EU of course, but remains part of the Kingdom of Denmark (along with the Faroe Islands). Despite only having a population of around 60,000, the Greenlandic economy has been boosted by the discovery of large mineral deposits, and possibly in future extractable supplies of natural gas and oil. There are obvious concerns about that.

The likelihood is that these nations would be ranked above Wales, pushing Wales down the rankings a few places and changing the EU averages. I've treated this, in part, as though the UK disappeared into a puff of smoke - frankly because I couldn't be bothered to work the figures out and I'm not paid to do this. You get what you (don't) pay for. I think you can forgive me for that - and I am noting it.

Wales and the World

The global economy is becoming ever more interdependent, and Wales is as much a part of it as any other nation. It's worth looking at where Wales stands amongst the 183 nation-states listed in the International Monetary Fund list of nations by per capita GDP for 2010-11.

Rough estimate of Wales' rankings globally
(Click to emlarge)

Currently, Wales would be ranked 39^th , based on the same figures given for Europe above, nestled between the Seychelles and Saudi Arabia. The UK is currently 22^nd. This means Wales is pushing into the top 20% of all nations.

Based on the matching UK pace figures, Wales would be bumped up to 35^th place, between the Czech Republic and Oman. This, again, is around the top 20% mark for all the nations.

When it comes to the Flotilla Effect figures, Wales would be 25^th place, between Japan and South Korea, and ahead of nations like Israel and The Bahamas. Wales would have been within the top 15% of nations.

Whichever way you look at it, Wales is undoubtedly a "first world economy" - even in its current state. When people talk about poverty in Wales, it's always in a relative sense. For example, someone used to shopping at Waitrose having to shop at Asda would probably consider themselves "impoverished" somewhat.

However, the vast bulk of the world don't even have the luxury of a Lidl's. When we talk about "poverty" in Wales, or Wales being "poor", we need to remember that – for their sake.

When it comes to population, how does Wales stand compared to nations the same size as us (~3million)?

Wales' global rankings to similar sized nations in terms of population
(Click to enlarge)

Oil-rich Oman is the only circa-3million nation that's wealthier than Wales. If Wales had matched pace with the rest of the UK even modestly, Wales would be #1, with an even wider gap in respect of the Flotilla Effect. So you could say that Wales is one of the richest nations in the world with a population of around 3million.

Where do Welsh exports go?

There have been concerns raised that many small and medium sized Welsh businesses aren't taking full advantage of overseas opportunities. It's quite plausible that this has been caused by the demise of the WDA and International Business Wales.

The make up of Welsh goods exports in 2011
(Click to enlarge)

Wales' exported goods worth around £13.4billion in 2011. At the same time, the UK's total goods exports were worth £293.6billion. So Welsh goods exports make up approximately 4.6% of all UK goods exports – roughly where you would expect Wales to be, based on population share.

Where did Welsh goods go in that year though? It's difficult to pinpoint specific nations, the only statistics I could find are on a global regional/continental basis, but there are some interesting findings.

Welsh goods exports by destination (and value)
(Click to enlarge)

Although the European Union is the single largest trading partner for both the UK and Wales, Wales is less reliant on exports to the EU than the UK as a whole (42.4% of exports vs 53.8% for the UK).
Wales' other major export destinations are Oceania & Asia (12.1% of exports), North America (29.4%) and Middle East and Africa (8.8%).

In addition to the EU, the UK as a whole exports more, proportionally, than Wales to : Oceania & Asia (14% of UK exports), non-EU Western Europe, for example Norway, (4.5% compared to Wales' 2.5%) and non-EU Eastern Europe (2.5% to Wales' 0.9%).

Whole UK goods exports by destination. Notice the
differences compared to Wales?
(Click to enlarge)

How do Welsh figures look on a UK scale?

Welsh good exports to North America for instance, amount to 8.8% of total UK exports there – well above our population share. This is similar for the Middle East and North Africa, probably comings and goings via Milford Haven (7.7%).

