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Jones-Evans: Welsh economic success could be home-grown

Speech to the Cardiff Chamber of Commerce.

"Thank you for the opportunity to speak with you today

As some of you know, the great economist J.K. Galbraith passed away last month.

Whilst not one of these econometric geniuses that wins Nobel prizes, he had that important common touch that enabled him to succinctly explain the workings of the economy and the society he lived in.

Although he admitted that he was spectacularly wrong about the influence of small firms on the economy, as in his 1968 book 'The New Industrial State', he was of the opinion that larger firms were the only ones with the requisite capital and resources to make any difference in the knowledge economy.

After the entrepreneurial economy of the 1980s and 1990s, we know now different, although his false prediction was not surprising, considering he himself stated that 'The only function of economic forecasting is to make astrology look respectable'.

Given his general disdain for politicians, he would have been surprised to find someone from his academic field taking the step into this arena.

Not surprisingly, he thought that 'Politics is not the art of the possible. Instead it consists in choosing between the disastrous and the unpalatable'.

Therefore, given my career to date as a academic and writer, I suppose the first question people ask me these days is why I decided, after an entire adult lifetime of being largely apolitical, to go into Welsh politics.

I could say it was for the money, which of course would not be true, or for the kudos and high personal profile, which would not be wanted.

Indeed, with the amount of personal and professional abuse that I have received since my nomination, I have suddenly developed a certain amount of sympathy for most established politicians throughout the UK, well apart from John Prescott, of course.

Indeed, as Galbraith again pointed out 'If all else fails, immortality can always be assured by spectacular error'.

I suppose many of us who care about our country's future have become concerned at the one-party state that we have been living in for the last seven years, with little consensus politics and, more importantly, increasing concerns over what exactly the Assembly has done for the nation.

Certainly, we seem to have stood still economically for the first four years of devolved government, with our relative GDP remaining stuck at around 79 per cent of the UK's since 1998, despite predictions that it would have, by now reached at least 85 per cent of UK prosperity.

For me, the opportunity to make a difference to the current process and to ensure that the Assembly uses its devolved powers to make a real difference to the Welsh economy, is something that was certainly attractive to someone who had been largely a critic on the sidelines.

On the other hand, after reaching my 40th on Tuesday, perhaps the move into politics is, as my wife suspects, down to either the male menopause or a mid-life crisis.

Perhaps buying a Porsche and getting an earring would have been an easier option.

However, I would say that my wife is quietly pleased over my move into politics, as she now thinks she can spend £7000 on going to the hairdresser at the next election, although I have told her that I may have joined the wrong party for that to happen.

More seriously, one of my main personal concerns during the last few years has been the creeping and increasing influence of the state in every aspect of our lives and the lack of genuine democratic debate that we need within this country to ensure we maintain our position as the bastion of democracy.

Certainly, the issue of identity cards is one that has had many concerned about the fundamental shift in the balance of power between the citizen and the state, and certainly any incoming Conservative administration would abandon any legislation and scrap the ID card scheme.

In addition, the Freedom of Information Act which was introduced to ensure public bodies were held accountable for their actions has so many get out clauses as to make it largely ineffectual, and the Government intends to cut back the ability to get information even further.

However, we have also seen quite illogical examples of where the state thinks it knows best.

The banning of ice cream vans outside of the schools is just one recent example.

Certainly, I would hope that the increased powers for the Assembly to create new laws does not go down this particular path but, hopefully, will enable us to take the more bizarre elements of English lawmaking out of any such legislation which applies to Wales.

And why the Welsh Conservatives?

Certainly, many have said that they were surprised that I did not become a member of Plaid Cymru, given the fact that I am a welsh speaker from North West Wales.

And come from Pwllheli, where Plaid Cymru was established in 1925 - ironically in a café that is two doors down from the Conservative Club.

Indeed, some ministers have often accused me of being a welsh nationalist when I write for the Western Mail and the Daily Post - I certainly hope their policy making is better then their political instincts in such matters.

However, I certainly do not believe that the welsh language is an issue for one party alone - especially given that it was a Conservative administration that introduced the Welsh Language Act in 1993 - and that speaking welsh means that you must be naturally inclined to vote for one party.

