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Publications on the internet
CORRECTED TRANSCRIPT OF ORAL EVIDENCE
1. This is a corrected transcript of evidence taken in private and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
2. The transcript is an approved formal record of these proceedings. It will be printed in due course.
David T.C. Davies (Chair)
Mrs Siân C. James
Susan Elan Jones
Mr Mark Williams
Witnesses: Dr John Ball, Swansea University, Professor David Pickernell, University of Glamorgan, and Professor Emeritus Peter Gripaios, University of Plymouth, gave evidence.
Q1 Chair: A very good morning to you. Thank you for coming today to give evidence to the Committee. Perhaps I could introduce myself. I am David Davies, the Chairman of the Committee, and these are my colleagues. I wonder whether for the record you would just introduce yourselves and we will begin.
Professor Gripaios: I am Peter Gripaios, emeritus professor at the University of Plymouth.
Dr Ball: I am Dr John Ball. I am a lecturer in economics at Swansea University.
Professor Pickernell: I am David Pickernell. I am a professor of economic development policy at the Centre for Enterprise at the University of Glamorgan.
Q2 Chair: Thank you very much. Could I begin by asking all or any of you to give a brief history of inward investment into Wales? Perhaps you could elaborate on why it seems to have fallen in relation to the rest of the United Kingdom and make any comments you might have on the success or otherwise of the WDA, which appear to be very successful in bringing in inward investment.
Dr Ball: "Success" is a term that has been bandied about to some extent unwisely. As I have said in my paper, to some extent inward investment undoubtedly made a difference to employment. There is no question that without inward investment the employment situation in Wales would be much worse. As I have said in my submission, the problem with inward investment in the past is that, although it addressed the first issue in terms of regional policy, it failed to address self-sustaining growth. I think on that basis it was a relative failure, and that is the position even as we speak now. Clearly, past policies on inward investment can be counted as a fail, in my view.
I would, however, with your permission, Chair, comment on the Welsh Development Agency. I had the most frustrating 10 years working for the Welsh Development Agency. I still take the view that the WDA talked a good fight. It was not at arm’s length from government; it did not have appropriate policies; it was poorly managed and led; it did not have clear objectives; and it certainly did not have good management. Dare I say, with great respect, that if one of the recommendations here is that WDA be reborn, then I very much hope that it will be reborn in an entirely different guise?
Q3 Chair: Those are strong words, and we like that on the Committee. Looking at the statistics-I do not have them exactly to hand-it was very clear that Wales was getting a much greater share of inward investment into the UK when the WDA was in existence than it does now. I think it was somewhere in the region of 20% or 25% at the time as opposed to about 6% now, so why are you so harsh on the WDA?
Dr Ball: Because at the end of the day it was any employment. I remember my former Welsh Office colleagues saying that at the end of the day inward investment would provide, at a stroke, 200 or 300 jobs, which did matter-of course it mattered-but the reality of it was and is that it was employment at any price. It was low skilled and relatively low wage. I remember that in the days of the WDA I was on a plane coming from New York and there was a screen running advertisements. Basically, the advertisement said, "Come to Wales because it’s cheap labour." We are paying a price for that, because cheap labour is now the policy elsewhere. Essentially, it was based on cheap labour. It is as simple as that.
Professor Gripaios: I think hindsight is a very easy thing. There is no question that Wales did go for FDI in a big way. It was seen almost as a one-trick pony; it was the solution to the problems of the decline of traditional industries. It was extraordinarily successful in getting a lot of manufacturing branch plant operations and later also lower level back office jobs in services. You asked two questions. Why was it? One thing is that it went for it very hard; secondly, it had a lot of money, which some English regions in particular did not have to chase it down.
Q4 Chair: But should they not be going at it very hard? We like it when civil servants go at it hard.
Professor Gripaios: When I say that hindsight is an easy thing, looking back you can see the deficiencies in the policy, but it seemed at least to give a breathing space at the time to replace the jobs in heavy industry which had gone. We all know that not a lot of coal miners and so on were employed in these new branch plant operations. There is much more female labour; a lot of it is unskilled and not nearly as well paid. You also asked why it is going now. The reason is that the kinds of operations which Wales had on the basis of low labour costs are no longer competitive because you can get lower wage costs elsewhere. It is okay being the cheapest in the UK. The same argument has been applied to Cornwall, Plymouth, the north-east and so on, but that does not help you very much if you are in a big European market where Hungary is a lot cheaper and if you are in a world market where China is a lot cheaper.
Q5 Chair: Finally from me, so that I do not hog it, in your submissions one of you said that one of the issues you had was that these were low-paid jobs brought in in the 1990s and were not a good replacement for the relatively high wages received by people in the mining and steel industries. I thought it was interesting. Historically, there is a tendency to think that the people who worked in the mines and steel industries were very low paid and just scratched a living, but now, all of a sudden, history seems to be being rewritten, they were very well paid and their jobs were replaced by relatively low-wage jobs on production lines.
Professor Gripaios: I think that is to do with time scale. If you went back to the time before the second world war they certainly were very poorly paid jobs, but that changed with nationalisation.
Q6 Chair: I do not go that far back, but I can go back to the 1970s or 1980s. What did it look like then?
Professor Gripaios: Sadly, I can go back a little further. In the 1970s and 1980s, they were very well-paid jobs in the steelworks.
Chair: But they were always on strike. Anyway, there we are. I would like to bring in some of my colleagues.
Professor Gripaios: We are going along party political lines, then.
Q7 Mrs James: I am from the Valleys as well. During the 1980s they were well-paid jobs, and we fought for well-paid, meaningful jobs in the Valleys. We saw what inward investment-Mickey Mouse jobs, as we called them-did to the Valleys, so I am very interested in this issue. Going back to the discussion, does attracting foreign direct investment still remain a valid policy goal for Wales?
Professor Pickernell: I think it depends on what you want the inward investment for. I do not think that with the previous policy, which was very much employment based, you can solve that problem any more, because those jobs have gone to central and eastern Europe and China. As to the way in which we attracted investment in the 1970s, 1980s and early 1990s with grants and relatively low-cost labour, that advantage does not exist any more.
If you are talking about very specific areas where you might be able to build indigenous development, that is possible. In my submission, I have suggested that it must be much more coordinated with other policies. I got the impression from talking to people at the WDA at about the time of the change from a foreign direct investment focus to a more indigenous development focus that there was not a co-ordination of policy in the way there should have been.
I have done work with colleagues to compare the situation with Ireland, where during the 1990s and early 2000s there was much more of a co-ordination, and two policies working together seemed to have a more beneficial effect. At the end of the 1990s and early 2000s, I got the impression that it was almost like two legs bad, four legs good, and there was a flip-over of policy about which one was good and which one was bad. I think the reality is that it depends on what you want from the policies and how you integrate them. That will determine whether you should attract certain types of inward investment. You need to be very much more focused than we probably were in the 1980s and 1990s, but at the time it was about attracting jobs; now it is not in the same way.
Q8 Mrs James: Is there a conflict in a way? Here we are talking about inward investment, foreign investment, and so on, and we know that as a small, clever country we need to grow indigenous businesses and support them. Are we ever going to manage that? Is it going to be complementary? Will we always have that conflict?
Professor Pickernell: In terms of the work I was doing 10 years ago, at the time the policies were switching over there seemed to be a lot of conflict between them because of resources. At the time a lot of money was still being given to inward investors to stay, essentially, and to a lesser degree there still is, and that was taking resource away from indigenous development entrepreneurship policies. I think that now it has to be a situation where people look at those resources together and look at them collectively. Therefore, I suppose my answer is: they can be complementary. They were to an extent in Ireland; I think they have been less complementary in Wales in the past. That does not mean they could not be more complementary in the future.
Professor Gripaios: I think that the problem in Wales is the same problem you have in other parts of the UK. You have had very large employers who have always provided. It is the same in Plymouth where the dockyard and the Navy have always provided. In those situations-south Wales is particularly bad at this-there has always been a culture where some big employers come in and provide it, so there is not a tradition of entrepreneurship. I suspect there is a difference there with Ireland where you did not have that situation. There were other disadvantages, and there still are, obviously, in the Irish case, but there is a particular problem not just in Wales but most of the periphery of the UK, where the big firms provided. There just was not the tradition of entrepreneurship and there is not the aspiration either to set up your own business and perhaps get on with it in that way, other than by moving up through big firms. I think there is a very important cultural issue to address.
In some ways, it is the same answer to the problem of FDI. The things that would be attractive to the types of FDI you want are the same things that perhaps would make people more entrepreneurial-as you said, the clever economy, the bright economy and so on-and somehow you have to change people’s aspirations. They have to be hungrier and better educated; they have to be more go-getting than in the past, rather than relying on Hoover, say, for a management job in Merthyr Tydfil.
