Professor Calvin Jones argues that no place develops within a vacuum.

May 27th, 2014

Economists live in a vacuum. By that I don’t mean we’ve all recently been blasted off to live on the International Space Station (though the world can dream), but rather that our theories and approaches are bereft of any wider context. The economics we use almost wholly a-historical, a-political and a-social. Our laws apply everywhere and nowhere. This problem is currently sending a slow shock through the profession, generated largely from outside the learned professoriate, and taking issue with the way the economists have failed to come to terms with the implications of the credit crunch, and the extent to which socio-economic inequality is undoing the manifest material successes of industrialised rent-capitalism. Piketty’s tome on this is, as I write, the most bought (but I suspect not most-read) book on Amazon US.

Economists’ understanding of prosperity and place is, with a few noted exceptions, just as narrow. Economists – and by extension public policymakers – seek to diagnose, analyse and ameliorate the problems of poor places as if they were hermetically sealed in vacuum jars, with the lid only opened to admit or excrete a few traded goods; some migrant labour; perhaps a soupcon of aid or welfare and an occasional healthy dose of inward flowing capital. We shake the jar, and put it back on the bottom shelf.

The problem with this approach is that we are always looking for explanations for the prosperity gap within poor places. Not enough skills? Not enough roads? Uncompetitive wages? As is if solving these thorny problems will somehow catapult Wales, Sicily, or the Democratic Republic of the Congo to the top (or at least middle) of the domestic or international economic league. This blinkered approach ignores a reality obvious to most non-specialists. No place develops in a vacuum; at least none since the long ago Eden of the Fertile Crescent between the Tigris and Euphrates, where first man and woman decided to swap the thrill and risk of the chase for the drudgery and relative security of tilling the land and herding the sheep.

The reality is that for places, development, prosperity and the fundamental wellbeing of their people is contingent. Contingent on the relationship they have with neighbouring and related places. And what matters most is power and politics, not economics and exports. For example, almost every place outside Eurasia bears a colonial stamp; a history of uneven power politics running through their societies like words through a stick of Blackpool rock. We can see this in the strident economic nationalism and volatility of Latin America. In the windswept deserts of North Africa, soils ruined by Roman grain. In the vast tea (and once opium) plantations of India, the world centre of textile exports until the Brits got there. And in the hanging, brooding slag heaps of South Wales.

If all this matters, if yesterday shapes today, and today shapes tomorrow, then we must re-evaluate how with think about places and prosperity. The Economics of Place is the Economics of Empire, then and now. And this particular spatial applecart is not just solidly tethered, but increasingly cemented in place. We can look around for some sketchy, indicative evidence. For example the ‘problem regions’ of 1930s Britain are largely the ‘problem regions’ of today – eighty years of economic history, a World War, fundamental industrial transformation and the death of an empire has done precisely nothing to rearrange the hierarchy of places in Britain – although regions move apart or sometime squeeze together a bit (as we know and obsess over). No regional policy or social intervention, be this from Westminster-Whitehall or the regions themselves, has done one whit to knock the South East from its perch, move the Midlands from their comfortable mediocrity or drag the North and Wales up by their bootstraps to some semblance of decent economic functioning.

The cynical, spatially oriented post-Marxist (there are one or two) might suggest that this is because the objective of regional policy is precisely not to upset the applecart. Such policies have, in the UK, supported regional employment through the allocation of public service activities; through subsidy-support for firms in problem regions; and through preferential terms for foreign inward investment. It has salved the balm of economic ‘uselessness’ through generous unemployment benefits, universal health care and free education (up to a point); these latter nominal social policies that are also de facto regional interventions. What it has not done is moved any genuine control or autonomy from the core to the periphery. The North East gets Work and Pensions, Wales gets the ONS, but Sir Humphrey and his pet ministers stay resolutely on the Thames. Regions get ‘innovation systems’ and ‘knowledge transfer partnerships’. The ‘Golden Triangle’ of London and the South East gets the bulk of defence and research spending and a frankly staggering level of infrastructure development including, in the last decade alone the Olympics, Crossrail, Terminal 5 and HS2 (which interestingly, although posited as an emancipatory tool for the Midlands and North, starts construction at, yes, the London end). This kind of regional imbalance masquerading as regional policy does nothing but embed existing power relationships and economic dependencies still further. Meanwhile, London keeps welcoming our skilled and enterprising youngsters, eventually giving them back older, less productive and often considerably grumpier.

