John Winterson Richards argues that any move towards greater autonomy for Wales will require policies to promote the private sector

September 30th, 2013

What follows is based on the assumption that, as a result of the decision taken in 1997, Wales is on the path to some form of independence, or at least a substantial amount of autonomy – absolute independence being a meaningless concept in the global economy. This assumption is based on the observations that (i) the Assembly, like all political organisations, will tend to augment its own power and status; and (ii) there is no seriously organised opposition to it doing so either in Wales or Westminster.

On the Right of Welsh Politics

 

This is the third in a three-part series in which a former activist provides an insider’s account of the fortunes of Conservatism in Wales.

 

Many support this because they make a further assumption, that an independent or autonomous Wales is more likely to adopt leftist policies than the rest of the United Kingdom. Many oppose it because they make exactly the same assumption, and fear Wales will come to resemble one of the less reconstructed former Soviet Republics, complete with one-party state.

Yet there are two scenarios in which the first assumption proves accurate but the second might not.

In the first scenario, the notion that with greater power comes greater responsibility prevails. That is to say, as Wales gets closer to independence, socialist fantasising gives way to a more realistic attitude.

The second scenario, unhappily the more likely, is that a newly independent or autonomous Welsh Government attempts to establish a socialist fantasy, However, that quickly proves a disastrous failure, and external and internal pressures force a complete change of direction.

In both cases, the reality is that you cannot have an independent state, or anything like it, in which a private sector consisting of one third of the economy has to generate the wealth to support a public sector consisting of two thirds.

So the great irony of Wales’ move towards greater independence is that it increases the need for policies to develop the private sector – policies some in Wales like to characterise as ‘right wing.’

This leads to an even greater irony. An independent or autonomous Wales would have a greater need of input from what is commonly considered the political ‘right’ an influence that is currently confined to an alienated minority in Wales. The truth is their influence would increase alongside the growth of Welsh autonomy. Those currently labelling themselves as Welsh Nationalists and as Conservatives might come to need each other more than either would currently care to admit.

The greatest irony of all is that if Welsh nationalism and the political ‘right’ could become more open to each other, then the whole cost-benefit analysis of Welsh independence or autonomy might change completely.

As far as nation-states go, big is no longer beautiful – if it ever was. Large populations are no longer required to fight wars or provide industrial workforces. On the contrary, a glance at GDP per head figures shows that small nations in Europe can do very well for themselves when they adopt free market policies. There is no reason why an independent Wales has to be Moldova. Why not become Switzerland?

The greatest obstacle is the hysterical reaction from many parts of Wales’ political class to the very mention of the words ‘free market’. Hyperbole cuts in immediately – sweat shops, strip mining, people starving to death under bridges, and so on.

This ignores the basic fact that the ‘free market’ is not an ideology but nothing more and nothing less than a description of the most efficient method of generating wealth ever discovered. It should go without saying that it can only exist within a moral, social, political, and environmental context.

The business community are not made up of anarchists. Far from opposing any legal restrictions on markets, they tend to be strong supporters of the principles of law and order. What they do ask is that laws should only be applied for honourable purposes, that they should be as un-intrusive as is consistent with those purposes, that they should be clear and simple and as few in number as possible, and that they should be enforced consistently, fairly and sensibly. The same should be true of all laws, not just those relating to business.

If an independent or autonomous Wales could do no more than follow those principles, we would have an immediate competitive advantage.

One cannot, of course, ignore the fact that tax policy is a key element in the success of small nations. High taxes establish a vicious circle, driving out entrepreneurs and businesses, and reducing the tax base, so that taxes remain high or public services are cut or both. Low taxes generate a virtuous circle, attracting entrepreneurs and businesses, and increasing the tax base, so that there is more for tax cuts or public spending or both. The economic potential of an onshore Isle of Man or Jersey only two hours by train from the City of London is too obvious to ignore.

Yet Wales should aspire to be more than a tax haven. One of the lessons of Ireland is that low business taxes can bring impressive short-term benefits, but they are not enough on their own. The opportunity should be taken to build a comprehensive enterprise culture that involves the whole population.

A simple flat-rate tax system, linked directly to a similarly simplified benefits system, would be the most effective way of encouraging risk and initiative at all levels of income. But it would be especially important for those caught in the ‘poverty trap’, wanting to work or work more hours, but currently discouraged by the possibility that loss of benefits and additional tax would be greater than any additional income.

