Tag: Taxation

Bloody hell Ron, lighten up mun.

On the other hand… It’s always worth having a bit of R.S. There’s something there isn’t there? As he bounced around Wales, from south to north, east to west, infused by the landscape and the people, he became able to distil and communicate, in Saesneg then Cymraeg, some of those scarce and fleet things that are universally Welsh. Things that will return the same knowing nods in Glynne Arms in Hawarden, the Ship & Castle in Aber, and the Bunch of Grapes in Ponty. We get it, we know, we’re on the edge. Done-to. A bit crap. Good natured grumblers. Stuck. One of my immigrant mates is always struck by how passive we are (her word not mine!).

Mostly, I… kinda celebrate most of this. It makes us different. In some ways perhaps even unique. Our inability to swim strongly in the mainstream opens interesting backwaters and deep pools, and incentivises us to think about life and work in ways that are more expansive, inclusive and careful. I like this because I’m at heart an optimist. But it’s not all good. Sometimes, and especially where I live, it still feels like the last day of the miners’ strike. A dead culture stamping on a human face – for ever. Port Talbot and the rural wilds have it yet to come.

You, my dear constant reader, will know my solution to this is to forget about materiality and economic prosperity, to embrace wellbeing, and modesty, and community, and each other, in some sort of degrowth-steady-state-doughnut-post-carbon-insert-hippy-buzzword economy All have a big cwtsh and shop in Oxfam for hemp notebooks instead of Apple for aluminium ones whilst preparing thoughtfully for a straightened future…

But (and bear with me here). What if I’m wrong?

I know. Tough to imagine, isn’t it? I’ll give you a minute.

If economic growth does matter – if it is the engine for climate and ecological and wellbeing transformation – then we need to think about how Wales might grow faster in terms of traditional GDP. About what economic theory and evidence tell us to do; structurally, long-term, holistically – to develop a growth orientation we have lacked for generations.

Figure 1: Gross Value Added per Capita (UK=100)

We don’t. Instead, we ‘projectify’ our economy – we imagine a freeport here, a new motorway there, some nuclear skills up top, which means even where we have a decent statement of the problems, we have a limited sense of what it might take to actually raise our GDP per head, long term, if we really went for it, to the exclusion of all else.

So. Here’s my take.

Back to Basics. What is Economic Growth?

Economic growth is what we call it when there is more stuff bought and sold in an economy of our choosing this year, rather than last year – once we ignore the effects of price inflation. That’s it. Not complicated, is it? Until you start to measure it, when you need to do tough things like collect data on all this buying and selling – of goods, services, labour – and then reallocate the value of the purchase to where it actually ends up (I’m sorry to tell you that your horrific monthly streaming bill is doing virtually nothing for Wales’ economy). You must also decide whether you care about the overall size of the economy (by measuring GDP), or more how much ‘stuff’ there is spread around your resident population (where GDP per capita is what matters).

So that’s the ‘what’. How about the how? Well, if you want a bigger economy you have to have more ‘inputs’ working together to make more outputs. These inputs include labour and capital (with the latter including physical and natural for example). In the simplest case, if the ‘level’ of an economy is determined by the contribution of these inputs, and then growth is only possible if you increase the amount of one or more inputs. For example, if female labour force participation increases, or an inward investor brings capital in the shape of a factory to a less-developed country – bingo! But you don’t always have to increase bums on seats. It has long been recognised that human capital – education, training, skills – plays an important role in increasing the contribution of each, um, bum. Literate, well-educated and well-trained workers can each contribute more. Education matters.

So far, so good. But finding more inputs is tough. Increasing labour (for example via immigration), capital, or the level of education are generally ‘one off-ish’ interventions. They certainly can’t fully account for the sustained growth we have seen in some countries for hundreds of years. Instead, economists like Josef ‘honestly, not a vampire at all’ Schumpeter suggested that economic growth is primarily due to the ‘creative destruction’ of never-ending innovation; technological change that increases the contribution of economic factors. A good example of this is that pre-internet, it could have taken you a month’s wait, a trip to the newsagent and the death of a thousand trees for my, um, wisdom, to enter your brain via your eyeballs. Yet here you are, with me economically levelling you up, straightaway on your iPhone 15 16, hungover in bed at 8.30AM. Shazam!

Yes, you may crawl to the bathroom for a tablet, don’t be long.

So the sustained economic growth that Wales needs to close the prosperity gap relies on ‘a process of continual transformation. The sort of economic progress that … would not have been possible if people had not undergone wrenching changes.’

There are then lessons here for Wales: maximise our economic inputs at work in the region (and attract more whenever we can); and spur – and embed – innovation to an extent never seen before in this small corner of the globe.