Q9 Mrs James: Coming back to the dependency we may have had, in my constituency it was the docks, the steelworks and the collieries, but now when I talk to people about the current job situation more and more of them say, "Why can’t we have manufacturing back? When will we get manufacturing jobs?" It is very difficult for me to explain that those big companies no longer think or operate in the way they did before and smaller companies are telling me that we are losing out to FDI. So what should we be saying?
Professor Gripaios: There is no question that you have to change attitudes. You are right and they are wrong. I do not think there is a future in the low-level manufacturing jobs that we used to do. The whole of society, by which I mean the whole of the UK outside London and the south-east, has to change attitudes in the manner I have suggested.
Q10 Susan Elan Jones: On the point you made about inward investment, is there any correlation between this and the decline of the Japanese economy in the early 1990s? In the 1980s and 1990s, there was a big move to get Japanese companies across Wales. What I am interested in is this. When their own economy declined, there was massive pressure for employment in that country, not least because they saw in many of their companies the end of the jobs for life scheme. Would you say there has been any correlation with that, and has that affected Wales disproportionately?
Dr Ball: I would like to answer that, if I may. To tell you the honest truth, I had not thought about that as a correlation, because I take a different view. I have said in my submission that the Japanese firms in south Wales were producing products which were at the end of their life cycle. I gave evidence to this Committee in 2004 and 1998, and I am repeating it again. The inward investors who came were at the end of the life cycle. The Japanese left when the life cycle ended. We made wonderful televisions in Bridgend. Along came flat screen televisions, which were produced elsewhere. Nobody has big fat televisions any more. It is an interesting correlation, Mrs Jones. I had not thought of that. But there is no question in my view that it was because the products were at the end of their life cycle.
If I may comment on something Professor Gripaios said, I think there is a future in manufacturing. It may be a different kind of manufacturing. Again, I have said in my submission that if we are to be looking for inward investment-because it is inward investment with which we are concerned here, though I take the point about enterprise-then there has to be inward investment based on the skills we have. There has to be inward investment based on the skills and the multiplier effect of those skills. I do not think the days of manufacturing are over by any stretch of the imagination. What we need to do is to build on the skills we have got. We have significant manufacturing skills in Wales and south Wales. What we do not have are the inward investors with products at the beginning of their life cycle, with high margins and so forth, which people really want to buy. That is where we should be going. I am not one of those who says we are at the funeral of manufacturing by any stretch of the imagination.
Chair: Thank you. I think we will come back to the issue of skills and training fairly shortly.
Q11 Geraint Davies: Thinking now about the kind of inward investment we want, how important are skills and infrastructure in terms of doing that? What is the relationship between those?
Dr Ball: Again, I have said in my submission that there are areas that are a matter for the Assembly, not this House, but at the end of the day there is no question but that the skill levels in Wales are appalling, the education system leaves a great deal to be desired, and the skill is simply not there for inward investors. At the end of the day, the risk we still run is inward investment for its own sake on low skills and low pay. We need to do something very serious about education.
Chair: That is a strong comment, Dr Ball. I wonder whether the other two witnesses agree.
Dr Ball: With your permission, Chair, I will repeat a story. I was at a debate where the chief executive of Northern Foods-I forget his name-said that its most successful factory was one north of Dublin. He smiled and said, "Well, I would say that, wouldn’t I, because I’m an Irishman? But the fact is that Ireland has a multi-skilled education system. They are sound in mathematics and in science, and they are capable of learning new skills and driving forward the business." We don’t have that in Wales.
Q12 Chair: Is that something the other panellists would agree with broadly?
Professor Gripaios: Absolutely.
Professor Pickernell: Broadly. There has, however, been some recent work done-there is a reference to it in my submission-to show that one of the key reasons they have stayed is that they perceive the skills levels are there for their particular businesses. I do not know whether that is something they have done themselves, but that is an area on which we need to focus in future.
Q13 Geraint Davies: We went to GE Aviation in Nantgarw, of which you will be aware. They are a very successful inward investor and for a long period of time they have had some grants. They argued they were taking local people and then adding value through apprenticeships, and so on. So it can be done, but it did not seem to be that reliant on the indigenous skills provided, although there were partnerships. Tell us what should be happening to get the quality and flexibility of skills. Is this unique to Wales, or are we talking about a UK problem?
Dr Ball: If we look at the evidence, it is probably a UK problem. It is worse in Wales. From what I see around me, I do not think we are, frankly, pushing the schools in the way we should be pushing them. My wife has a PGCE in mathematics; she did this later in life. I won’t mention the school because that simply is not fair, but she was asked to explain fractions and decimals to fourth year comprehensive school pupils. I was absolutely appalled. There are students at certain universities-I hasten to add, not my university-taking degrees in business studies who can totally avoid doing accountancy. How the hell you can have a degree in business studies and avoid understanding accounts is entirely beyond me.
Professor Gripaios: Even less economics.
Dr Ball: But there are serious issues here. At the end of the day, it is not about choice; it is to some extent about the three Rs, and schools have to do something. There was an interesting article in The Economist last week, strangely enough, about the number of French citizens who now live and work in London. There was a lovely paragraph saying that one of the reasons is that French schools are so strong in mathematics, and apparently we have a disproportionate number of investors and so forth in London because of their skills in mathematics. But at the end of the day the schools have to do something about the level of good generic skills: mathematics, science and English.
Q14 Geraint Davies: Do people agree with this across the piece?
Professor Gripaios: Absolutely. You have to start by asking the question: what is going to bring investors into the UK, or what is going to make UK investors more competitive than they are now? How are we going to compete with other parts of the world? How are we going to compete with newly industrialising countries? How are we going to compete with locations which employ very, very cheap labour? There is only one answer to that: we have to be better educated, more focused on research and development right at the top end, not necessarily manufacturing, but the design of manufactured products. That is the only way the UK will compete, and that is why the south-east and London are more competitive than other parts of the country, because they attract those kinds of people, some of whom are possibly educated in Wales and other parts of the UK. They gravitate to London because that is where the jobs are, and because they have gravitated to London the jobs also come there.
Q15 Geraint Davies: In terms of what should happen-maybe David Pickernell could answer this-if our ambition is to get more added value, more HQ, and so on, I guess the issue is: what should happen? We are aware now from the PISA results that inward investors can go down a graph and see that Wales and England, in particular Wales, are slipping down the league, and they will move over here. As a country, you can compete for inward investment by increasing your rankings. One of the issues is: should we do that? How should we perform? David, I do not know whether you have a particular view on that.
Professor Pickernell: That is going into the level of education rather than other policies. Broadly speaking, it would be interesting to look in more depth at exactly why the figures are so low. Certainly, in a survey done a couple of years ago, when inward investors were asked where potentially they would relocate, over one third talked of areas in other parts of the UK, and the issue that came back was related to skills. That highlights the fact that, even within the UK, a lot of these companies were not talking about going to China or central or eastern Europe but about other parts of the UK. One of the key reasons for them remaining was related to ongoing grant support. It highlights the fact that there is an issue, because that will become less and less viable in the future.
When we are looking at inward investment there are two sides to it. You have attracting in new inward investment and you also have keeping and developing what you already have. There are going to be two sets of policies. They are going to be interrelated and linked to that. In terms of the ones you already have, the ones that have not gone and are long-lasting and have been there 14, 15, 20 years are the ones that are more likely to be embedded and the ones to which you can link other policies via the supply chain, entrepreneurship and developing indigenous businesses out of and through linkages with universities and so on. One of the key questions is: to what extent should we be focusing on keeping and developing those we already have, because they are also more likely to be doing things like research and development and being innovative? To what extent will we be focusing on attracting in new inward investors in specific areas? Clearly, over the last couple of years the trend has moved away from manufacturing towards services and distribution, which are lower value added in terms of their multiplier effects on the economy.
Chair: I am going to cut this a little short because we have so many questions to ask and it is fascinating.
Q16 Mrs James: I just want to come in on research and development. When we talked to overseas companies and looked at these things in the past, it is really clear that the end of life of a product is significant, but if we do not attract those companies and their R and D bases into Wales and the UK, it is a bit like the chicken and egg: you have to have one to get all of the process. How successful are we in Wales in attracting companies with R and D?
Professor Gripaios: Not at all, really. If you look at the statistics, they rather suggest there has been an increase in R and D, but it would be interesting to note whether that is due to foreign companies taking over indigenous companies. I have not worked on this for a while, but about 10 years ago I did a study that compared Plymouth, Cardiff and Bristol. It seemed that Bristol had been much more successful in getting the research end. For example, it had Hewlett Packard, which has either gone or is a much smaller operation than it used to be, but it also had the regional headquarters of Canon and all kinds of digital people, whereas Wales certainly struggled. It is not that far away; we are not talking huge distances between Bristol and Cardiff.
Geraint Davies: We need an electrified rail line to Swansea. That is what I want.
Chair: We’ll not even go there, Stuart Andrew.
Q17 Stuart Andrew: Do you accept the analysis that the falling levels of manufacturing inward investment could have a rebound effect on the Welsh economy and its relative GDP per capita?