On a broader level, it is very regrettable that more has not been done to implement some of the measures recommended almost twenty years ago in the Institute of Welsh Affairs’ own Wales 2010 report to develop enterprise culture in both private and public sectors. It is typical of Wales that the announcement of the Williams Commission on public service delivery, where reform is long overdue, made a point of excluding ‘market’ solutions. Most countries find that cooperation between the public sector and local businesses benefits both. Places with underdeveloped business sectors tend to have poor public services. Wales needs to catch up with modern thinking.

In principle, there is no reason why an independent Wales could not survive and thrive. In practice, our great problems are our lack of a strong business leadership class and the blind dogmatism of our political class. If we could overcome those problems, many who are today unionists today might tomorrow become the most fanatical of Welsh nationalists.

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John Winterson Richards is a management consultant and business writer based in Cardiff.

11 Responses to:“Welsh imperative to be an on-shore Jersey”

  1. CapM says:

    “… the basic fact that the ‘free market’ is not an ideology but nothing more and nothing less than a description of the most efficient method of generating wealth ever discovered. It should go without saying that it can only exist within a moral, social, political, and environmental context.”

    However it seems to have been most efficient at generating wealth when it ignores moral, social political and environmental contexts. So much so that we have to keep on and on saying and dedicating resources to managing and policing it to try and make it take heed of these moral social political and environmental considerations.

    Hopefully when the ties between the Conservative party in Wales and England get stretched further they’ll lean towards a more Scandinavian model of the market, which still provides for plenty of opportunities for wealth creation rather than sticking to the dogma of the Anglo Saxon free market model.

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  2. John R Walker says:

    As so many of us have said for so many years – the reason Wales will not develop as any kind of successful commercial or financial centre is wrapped up in this and the ongoing fear of an extension of this insanity to the private sector:

    http://www.bbc.co.uk/news/uk-wales-24335068

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  3. Gwyn says:

    The more I’ve read economists the more I’ve understood that no model exists of how it works and therefore all economic theory is a wing and a prayer.

    There are though a very few constants, such as:
    * The amount of money in the economy is decided by the Government so enterprise does not “create” wealth, though it might take some from elsewhere..

    * The Private like the Public Sector pumps money around the system

    * The faster money goes around the more it appears to be in more than one place at a time and so creates the impression of more money. This is growth. Unless you can take someone else’s money, of course.

    * “Free” markets are very unhealthy. Where there’s money there’s temptation. Where there’s temptation there’s crime. Not all, but the unfettered system can pressure good people to go bad. Indeed many academics and professional economists are currently accusing many of the world’s markets of being fraudulently manipulated. Most notably the Gold Market.. The current crisis is an example of under and poorly regulated financial markets going bad. When they go wrong money almost stops circulating and we find there’s not as much money in the system as we thought.

    * Tomorrow all this might have changed.

    This business of “Absolute” Independence is purely, and always has been, a smoke-screen. Independence means, as it always has, not being ruled by another country. Simples!!

    Having said that, the principal of your article is right. But you must agree that the Welsh economy is as it is because it’s been made like that from Westminster. No change can really be made, on the lines you draw, unless the Welsh Government benefits in income from such changes. As things stand if Wales was rich, as it was from coal, the main beneficiary would be the South-East of England (specifically the City of London). This is probably one of the factors that keeps the Labour Party where they are and how they are.

    Both the Labour Party and Conservative Party are driven by the English Class War rather differences in socio-economic alternatives or ideas of Systems Analysis or Structure. All politics is nationalist but the jingoism of “One Nation” Unionism I dislike and distrust and do not wish to see in a Welsh context.

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  4. Duncan Higgitt says:

    This essay fails because its basic assumption – that the writer here is battling against some intransigent political leviathan, stuck in its old world ways, does not exist. It is a straw man all too frequently used by those who seek to instruct the rest of us on the rectitude of free market ideology.

    I guess the size of that task in hand is implicitly recognised in this piece, as Mr Richards talks of the “hysterical” reaction to the “very mention” of free markets. But he – like so many others that take this route – do absolutely nothing to address or even recognise where ideologies around free markets have led us and our economies in recent years. It’s rather like standing in front of an almighty plane crash and complaining that a road no one has used for years is really a rather dangerous way to travel.