Certainly, I shall be working to disavow the electorate of Aberconwy of that particular misconception.

I also would have found it difficult to be a member of a party that on one hand, says it supports enterprise and yet, in its last election manifesto, wanted to introduce a 50 per cent rate on incomes over £50,000 a year.

More importantly, given my career background in the development of enterprise, self-reliance and opportunity, it is clear that the Conservative Party is the natural home for my political philosophies and the time had come to make a choice whether to stand on the sidelines or to be active in the fray making a real difference to the future of this nation.

My decision to join the Conservatives and to stand as its candidate has also been encouraged by one of the great modern thinkers of the party.

During the last couple of years, I have had the opportunity to share my thoughts with Lord Griffiths of Fforestfach, the former head of the No 10 Policy Unit and to discuss some of my philosophies regarding the future of Wales.

His guidance and support have been enormously beneficial in choosing to put my name forward.

I have also been guided by my father, a native North Walian born into abject poverty but who grew to become a successful businessman, chairman of the magistrates and local independent councillor for over twenty five years.

His philosophy of public service to his electorate is one that I aspire to, and is one that I would hope is at the heart of the modern Conservative Party.

I am still finding my feet as an apprentice politician and I know it will be extremely hard work to become the first elected politician within the newly created constituency of Aberconwy.

I would obviously ask for your support, but unless you have a holiday home in Deganwy or Betws y Coed, all I can ask for, with the probable exception of Russell, is that you consider voting Conservative at the next election once you have carefully considered our policies for the economy.

For the rest of this speech, I am not going to concentrate too much on policies - mainly because the Welsh Conservatives are still developing these throughout the summer and will be reviewing where we stand in September.

Certainly, I am working on some exciting new policy ideas which will be radical not only for the Conservative Party but hopefully for Wales as a whole. As a result, I am not going to speak too much about any specific policy so not to let the cat out of the bag.

I would certainly like to talk more widely at what exactly the Assembly can do, especially for business, and possibly where it can make a difference.

For me, the key political question is whether any further progress in economic growth can be achieved under the current political settlement?

In this regard, I have always been perplexed by the assumption of many business organisations that any additional powers to bodies such as the Assembly would be detrimental as devolved governments would be inclined to boost spending and increase taxation if given such powers.

Perhaps this comes from industry's natural fear of government and what it can do for the sector and does not say much for the relationship between politicians and business.

As Ronald Reagan once famously said, the ten most feared words that any businessperson could hear was 'Hi, I'm from the government and I'm here to help'.

However, I believe that the assumption that the Assembly would only be detrimental to business given additional powers may not be correct as there is increasing interest from all political parties as to how increased law making ability for the Assembly could make Wales a more attractive business environment for both inward investors and indigenous businesses.

This would be especially useful if specific business legislation could be changed or adapted for the Welsh economy.

Indeed, some have even gone so far as to suggest that a more radical Assembly Government, with increased devolved powers regarding fiscal policies, could use legislative and tax varying powers to boost investment and profitability by lowering business taxation, as Ireland did in the 1990s.

We are some way from that particular position, as I believe that the Assembly has not yet exercised its full powers under the current settlement to make a difference to the economy.

In particular, there has been little examination by policy-makers of the impact of the new legislative powers on the Welsh economy, and it is about time that a cost-benefit analysis is undertaken of the effect of such additional powers, taking into account the benefit for Welsh businesses.

Most importantly, such an exercise should look to learn from other small countries that have managed to buck the trend that big is best and created competitive dynamic economies.

For example, as if giving all the four home nations a thumping in the test matches last winter wasn't bad enough, the World Bank has also recognised New Zealand as leading the world in 2005 in terms of ease of doing business, with the UK dropping from 7th to 9th since 2004.

As we strive to emulate the success of the land of the white cloud in sporting terms, perhaps there are also business lessons to be learn in how a small nation can develop the right legislative and regulatory environment to encourage a better economy.

And I would be more than happy to go on a fact finding mission on behalf of Wales!