However, Welsh exports to the EU (3.6%), non-EU Western Europe (2.6%), non-EU Eastern Europe (1.6%) and Sub-Saharan Africa (3.6%) were well below our population share.

Exports to Asia & Oceania and Latin America & the Caribbean are roughly where you would expect them to be (4% and 5% respectively).

Trade in goods - differences between Wales and the UK
(Click to enlarge)

As I've mentioned several times, Wales has a trade surplus in goods, and has done for several years. In fact, the Welsh trade surplus in goods has risen from £2.23billion in 2005, to £5.41billion in 2011.

The UK, on the other hand, has a deficit in trade in goods, rising from a £60.5billion deficit in 2005, to  £143.5billion in 2011. (You can find all the figures on the HM Revenue and Customs website, here's just a selection)

It's very hard to pin down trade in services figures, but it's believed that if these were included, Wales would be in deficit, while the UK would be closer to equilibrium (thanks primarily to the City of London's financial service sector, I'd imagine). It's also hard to tell how much is exported/imported to and from the respective Home Nations, and what effect it would have on Welsh export figures.

It doesn't matter in the grand scheme of things whether a nation is a net-exporter or a net-importer due to global interdependence. Trade deficits are neither a good, nor bad thing really.

These things matter because economic policy should be shaped to inherent strengths. I'm not convinced the UK's import-based economy based on services (though the UK Coalition government have, nominally at least, focused on exporters/manufacturing) is to the benefit of Wales' export-based economy based around manufacturing and energy.

Exports can help determine currency strength, credit ratings as well as who your trading partners are and why you do business with them. It can even boost things like international profiles and university co-operation, while successful exporters could well beget other successful exporters. These are very important issues that should, ideally, be shaped to a nation's individual profile.

For now, we're going to have to work within the current framework, which boils down to : monetary policy designed to maximise tax incomes from the City of London financial service sector (without spooking them), making sure the London remains Europe's predominant financial servicecentre, bribing businesses to set up in undesirable locations and keeping our fingers crossed that we (Wales) might produce another Admiral one day (Part III).

The sixth and final part in this series, will offer my own conclusions on what the strengths, weaknesses, opportunities and threats are with regard the Welsh economy.

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Wales : An Economic Profile IV - Public Sector & Universities

• Part I - Primary Industries & Energy
• Part II - Manufacturing & Technology
• Part III - Services

You can't have any discussion on the Welsh economy without mentioning the influence of the public sector. Firstly though, you have to define what the "public sector" is.

The Role of the Public Sector in Wales

The public sector, in general, consists of services commissioned (directly or indirectly) by the state. This includes : health, education, welfare services, local services like waste collection and state-run enterprises.

Bodies such as universities and the "third sector" straddle the definition between public and private, as they are mostly run as private businesses, but a large chunk of their income comes from a mix of the private sector and public sector. Even if they are well dodgy. Universities aren't officially counted as part of the public sector by the Office of National Statistics.

Those on the left generally view the public sector as a form of public ownership, and a way to ensure that public services are delivered evenly on a basis of need, not ability to pay, or profitability. The problems with this are that it's generally paid for via increasing levels of taxation (which is claimed stifles economic performance), can lead to the creation of overbearing bureaucracies/"empire building", a top-down "targets culture" that stifles creativity and innovation and it doesn't always offer the best value for money, or highest standards of service.

Those on the right - while not openly hostile to the public sector - consider value for (taxpayer's) money a key consideration. They're less opposed to private companies providing public services, or competition in public services to ensure the best quality of service. However, this doesn't ensure the same levels of investment from the government, it can burden the state with debt (via PFI-style schemes) and competition can lead to poorer areas being left with an ongoing legacy of poor-performing public services.

Wales, Northern Ireland and Scotland – generally - follow the "left wing" model. England however, through both the previous Labour administrations and the current Coalition, are experimenting with a mix "right-wing" policies : free schools, city academies, PFI, NHS foundation trusts etc.