    If any side has become “hysterical” in recent times, it is the one to which Mr Richards is attached. And it’s a shame that neither he nor other champions of free markets make any attempt to discuss their shortcomings. Because they are by and large – and as he points out – the best wealth creator we have. But that is a long way from saying they are not without fault. Leaving aside the structural weaknesses in the current financial system, it is the dogmatic application of ideology that has left us utility and public transport users all the poorer when, in fact, their sell-off was supposed to bring about an improved, better value model, among other things.

    If Mr Richards’ fear is that the baby will be thrown out with the bath water, and that politicians will take the easier option of looking to reintroduce socialist-inspired policy as a reaction to the crash, then that is probably a legitimate fear. But that cannot be tackled by refusing to acknowledge the very real problems – and it’s abysmal failure where wealth creation is concerned – of the immediate past.

    One last thing – Mr Richards, like many others, talks a lot of governments not understanding business. How about business meeting government half-way? How about business making more of an effort to appreciate the concerns of government? This cannot be addressed with the usual: “I pay taxes”, because those taxes pay to educate and nurse back to health the workers that those businesses employ, at no additional cost at the point of delivery to the business.

    The attitude we hear in public debate these days is that we are all very lucky that employers take on those staff and pay them, that they are almost altruistic in approach, when in reality we know that they would up sticks and move somewhere else around the world if it suited the bottom line better. They have to – it’s their first duty to the shareholder.

    Business needs government – or rather public services – as much as government needs business taxes. it’s a symbiotic relationship, which makes it all the more absurd when companies employ sophisticated tax avoidance schemes and then complain about the quality of applicants.

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  5. John Winterson Richards says:

    Duncan, with respect, you are setting up your own straw man. Is anyone suggesting that markets are without fault? Surely the point was made fairly clearly that they can only exist within a broader context. So was the point that business and government need each other, as you say – although ’symbiotic’ is a dangerous word because it implies a closeness that can lead to corruption. The problem is that their present relationship is totally one-sided: far from having a choice about ‘meeting government half-way,’ business is being forced increasingly to do government’s work for it, ‘workplace pensions’ being the latest example, and getting little or nothing in return. Employers have been telling government for years that the education system here is totally unfit for purpose, but their warnings fall on deaf ears. Then one day we wake up and discover that not only the low-paid jobs but the higher-skilled ones as well are off to India and China.

    CapM, you are right that aspects of the Scandinavian model are worthy of further consideration, but remember that the some of the factors contributing to the post-War economic expansion of the Nordic states might surprise, even shock many who recommend them. Sweden, for example, owes a lot to relatively low basic tax rates and to free trade – perhaps a bit too free, because the Swedes did business with some very unpleasant people while their competitors were standing up to those people at great economic cost.

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  6. R.Tredwyn says:

    There are things to quibble about in JWR’s piece but two central propositions are quite right. First, Wales has no chance of significantly more political autonomy unless it improves the economy and it’s ability to support the population. That is so obvious it should be beyond discussion. Secondly economic improvement on the requisite scale requires a big expansion of private enterprise by Welsh people trying to build their own businesses. The state can help but the idea that it can achieve the transformation itself belongs to a Stalinist dreamworld. It doesn’t matter why Wales is in that state it is in; blame English exploitation or Welsh fecklessness according to taste. The only question is Lenin’s: what is to be done? How do we invigorate Welsh enterprise and a business culture, ethically scrupulous but enterprising? Those are the questions. Everything else is gossip, tittle-tattle or literature.

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  7. CapM says:

    @JWR
    “because the Swedes did business with some very unpleasant people while their competitors were standing up to those people at great economic cost. ”

    I take it that your comment cannot be pointing to Sweden USSR trade during the Cold War as many countries traded and had trade agreements with the USSR during this time. For example

    For 1952 trade in $millions between USSR and free world
    Sweden exports 20 (4% of total) imports 44 (9%)
    UK exports 162 (35%) imports 104 (22%)
    http://www.foia.cia.gov/sites/default/files/document_conversions/89801/DOC_0000494108.pdf

    In which case it’s hard to see your comment other than in the light of Godwin’s law
    By the way would you include the Norwegians as one of the Swedes’ competitors.
    As they seem to be doing alright without having done business with those “very unpleasant people” during WW II.

    http://www.foia.cia.gov/sites/default/files/document_conversions/89801/DOC_0000494108.pdf

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  8. Duncan Higgitt says:

    John,
    Not sure what straw man I’m supposed to be creating. But, leaving that aside, the point I hoped I was making was that if advocates like yourself seek to convince rather than cajole (and I accept that’s what you’ve attempted to do here) the sceptics you appear to have come across, you need to at least acknowledge the recent, tumultuous economic past and refer to the shortcomings of free market practice – not least because its consequences, in terms of the public funding cuts facing Wales – that are only really now beginning to bite. As a direct result of that, and ongoing inequity, people remain very sceptical. It’s a question of approach.