(New) Labour

The first, and most obvious thing to note is that Wales has – for generations – lagged successful (or even average) regions in the proportion of people economically active; that is, in or looking for work. This is, in terms of GDP potential, resource utterly wasted. Getting our rate of economic inactivity down from the current 28% to the UK average of 22%, and getting all those people (somehow) into work would add 115,000 people to the workforce and, even in low-pay Wales, add almost £4bn to the bottom line.

Doing that in practice is, of course… difficult. Even high post-pandemic labour demand has not done much to move the dial – because we have a problem of labour supply. People are older; sicker; perhaps disillusioned by the tales of their parents and grandparents; under-skilled; under-caring, because under-cared for… brittle relics everywhere. My esteemed colleague Rob Huggins talks, reluctantly, about a place steeped in learned helplessness. But he’s from Beddau so you can probably ignore him.

Nonetheless, it’s clear that to maximise the application of economic resources, the pro-growther must enable, persuade or force more people back to (or into) work. Coercion has been tried over the decades, usually by UK-national governments of the rightist type, and with very limited success, either during Austerity or back in the 1980s, when many in Wales could retreat into a low-cost life of family, hobbies and informal work ‘hobbles’, rather than following Norman Tebbit’s exhortations to ‘get on your bike’ and find work.

So the first and obvious thing to do here is not to scold and punish (although that might come), but to help those who already want to work but can’t. The key intervention is not in the economy, but in health and care; and not just in the Welsh NHS (or the National Disease Service as a consultant friend calls it), but holistically, in preventative public health and improving access to work through transport, skills, and better child and adult care systems. Luckily this is a rare area where our Thatcherite hawk can find common purpose with our happy-clappy Future Generation hippy. Poor health hurts everyone. As just one, awful example the legs, sight and lives lost to Type 2 diabetes in Wales represent both deeply tragic human tragedies and a waste of productive labour, as those afflicted cannot work, and as more and more resources are diverted to the job of caring for them. The half-billion-and-exploding cost to Wales is only the smallest foreshadow of the future. Even the most hard-headed economist theorist recognises that investment is a requirement for future growth. When it comes to our people and enabling infrastructures, we are doing far too little of it.

So as a start, Eluned and RT and Sir Keir give it a comradely shake and make Wales a health-creating, ‘sanitogenic’ instead of obesogenic environment. Luckily, we know some of what works. So screw taxes down (more) on sugary junk ‘til the pips (or the Coke equivalent) squeak. Restructure our town centres, employment sites and leisure hotspots to, as far as we can, force those 10,000 steps. And ban all junk-food and junky advertising and sponsorship, not just to kids (and yes, I’m looking at you gambling).

It would be nice to think that the above would go a long way to sorting Wales’ economic activity problem (and, in the case of junk food taxes generate a fair bit of cash and make us happier and healthier). But getting people into jobs is not much good if they are poor jobs. Wales has done surprisingly well since devolution in increasing the female employment rate. But any impact on GDP has been diluted by low productivity. In 1998, just before the Glorious Revolution, economic value created per hour worked in Wales was 86.6% of the UK average. In 2021 it was 84.1%.

More work needed then.

Skills to pay the bills?

Wales is under-educated, under-trained and hence under-skilled, with this especially true of the poorest parts. From an economic growth perspective, this raises so many red flags that Bulls’ ears are twitching from Lawrenny to Lixwm. Our industrial heritage is disappearing in the rear-view, leaving us with education challenges that were insoluble as pupil and adult education spending fell through Austerity, and COVID bore down hardest on the poorest. In the longer term, the huge demands that our ill-health makes on public expenditure means improving human capital is only possible if Wales gets healthier over the next decades – as it will under my sensible and modest plans above! Of more concern is understanding how education links to economic growth in any future economy – and then how we operationalise the link.

I went around many of these houses in 2019, thinking about what a fit-for-the-future school-age education system in Wales would look like. I leave you, dear reader, to peruse at leisure, but would reflect on the fact that back then I suggested abandoning GCSEs as they promoted a dominant model of ‘teaching-to-the-exam’, rote learning in narrow tramlines, and effectively threw away the formative years of ‘non-academic’ pupils via poorly regarded vocational routes.

In 2024, in the light of COVID, the staggering incursions of AI (and my own experience of watching The Boy negotiate both GCSEs and A-Levels), my views have if anything hardened. We are, in schools and universities, not educating but accrediting; ‘sorting’ learners for the convenience of middle-class parents and disengaged (but disparaging) employers. And based on student factors that probably have only the merest connection with future productivity.