Professor Gripaios: I said so in my submission. I can’t prove it, but I think it would be quite difficult to suggest otherwise. It’s bound to, isn’t it? Wales has put so much resource into that. There was great resentment in other parts of the UK, particularly perhaps in the south-west-or I picked it up in the south-west-about businesses being attracted to Wales, or pinching them, actually. There were some that closed in Plymouth but kept their Welsh operation, but in some ways you may have done us a favour, because what you don’t have you don’t lose-or it is not all going in a rush.
Q18 Stuart Andrew: Professor Pickernell just touched on that. Has it been compensated in any way in other sectors like the service industry?
Professor Pickernell: There has been an increase in foreign direct investment in services and distribution. It has not totally compensated; the amount of employment has gone down. If you look at where the location of a lot of the foreign direct investment has been, the lower-skilled and lower-paid jobs are in places in the Valleys, but more particularly in the south-east and north-east of Wales. If you were looking to develop higher-level, higher-skill jobs, innovation and that side of things, then the issue of the attractiveness of place-Florida’s idea of the creative class and the attractiveness of certain locations-is likely to mean that you would be promoting areas closer to the larger cities than probably you would have been doing in the past when it was about manufacturing and assembly. That is another issue about thinking about what exactly you want to do and why you want the inward investment.
Professor Gripaios: If you were to look at the developing prosperity of parts of the UK, two things stand out. One is the growing importance of London and the south-east, and the other is the concentration of GVA in a few provincial capitals. Leeds, in particular, has become the business centre of the north of England; Manchester to a lesser extent; Birmingham and Bristol; and to a much lesser extent Cardiff. These seem to be the places where the jobs are and where you can compete. They are in the financial services and in the media, where there is some success in Cardiff, and so on. It seems to me that they are the knowledge-based jobs which you really have to go for, but you have to take a long view. It is no good thinking that you will get them quickly. You have to put the foundations in place and, quite frankly, some of those will take 20 years.
Q19 Stuart Andrew: Are the policy levers the same for attracting manufacturing inward investment as the service industry?
Professor Gripaios: I think they are. They come back to Dr Ball’s comment about the quality of education, but as I said, there are two other things. One is aspiration. It is not just what you offer; you have to get the kids to take it up. There is another issue which we have not talked about and which is particularly serious in Wales, which is welfare dependency. You cannot hope to have a high level of GVA per head if a high percentage of your population is dependent on welfare benefits.
Q20 Chair: Professor Pickernell, you said in one of your earlier answers that we needed to change legislation and Government policy anyway to keep companies in Wales.
Professor Pickernell: No, I did not say that. I think that is something to look at.
Q21 Chair: But what policies would you change to keep companies in Wales if you were the First Minister?
Professor Pickernell: I have not done an analysis of how much grant assistance has gone in over the last 10 years. I looked at it 10 years ago and it was clearly an issue then. In the more recent studies I have read, it is still an issue. There is resource going in there to keep them. I do not think that is a long-term policy. The issue is the skills area. It is linkages with institutions such as universities; it is creating that, if you like, stickiness of place. We have done it in the past with low labour costs. That is always a relative issue, and there is always somebody cheaper than you are. There is the grants issue, and that has compensated for some companies for a while. That is likely to become more difficult in the future. You are left with education, skills, innovation and that kind of activity, and that links in with the institutions that you already have.
It is also to do with thinking clearly about what key infrastructures you can develop to make places more attractive. A couple of days ago, I read a study which talked about companies that had gone to Dublin, and one of the key reasons was linked to the airport, for example. A lot of work is being done in places like Australia on the development of their airports as hubs around which they are building a lot of inward investment attraction activities in both manufacturing and services. Clearly, we have a disadvantage at the moment. I am just saying that that is an issue. It is either about making sure we have a good link to a major airport, for example, Heathrow, or to what extent you can develop other infrastructures as well.
Q22 Jonathan Edwards: Previous FDI strategies in Wales were based on grants and allowances. Would a tax-based investment policy be more appropriate for the poorer parts of the United Kingdom, and if so, what taxes?
Dr Ball: May I respond to this? I have said this in my submission. It is perfectly clear that there are a million things we could do to improve inward investment, many of which are not the duties of this House, but at the end of the day we have to learn lessons from what is happening elsewhere. There is no question in my mind that corporation tax-based incentives are working. They have worked very well in Ireland. Although there are sovereign debt problems in Ireland, the level of inward investment has not fallen away, because low levels of corporation tax, by definition, attract organisations that are making profits. If organisations are making profits, the chances are they are at the beginning of life cycles, they are innovative and are global, and it is a policy that works.
By the way, this is not some kind of underhanded nationalist agenda. This could apply to other parts of the UK as well. I should make that point quite clear. But I think we have to be realistic about what works. What works are not grant-based but tax-based incentives. I have set out one or two ideas in my submission.
Q23 Chair: Would the same principle apply to higher levels of income tax in terms of persuading the leaders or owners of those companies to come and live in the countries in which their companies are investing?
Dr Ball: Why not?
Q24 Chair: What we are getting into is the Laffer curve and whether we accept that at a certain level it is a good idea to lower tax rates because in that way you get in more income.
Dr Ball: I have also said, with respect, in my submission, that this idea of a national UK tax base is a myth anyway. To some extent, there are different tax levels. For example, SET in the 1960s was, by definition, a regional tax. So I think this idea of an overall UK tax is a myth anyway.
Chair: We come to a few questions on skills and education.
Q25 Mr Williams: Before that, and still on the theme of conditions required to attract inward investment, I direct these questions to Dr Ball. In your submission you use the phrase a "race to the bottom" and the risk of a "race to the bottom". First, I want to ask about the extent to which current policy, such as exists, runs that risk. Secondly, could you explain a little more about the concept you elaborate in your submission entitled "The Production Mandate"?
Dr Ball: Thank you for that. The first response is that we are at the bottom. Of that there is no question. How do you compete against the far eastern low-wage economies? The answer is that you can’t, so you don’t. We are at the bottom; there are no two ways about that. I was coming up on the train yesterday and in my mind I was ticking through all of the manufacturers I remembered, in some of which I worked. They have now largely disappeared, so we are at the bottom. If you are trying to compete on price, you will end up being knocked out, and that is what has happened to the Welsh economy.
The production mandate is an idea that had its roots in Canada. I elucidated on this the last time I was privileged to give evidence to the Committee about five years ago. The idea is straightforward enough. Inward investors are offered inducements of various kinds, but they are dependent upon the amount of mandate that local management has. For example, if company X came to, say, Swansea, then the assistance in terms of skills, tax allowances or whatever was on offer would vary according to the amount of research and development they had the mandate to do, or the amount of product development they had the mandate to do. It has been used in the provinces of Canada with some considerable success. Black & Decker is an example that leaps out, which I looked at a little while ago. At the end of the day, we need to start using some imagination. The race to the bottom, as I have called it, has to stop. We have to start being innovative and push the curve; we have to get on with it. Aside from tax-raising powers, or rather tax-varying powers-I am sorry; that was a Freudian slip there-which we have got to look at, we have to consider other measures. At the end of the day, the production mandate would provide attraction.
The problem then is that, if there is no mandate, we say, "No, thank you." That takes the kind of courage WDA did not have. To some extent there is a great risk here of flying this kite and still ending up with the same problem. Anyway, the problem is the amount of mandate to do R and D, through product development, to produce local management and to develop local supply chains. All the incentives, which could be an extra package, would depend on the amount of mandate that inward investor has. It has worked in Canada and elsewhere; to some extent it has worked in Ireland, though they do not call it the production mandate. I think it is something we should be looking at very seriously.
Q26 Mr Williams: You have flown that kite. What has the reaction been to that kite when you have raised this before?
Dr Ball: No response. I have raised this idea twice, and in a book about Welsh affairs. I am still waiting for a response, but there we are.
Q27 Mr Williams: Keep going. We talked earlier at length about the skills agenda. I would be interested in why you feel we are failing in terms of those basic skills. Some of us would argue that it is a political question; some of us would argue it is about resources available for education from primary level right the way through. Inevitably, people will ask about the professionalism of teachers, the nature of the curriculum and whether we are pursuing too generalist an approach in terms of our curriculum. The seed is there. I am going to an exhibition later this week of the Engineering Council, constituents of mine, who are delivering excellence. You wonder what the next step will be for them in the engineering projects on which they are working. Where does the fault lie in terms of education and the lack of those basic core skills?
Professor Gripaios: Thanks for looking at me. It would be simplistic to say there is any one fault. There is no question that we have to up our game to be competitive with other countries. Parts of the Indian work force are very highly educated. Parts of the Chinese work force are very highly educated and rigorous in pursuing skills and qualifications. The level of aspiration, what is offered and what is acceptable in terms of pass rates are very important. You can get a GCSE in maths with a very low level of mathematical attainment.
Q28 Chair: Do you think that the standards required to get the basic pass level have gone down over the last 20 years, Professor Gripaios?
Professor Gripaios: Yes, I do.