All this may well be an accident of history; a natural tendency of social organisms to self-organise in interesting ways. When the first joint stock adventurers set out from the Thames for points Oriental in the 17th century, cementing the primacy of the South East over the regions was probably not foremost in their minds. Neither was it the concern of Hooke, Wren and Newton as they debated and created the Royal Society in the new coffee houses of the 17th Century City of London. And today, there are (probably) no nefarious meetings between fat plutocrats in smoke filled, oak panelled London clubs, arranging regional prospects like chess pieces. This does not detract from the key implication of these real relationships, a fact that is un-discussed in mainstream economic literature and development policy: capital behaves differently in different places. It is not only less abundant in poor places (a well known fact) but it, and its benefits, are less ‘anchored’ to poor places, being constantly drawn by the rich core. This is true of financial capital that arises in rich regions, which is far less likely than neo-classical theory suggests to be invested in poor, low-cost regions. It is true of human capital that is born in poor places; much more likely to move, innovate and commercialise in neighbouring or far flung rich places than the reverse. It is true of natural capital, which in many cases cannot be moved, but where pre-existing regulatory, wealth and ownership structures still deposit the benefit largely outside the resource-rich but economically poor locality. And the character of capital in the periphery is problematic, at least in terms of its use. Social capital in a rural backwater may lead to the creation of a community enterprise that struggles against inflexible structures to make headway in creating assets for community renewal. Social networks on a large social housing estate may lead to structures and activities that are clearly economically viable and serve a local need, but which are flatly illegal.

If capital, resources and money are like this: hard to find in poor places, unwilling to move there, and in even the best case, leaving quickly via the nearest Tesco, the implications for regional and local economic policy are stark. Traditional economic policy, whether of left or right stripe, is unlikely to work, at least in delivering the needed economic transformation or rationale. A fundamental change in political relationships is needed to generate economic success relative to the core. And no, Silk will not suffice. Indeed, arguably, under this hegemonic reading, full political independence for a small European country might only see a reordering of relationships with the new capital at the top and with a political elite still skimming off the rest. Complicated stuff.

I feel the ghosts of future commentators queuing up already. Typical whinging Taff, excusing failure. The word ‘socialist’ may also be bandied (although I think that the State, at all spatial scales, is very much part of the problem, not a solution). The words ‘his, ‘on’, ‘shoulder’ and ‘chip’ may be rearranged. Well, maybe. But I’m going to put my time where my mouth is. Over the next year (thanks to the foresight of my employer) I’ll be doing some statistical digging to see whether places ever do claw their way up regional league tables, and if so, whether this is due to political or economic shock. I’ll be getting out to talk to people, businesses and organisations in poor but interesting places to find out how they see prosperity and development, and assessing how this fits with what governments say these places ‘need’. I’ll be trying to find out whether the economics of place really is the economics of empire.

I’ll let you know how I get on @welshecon.

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Professor Calvin Jones is Professor of Economics at Cardiff Business School.

30 Responses to:“It’s time to wake up and smell the coffee: poor places stay poor because of rich places”

  1. John Winterson Richards says:

    The obvious truth that local economies do not exist in a vacuum has been well-documented since Adam Smith. That is of course why trade is the engine of prosperity.

    The ‘poor’ – both people and areas – are those who, for whatever reason, are not offering goods and services that others want or need to buy. Looking at it for a moment in brutal, purely economic terms, leaving the question of morality aside temporarily, their existence makes relatively little difference to those others: those others would still exist if those who provide no goods and services did not. If, on the other hand, those who provide goods and services did not exist, everyone would be worse off. So it is not true that ‘the poor’ are poor because others are rich. If anything they are poor because they like to think they are poor because others are rich. Instead of directing their thoughts and energies towards trying to provide goods and services others might want or need, they prefer to sit back and blame others, i.e. those who are providing goods and services. There is no shortage of unscrupulous politicians willing to encourage and exploit that desire to blame someone else.

    Bringing morality back into the equation, it should be clear that the right thing to do is to help and encourage those who are currently not providing goods and services that others want and need to aspire to do so. It should be stressed that there are no guarantees of success but those who try are bound to do better than those who sit back and blame others. Like most truths, this is not a popular thing to say in a democracy – too many prefer politicians who make excuses of their behalf – but anyone who is serious about ending absolute poverty and dependency culture must begin with it.

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  2. R.Tredwyn says:

    It’s not quite true that the pecking order of British regions has not changed. In the 1950s the West Midlands was one of the most prosperous areas in the UK. Now it is among the poorer ones. Scotland has moved up in the rankings. The first was caused by the collapse of low-skill metal-bashing and the domestic car industry. Foreign car companies set up elsewhere. Scotland found oil but also rode the financial services boom. Wales has suffered from the loss of the industries that led the population to be here in the first place. With devolution we have at least some of the power to do something about it but the vision, energy and understanding have been lacking among our political class. The Welsh electorate is at fault for not demanding more. There is a lot to be said for JWR’s bracing view, though the implication that you always get what you deserve in a capitalist society is sentimental nonsense. Power counts. Both views are true: yes the game is rigged but yes there’s no point whingeing, we have to get on and make the best of it.