    It was my understanding that your piece referred specifically to governance here in Wales. If it was broader, and included the UK Government (which, as you know, is responsible for things such as Workplace Pensions, then you and I are in agreement as to burdens on business.

    I appreciate – although do not wholly agree with – your argument about a fit-for-purpose educaton system. But surely, if this is an issue for business, the answer doesn’t lie in employing clever accountants and thus reducing the tax base? Surely it requires investment?

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  9. John Winterson Richards says:

    CapM, in defiance of the rather dangerous ‘Godwin’s Law,’ it is a plain statement of fact that Sweden enjoyed an immense competitive advantage during the ‘record years’ of economic growth immediately after the War due to (1) the profitable export of iron ore to National Socialist Germany during the War, and (2) possession of an intact industrial and commercial base at a time when the rest of Europe was having to rebuild, often literally, from the ground up. While it must be noted that your choice of source material and of statistics within that material is a bit selective, your basic point, that the West also traded with the Soviet Bloc, is of course correct. The real question is the nature of Sweden’s trade and its relative importance to Sweden’s GNP, especially when taken in conjunction with the fact that Sweden is one of the world’s biggest exporters of defence technology. Certain detective novelists may not be wrong when they suggest Sweden has a lot of dirty little secrets. Slightly different factors are at work in Norway – this is perhaps not the forum to go into too much detail – begging the question whether we can even talk in terms a single Scandinavian or Nordic model.

    Duncan, please forgive any digression from the governance of Wales but you did raise some more general points to which a reply is not out of place. Your man of straw appeared to be an advocate of completely unfettered markets – an anarchist position not held by the business community or the political ‘right’ in this country or the writer of this article. That said, it is not by chance that three hundred years of more-or-less free market capitalism have coincided with an unprecedented growth in living standards in the developed world. Far from being unique, 2008 was but one of about a dozen more-or-less serious crashes during that period: in every case but that of the 1930s – when political panic made the situation worse – that growth was resumed after a very short period. The real story of 2008 is that the world did not end as certain BBC types seemed to be anticipating and we seem to be on the road to recovery – a recovery all the more reassuring for being slow and steady rather than another unsustainable boom. Of course, sovereign debt and the poor design of the euro still threaten that recovery, and could trigger another crash very quickly, but you must concede that they are both down to governments not markets. Getting back to Wales, ‘workplace pensions’ is another area where an independent or autonomous Welsh government could encourage and attract business by assuming direct responsibility. Similarly, the best antidote to tax evasion and avoidance is a tax system that is simple, fair, open, honest, fixed at reasonable rates, and run by officials who do not act like Mafiosi demanding protection money – which is precisely what the article was suggesting an independent or autonomous Wales could and should have. If we did, it would give us an enormous competitive advantage over an England that retained the present system.

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  10. CapM says:

    @JWR
    Iceland, Denmark, Norway, Finland – if you are intent on explaining their economic success over the past half century on Sweden’s trade with Nazi Germany in WWII that’s your choice.

    If Welsh political parties wish to wave a capitalist banner, for the well being of the people of Wales I’d prefer it to be of a Nordic design rather than Anglo Saxon. Given the equality, not using unemployment as a tool for profit, etc. that the Nordic model provides. Dumping the Anglo Saxon model in favour of it would perhaps offer the possibility of a degree of actual political governance for the Tories in Wales.

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  11. John R Walker says:

    Wales looks to be beyond economic repair but I reckon Anglesey could be turned into a successful tax haven!

    It’s an island, like all the best tax havens, but no need to take a boat or a plane ride to get there. Though some days it may still be quicker to sail round from Liverpool than drive down the mis-managed A55. It has a port and the makings of an airport. Good ICT is available from Ireland. Could easily make the island self-sufficient for electricity… What more do we need other than a bit of imagination? Perhaps a new sexier name – maybe Holy Island?

    Obviously regime change, and doing everything in English, would be essential but the idea has possibilities…

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