Chair: What about the other witnesses? Yes or no on that one?
Dr Bal l: Yes.
Professor Pickernell: I do not have any evidence on which to base this, but my gut answer would be yes.
Q29 Mr Williams: I want to turn to the specific role of higher education. Various submissions have alluded to that essential role. I think we are potentially well placed in Wales, at least geographically, to pursue that role. How would you advance the ability of higher education institutions to attract inward investment? Are we talking about hubs or the development of centres of excellence? How can we advance that? That is a question to all of you.
Professor Gripaios: I don’t know why everyone looks at me on these difficult questions. I think it would be very wrong simply to blame the schools for the deterioration in educational standards. I think higher education also has some blame. What is provided? At the end of the day, students are very important to keep universities going. They offer what students want, but it is not necessarily what is sensible for the country, or indeed, their long-term careers, as we are now finding out. I do not think we can say that we are there at that level of the pyramid and just concentrate on the rest. All parts of the pyramid need to up their game. There needs to be a change in the kinds of courses offered, and to go with that there has to be a change in attitudes of students to take more rigorous subjects-the sciences, medicine and such things-maybe more than others.
Q30 Mrs James: When we have travelled abroad we have looked at these issues. There seems to be a lot more specialising at a younger age, for instance, in industry, engineering and the sciences. Young people are encouraged to look at them at a much younger age, and businesses in Swansea are constantly telling me about this deficit of training and skills. I was speaking to somebody who is very involved in the call centre industry where letters have to go out. They have to sit their trainees down first of all and teach them to write letters.
Professor Gripaios: Sadly, this is not just trainees in the call centre industry. You should see some of the essays that I have marked.
Mrs James: I have had the applications from Oxbridge students, yes.
Professor Gripaios: When my son was about 12, I was marking final-year scripts and putting them down as I finished. He picked one up and said, "God, this isn’t very good, is it?" He was right.
Professor Pickernell: I teach students from a variety of different backgrounds and countries. Probably the strongest students I find in terms of application, attitude and overall work level, on average, come from Germany. They are already in jobs. Basically, they do one term in their work and one term at a university either in Germany or, they come over to us for one term. The difference there is incredible, because the attitude is so different. I do not know to what extent the background in terms of what they have been taught before has given them this, but certainly in terms of their attitude and application it is very different. I used to notice that when we had more sandwich students who between their second and final years, went out into industry for a year, when they came back their attitude was different, because they felt that what they were doing was not "academic" academic; they could see the actual point of it. So the way we structure our education at the higher level is of importance.
Q31 Geraint Davies: This is anecdotal, but my older daughter, who is now 17, got an A in additional maths at GCSE. My daughter below her is now being told that you cannot get an A any more in additional maths at GCSE because they are getting rid of it; you just get a pass. I wonder whether you, as people in universities, have any evidence that the different examining boards are competing against each other in a race towards the bottom to get more people in higher grades, to get them into university, and the incentives are in the wrong direction.
Professor Pickernell: I do not have any evidence on that. That is not a field I deal with.
Dr Ball: At the end of the day, dare I say there are simply too many universities of 20,000 or 30,000 students? In my view, and it’s only a personal view, I hasten to add, that is simply too big.
Professor Gripaios: I have not had any dealings with admissions, so I have not looked at that issue.
Q32 Mr Williams: I am not knocking primary education in particular, where I served for some years as a primary school teacher. I think there is still an appropriate emphasis on skills at that level. What concerns me-I suspect it may concern you, and it is certainly Siân James’s point-is the extent to which later on people are not encouraged to develop those specialisms academically and, critically, practically, which, as David Pickernell indicated, is really important.
I am interested that there has been some success in the higher education sector in developing quite meaningful partnerships between developing economies. For instance, I think of the relationship between Aberystwyth University and China. We see a flow of activity between Wales and China and less of a flow back, and I think those are the relationships that we need to be pursuing in terms of developing a more innovative spirit sometimes in our higher education institutions. Are there any reflections on that?
Chair: Very briefly, gentlemen. I am afraid we are almost out of time.
Professor Pickernell: It is important to do that. Again, it is about looking at this holistically, because developing universities which are developing innovations, which can then be put out into the marketplace more quickly-it is a project that I am working on at the moment, in collaboration with others-is not focused specifically on inward investors. In that case, it is about trying to get business angels to come in and help develop the products more quickly to get them to market. It could be that that is picked up by a local firm; it could be that it is picked up by academics or students who spin out a company. The point is that it is the starting point-generating that innovation-which is of importance. When it is picked up, it could be a range of factors and you do not just decide the outcome before you start. You have to think about what it is you want to do, which is to encourage innovation, and then try to develop the structures around that to support it.
Q33 Stuart Andrew: It has been really good listening to your candid answers. I just wonder whether, after everything you have said, you think the target of getting 50% of school leavers to university is the right focus, Dr Ball.
Dr Ball: No.
Chair: Thank you for that. We like these short answers. Professor Gripaios?
Professor Gripaios: No.
Chair: Professor Pickernell?
Professor Pickernell: I don’t know how to answer that, to be honest.
Chair: Your silence is instructive.
Professor Gripaios: If I may give a very quick answer to the previous point raised by Mark Williams, I think an awful lot could be done to make British universities and the people within them much more entrepreneurial than they are.
Mr Williams: And the schools as well.
Professor Gripaios: And the schools as well.
Chair: Let me bring in Susan Elan Jones for a very quick last question, if I may.
Q34 Susan Elan Jones: There are a lot of questions I could ask. What recommendations would you make for improving the level of inward investment? Also, is the concentration on the six sectors under WAG’s economic renewal policies the right approach?
Professor Pickernell: From a general point of view, while it is useful to have sectors you would like to target, it can be detrimental in the sense that you can find fast growth, and high-growth new firms, in ranges of different sectors. If it is eliminating resources from a general area, then you really have to think about that.
Professor Gripaios: I think the public sector has been terrible at picking winners and saying that is what we should go for. I am much happier with the idea that you should be helping them do, within whatever activity or sector they are, the sort of things you want them to do. I think you ought to look at the production mandate and get them to bring in R and D, and pay them if they do that sort of thing.
Professor Pickernell: I would add that when you look at trying to develop entrepreneurial skills, etcetera, that does not necessarily mean people have to be setting up their own businesses. They could be more entrepreneurial or "intrapreneurial" within existing or larger organisations so the skill sets can be transferable at least to a degree so it would be beneficial across the board.
Dr Ball: Very quickly, frankly, the identification of the six sectors is a nonsense.
Chair: Come off the fence.
Susan Elan Jones: Get in there, John.
Dr Ball: It is perfectly clear that the public sector is not good at identifying winners. I said that five or six years ago to this Committee. The Welsh Assembly Government has this fixation with certain sectors that are not growing but declining. A lot of nonsense is talked about financial services and the number of people who work in it. They are call centres; they are not financial services. The automotive industry is producing products at the end of their life cycle. It is a complete nonsense.
As far as recommendations are concerned, I would certainly hang my hat very much on tax incentives. I think this House and the Government should be looking at that. I think we should be looking at sectors that fit into the existing skills we have, because you cannot talk about financial services, R and D and so forth with the levels of education that we have. That is cloud cuckoo land.
The first question you asked, Chair, was about the WDA. What I would dearly love is for somebody to crunch some sensible numbers. When I gave evidence in 1998, I produced evidence that the then Welsh Development Agency was making up numbers on the number of successful inward investments. I had nothing better to do this morning but go for a cup of coffee. I had a quick look at two of the submissions. According to the Welsh Assembly Government, there are exactly 1,045 overseas-owned companies, however defined. According to the same paper produced at the same time by UWIC, there are 513, except that when you add up the UWIC numbers there are 592. So you can take your pick, ladies and gentlemen, as to which of these is correct. So I think my last plea is: can somebody please crunch some sensible numbers?
Chair: Thank you very much indeed, Dr Ball. We really enjoyed those direct, frank and sometimes very short answers. We look forward to seeing you again.
Witnesses: David Rosser, Regional Director, CBI Wales, Roy Thomas, Director, Cardiff Business Partnership, and Graham Morgan, Director, South Wales Chamber of Commerce, gave evidence.
Q35 Chair: Gentlemen, thank you very much indeed for coming along today. Would you like to introduce yourselves for our record and then we can start?
Graham Morgan: I am Graham Morgan, director of South Wales Chamber of Commerce.
Roy Thomas: I am Roy Thomas, director of Cardiff Business Partnership.
David Rosser: I am David Rosser, director of CBI Wales.
Q36 Chair: Thank you very much indeed for coming along. I saw your eyebrows rise at a few of the comments made by our previous panel, so feel free to comment on anything you heard at some point in the questions. Perhaps I could kick off by asking in broad terms whether you think that foreign direct investment is still something on which we should be concentrating very hard in Wales, and are we getting it right? I put that question to all or any of you. Graham Morgan, perhaps you would start.