Some of these reforms would be impractical in Wales, but England's public services generally perform better across a wider range of indicators. However, there are gaps appearing in service performance between different areas, dubbed a "Postcode Lottery". Wales isn't immune from this either it has to be said, but the focus here is more towards providing an even service across the board, though services in rural parts of Wales are coming under the most pressure.

More than 300,000 people in Wales are employed in the
public sector, and more than half had some sort of higher
education qualification in 2007.
(Pic : Lewis & Lewis Ltd)

When it comes to the economy, the Welsh public sector:

• Is a major employer. More than 300,000 people in Wales are employed in "the public sector".
• Employs more graduates. In 2007, more than 50% of public sector employees had a higher education qualification or above, compared to 22.9% in the private sector. (Table 9)
• Generally pays more than the private sector. In 2007, the public sector paid £70 per week more on average (Table 10) than the private sector. This trend appears to have continued since across the UK, but the private sector paid more to those without qualifications and school-leavers.
• Is female-dominated. 63.7% of public sector employees in Wales were women in 2011.
• Procures between £4-5billion in services from the private sector every year – for example, building a new school or hospital, catering services, IT contracts.

Health

NHS Wales is Wales' single largest employer, with approximately 84,800 members of staff in 2011. Of these, 32,800 were employed in nursing or related roles (i.e. Midwives). There are seven local health boards that run the NHS in Wales, in addition to a separate all-Wales Ambulance Trust, the Welsh Blood Service (based in Llantrisant) and the cancer-specialist Velindre NHS Trust based in Cardiff.

There are currently 14 major general hospitals (with A&E units) in Wales, and 2 minor general hospitals. This is in addition to 13 community hospitals with minor injury units (varying part-time and 24 hour) and numerous supporting clinics, community hospitals, psychiatric hospitals and a specialist children's hospital in Cardiff.

The Welsh NHS is Wales' single largest employer,
and around £6billion is spend on health and social services
by the Welsh Government every year.
(Pic : BBC Wales)

The Welsh NHS has its own logistics and procurement service (Welsh Health Supplies, now called Shared Services Partnership) with bases across Wales. A surgical materials testing laboratory is also based at the Princess of Wales Hospital in Bridgend.

Local Health Boards and the Welsh Government are leading a (controversial) reorganisation of hospital services in Wales, centralising services at some hospitals, while downgrading or removing services at others, being replaced with more flexible community-oriented services.

The Welsh Government currently spends around £6billion on health & social services from its allocated budget every year – the single largest expenditure group - and approximately 40-45% of the total devolved budget.

Local Government

The single biggest sector within the Welsh public sector are our 22 local authorities. There were 177,000 people employed in local government in 2011, but this is a fall of 7,000 on 2010 as public sector cuts make an impact, and local authorities are encouraged to collaborate in providing services.

Local authorities (including police authorities, national park authorities and fire authorities) were responsible for up to £7.8billion of public spending in Wales in 2012-13 on rudimentary local services such as : education, social services, policing, fire services, waste collection, planning and highways maintenance. Local authorities are provided with around £4billion from the Welsh Government directly annually, topped up by some UK Government direct and indirect grants (i.e. Policing).

Local government employed more than half of all
public sector workers in 2011.
(Pic : BBC Wales)

Local Government has the power to levy taxes, which has its own economic impact, raising around £2billion per year in Council Tax and Non-Domestic Rates on businesses. The Welsh Government recently carried out a review of Non-Domestic (Business) Rates, suggesting that local authorities might be able to keep more of this money for themselves in the future.



Central Government

The Welsh Assembly and Government are not huge employers by themselves. Approximately 5,100 people are employed by the Welsh Government directly, and around 300 by the Assembly legislature. Some of these jobs have been spread around Wales – to Llandudno Junction in Conwy and Merthyr Tydfil for example, though most Welsh Government jobs are in Cardiff.

Wales hosts a few major UK public bodies spun-out from the centre : Companies House in Cardiff, the DVLA and Land Registry in Swansea, the Office for National Statistics and Patent Office in Newport. It's also important to note that pan-UK institutions, like defence, are likely to employ large numbers of Welsh people who are based outside Wales, whilst employing very few directly within Wales.