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  3. Calvin says:

    @john

    An interesting point, but assumes that the populations of places control, and can trade, their own products for their own benefit (trade in services is largely irrelevant here I think). For 95% of places and 95% of history that has not been the case. The Incas did not ‘trade’ their silver to the Conquistadors. Wales does not ‘trade’ its wind or water with England.

    Even where this is the case, trade is free but not fair – cf. the huge agricultural subsidies paid by rich world governments to their farmers, rendering development-by-export incredibly difficult for poor, rural countries.

    The point of my article is that there is no level playing field for places that aspire to join the club of the prosperous.

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  4. Calvin says:

    @Tredwyn

    Indeed. One of the themes of my research will be around whether places that have a ‘credible threat’ to be disruptive to the status quo – e.g. Jacobite or Nationalist Scotland, centuries apart – can drive a better economic bargain with the core.

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  5. John Winterson Richards says:

    Mr Tredwyn, your statement that “the implication that you always get what you deserve in a capitalist society is sentimental nonsense” is of course absolutely correct: indeed, the contrary was never implied in the previous comment. The overused and oft-misused word “deserve” is generally best avoided in rational discussion of economics. The real implication here is that we need to be hard-headed if we are to give the Welsh people viable hope.

    Calvin, with respect, the first paragraph of your comment is a good example of how discussion of the Welsh economy tends to focus too much on (1) natural resources and (2) past injustices, both real and imagined. We can spend our time brooding or we can say, “We are where we are – so where do we go from here?” We are now in the 21st Century. The exploitation of natural resources is now less likely to be the basis of a prosperous economy that the exploitation of knowledge. The challenge for Wales is to build an enterprise culture that can take advantage of that – not easy but definitely possible.

    There is, however, no argument with the last two paragraphs of your comment. A level playing field would certainly be highly desirable all round – but we should not make our plans on the assumption that one is likely to be provided in the immediate future!

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  6. Rhobat Bryn Jones says:

    @ Calvin

    This is a very stimulating article and I wish you well with your research. I have often felt that we are long on ideas and projects in Wales but short on the intellectual underpinning required to build a strong economy and society.

    Your point on contextualising poverty and hermetically sealing it comes, in my view, from a long tradition of middle class thinking which believes that it wishes to solve the problem, or at least show that it’s doing something about it, without it impacting on the middle class settlement that has been constructed for their benefit. I want to see change for others just as long as it doesn’t impact upon me.

    The question of regional policy is a little more complex though I would agree that there isn’t a great deal to show for the regional policies that emanated from Westminster. Current regional policy, it seems to me, is largely delivered through the EU. There has been no shortage of funds coming from that source but, as has been discussed recently, there has been a poor use of those resources within Wales. This isn’t something that we can wash our hands of. It was our elected politicians that made those decisions and yet, in terms of economic performance, we’re not much further on. So to use your analogy, resources have been moved from the core to the periphery but the periphery has failed to respond adequately, despite being best placed to know the local circumstances.

    (As a short aside and wearing my Railfuture hat, I too have been astonished at the level of spend on infrastructure, particularly railways, in London and the South East. A small fraction of that would enable us to improve track speeds, develop new railways and improve the quality of our rolling stock; but I digress.)

    I suppose it comes down to how we view Cardiff Bay; does it belong to the core or the periphery? The answer is of course both but the real question is how we shift the balance from being on the London periphery to being a new core that at least has the miso-economic powers to make a difference. Cardiff is a capital city and needs to be one that focuses on the acquisition of wealth. The modern way to do that is to become a player in the international financial services market. It doesn’t matter where in the world the money is being made, the returns will always come back to us here. Of course, we are never going to be a London but it should be possible to carve out a position in a market that is so fluid.

    I remember when growing up in London that Wales, for me at least, was not presented as an entrepreneurial country but rather made up of agriculture and the Valleys. Politically , this meant being opposed to business because it was capitalism, which didn’t have the answers; after all Wales was a socialist country. It has only been recently, as part of my prelimiinary research into the Barry Railway (a book I hope to write one day), that I have discovered just how modern and forward looking the Welsh entrepreneurial class was at the time. The fact that a new state-of-the-art port was built at Barry so that Wales could better trade its coal with the world is clear evidence of that. Unfortunately, what we had at the time was the wealth but not the political control over it so that it stayed in Wales for our benefit.

    What we have now is the political control but not the same level of wealth creation. To what extent therefore does Cardiff Bay have the capacity to facilitate that wealth creation? Given the record on European funding, the answer is largely negative. But I hope that your research can help the Welsh Government to focus on developing its own regional policy and make better use of the available funds than has been the case to date.

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  7. Richard Nosworthy says:

    Superb piece Calvin.