In my opinion, we have waited too long to examine the effect of greater legislative powers on economic and enterprise development, and I was extremely disappointed that this was not discussed in any real depth during the enquiry by the Richard Commission into further powers for the Assembly.

I believe the time has now come to have an honest debate to thoroughly re-examine the whole issue of the additional powers that can create competitive advantage for Welsh businesses, as opposed to grants that do little to support long term investment.

Many would argue that Wales is not mature enough at this stage in the devolution process to consider a radical move in terms of tax-varying powers and their ability to transform our economy.

This is no excuse for not having a wider and deeper debate on the effect of further powers on the competitiveness of the Welsh economy, especially as the political bandwagon towards further decentralisation from Westminster is rolling ever more quickly down the hill.

With regard to the debate on devolution, I sometimes think that the current politicians in the Assembly are their own worst enemies, and arguing for more powers just because we have less than the other devolved parts of the UK is just not good enough and will attract little support from the business community.

Instead, we should be arguing the case for greater powers because they make a difference to Wales and not because of any devolutional shortcomings relative to Scotland, Northern Ireland, or even Guernsey.

Given the position of some of the bodies representing business during the initial devolution campaign, such a debate will clearly polarise opinion on the legislative influence of government on business, but the data shows that Wales still needs to improve its economic performance relative to the UK and the Assembly clearly could have a role to play in this.

Apart from developing greater powers to specifically address some of the concerns of the business sector, there are at least two other key issues I would like to see the Assembly deal with in greater detail.

The first is that of public sector procurement from Welsh companies.

As you probably know, the budget for economic development within the National Assembly (and the grants that follow) pales into insignificance when compared to the £4 billion (or 11 per cent of GDP) that the public sector spends annually on purchasing goods and services in Wales.

Inevitably, with such funds available, large conglomerates have been started circling like vultures since the establishment of the National Assembly seven years ago.

And as in the case of giving grants to large foreign investors, our civil servants and public agency executives seem to be more impressed with suits from over the border than in the abilities and capabilities of Welsh firms.

As a result, we are losing out on a crucial opportunity to use public funding to build up high value added businesses and industries within Wales.

Let me give you a perfect and slightly ironic example.

The WDA has established a new programme called "Sell to Wales" which has been established to get information on contracts to welsh businesses.

However, the contract to market this project to get more welsh companies to get public sector contracts has been awarded to, yes you guessed it, an English company from Nottingham.

And I am sure many of you are aware of many other similar incidents, especially as we know that only 30 per cent of the goods and services procured by the Welsh public sector goes to local firms.

Imagine if we could increase that to 50 per cent - that would mean that at least £800 million of additional funding per annum would go into the Welsh private sector, dwarfing the £30 million given in RSA and AIG grants to Welsh firms last year.

The public sector will no doubt argue that they are bound by European regulations, that they have to consider 'best value' for taxpayers and that they cannot be anti-competitive.

However, it amazes me whilst we seem to be bound to play by the rules, it doesn't stop other countries making sure that it is their home companies - employing local people and spending money within their region - that get a first stab at public contracts.

Even in the land of plenty - the United States of America - there have been countless efforts within various agriculturally-dependent areas to encourage individuals to support their local communities through buying local produce.

Indeed, ten US states have even passed laws requiring that schools, prisons, and other state institutions buy a percentage of food from local farmers.

It would be interesting to see whether the Assembly, if it had law making powers, would consider doing the same here in Wales?

Don't get me wrong - if Welsh companies do not reach the quality threshold, then they should not qualify for the contracts, but it seems to me that every day Welsh companies lose out because, for some reason, companies from any other region are perceived as quality whilst our prophets are definitely not welcome in their own country.

The key to Welsh economic prosperity is to use our own resources to build capacity for the future through supporting our local businesses to grow and develop.

Getting contracts to these Welsh firms should be the first priority of our economic development bodies.

It is irrelevant whether this is done through raising the quality of our suppliers or through adopting criteria which take into account the impact of giving such contracts to local firms in terms of employment, wealth and potential for growth.

In the state this nation is currently in, we cannot afford the luxury of not maximising the use of public funds in supporting local firms.

One small contract may not seem much to civil servants but it can mean the difference between survival and closure for many small firms.