Graham Morgan: I am happy to kick off. I think it has to be a combined effort. You have to focus on the opportunities that foreign direct investment brings, particularly in relation to some of the resources in Wales and the ability to develop some of them. At the same time, we have to use that investment to provide impetus for local businesses and also look at how we develop those businesses. From a chamber of commerce perspective, we feel that perhaps the ambition within some of the businesses in Wales to look at markets beyond Wales is not where it needs to be and there needs to be some form of mechanism introduced to encourage those businesses with good products and good services to raise their game and look at other opportunities. It is very much a combination.
Roy Thomas: In context, I would like to look at the figures for the UK which I have been researching. Every day the UK attracts nearly five inward investment projects; every day 146 new jobs are created by inward investment; and every day 258 jobs are created or safeguarded. Every week the UK attracts 31 projects. I would like to see more of them coming to Wales.
Q37 Chair: Do we get proportionally what one would expect to get?
Roy Thomas: Last year we did okay, but we then scrapped the department that actually performed, which was a big surprise to a number of businesses.
David Rosser: I think the attraction of FDI continues to play a meaningful role in the economic development of Wales going forward, certainly for the reasons Roy has just explained, but, equally, because we have an extensive installed base of inward investment companies already in Wales. I am reluctant to quote figures after the previous contributions, but according to the ONS we have over 1,000 companies in Wales providing about 12.5% of employment, which is about 20% of private sector employment. We have an installed base, which means that, if we decide, today, we no longer want to do FDI as an economic policy, we will see greater disinvestment in that operation than we would otherwise see.
Q38 Mr Williams: Gentlemen, why did Wales lose its competitive advantage in terms of attracting inward investment? If we start with a gloomy prognosis, in your view what constitutes a successful inward investment policy? Why, and then what is the next step?
Roy Thomas: I think we have just become uncompetitive. I have looked at figures for Scotland, for example. I notice from the last session that Scotland was not mentioned. In the 1990s we competed very well with Scotland. I had an opportunity yesterday to talk to Jack McConnell, Scotland’s First Minister, at the time the WDA was scrapped. His line to me yesterday-I spent an hour and a half with him looking at Scotland-was that they reinforced their inward investment team when Wales lost its team. Indeed, last December they appointed a new chief executive to look at Scottish Development International. The evaluation coming out of Scotland-I would ask you, Chair, perhaps to look at and take evidence from Scotland-is that inward investment is alive and kicking in Scotland, whereas it is not in Wales. I think we have lost our edge. When the Ryder Cup came to Wales, there was an early-day motion tabled by 50-odd Scottish MPs saying it should not go to Wales because Scotland is the home of golf. That was the competitive framework we had during that period. We seem to have backed off now.
Q39 Mr Williams: How would you characterise the Assembly’s stance strategically, starting with the WDA over the past 12 years?
Roy Thomas: I do not want to go backwards and say whether or not we should have a WDA. I think that will run. Going forward, we leave a lot to be desired in terms of internationalisation. Again, Scotland has embraced that and it has a plan for internationalisation. The evaluation of SDI last May by an independent firm showed that inward investment was a key driver of the Scottish economy. Indeed, if you look at where Scotland is in the league tables compared with where we are, it is up there. I suppose the anti-dividend for devolution has been that we have been inward and not outward-looking, particularly on trade and investment.
Q40 Mr Williams: But there are opportunities there for the Welsh Assembly Government, of whatever political complexion, and the question some of us ask after our trip to Berlin is whether they have risen robustly enough to the challenge over the past 12 years.
Graham Morgan: My observation is that, perhaps as a result of devolution, it has been an inward-looking regime, and, as Roy said, what has not been done is international connectivity. There is certainly an element of "siloism" in terms of both the private sector and public sector in Wales. If we are to have a true international proposition, we need to encourage greater interaction between public and private. There has been a blame culture where the private sector has pointed its finger at International Business Wales for not delivering. I do not think International Business Wales profiled some of the good things it did and some of the good people it had, and as a result there was not a joined-up approach which made Wales as attractive.
To come back to your point on competition, it is not that Wales has lost its competitive edge; it has not framed what its competitive offering is. That is a slightly different thing. The earlier debate about low labour costs and all that is a thing of the past. The WDA thrived at a time when that was the competitive opportunity. What we have not done is joined up the public and private sector and academia to talk about what Wales has to offer competitively in the new market.
Q41 Chair: Very briefly, using a yes and no format if I may, do you agree with the comments of one member of the previous panel who was very critical of the WDA? Do you think that was a fair criticism, Mr Thomas?
Roy Thomas: We both worked for the WDA at the time, and Dr Ball, whose views were well known at time, criticised us.
Q42 Chair: You worked for the WDA?
Roy Thomas: Yes; I was legal director for nine years, so I had a declaration of interest. Indeed, we listened to Dr Ball quite a lot during that period and also to the likes of Professor Kevin Morgan, for example, who was a harsh critic of the WDA in 1994, but if you read his work now he is a supporter in academia of the WDA. You will always have that debate.
Q43 Chair: What about you, Mr Morgan, if you were not involved at the time?
Graham Morgan: I had nothing to do with the WDA, to be honest. All I have picked up is that, clearly, certain folks have seen certain positive things about the WDA. One fairly critical thing was that it was fleet of foot. It was operating at a distance from the public sector and as a result it developed a reputation of its own. One difference we have currently is that that freedom to move quickly has been removed.
Q44 Jonathan Edwards: To build on the theme about Wales losing its edge, to what extent do you think that is down to the fact there is no UKTI presence in Wales, whereas there is in Scotland, along the lines they have done in English regions?
Graham Morgan: I guess that, from the perspective of the chamber, UKTI in many locations across the UK has worked with us. The bottom line in Wales is that the chamber has been fairly parochial and fragmented for a number of years, and it is only now that we have created a scale and size where we are in a position where perhaps we can work more closely with a number of organisations. Certainly, the model of chamber/UKTI/Enterprise Europe working in harmony for the common good is a tried and tested one in Birmingham, Bristol and Manchester, so it demonstrates that that physical opportunity exists. Certainly, UKTI or the ability to access it would give us a bigger opportunity.
Q45 Chair: Would you both like to see UKTI have a representative in Wales?
David Rosser: Yes. I would certainly like to see much closer working between the UKTI and the Welsh Assembly Government. All I see at the moment is that they are trying to instil that, and that is encouraging.
Graham Morgan: If I may add to this very good question, we were always pushing at the envelope with UKTI because there is a remit across the UK. I think we have lost that connection. We always pushed. They would have floating inward investment coming to the UK, and to push Wales one would have to lobby very hard in UKTI to get our fair share.
Q46 Geraint Davies: Anecdotally, I am aware of a chap who heads up a company called British Biocell International that was linked to technology related to pregnancy tests and that sort of thing. It wanted to set up a plant in Wales with a couple of hundred people and cutting edge R and D. He went to the Welsh Assembly and ended up in Scotland, even though he is from Swansea. How can that kind of thing happen? What kind of support packages and flexibility in your mind are happening in Scotland? I know you said we should take evidence, and I agree with you, but, anecdotally, how does this Welsh offer differ from the Scottish offer now for those kinds of people? In my example, someone from Swansea wanted to stay in Wales and has now ended up in Scotland.
Roy Thomas: I have done some research and I have some graphs for the Clerk. I am very happy to hand it round, but that is probably not what should happen. I have some graphs showing the R and D investment in Wales compared with Scotland, and it is pretty startling. We have Scotland at 19% and Wales at 6% of UK R and D projects. Perhaps the Committee would like to see those. If you look at that graph, it is pretty startling. You are right to concentrate on R and D because that is where you get value added. We maintained that Panasonic, Sony and companies we had in the past-David was at the forefront of this-should bring in R and D facilities. If you look at Panasonic, its European R and D facility is in north Cardiff.
Q47 Geraint Davies: Is that integrated into the universities, or is it part of the answer?
Roy Thomas: It is. I would say that, university-wise, in life sciences, Swansea is doing a fantastic job. If you look at life sciences, it is a growing field of inward investment. Last year 23% of inward investment in the UK was in life sciences, so again that is a key area.
Q48 Jonathan Edwards: What priorities do your members give to promoting inward investment in general?
David Rosser: I think CBI members remain convinced that FDI has a key role to play in our economy going forward. Our SME members see international businesses as customers, and for larger Welsh businesses they see them as welcome contributors to a healthy, thriving economy, contributing to work with universities and developing skills. The bigger companies in Wales tend to be inward investors, if not from overseas, certainly from other parts of the UK. The larger companies have a capacity to work with universities and colleges to provide training that sometimes smaller companies find difficult, so they contribute to the wider business community in a range of ways.
Roy Thomas: We have Admiral as a member. If you look at Admiral-we had a discussion on financial services earlier-that is now a £1 billion company. It started by grant in the mid-1990s and its history is well known. It is the only FTSE100 company in Wales, which we are very proud of. It opened in Cardiff and then went to Newport and Swansea. That company has grown to 3,000 people, with an average age of 30. You have young people going there and, hopefully, we will get young versions of Henry Engelhardt, David Stevens and the like coming out of that company, because their practices are doing something that we have not seen in Wales before. They are kind of indigenous with a foreign feel, because Henry, of course, is from North America.
