Will Welsh Economic Policy Learn from Past Mistakes? John Ball of Swansea University's School of Business and Economics on the Inward Investment versus Indigenous Business Support Debate

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Byline: John Ball

THE interesting debate between those who believe that enterprise should be the basis of economic policy in Wales and otc hers suggesting a policy based on inward-investing powerhouse industries is perhaps less a disagreement about economic policy than frustration at the lack of progress.

Supporters of the former are absolutely correct in arguing that the way forward for the Welsh economy must be based on enterprise and home-grown businesses and it's not just a question of grasping for an alternative policy. It might be worth just touching on why enterprise matters; often overlooked in the debate on policy alternatives.

By their very nature, new businesses are dynamic and innovative - they have to be to survive and grow; and it's innovation that is at the very heart of economic growth. In addition, they are the source of new ideas, drive competition (often they are the only competition faced by big firms) and are the big businesses of tomorrow.

Research over the past 20 years or more has consistently confirmed the major source of new employment is emanating from new businesses. Fundamentally, high levels of enterprise have been shown to be a causal link of economic growth, to the extent that they can make a difference of as much as 5% of GDP- equivalent to somewhere in the region of pounds 350m to the Welsh economy.

However, the argument is often weakened with two fundamental misconceptions. The first is praise for successful entrepreneurs such as Sir Terry Matthews, invariably held up as a glowing example of Welsh enterprise and what is possible. While Sir Terry is rightly to be warmly congratulated and feted for being prepared to spend his money in Wales, the fact is that his initial business success was not in Wales, but in Canada.

Now it matters not where the money comes from if it's spent on providing employment and growth in Wales, but to give the impression that such success is possible here is misleading - the dynamics of the economic and business environment in Canada are a world away from the failing economy in Wales.

The other is the fantasy that cutting-edge technology is the way forward. There continues to be the strange confusion that innovation means high technology and products yet to be developed. Academics and too often governments (especially WAG) ignore the potential of innovation in consumer and final demand products (of which there are very few in Wales and are sorely needed) in favour of the hype associated with technological change.

Face facts, the business sector in Wales is incapable of developing such products; growth can equally be driven by low tech and demand-led industries.

On the other hand, those who propose the powerhouse approach as the way forward show how out of touch they really are. …