Taxes are non-devolved. The major fiscal levers - including monetary policy, employment law, regulation of financial services, industrial relations, consumer protection and general fiscal policy - are reserved to the UK Government. The Silk Commission is currently investigating whether some tax-varying powers could be devolved to the Welsh Government in the future.

Education & The Role of Universities

In 2012, there were 1,696 maintained schools (221 of them secondary schools) and 66 independent schools in Wales, serving 474,800 pupils (just under 9,000 of them attending the independent schools). There were 28,153 qualified teachers.

There are currently 18 further education colleges - some of which are undergoing mergers - serving around 184,000 students in 2009. These offer vocational and technical courses in a wide variety of subjects. In some local authorities – Neath Port Talbot and quite possibly in future Merthyr Tydfil and Blaenau Gwent – post-16 education (including A-Levels etc.) is provided exclusively by FE colleges.

Neath Port Talbot provides almost all post-16 education
in the county, with around 15,000 students.
(Pic : Bailey Partnership)

At higher education level, Wales has 11 universities, but like the further education sector, are undergoing a restructuring process led by the Welsh Government, which is proving controversial in some cases. Newport University and the University of Glamorgan are due to merge, but it remains to be seen whether Cardiff Metropolitan University will join them.

In 2010/11 there were more than 140,000 enrolments to Welsh higher education courses, and around 10% of these were overseas students. Of these enrolments, some 30,000 will be postgraduates. It's estimated that the university sector contributes up to £1billion to the Welsh economy.

30.6% of the working age population in Wales held a higher education qualification (Level 4) or above in 2011, although this is below the UK average (33.6%). As a percentage of working age people completing tertiary education (including further education) Wales (33.8%) is competitive compared to the EU27 average (26.8%)

The Welsh university sector has had some considerable success in:

• Spin-outs and business start ups (10% of the UK's graduate businesses and 9% of university spin outs surviving more than three-years are Welsh )
• Software licences (11% of the UK's total)
• Income from research (7%)
• Income from regeneration and development (11%)
• Attendees at "chargeable performance arts events" (17%)

Most, if not all, Welsh universities offer some sort of support for "spin out" companies launched from within universities, in partnership with the likes of Venture Wales and graduate employment scheme, Go Wales.

AIM-listed Fusion IP - part-based in Cardiff - holds rights to research produced by Cardiff and Sheffield Universities, focusing on science, engineering and energy research, and assists in attempting to turn research into marketable products and patents.

The likes of the Cardiff Partnership Fund and Finance Wales have also helped pump investment in start-up companies, while Ser Cymru (mentioned in Part II) was recently launched by the Welsh Government to help attract and retain more world-class scientific research in Wales.

Some prominent Welsh "spin outs" and graduate companies include:

• Mesuro (Cardiff) – Radio frequency & microwave testing equipment
• MedaPhor (Cardiff) – Medical training/simulations
• Asalus (Cardiff) – Laparoscopic ("keyhole") surgical devices
• Q-Chip (Cardiff) – Drug delivery methods
• Nanotether (Cardiff) – Biochemical assays (speed up drug discovery)
• Rocktails (Cardiff) – Frozen cocktails for retail market
• Forensic Resources (Cardiff) – Forensic science consultancy
• Placements UK & India (Cardiff Met) – MBA recruitment
• Promedical Innovations (Cardiff Met) – Obstetrics medical devices
• Cymtec (Glamorgan) – Optronics/LED's
• Rumm (Glamorgan) – Utilities data analysis
• Allerna Therapeutics (Swansea) – Allergy therapies (i.e. Asthma)
• Haemair (Swansea) – Respiratory disease treatments
• Enfis (Swansea) – Optronics. Now Photonstar, mentioned in Part II
• Innovis (Aberystwyth) – Agricultural breeding technology
• Optical Reference Systems (Bangor) - Optronics
• Food Dudes (Bangor) – Social enterprise encouraging healthy eating

Although Cardiff University may be Wales' largest university, with around 30,000 students, it's events further down the M4 that I believe (and have mentioned before) could totally transform the economy of Wales.