Q49 Jonathan Edwards: I want to put a question specifically to the CBI. You recently held a six-month dialogue with your members across the UK. What did that reveal?
David Rosser: I was taken by one of the comments by Professor Gripaios earlier. It is the same factors that underpin the attractiveness of this environment for UK businesses, Welsh businesses and overseas businesses, and we certainly believe that is the case. We sought to talk to a range of companies across the UK and a range of companies not present in the UK, about what the key factors were which would encourage them to invest here more-what are the key parameters of an intrinsically attractive business environment?
I have listed some in the evidence we have given today. We score very well on some factors already: labour and employment flexibility; culture; quality of life; English language. There are some key enablers that we believe could contribute to a step change in investment performance and some key barriers that need to be taken down, and I can expand on any of those I have listed if that is of interest.
Q50 Jonathan Edwards: Perhaps I may finish by raising a question I asked of the earlier witnesses. What is your view on a tax-based incentive policy and regional taxation across the UK?
David Rosser: The CBI has not formulated an organisational policy position on this. Clearly, tax competitiveness is key to the intrinsic attractiveness of a business environment, and we are strong supporters. We listed as one of the barriers to investment current business taxation levels in the UK. That needs to be set against the value that companies place in a clear, stable and unified tax system across the UK. For inward investment, it might be a highly attractive opportunity. In my previous life, to which Roy has referred, working in inward investment for the WDA, I can remember having discussions about tax with prospective investors. To take an economy-wide view, that needs to be set against other consequences that might flow from breaking up the current unified system. It is a complex area but it is certainly one that bears investigation.
Graham Morgan: If I may add to that, the interesting thing that we certainly picked up from interaction with chambers overseas, and I attended a meeting with a delegation from Brazil, is that the question they asked immediately was: what are the tax incentives? Certainly, when you look at what chambers in other countries are doing within their kitbag to attract people, tax is one of those aspects. I do not think it is the be-all and end-all, but it is certainly a component that probably needs to be considered within the kitbag.
Roy Thomas: I concur with that.
Q51 Geraint Davies: David Rosser made a point about the common currency of taxation so people know what they are doing. On a parallel line, if Wales embarked on a completely different education system, so that instead of GCSEs at 16, or whatever they are at a different age, and all that kind of stuff, would that negatively influence inward investment? Obviously, companies that come in want a common currency for education as well in terms of moving their children around. Do you think those kinds of thing have any influence?
David Rosser: We do not have that now. For overseas companies coming in we have the UK education system, which is different from those elsewhere.
Geraint Davies: It is just a thought. I was supposed to be asking something about infrastructure.
David Rosser: I talk to the Assembly Government a lot about areas where they wish to create a different system in Wales, in whatever policy field it might be. The view I express and I hold quite strongly is that Wales is quite a small place, with quite a small market. No company will come to Wales just to serve the Welsh market. Pretty much all Welsh companies need to serve markets outside. If we make Wales different, whether it is in the education or tax system or in environmental regulation, it has to be better. We cannot afford, because of the size of our home market, to make Wales different and worse.
Q52 Geraint Davies: On the environmental costs to business, do you think that is an issue? Is that part of the criteria for inward investment?
David Rosser: That is a very broad question. You need to look at examples. We stand a real chance in the next year or two of making it more expensive to construct properties in Wales than in the rest of the UK. That will have a consequence because building regulations are being devolved; we will have mandatory sprinklers; our waste policies will be different; and so on. We wish to apply higher carbon energy efficiency standards. Those have consequences. They could be costs, and in some areas they could be benefits. If they are costs, they may not be the tipping point, but when we choose in other areas to make Wales different in a policy environment we need to be fully aware of the consequences on competitiveness issues.
Chair: I am going to have to suggest that you ask a last brief question, because we have to come on to skills.
Q53 Geraint Davies: In general, what should the Welsh Assembly Government, and indeed the UK Government, be doing to improve the infrastructure of Wales to attract inward investment? I know that people talk about railways.
Roy Thomas: The key thing is that the planning process needs to be a little swifter. The 22 local authorities we have in Wales have different ways of working on planning and it is pretty much disastrous. Most businesses will tell you.
I will give you a live example. SEGRO owned Treforest Industrial estate, which is one of the oldest industrial estates in Wales, with employment and 30 acres. SEGRO bought that estate-it is well publicised-for £68 million; they sold it for £28 million last year. SEGRO have said to me personally that they will not go further than Avonmouth any more. That is a FTSE100 property company. Treforest goes back to the Conservative intervention policy in the 1930s when employment was needed then, as it is now. That industrial estate is in a very poor state and Rhondda Cynon Taf declined planning permission for SEGRO.
Q54 Chair: On what grounds?
Roy Thomas: On transport grounds. That turned them off. Investors need to have an able and willing planning authority for investment, particularly in job creation. I think we are lacking that in Wales.
David Rosser: We heard earlier that the success of Wales in inward investment in the past was all down to big grants. That was part of it, but the Welsh Development Agency made it really easy to invest in Wales and to set up plants. The report that the CBI is about to produce on encouraging investment contains the following quote: "One high tech company told us how it had been courted by the Lower Saxony government, which had co-ordinated planning, utilities, links into the local university and access to regional and Federal grants to secure its investment in a new manufacturing facility." That is what the WDA did; it used to do all of that. It can still do it. The Amazon example of planning is one that I find frustrating because it is continually trotted out as Wales’s best practice in planning. The problem is that it is a wholly exceptional situation. We have opportunities now. The Assembly has just acquired loads of new powers. It could introduce a law to simplify the planning system in Wales. It could start to use the new powers it has acquired in a highly productive way to facilitate inward investment and make it easier.
Q55 Geraint Davies: Do you mean the imposition of a unified planning system without all these different local authorities interfering?
David Rosser: No, that is not what I meant; that is a gross simplification. We can make it easier for companies. We can make the system better. We can introduce presumed consent. We can require local authorities to deal with planning applications within a set time frame. There are a number of ways in which we can make it easier while respecting local authorities’ roles.
Chair: We look forward to seeing it all in the wonderful Wales now being built with the new powers.
Q56 Mrs James: Going to skills, we have had lots of evidence sent to us about the importance of the higher education sector in Wales and its role in attracting foreign inward investment. How do you think the higher education institutions might encourage new inward investment? You talked about Lower Saxony and how they were plugged in immediately to the university.
David Rosser: There are probably two ways in which universities could be plugged in and play a meaningful role in this. The first quite specialist way is where a company is attracted in because of some pretty specialist expertise that we have. I do recall at the end of my period working on inward investment for the WDA that we were taking International Rectifier into Swansea university because they had particular expertise in power electronics. It is very narrow and highly specialist. That was expertise which that company found really quite attractive and it made a difference in their investment location decisions. I suspect that we will have relatively few of those within our Welsh HE sector, but we should know what they are and which companies would value them, and we should try to put the two together.
More generally, there is perhaps not the high level specialism but the broader ability of universities to produce a pipeline of qualified graduates, particularly postgraduates, in materials science or chemical engineering, not power electronics. If companies come in and they know that a university is willing to tailor a course and ensure that that course will run for the next five years, producing graduates or postgraduates that that company will at least look at for employment, if not guarantee, you can start to build good interactions there. That is happening. Companies like General Dynamics and Cassidian and EADS in Newport are working with Cardiff and Swansea universities in those kinds of areas. I think that is a welcome, growing and developing field. We just need to make sure it continues to develop.
Roy Thomas: The same goes for universities with financial services. We heard about financial services earlier. 30,000 people work in financial services in Cardiff, but if you are Legal & General you train people up so they may get their first job as a graduate. They may then go to Admiral; they may then go to Principality. So you are creating clusters. They have career advancement. In my day we used to go to the City in London to have that training, but now that is here in Cardiff or Swansea with Admiral, which is near you.
Q57 Guto Bebb: You mentioned that the relationship between universities and business was starting to develop. Is that not in itself a damning comment? For as long as I have been aware of the Welsh Assembly’s efforts to develop business support in Wales, they have always argued that there is a need to build on these specialisms that are developing in our universities, and yet we have seen the Technium experiments and your comment just now about this starting to work. Has it therefore not been a success in the past?
David Rosser: I do not want to damn progress. Equally, it should not be a surprise to you if I say there is further to go and more to be developed. We are making good progress on this. I worked on inward investment for the Welsh Development Agency between 1995 and 2000, which was between 10 and 15 years ago. At the start of my period there I was wandering around haulage companies asking for freight rates to Stuttgart and Düsseldorf to support inward investment inquiries.