    I’d be interested to hear your thoughts on how the environment fits in here. Clearly ‘traditional’ economics fails to measure the true value of nature and natural services, or count the cost of resource depletion and climate change. How can we tackle inequality and improve wellbeing within environmental limits, in a sustainable way?

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  8. Phil Davies says:

    @JWR cf. natural resources

    I don’t think the point is whether a prosperous Welsh economy could ever be solely based on natural resources, more that Wales’s natural resources are simply not traded at market value at the moment and are therefore sub-optimal. No business expends time and resource on developing new products or channels (a ‘knowledge’ or high tech economy in the case of Wales as per your example) before it has established steady-state value of its core assets (lots of very beautiful space, lots of wind and water, and low domestic consumption of both of those in relation to its neighbour). This is being hindered because there isn’t, actually, a free market to trade in, or more specifically in my opinion, Wales has no autonomous pricing levers (or think of it as transfer pricing in corporate terms). In a free(er) market, for example, energy levies or tourism taxes (very common in other tourist hotspots) could be applied and would simply be regulated by real demand levels from our customers (largely English consumers). This price elasticity vis-à-vis demand isn’t even tested at the moment… I’m not saying that it would turn Wales into Monaco… but it may take GDP per capita from 70% of UK avg to 80% (or whatever), and be the proper launching pad for development in other areas of the economy.

    At a macro level the revenue probably gets transferred back to Wales in central government subsidy at the moment (the welfare system, block grant, etc.) but nobody knows since its real value is not tested. But if it were my business I would prefer transparent and accurate transfer pricing rather than blissful ignorance.

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  9. CapM says:

    All the best with your research. I imagine a lot of work will be involved
    Will its scope be sufficient to indicate if when a poor place gets richer it does so at the expense of a rich place.i.e. a leveling out in the distribution of wealth
    or when poor place gets richer it does so at the expense of poorer places i.e. increasing the gap between poor and rich?
    I’m not just thinking of within country effects but for example is the development of financial services in one country “paid for” by workers/producers in poorer people in other countries. .

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  10. Calvin says:

    Thanks all for the comments. Very useful & insightful.

    @CapM – that’s a very good question. I think that regions certainly sit within a wider hierarchy (and we here are well off within that!): I think this gap does increase but indirectly.

    I’m thinking something like this: http://1drv.ms/1hxlxXf – bit complicated as this mixes cultural and physical space.

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  11. William Dolben says:

    Thanks Prof. Jones for a thought provoking piece. Illuminating and valid to emphasize that most countries were colonies and were yoked to the centre at and for the centre’s convenience. Agree with JWR that scratching old sores can be counterproductive but we have to understand how we got here

    Regarding Wylfa II it would be interesting to know how many locals would support it if as Phil Davies suggests, the power generated is “exported” at market prices to England as opposed to just feeding the national grid. A great majority in Wales seem to think that Wales is too poor to be independent but it seems to me very difficult to get a true picture of national wealth when a “region” is enmeshed in another country. It’s difficult enough disentangling the data for rich and poor areas within a region or sub-region as Calvin Jones is aiming to do. The rich-poor dichotomy is clear at all levels with London’s decoupling and there are many Londoners who think that London could be a city state like Singapore but I wonder how rich London would be if cut off from the EU and the rest of UK. How rich would Monaco be if the borders went up? I would support Schengen for a all countries in Europe except the tax havens as they are a much greater problem than immigration. Cameron and the UKIP are unlikely to agree for obvious reasons Currently, there is no border control in Monaco, Andorra etc so the rich can pay no tax and enjoy the infrastructure around them for free.

    Maybe some in Cardiff would like to break free from the backward hinterland but how much valley’s money passes through Cardiff and how many of the valleys’ public servants live where they administer?

    The public-private distinction also seems disingenuous as so many “private” companies were formerly public assets like the utilities with little or no real competition or depend on state hand-outs as much as any family in the valleys depends on welfare. The UKIP seems to have attracted many of the “EU red tape is holding me back” type of businessmen (mainly a UK species for some reason in my experience) but can they all bite the hand that feeds them? I’ll take the subsidy but with no questions asked? The state is my main customer or my main customer’s customer but I hate the parasitic state?

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  12. John Winterson Richards says:

    Phil, while one should be cautious about considering national economies as corporations, if one did apply the Boston Consulting Group Matrix to Wales, the exploitation of natural resources would probably be in the “Dog” category. Tourism, on the other hand, would be somewhere between the “Problem Child” and “Star” categories. So tourism taxes are absolutely the last thing we need, especially since many tourism businesses are marginal as it is.

    If we are to study Wales from the perspective of potential autonomy – as we should be doing because we have been moving in that direction since 1997 – then our best strategy is to consider what has worked for other small states. We would not want to copy Monaco by becoming no more than a support service for gambling and tax avoidance, but we should be asking why Switzerland, Singapore, and Hong Kong are so prosperous in the absence of extraordinary natural resources.