What growth-oriented education and training looks like in an AI dominated, as well as climate, ecologically and demographically constrained world is a subject too chunky for this blog. But it is clear that it doesn’t look like an under-resourced version of the education system of England in 1985 – which, for all the in-theory wonders of the new curriculum is essentially what we have as soon as kids reach their teens. The modest changes to GCSEs upcoming in Wales next year are a reflection of this. A move towards more non-exam assessment is welcome, as is the nod to digital enablement (although both raise issues around disadvantage and required resources), but nothing in the 2023 consultation raises the issue of what GCSEs are for in terms of the wider socio-economic and future contexts. Search in vain for the words: economy, society or environment. Search in vain for a public value or economic growth rationale as to why we need for age-16 public exams at all, when almost no learners leave education at this age. My daughter, not yet started on her GCSE journey, will probably enter the labour force in 2030 or 2033. Are we even trying to give her the skills, competencies and flexibilities she might need? And if we aren’t, how can we expect her to be productive?

Spoiler: she’s learning about 1066.

Wales has the powers to completely redesign education, qualifications, and skills provision in pursuit of its national aspirations and yet… we continue to train accountants and plumbers and planners and beauticians and yes, economists, in exactly the same way as anywhere else – despite this having left us for ever at the back of the economic pack. We could junk our 19^th century legacy of hyper-narrow professions and workplaces in favour something much more holistic, bespoke and future-focused. And if that means divergence with the rest of the UK, and a lack of outward mobility of skilled youth, well… in pursuit of our growth objective, we don’t want them to leave anyway, do we?

Mo money, no problems?

Growing and improving the workforce mean nothing if there is no good work. And here, of course we mean good private sector jobs: the tax-guzzling non-profit public sector, and incestuously financed third sector are, (for growth purposes remember), no good at all. Wales is seen as suffering from a dearth of development finance, especially for SMEs. Which are basically the entire locally-owned economy. Matching increases and improvements in labour with an increase in capital thus takes us on a path long trodden by poor economies seeking to develop and modernise: Attracting, and in the best cases embedding, Foreign Direct Investment.

I know what you’re thinking: Wales has been here before, and with a little visible effect on closing our GDP gap (although it’s interesting to wonder where Wales’ GDP would be without the FDI successes of the late 20^th century). And I would agree that at a time when global FDI is in decline – and inward investment to the UK has been in steep decline since 2016 – placing our bets here seems… optimistic. Indeed, I can take off my growth-economist hat (the one with little helicopter rotors on the top) and slip on my comfy catastrophising Crocs to point out that the key thing for economic growth in Wales over the next decade is to (at least) keep the foreign capital already here. Wales’ private GDP is very dependent on a handful of non-local firms. The back of my envelope, my finger in the air and a squinty eye at HMRC data reckons that a half dozen firms – Airbus; Valero; GE at Nantgarw; Dow; Tata and Celsa – account for a big chunk of Wales’ international exports. The closure of any of these investors, and their valuable inbound earnings would make the growth mountain harder to climb.

This is not to say that nothing new can be done, but a growth-oriented FDI strategy would need nuance, focus and consistency – especially in view of our (current) lack of skills in the workforce. The embedded semiconductor cluster around Newport is an example of the ‘triple helix’ success of government, industry and academia. And our longstanding relationship with Sony led to Pencoed producing over 50 million units of the endlessly versatile Raspberry Pi. The next successes will rely on a sophisticated, targeted and distinctive offer. Could our strengths in Cyber and Fintech not translate into a clear offer for investors based on security? Where is our hydrogen economy going? What are we actually pitching for?

Answers on a postcard please.

Slow Reflections / Strange Delays

You knew us better than we knew ourselves
And the truth it seems to hurt so much –
Bradfield/Wire/Moore

I started this blog as a thought experiment, expecting to reinforce my own beliefs that the pursuit of increased economic growth in Wales was probably futile and, given the increased resource consumption and global South impacts it implies, also unethical. I still believe those things but…writing this blog has also convinced me that there are some potentiallybig synergies between a focus on growth, and a better functioning society overall.

Some of those overlaps might give rise to concerns about the limitations on freedom of individual choice, given the type of government intervention I suggest above, but a laissez faire Wales is not a high growth Wales. It is a sick Wales. A disengaged and despondent Wales. A Wales that disregards economically valuable resources. And, as I’ve said elsewhere before, a Wales that lacks autonomy. Capitalism has gone so wrong in our little corner that there is a good measure of government-directed social re-knitting that would equally fulfil the needs of growth; a wellbeing economy; the foundational economy; doughnut economics…

Maybe we should argue the toss – about what the economy is for – after we’ve re-learned the basics of just… including people, civically and economically.

Any Wales that is fitter for the future is a changed Wales. And that change will only come with deep, embedded, circular and (I would argue) bespoke innovation. Also, the sort of innovation without which economic growth is a dead end. This is the looming question that I have ignored so far in this blog: how do we innovate more (and better) in Wales and then capture those benefits? Can we defy R.S. Thomas, and leave our mouldering quarries and mines to create a dynamic and prosperous future for Wales, here in the present?

The next and final Afallen blog for 2024 will ask just this question.