Swansea University are currently planning a new campus to the east of the city at Crymlyn Burrows. BP, regeneration experts St Modwen and the Welsh Government are backing the scheme on the site, which was once part of BP's operations in the area. The first £200million phase is due in the next few years. It'll host Swansea University's engineering, computer science, maths, business and economic departments.

Swansea University are planning a new technology-related
campus, which could boost the local economy by as much as £3billion
(Pic : Swansea University)

This is significant as it would provide modern, world-class facilities for high value-added research & development as well as teaching – and all outside Cardiff.

It's been estimated that it could be worth £3billion to the south west Wales economy. If all of that passed onto Swansea's population alone (239,000 in 2011), it would almost double Swansea's GVA, making it Wales' most prosperous local authority in terms of GVA per capita by some distance (~£27,000 or ~134% of the UK average based on 2010 figures).

Though, technically speaking, the new campus would be in Neath Port Talbot, I won't let minor details like that get in the way.

Despite these positive developments, in 2009 Wales attracted £530million in research and development funding - just 2% of the UK's total R&D funding that year. Compare that to Scotland (£1.91bn) and Northern Ireland (£478million).

Is Wales "reliant" on the public sector?

Around £12.15billion, or 27.3% of Welsh GVA in 2011, was "the public sector" compared to 20.3% for the UK as a whole. The UK (non public) service sector was 13% larger (58.2% of GVA) than Wales (45.2%) - a large chunk of that being the difference in financial services. Wales has a proportionally larger secondary/manufacturing sector (Part II) than the UK as a whole, which makes up for the shortfall.

The public sector in Wales & UK expressed as % of GVA
(Click to enlarge)

Next, it's worth looking at where the public sector jobs are.

The density of public sector jobs in Wales by local authority
(Click to enlarge)

There's no set pattern across Wales.

• Cardiff has the second highest percentage, yet is also home to more large private sector and fast-growing companies (more on that in Part V).
• Flintshire is a populous local authority, yet has a small public sector by Welsh standards. Rhondda Cynon Taf and Carmarthenshire are populous areas with large public sectors.
• There's no difference between Y Fro and the rest of Wales, and the two local authorities with the highest percentage of Welsh speakers (Anglesey and Gwynedd) have mid-table levels of public sector workers. Ceredigion and Carmarthenshire are the opposite.
• Urban authorities tend to have more public sector workers than rural ones (the likes of Ceredigion and Carmarthenshire excepted). The highest percentages appear to be in south and south west Wales.

You can't really set an "ideal" percentage of public sector workers, and the definition of "public sector" is rather fluid. It depends on the situation you find yourselves in, political ideology, as well as the public's demands.

There's also what I'm dubbing a "monolith effect".

Ceredigion had the highest percentage of workers in the public sector in March 2012 - at 37%. Ceredigion also has a population of just over 75,000 (around half the population of Newport). Within its boundaries, they have a major general hospital, is its own local authority (justifiable due to its size) and Aberystwyth is host to a Welsh Government outpost. The county also has two universities which would, unofficially at least, boost numbers of workers paid directly or indirectly by the state, but not actually officially working for the state.

Number of jobs in the public and private sector in Wales
(Click to enlarge)

Can you see why having large public sector employers in such a small (in population terms) local authority is going to affect public sector employment levels? This is ofset by a similar local authorities - Powys and Pembrokeshire for example - having the complete opposite, so it balances itself out across Wales.

There are other situations too:

• Areas with higher numbers of elderly people will, as a consequence, require more healthcare staff and general care staff – but some of these in turn could be working for private companies.
• Areas with high levels of deprivation will probably, as a result, require a higher than average number of social workers, government scheme coordinators etc.
• Areas with a smaller private jobs market (i.e. Valley authorities) will have disproportionately larger public sector. Public services are still needed there even if there's economic problems.
• Increased investment in capital projects might lead to extra public sector recruitment (i.e a new school, hospital, college)
• Job security in the private sector is influenced by the state of economy, while the public sector is "shielded" somewhat, so private sector jobs are shed quicker in times of crisis.