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  13. Phil Davies says:

    John,

    Please provide sources for your pronouncements on the various sectors. If natural resources really are a ‘dog’, I want to know why, and on whose assessment.

    Individual marginal businesses do not make a marginal sector. Please provide your sources for the tourism sector.

    You know the answer to your own question vis-à-vis Switzerland, Singapore and Hong Kong, but I’m happy to welcome you into the ranks of nationalism, since it is only through full independence and a separate banking regime that Wales could emulate those financial centres. Is that what you advocate?

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  14. John R Walker says:

    I suspect the only conclusion you will draw from your research is that more research is needed! Looks like a meal ticket for life to me… Modelling chaotic systems with both uncontrollable and dynamic variables is almost impossible.

    What I am pretty sure about is that in the UK the men with ideas who make things happen are being crucified by the low-grade interaction between academia and the political classes, both groups appearing generally to be the reverse of what is needed to make people and places wealthy. Britain became Great Britain because of men with ideas and it has gone backwards since academic and political dogma combined to remove much of their freedom to act. The environmental movement has also been hugely damaging to wealth creation and the economic survival of communities built around a single major primary resource but that too relies on academia for its tenous justifications. To generate wealth again maybe we just need to slash large parts of the academic and political classes to free up the individuals again?

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  15. R.Tredwyn says:

    Wales has control of NDR reliefs and will get the power to propose taxes under the Wales Bill. It could levy a hotel tax if it wished. As JWR says, though, tourism is competitive and the optimum tariff is likely to be low. No-one would be put off by £1 a night but nor would that raise that much revenue. It is generally true that Wales has more powers than people realise and, more to the point, could exercise still more if our government was more determined and skillful in dealing with Whitehall. Instead they lack energy and ambition and frequently adopt a cultural cringe. Our faults lie not in our stars but in ourselves as Gwilym Crynugwayw said.

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  16. John Winterson Richards says:

    Phil, more than happy to provide a fully researched ‘Economic Strategy for Wales,’ complete with statistics. Shall we say eight grand?

    As for independence, my personal position was set out in an article on this website last year. In a sentence, there is no reason why Wales could not survive and thrive as an independent state in theory, but our underdeveloped business and political leadership classes make it highly undesirable in practice – still we should start planning and preparing for it because the logic of the 1997 referendum means we are drifting in that direction.

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  17. Rhobat Bryn Jones says:

    @ R Tredwyn

    You should finish the quote as it is apposite to your point:

    “The fault, dear Brutus, is not in our stars,
    But in ourselves, that we are underlings.”

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  18. CapM says:

    @Calvin
    re http://1drv.ms/1hxlxXf
    Well complicated for me, it’s not really my area of expertise.
    It strikes me that hegemony as exercised by business can complement, support, determine even, hegemony by governments. eg
    Culturally -The desires of the car and oil industries go way beyond servicing our transportation needs.
    Politically – The CBI has thrown its weight behind the NO vote to Scottish Independence.

    In comparison we all do infinitely more consuming than voting.
    Is the way we choose to consume where power to affect our society really lies.

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  19. calvin says:

    @JohnWalker
    Yep. There’s a strong argument that Britain became great due to the interface of ideas, a benign intellectual and legal framework and gobs of easy coal.

    You could start by chopping the academic class but given my salary is paid mostly from non UK students (hence I’m an exporter ) and commercial research I wouldn’t start with me

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  20. John Winterson Richards says:

    Calvin’s last comment may well be the best thing we have read from a Welsh academic since we lost Sir Rees Davies. Why is this man not a Vice Chancellor?

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  21. Gareth Dobson says:

    Thank you for stimulating an interesting discussion about wealth distribution and the power of place! I know nothing about economics but it would seem to me that economic well being is reliant upon the interaction of an infinite number of variables and that the reasons for changing socio economics within a region or area becomes very difficult if not impossible to predict or to influence. Some of the influencing factors might include :
    - the level of interaction with other places
    - the level of political will and support/interference
    - the drivers for and against development and trade
    - the degree of autonomy in decision making
    - the extent to which the location attract the most economically and creative young members of society

    Wales with its sparse population is unlikely ever to become an economic power house but perhaps that is not what we should strive for. What is required is greater economic cohesion and support throughout the region and a government which strives not just to improve the standing of Cardiff as the capital city but also that of the country as a whole! One step in achieving this aim would be to ensure that all public works procurement contracts are awarded to companies from Wales and not as is currently the case to companies from across the border leading to a leaking of funding from Wales. We should do what the Irish are very good at doing – look after our own, start at our feet and reach for the stars!

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  22. Gareth Dobson says:

    How important is critical mass to this debate – can an area or region thrive economically without the supporting critical mass of a population base to support it. Does the world wide web and online trading provide the opportunity for economically disadvantaged areas to prosper or does it lead to further impoverishment of disadvantaged areas as businesses in the centre become ever larger, more competitive and more prosperous?