It would almost certainly address the key issue of sustainability, where buying locally certainly aids the environment far more than having to bring goods and services from outside of the country.

The second issue is related and that is greater involvement by business within key programmes affecting the economy of Wales.

Again, Galbraith got it spot on when he said that 'You will find that the State is the kind of organization which, though it does big things badly, does small things badly, too'.

For example, my biggest concern over the £4 billion Objective 1 programme has been the relative lack of involvement of the private sector in the management and development of this programme.

Despite the lack of success of the programme in making a step change to the economy, that still remains the case with the development of the new convergence funding for the next round of structural support from Europe for the period 2007-2103.

Let me give you simple example, of what I mean.

We often here politicians in Wales talk about the importance of the knowledge-based economy.

Indeed, when the Objective 1 programme was launched in 2000, a key objective was to develop "a high quality, job-creating, innovative and knowledge-driven economy".

In order to do this, it would exploit the potential of new technologies to develop new industries and improve the competitiveness of existing ones.

As part of that strategy, priorities were established to directly support innovation and R&D within West Wales and the Valleys.

These activities aimed to develop funds to support the development of high technology businesses, support research and co-operation between business, colleges and universities and improve training in higher level skills.

Six years later, and after an expenditure of over £127 million, I did some preliminary research for a future academic paper to examine where the Objective 1 funds have been spent to increase the rate of innovation and, more importantly, whether it has succeeded in making a difference.

This data shows that the biggest beneficiary from this funding has been the university sector in Wales, which has received over £62 million of aid for various projects.

Two universities - Swansea University (£22.2 million) and the University of Wales Bangor (£15.1million) - account for over 60 per cent of Objective 1 funding for innovation by higher education in Wales.

In addition, Cardiff University - which is based outside the Objective 1 region - has been given over £10 million pounds for a range of projects, which perhaps demonstrates the importance of accessing the best available expertise within our nation for the benefit of its poorer parts.

The greatest surprise in analysing this data is that the University of Wales Aberystwyth has only drawn down funding for only one project - the Centre of Excellence for Visualisation in Wales.

The WDA, prior to its demise, received over £45 million of support, although nearly half of this has been allocated towards the Technium initiative, with buildings constructed across Wales in Swansea, St Asaph, and Bangor.

Indeed, the Technium project has attracted European grants to the value of £31 million, with the majority of local authority funding for innovation also going to two Technium projects in Pembrokeshire and Neath Port Talbot.

Some would argue allocating 25 per cent of its Objective 1 fund for innovation on a set of incubator buildings has been a risky strategy. It remains to be seen whether this will work.

Which bring me to businesses - given the perceived importance of the private sector in developing innovation in Wales, it is disappointing to find that less than 5 per cent of the innovation funds within the Objective 1 programme - five projects - have gone to projects developed by the private sector.

Whilst one would expect the majority of R&D to be carried out within universities, given that nearly half of the entire Objective 1 innovation fund has gone to this sector, the latest research demonstrates that this does not actually reflect the situation within the overall Welsh economy.

Instead, statistics show that businesses are responsible for 55 per cent of the total R&D spend in Wales, with higher education accounting for 36 per cent. Why, given this situation, has not more funding been allocated to the private sector?

Whilst some will argue that the best way for firms to access innovation support under the Objective 1 programme is through different intermediary organisations, it is noticeable that less than 20 per cent of the WDA's initiatives funded by Europe (including the Technology Exploitation programme and the SMART award scheme) has gone directly to support the development of technology within small firms.

The allocation of this money, whilst important, should also be measured against the actual outputs from the programme.

An examination of the latest outputs for this programme suggests that the various innovation initiatives are failing to reach the targets set in the original strategy.

For example, whilst 3,000 new jobs were forecast to be created in high technology sectors as a result of the programme, only 723 were actually in place as of the end of January 2006.

Similarly, under the skills and training measure, only 970 companies had been helped, as opposed to the forecast 3,108 and only 12 per cent of the forecast target for the number of employees helped had been reached.

Most worryingly, only 175 new firms had been created within high tech sectors via these different programmes, whereas the target was for over 2,000 new high technology start-ups in the original programme strategy.