Public sector workers as a % of workforce Wales v UK
(Click to enlarge)

From 1999 to 2011, public sector employment in Wales (as a percentage of all people in employment) rose by 1.7% - from 24.2% to 25.9%. This is exactly the same rise as the UK as a whole (19.2% to 20.9%) over the same period.

The difference could be accounted for by the Welsh private service sector being "too small" (Part III), as well as the loss of manufacturing jobs in Wales - for example, the steel industry in the 00s - which Wales is proportionally more reliant on (Part II).

This isn't that much of a problem. Judging by this report from the Scottish Government (Chart A2.3), though public sector employment rates in Wales are high by European standards, they're not that different from Scandinavian nations.

Once you adjust the figures to a whole population figure (Table 1) - not just those in work - there's only a 1% difference in public sector employment rates between Wales and the rest of the UK. If private sector employment - and economic growth - had matched pace with the rest of the UK, you would expect Wales to have a similar level to the rest of the UK too.

The "problem" in relation to the public sector, as I see it, are levels of public spending compared to GVA.

Levels of public spending compared to Welsh gross value added
(Click to enlarge)

Identifiable public spending to GVA per capita rates have risen from 54.2% (£6,515) in 2002-03 to 66.1% (£10,017) in 2010-11. Once you add all the non-identifiable stuff (defence, foreign affairs) you could be looking at a ratio in the mid 70s.

There's a real possibility that Wales could, at some point in the future, have as much spent on it as the economy produces – a public spending to GVA ratio of 90%+.

Think about that for a second. That's North Korea territory. Would you want to invest in a country like that? Am I the only person concerned about it? The moment you reach numbers like that you cease having, not just a functioning economy - you cease having an economy full-stop.

The fact it might happen here, whilst being a part of one of the richest nation states in the world, despite having a large private sector (as I've demonstrated in previous parts) and excellent exports record (Part V), is an absolutely ridiculous situation to be in.

On paper, only nationalists need to be worried about it, as it makes independence "unaffordable". Based on Wales' tax income alone, the public spending to GVA ratio would be around 40%, or £6,016 per head – a drop in public spending of £4,001 per head (not including all the "non-identifiable stuff").

You can argue, and I have done before (The Big Independence Question), that not all of this public spending has a beneficial effect. A large chunk of it might not even be spent in Wales, and there could be differences between actual outlay expenditure and Treasury estimates. For example, £560 per head is currently spent on defence in Wales on our behalf.

Now, could Wales spend that £6,000 per head better as an independent, but sparsely populated nation of 3 million people?

Or, will the "drop in living standards" (as if living standards have improved by having the equivalent of 66% of our GVA spent on us) be too great a risk?

It's such a broad-ranging argument, it's going to have to be left for another day and for people who  get paid to think about such things.

So, you could conclude that:

• The public sector is a major employer in Wales, but tends to cluster itself in very few areas, or on very large single sites ("monolith effect" i.e. a major hospital, outsourced UK government body or local government HQ in small towns).
• Some parts of Wales are – statistically – more reliant on public sector jobs because of this "monolith effect", or a smaller working-age population (i.e. Valley authorities with higher levels of disabled, retiree magnet authorities).
• Wales isn't "reliant" on public sector employment. With very few exceptions, between three quarters and two thirds of Welsh people work in the private sector. Wales has a market economy with a bit more government intervention than other parts of the UK.
• On a "whole population" basis there's little difference in public sector employment between Wales and the rest of the UK .
• Wales is disproportionately reliant on public spending, perhaps explained by : increases in public spending from the centre (proportional shares of "big UK projects") being accounted to Wales, higher than average spending on social protection and Wales' GVA failing to keep pace with the rest of the UK (Offa's Gap) over several decades.

Part V in this series will look at the economic geography of Wales, where we stand in relation to the UK, EU and global economy, as well as answering the question - where do Welsh exports go?

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