    Infrastructure is clearly a key factor in allowing growth and development – In the UK both Liverpool and Glasgow are cited as examples of what can be achieved by promotion and subsidy but both had inherent infrastructure and a historic base for future growth and stability.

    What about political will and short termism – economic growth and prosperity is not secured overnight! Are politicians so concerned with election results that they’re unable to plan for the future.

    In Cardiff large tracts of the city fabric and social cohesion were destroyed in order to create the infrastructure and development forms which now lead to Cardiff Bay. In London large areas of the East End were destroyed in order to create space for massive financial developments. In Rio, the emphasis seems to be on moving people out of the favellas with severe social unrest arising from the upheaval to people’s lives. In all cases, the social justification has been the greater good but it has been the poorest areas which have suffered! The city of Freiburg on the other hand successfully rebuilt its infrastructure around its social fabric.

    What about the complexity of language – Wales is ostensibly a bilingual nation (not that uk businesses generally recognise this unless it affects their bottom line)!

    So many questions – what is probably required is a visionary but would we recognise one?

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  23. Aled F says:

    I’m not well versed in economics, but in global terms wealth is condensed into very, very small geographical areas, typically much smaller than Wales. The US may be the largest economy for a little while yet, but >95% of its wealth is cantered in about ten, geographically small locations. Not everyone in Switzerland is rich; its wealth is condensed into pockets like everywhere else.

    The problem is that, the more wealth condenses, the harder it gets to transact with the capital required to produce more wealth. The origins of London’s affluence are a legacy of stolen wealth, acquiring further wealth through additive effects – we can’t compete or replicate that and like everyone else we will always struggle to find another way. The internet is something that could be the way to interact more freely with centres of wealth and maybe there are better ways to exploit this area.

    Being a small country is not a problem; indeed we’re probably larger than many global wealth hot spots. A lack of political power (in itself linked to wealth), a lack of any historic wealth concentration and a lack of connectivity to transact with significant global wealth is the problem. We have to deal with the fact that London will always get the lion’s share of any investment and the more it gets, the more it generates the more it requires. London is a classic case of wealth condensation.

    The reality is that we have no significant wealth – the people we regard as our billionaires live in Canada and California, a further example of wealth attracting more wealth – we are not going to benefit from any wealth in London or the South East, indeed the two are opposing forces. Trickle down economics was always a myth – the flow of wealth towards centres like London is so strong that occasionally we may get a splash coming back, but the flow will always be in one direction.

    Wealth is almost akin to an overwhelmingly advantageous evolutionary trait, leading to a dominant species. In biology, such dominance often results in destruction of biodiversity and the surrounding ecosystem that sustains the dominant species.

    We have to find a different way to compete – natural resources may be our trump card, except we don’t own them or have very much in the way of powers to have much of a say and additionally we don’t have the capital to exploit them. Most of Wales seems to be owned by either utility companies, the MOD, the national trust or the crown – how much is actually in public ownership? – if there hadn’t been the one-off wave of redistribution following the second world war, then there would actually be next to nothing.

    There have been suggestions that redistributing the income that wealth generates is more important than redistributing the capital. On that basis, owning the resource is secondary and finding a way to extract value from the consequential income generation should be our primary goal. That may be difficult and we would have to be very creative to find ways to extract fair value further down the chain, prior to the profits being generated, but maybe there are things that could be exploited. Basically we want more businesses linked to these resources situated in Wales and we want these businesses to employ well paid workers. We have to increase the price and value of water and drive the industry to have greater highly paid, local employment requirements.

    We may not have rights to the land or the resources, but these things in themselves do not generate any direct income – it is the delivery of resources such as water or their conversion into power that creates value and profits.

    If companies are exploiting Welsh natural resources to generate profits outside of Wales – then we should make sure that they are very expensive businesses to operate within Wales – i.e. if we can’t have a share of the surplus profits, then we should ensure that the costs of ownership are very high, by enacting exacting ownership regulations, which reduce ultimate profits, being deposited outside of Wales and envisage needs for additional production and distribution expenditure. Is there any red tape we could enact, which would generate income that could benefit the Welsh economy and create needs for high value ancillary businesses?

    Can we have enhanced tenant rules for people who live in areas owned by large land owners and corporations – people in these areas have a right, like everyone else not to be disadvantaged when trying to generate an income and there may be practices in these areas that hinder what would be regarded as normal business or trading activities – could these be investigated, changed or penalised? Fundamentally it feels like there should be some long term value for society and communities that could be generated from the activities involved in exploiting these natural resources. Morally, this would seem be the right thing to do.