Admittedly, some of these projects still have a further two years to run, but much remains to be done to ensure that these ambitious targets are met.

Certainly, one of the key lessons to be learnt from the current Objective 1 programme is that there needs to be far greater engagement with the private sector in any future innovation strategy for the new convergence funds that will run from 2007-2013.

Whilst important, creating a greater knowledge-base within universities will not, in itself, enable the Objective 1 areas of Wales to take a jump in innovation performance and there will be an urgent need for the new programme of European funding to engage far more with the private sector in Wales to improve its R&D performance and the overall innovation potential of our nation.

Indeed, getting the private sector to provide far more input into the process of economic development should be one of the key concerns of the next Assembly Government, especially if we are to increase the prosperity of this nation.

Finally, and perhaps most importantly, I would like to end with a brief consideration of the Assembly itself.

The question I have faced, especially in the sceptical areas such as Llandudno, is what is the Assembly for?

Certainly, they see their objections over the development of a windfarm off the 'Queen of Resorts', the creation of an all-Wales police force and the downgrading of local hospital services as decisions being made without any real consultation.

Despite nearly seven years of devolved government in Wales, there are still many people in North Wales who feel that decisions that are being made more than a hundred miles away over which they have little influence.

Perhaps the main issue regarding the first term of the Assembly and its relationship with North Wales was the claim that the Cabinet consisted of South Wales politicians and there was no voice for North Wales at the most important political table in the country.

In fact, as you may remember, the First Minister himself took on the position of "Minister for North Wales".

Claims that this was a PR exercise can be supported by the fact that this role has now been abolished and neither of the North Wales AMs who joined the new cabinet following the 2003 elections took responsibility for this portfolio.

In terms of the Assembly's role in North Wales, one also has to also consider that, following the next assembly elections in May 2007, the political landscape in North Wales may be very different to the current position.

It would be foolish for anyone, least of all me, to make predictions, but it would be a fascinating time for the governance of the region if the opposition parties actually had the majority of the first past the post seats for the region.

One thing that is certain is that there will continue to be changes as the National Assembly for Wales matures and, after 2007, gains new powers and responsibilities.

Indeed, the legitimacy of the Assembly itself will depend on voters here across Wales believing that this body can, and should, make a difference to their daily lives, and is not an expensive talking shop which, for my potential constituents, is a four hour drive or train journey away.

In 2003, only 38 per cent of Conwy's population bothered to turn out to vote, and another North Wales constituency - Alun and Deeside - has the worst turnout of any constituency in Wales, with only a quarter of the electorate going to the ballot box.

Contrast this with the general election, where over 62 per cent of the Conwy and Alun and Deeside electorate voted.

Do we know why more people vote within UK government when issues such as health and education are devolved issues?

Surely one of the key challenges for the Assembly - which it has yet to fully grasp - is to convince people across Wales that it makes a positive difference to their families, their communities and their region, and a far greater effort is needed to ensure that voters across the region are aware of the Assembly's powers and influence over their daily lives.

Certainly, with an Assembly Government now spending £14 billion annually or nearly £5000 for every man woman and child in this nation, there certainly should be a reason for voting at the next election, especially if you are not happy about the way that this money is currently being spent.

The challenge for all political parties is to ensure that our electorate understands the growing and important role of the Assembly.

If we fail to do so, then our devolved body will become an unrepresentative irrelevance to the vast majority of the Welsh electorate, controlled not by the wishes of the people, but by pressure groups and political anoraks.

And we cannot allow that to happen as there is a strong role for a devolved government that can make a real difference to the lives of every person in Wales.

Let me close by quoting from a speech made not by John Kenneth Galbraith, but by one of the great democratic politicians who ever lived.

As Abraham Lincoln once stated, 'The legitimate object of a government is to do for a community of people what ever they need to have done, but cannot do at all, or cannot so well do for themselves in their separate and individual capacities'.

That is the challenge that faces all Assembly members during the third term, and I hope, that in just under twelve months, I will have been given the opportunity to ensure that President Lincoln's wise words are fully enacted within Wales.

Diolch yn fawr, Thank you."

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