Towards the end of my period there I was wandering around universities, talking to professors and departments about the expertise that they had which could be deployed for inward investment. I have no doubt that has continued to develop over the last decade, and I see more and more companies now working with universities, some very successfully and some with less deep links, but I see it moving forward. One could, if one wished, criticise the pace but I choose not to.
Graham Morgan: In this preoccupation with skills, it is important to understand what skills businesses are looking for. One of the feedbacks we get from our members is that it is very difficult to employ a reliable unskilled person. At one end of the spectrum those gaps are filled. You also find that the interaction with universities is particularly strong with those businesses that employ large numbers of people, and that works exceptionally well. I guess, on a wider skill basis, you still have constant feedback around maths and English, which you debated earlier, and lack of language skills, which is consistent across Wales.
If you look at the international agenda, it is very difficult to drive that when very few people come out with anything other than English and Welsh and IT skills. Again, every modern business needs IT skills and many youngsters don’t even choose to take that as a subject. I guess there is an element of delivering the right skills for the future, but the link between the universities and some of the bigger employers historically has been big. The challenge with the smaller businesses and those looking to grow is the actual resource available to give somebody a day or two days off a week to go and develop those skills. I think that is the misconnection. Another factor is that, at times over the last few years, there has been European funding pushed out to training companies and colleges and they are delivering courses as opposed to delivering the right skills. That is a significantly bigger area to look at.
Q58 Guto Bebb: Just to follow up on that, in terms of the university relationship with business, one of the arguments that has been made in the past is that that is a means by which we can create a more innovative economy in Wales. First, in terms of developing innovation, is there any evidence that that is happening as a result of links with universities? Secondly, is there any way in which we can link the universities into inward investment in relation to the issue of a more innovative Welsh approach? The argument has been made that in the past we have depended on a competitive low-wage economy, whereas now we need to compete in a more innovative way. Is that happening in our universities?
Roy Thomas: As to innovation and universities, academics don’t really get business. You have to realise that, Mr Bebb. From the work we have done with them, you need to get a businessman to take a product to market and then make a profit. Academics do not do that. It is important that the academics stop and then the guys who know how to make a product take over. That is what has happened. Entrepreneurs, indeed, are people who probably have not been to university. The make-up of a modern-day entrepreneur is somebody who is prepared to take risks, does not intellectualise too much and will make a business plan work.
Q59 Chair: Just going back to the comments made earlier by the academics on the numbers of people going to university and the kinds of things they are doing, what did you make of that? In simple terms, do you agree that there are too many going to university and they are doing the wrong things? You cleared your throat first.
Graham Morgan: It is a very difficult one to answer. A lot of the folks currently in the university system prepared to go to university four or five years ago when perhaps some of the skills they were preparing for were in a different marketplace. What you have to look at is a dynamic skill base whereby people have got the basics and can adapt to whatever the next few years hold. Perhaps one of our preoccupations for the last 10 years is that we are trying to channel people in particular directions and they do not physically get there.
Q60 Chair: Come on. What do you think? Do you think that 50% is too high?
Graham Morgan: I guess that in any pyramid system-I think these words were used earlier-the best people will gravitate to the top, if that makes sense. If you come back to the situation where you force people to go to university because it ticks a box, then nobody will be a winner out of that, to be perfectly blunt. I think a bigger aspect is that, if you look at Wales as having 8% of its population from overseas, that is quite an influx of students. I hate to think what percentage of Welsh students are currently studying overseas, but I could probably guess it will be sub-1%. I would prefer to see a process whereby you encourage more Welsh people to go beyond Wales so that there is outward connectivity and study overseas. David and I were at a meeting with Indonesians. They were looking at how they could get more of their students to come to the UK to open their minds. I think that is a bigger piece than forcing 50% of people to take degrees in Wales, to be perfectly honest, because there is nothing wider.
Q61 Chair: Are there any other comments on that?
David Rosser: I think that is a ridiculously simplistic comment and argument that I hear from a lot of people, including business people. We are now moving to a situation where more of the costs of going into higher education fall on the student. We need to move to a situation where businesses who desperately need certain specialisms, and can offer meaningful careers on the back of those, will start to contribute toward the costs of higher education themselves and will absolutely take more effort in explaining what career opportunities are available, depending on the skills and university degree you have got. We will start to see a market developing where young people, if they get the right quality advice, will make up their own minds about whether a university degree is the right, sensible course for them, whether a vocational qualification is the right way to go or whether they should go straight into the work force. Under the previous as well as the current system, sufficient quality advice has not been given to young people on outcomes and the value of different qualifications and institutions to enable them to make those decisions.
Q62 Geraint Davies: On this particular point, when we made a trip to Germany to take evidence in Düsseldorf and Berlin, one of the things that emerged was that, as you may know, any company in Germany is required to be a member of the chamber of commerce both locally and regionally. Those chambers of commerce are required to provide training and apprenticeships on a regional basis that fit the needs of those businesses. In Germany, there is an institutional framework for the delivery of high-value apprenticeships alongside the university system. If it is being suggested in some sense that we are being too ambitious with 50% on the university side, what we need is something that fills the gap. We do not want to jump between university and very low skills on the assembly line. What is the direction of travel in that? Would you agree with the German approach?
Roy Thomas: I think there is a lot of merit in that, but on the issue of universities you cannot force people to go to university. You have to give somebody an opportunity. My family were miners; my father and grandfather just did not have the opportunity to do that. You have to give somebody the opportunity if they want to do that, but, again, where are they going to go with it? Are you going to scrap all history departments across the UK, which would be absolutely ridiculous, or are you just going to promote just physics or mathematics? You need that balance in life, and a graduate certainly brings that. It is not only learning at university; you learn life skills. For lots of people it is perhaps the first time they have been away from home and they see that as a different world.
Q63 Mrs James: To come back to the skills agenda, businesses in my constituency are constantly telling me that it costs money to train people to get a good skills base. Many of these are small entrepreneurial companies which do not really have the basis. So they rely heavily on the advice of business organisations funded by the Assembly on what is needed and what level of skills needs to be taught in colleges, universities, etcetera. Do you think there is a good enough link-up at that point? I am seeing a real misunderstanding. Businesses feel frustrated. I will give you an example. Lots of students go to university to study Italian; they study Dante. Is that what is needed today? Of course it is important to study Dante, but business-wise you may not use that kind of Italian. Is there a match there? I am sensing that there isn’t.
Graham Morgan: Feedback from our members is that, yes, there is always a need for training, but there is quite a significant amount provided, and there is this dichotomy between physically releasing people to do the training and that investment in time. To take your point, I think that anybody who learns Italian, regardless of what it is, is in a better position than somebody who does not. So you have to look at what is positive in terms of how that can be used in the wider marketplace.
Q64 Mrs James: but are they listening?
Roy Thomas: To come here, of course, you need to study Aristotle.
Mrs James: I did not study Aristotle, actually.
Roy Thomas: I think it is horses for courses. You have to listen to what the employer needs, and what happens is that the bigger companies train people up. You have the Admirals in Swansea training people up and then they filter down to maybe smaller companies. Typically, that is what happens. If you look at the training programme at Legal & General, one of our members, it is second to none. Again, it is a FTSE100 company. People are sent away for weeks to training courses in Brighton. They come back in a different way, and are able to further a career, perhaps somewhere else. Of course, Legal & General don’t like that; they have invested a lot of money in that individual, who may go off and work in the Principality in Cwmllynfell-if there is one in Cwmllynfell.
Mrs James: I don’t think there is.
Roy Thomas: I don’t think there is, actually.
Q65 Mrs James: But surely, a smaller company just cannot rely on that, if you are an individual entrepreneur with three employees.
Roy Thomas: Those are the facts of life more than anything else; that is the market.
Q66 Mrs James: To come back to the decline in manufacturing and inward investment, how does it affect us in innovative terms? We have seen the decline in manufacturing. Inward investment is getting tougher and tougher. Is it suppressing innovation or is it still alive and well there?
Roy Thomas: We had, and still have, an excellent automotive sector in Wales and we had a supply chain which worked with indigenous companies. So you have got the Visteons, the Bosches and the Fords. Thank goodness we still have Ford in Bridgend. Supply chain issues should be looked at a little more. For example, food is a big sector. If you look at Tesco in Wales, it is supplied with £100 million worth of food for Welsh stores. That is the biggest private sector employer in Wales with 18,000. Mark Grant in Llantrisant does that single-handedly. He is a Llantrisant boy and he procures for Tesco in Birmingham and the south-west. For Asda, it is about £30 million. If you look at those industries, SMEs can live off that. If you are doing Penclawdd cockles or water, which we do for Penderyn whisky, you are selling product outside Wales.
Mrs James: Or Tomos Watkin’s beer in my constituency.
Chair: I must appeal for very short questions and answers with no supplementaries, because we have already run out of time.