    On another point – are house and land prices a consequence of wealth or a route to wealth? If it’s the latter, then how can we make our house and land prices the highest they can possibly be? This is a trick that very rich landowners have exploited for a long time – dripping small amounts of land onto the market over a long period of time, using their party political influence over planning regulations. Instead of help to buy, could we use real shared equity schemes, to deliberately boost house prices, without compromising affordability – eligibility requirements, perhaps being a resident in Wales for X number of years?. Not a social housing initiative, an initiative for almost everyone? We wouldn’t be pricing Welsh people out of the market – you wouldn’t have to be Welsh to be eligible, just a long term resident. Anyone moving from outside of Wales would be paying a much significant premium for properties – i.e. more money entering the economy. Where would the equity money come from, well you could start small and grow it?

    What is needed in Wales is a fair economic ecosystem, where wealth is distributed, not evenly, but sufficiently well, that the majority can transact with centres of wealth in some form. Wealth condensation is an inevitability, but we could put things in place to ensure that wealth is never super concentrated and always resides in a significant proportion of the population, evenly distributed in a connective sense i.e. socially and geographically. This would be a much more productive use of wealth – because more people would have the ability to transact with it – leading to a much more productive society.

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  24. tim williams says:

    The good prof probably does need to get out more. Have a look at the McKinsey map of world wealth which tracks the moving centre of gravity of global wealth over the last 1000 years. The centre of wealth was somewhere in thre near east in 1000 AD then moved decisively west during the inudustrial revolution and then has moved decisivelty east since the 70s oil crisis followed by the re-emergence of China. The centre of gravity of global wealth is hovering over Kazakhstan at the moment and will be over india in the next ten years on its way back to its natural location:China.

    The rise ,fall and rise of China both vindicates Jones’s theses – that the economic of imperialism mattered – but also shows how ‘regional imbalances’ can be re-arranged to favour the previously fallen. It partly depends on what he means by a region. The economy of the Asian region was raped and pillaged by Western Imperialism for centuries but they are future now with 90% of the world’s growth over the next generation likely to be in East. China’s reemergence is partly about a political struggle against imperialism but also about identifying a uniquely Chinese route to the market – the Beijing Consensus clearly involving a massive role for government by contrast with the previously dominant and now mostly abandoned Washington Consensus.

    The issue for Wales is not to wallow in a useless form of historical and economic determinism which sees some permanant imbalance between the periphery and the centre – south wales was at trhe heart of the imperial economy for 70 years and almost all of thr latin american economies previously thought to be being ‘under-developed’ by imperialism are now booming and outperfroming their former masters – but to work out with the tools and instituions we have how can we make serious economic progress again.

    The prof also needs to reflect on the key economic fact about ‘place’ at the moment. This is that the world’s leading cities – not just the mega cities – are ourperforming their countries. The London effect is being replaicated all over the world. China’s growth has partly been about enabling its rural poor to create wealth in the cities rather than fester in the economically stalled rural areas. Our small scale equivalent would be to enable Cardiff particularly to provide jobs for and house a far larger population at higher densities, than conceived of at the moment. The Welsh Government should work towards Cardiff being a city of just under a million by 2030 with much smaller population than at present living at the top end of the Valleys, far away from opportunity. A ‘city-region; which doesn’t dramatically increase the population and economic activity of that city will not enable the region to flourish. That’s the real world dicussion to be having. I suggest the prof ‘s travels need go further than Barry and Merthyr to see what has happened – and needs to happen going forward. If he must go further, go to Columbia once the basket case of South America now its fastest growing economy.

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  25. R.Tredwyn says:

    Perhaps Calvin’s exporter status is part of the problem. I heard Professor Holtham remark in a conference a year or so ago that he heard lots of talk of Britain staying ahead of China in income per head by moving up the value chain. Then we trained our own kids to BA level and chucked them out laden with debt and reserved PhD teaching for Chinese students. That stuck in my mind. Seems a strange way to run a country.

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  26. R.Tredwyn says:

    Rhobat Bryn Jones: touché. But here’s my question: what are the crucial powers that independence would give Wales that its government does not have now? And how would you use the additional powers to improve the well-being of Welsh people? In all the to-ing and fro-ing on this site I have never seen an answer to that question, nor seen one anywhere else either. The current Welsh government does not use the powers it has effectively and Plaid does not spell out exactly what it would do with additional powers. Actually I support greater autonomy for Wales but one must admit the case is not well made.

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  27. Rhobat Bryn Jones says:

    To be honest, R Tredwyn, I don’t think that independence is the issue. The issue is the economy as Calvin rightly points out. After 15 years of a devolved assembly with powers for economic development, we are still no further on. For me, the situation was best summarised by the Labour MEP Derek Vaughan (though I make no party political point here). When asked about the way in which previous European funds had been squandered in the past, he replied that there had been a lot of money spent on small projects whereas in future they would be spent on big projects. For someone whose job depends on his current and future performance, it is understandable that he would not want to focus on the past. But it is this lack of substantive analysis that contributes to a continued poor performance. His comments could be summarised as saying we did something in the past that failed, we are going to do the complete opposite in the future, therefore it should succeed. In other words, we do not appear to be learning from our mistakes. This is not to say that things are not being done to address the problem. But it all appears to be piecemeal.

    The turnout figure at the last Assembly election was 42.2%. If Cardiff Bay wants more voters to be engaged in the democratic process, it needs to show that it can make a significant difference to our standard of living. It can only start to do that when we begin to invest in the economic intelligence required to understand how are economy works and where it does not.

    With regards political developments, the next step is to consolidate the powers we have by adopting the reserved powers model so that the influence from Westminster over our democracy can be reduced.

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  28. Chris Jones says:

    “… I’ll be getting out to talk to people, businesses and organisations in poor but interesting places ” Fascinating and intelligent article which I actually read (all of it). I look forward to the Prof abseiling down from the ivory towers and venturing out West some day soon on his peregrinato.

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  29. Calvin says:

    @Chris I will happily go anywhere they still use the word ‘peregrinato’. Made my day

    @Alex F – on the contrary, you seem very well versed.

    @tim williams (THAT tim williams? Late of Beddau?) I get out plenty, thanks. If McKinsey say the centre of global wealth hovers over Central Asia, who am I to argue? Whilst I’m not sure we disagree on that much, can I recommend Ian Morris’ ‘Why the West Rules.. for Now’ on the China question. Not, in fact, the most advanced part of the world for most of historical time, although most-times the largest ‘bloc’.
    As for the changing of the imperial guard, this is certainly possible, although I think you oversell it (is Colombia or Brazil near the US or even post 2007 Portugal in terms of GDP per head?) My argument is simply that such re-orderings are more (or as much) to do with political power than economic forces – so China prospers because it can force joint-venture agreements on Western investors with consequent tech-transfer benefits, whereas, say, Nigeria does not.
    Your point on urbanisation is well made, and I think speaks to my argument – Turchin’s ‘War and Peace and War’ is quite good on elites and evolutionary empire (although his written ego is Naill Ferguson-esque!).
    I would ask you to reflect on how far South Wales could create a livable city of c.f 1m people, and scale the relevant issues up by orders of magnitude elsewhere. And don’t forget modern Cardiff is built on subsidy, albeit maybe not by as much as other bits of Wales.
    Moving people to jobs only works for some people – largely those who can compete in larger and increasingly open labour pools.What about the rest?

    As for me… I’ll be going a bit further than Merthyr. Euskadi calls for one. :)

    @all
    It’s interesting how a number of commentators have taken this piece as an apologia for ‘poor Wales’ economic lethargy. I think it’s worth stressing that recognizing (or trying to identify) the roots of a problem is simply the first stage to solving it. And whatever the solutions are. I’m bloody sure they won’t include higher levels of handouts.

    Thanks again.

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  30. Shan Morgain says:

    A lot more economic self confidence about Wales is possible. There are excellent resources here.
    As already noted, the small size geography is irrelevant. There are smaller pieces of territory that support prosperity.
    Nor is a low demographic a drawback. It would be far worse if we were teemingly overcrowded.

    Natural resources are far from unimportant. Recent trends to restrict British buying power in tourism have meant a lot less foreign trips to Europe and further out – and long queues at the M4 Severn bridge gateway. Bluestone in Pembrokeshire (part owned by the council) are a good example of success riding the wave. But for a few stories like that there are a majority who are borderline, or very poorly paid.

    One natural resource I would like to know more of is water. I know we are a net exporter of water but we do not get a fair price. This is a key area of potential advantage where the economics are colonial, so what is being done? When does the current contract expire so the Assembly can refuse to continue under the present terms?

    My last point is my ,major one. Wales is superbly placed to exploit internet economics. The fact that Amazon has their main base here near Swansea speaks volumes. They are big now but once they were small (I remember).
    1. Typically people who want to set up or join an IT based business, want nice surroundings – big tick for Wales.
    2. If a net business sells physical products it needs storage, and that means property cost – big tick for Wales as business property here is excellent value for money. But many net businesses are not about physical product, they are about skills, see 4.
    3. Next a good infrastructure of cable and wifi is needed. Medium tick for Wales – this could be better but it’s not bad. Something for the Assembly level.
    4. Last and major, is skills. This is not that high in Wales though there are some good patches. Can be improved quickly. Online training is far more efficient here than clunky classes in expensive buildings. It also uses the medium trained to do the training, an obvious benefit.
    I suggest courses that charge residents in Wales for 5 years or more a much lower fee. Website programming (databases), website design, utiilties design and development, remote computer support, and online teaching itself.

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