Q67 Guto Bebb: Mr Rosser mentioned the fact that there was an issue in terms of vocational education, which I was very glad to hear. We tend to talk about HE, but I think there is a role for FE as well. Certainly, in my part of north-west Wales we have seen a partnership between Coleg Menai and Coleg Llandrillo, trying to train up young people to be ready for the opportunities that will arise, possibly with a second nuclear power station. To what extent do you see an interaction between business and FE in Wales and certainly with potential inward investors as well? To what extent do you see the FE sector taking their responsibilities seriously?
David Rosser: To a very great extent. Over a longer period, FE colleges have tended to work more closely, especially with local businesses, than higher education has. Both sets of institutions understand their responsibilities in this area. I see many examples of both sets of institutions advancing that agenda.
Q68 Guto Bebb: Is that relationship being encouraged in the same way as it was encouraged in the past, ensuring that people are aware of the training and support that is available for potential inward investors, which is an important aspect, and the coordination of all this that you mentioned WDA used to do? Is that still available? In other words, are we selling Wales properly in terms of the FE sector we have?
David Rosser: I am not sure of the quality of skills and training advice that is given to businesses generally and inward investors. I think it is patchy; it does depend on the quality of the particular account manager you might have.
Graham Morgan: I would quickly add that I visit a number of FE colleges across the whole of south Wales. I think that, generally speaking, there is a fairly good interaction with the local community. If you take Pembrokeshire, there is a huge interaction with the petrochemical industry, which is big inward investment, and the care sectors. Consistently where you have that need, it is addressed, generally speaking, whether that is facilitated by the Welsh Assembly or by people just coming together and doing the right thing. It is a combination of both.
Q69 Chair: I will demonstrate what I think is a quick question with no supplementary and a short answer. At the moment are employment regulations too strict, not strict enough or about right to encourage companies to come here and grow?
Roy Thomas: I think they are too strict.
David Rosser: I would agree.
Q70 Stuart Andrew: We heard some interesting observations on how well Cardiff has performed in terms of attracting inward investment compared to other areas. What are your thoughts on how well it is doing perhaps in comparison with Bristol and Swindon? But, also, do you think that the ambition should be a bit wider than just cities that are close by and one should look to compete with major cities in the country and on the continent?
Roy Thomas: That is a very good question. We have to compete first of all with UK core cities, so you are looking at cities like Manchester, Leeds and Edinburgh, and then you look far away into Europe and cities like Helsinki and Oslo. Cardiff is doing that. I think we can do more. Cardiff is like some kind of Rolls-Royce; it has been kept in the garage too long, as Dublin was in the 1990s. The Irish got behind Dublin and pushed it. I think we are now sensing that Cardiff is the capital and we are losing parochialism. We have more North Walians in the media in Cardiff than I have ever seen. They speak Welsh in Pontcanna where I live. It is great to see the combination of the dialects coming together.
There is no doubt that Cardiff is important as a shop window and the Assembly has neglected a bit of it in the past. We constantly push the fact-that is why we formed the Cardiff Business Partnership-that Cardiff is a great location. People will come to your capital city. If they are going to invest in your country, they will come to your capital city. As they come to London when they come to the UK, they land here and then you take them to Swansea, north Wales or Ammanford. You then take them elsewhere. That was exactly what the WDA did. It tried to take them out of the M4 corridor as we then had targets, but you have to get your capital city right, otherwise you have real problems.
Q71 Guto Bebb: On that point, is the success of Cardiff good news for the economy of north Wales?
Roy Thomas: I think so.
Q72 Guto Bebb: On what basis?
Roy Thomas: Because I think people enjoy going to north Wales. They have a flight now, which is well publicised, and more people should be encouraged to use it. North Wales is part of Wales and we are one, as the vote showed last week, and it is important for us to see that. Unfortunately, you have north Wales looking east towards Liverpool and Manchester, and I would like it to look a little more south than vice versa. I think Merthyr is a kind of Watford Gap. People do not go up to north Wales and see what an amazing place it is, but that should be encouraged.
Chair: We won’t mention Monmouth and Tenby.
David Rosser: I think the success of Cardiff is good for all of Wales. People come to Cardiff and say, "Gosh! Isn’t Wales a great place?" That impression is important.
Chair: Can I bring in some very brief questions?
Q73 Geraint Davies: On the back of this, what do people think about Brand Wales and marketing Wales generally and, in terms of public investment, how should that be focused? There is already half an answer in some sense by using the window of Cardiff, but does anyone want to say anything about Wales the brand?
Graham Morgan: The feedback I have had from four different countries is that our biggest brand is our flag in terms of an icon. I think we need to put a whole raft of support behind that flag, to be perfectly honest. We need to look at our connectivity and be picky, because Wales is a small place. In the overall context, we cannot be all things to all parts of the world. We need to be far more specific and target perhaps 12, maybe 24, locations and push on that with an open door-type approach rather than try to be broad based. So we should be very much more focused on where we are going to aim our approach.
Q74 Geraint Davies: Are you referring to trade fairs and those kinds of things as well, or what?
Roy Thomas: We keep reinventing the brand. Again, a bit of an anti-dividend was logos which at the beginning of the Assembly were prevalent and there were dragons that looked like swans, for example. People played around with these things. For me, the brand in business is the value. The brand is your people. That is what a brand is. The brand for a corporation is the values within the organisation and how they are espoused. It is not just about logos. People think that brands are just dragons, leeks, daffodils and goodness knows what.
Q75 Mr Williams: Referring to the role of trade fairs and how important they are, we received that message very strongly in Germany. How much do we do? How much should we be doing? How can that be encouraged to promote Wales at those fairs?
Graham Morgan: Personally, I think a lot more can be done and it needs to be very focused. As I said earlier, it is no good going to a different trade fair every year; you have to create your bridgehead and then move from that. There will be a number of trade fairs around the world that focus on the six sectors. We can agree or disagree on the sectors. That gives you a principle. It is then a matter of looking at what else you physically want to target but having a very robust approach over a three to five-year period.
Q76 Susan Elan Jones: I was very interested in what you said, Mr Thomas, about brand. It is not symbols; it is primarily relational and value driven. In view of that, would you say that probably Wales may need even more and not fewer overseas offices if we are building links between people, preferably perhaps even people who can speak the languages of the countries where they are located?
Roy Thomas: Absolutely. I think we should have an office in London, for example. Cardiff is two hours away from one of the biggest markets in the world. We should be talking about that. We should have an embassy here where we should be talking to the Indian, Chinese and US ambassadors on an everyday basis. We should have offices in major economies.
Chair: That brings us neatly to a question that has been suggested to me. Do you want to ask it very briefly, Geraint Davies?
Q77 Geraint Davies: I just wanted to comment on the movement from the WDA to a different Department and changes that have been occurring. When we spoke to UKTI in Germany, they said they had not really heard much for 18 months because of structural changes in the economic, transport department or whatever. What is your perception of what is happening in terms of WAG’s role following the WDA in terms of a focused approach to attract inward investment?
Roy Thomas: Businesses are up in the air about it; they do not really know what is going on. The international director was suspended last year. We read about that in the Western Mail. He was quite a high profile figure. In the days of the WDA we would have been summoned to this Committee to answer on that, or perhaps to something called the Public Accounts Committee, perhaps, to say what was going on. There is a need for more scrutiny and I welcome this morning’s session. I think it is important that we talk about these things openly.
Q78 Chair: Mr Rosser, would you say that WAG has been good at getting FDI into Wales?
David Rosser: In the last five years we have still attracted into Wales between 6% and 9% of FDI. We have consistently ranked somewhere between fourth and sixth in the UK regions over that period. I would say it is an average performance.
Q79 Mrs James: I want to ask about the paper you submitted, Graham. In it you mention a one-stop shop for international trade. Would you like to tell us a little more about that?
Graham Morgan: We launched the South Wales Chamber brand and we work closely with the North Wales Chamber which links into Cheshire, and they submitted some views to support me today. We spent a fair bit of time last year trying to understand exactly what happens in the international trade arena. We went out to businesses and a whole range of people which are included in my document. I think the general feeling was that there was not an actual gateway through which there could be focus and from which it could be spun out. We believe at the moment that is missing very much on a joined-up basis between the public sector, private sector and academia to draw on the strengths and connectivity of all those different operations. We can cite chambers like the Dubai chamber and other chambers throughout the world which have these kinds of portals that make a difference to those economies. What we are doing is to replicate the wheel in some respects.
Mrs James: It is a good idea; it is worth doing.
Graham Morgan: Yes. It is a proven mechanism through which things move.
Roy Thomas: Chairman, perhaps I may say that on inward investment we have been very poor compared with Scotland. Again, I urge you to look at the Scottish example comparative to what we are up to and look where they are in terms of the Scottish economy and what they are doing. On trade, they are far ahead of us with offices across the world. Susan Elan Jones mentioned offices. They have offices and brand; they are out there competing.
Graham Morgan: I have looked at the Edinburgh chamber in particular, and certainly the actual model that the chamber has been moving in in Scotland has added to some of the stuff that has been going on. It is very proactive.
Chair: Thank you very much indeed for that. We have kept you here far beyond the agreed time. Thank you for answering the questions so well.
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