Monday 5 November 2007

Economic ABC

If an Independent Wales is to succeed, then we have to develop a stronger economy. I believe that employment activities can be broadly classified into three types:

A: Wealth Creators
B: Wealth Distributors
C: Wealth Consumers

The Wealth Creators are those jobs that result in something physical being produced – these include the older traditional industries such as coal and steel, as well as manufacturing, agriculture and construction, etc. These jobs are the engine that drives the economy – for every job created here, one or more are typically created elsewhere in support industries. We should do everything in our power to encourage and develop these ‘Type A’ jobs, but which should generally be provided by the private sector. This should include distribution of grants but I would prefer to give tax-breaks instead – give new enterprises a 5 year holiday against corporation tax. This tax loss would be offset by taxes paid by new jobs created elsewhere in the economy.

The Wealth Distributors are those jobs that do not make anything physical, but support the Wealth Creators – these include transport, financial services, IT, retail, etc. These are real, valuable jobs, but they simply move existing money around – they do not create any new money. These jobs do not directly add anything to the economy, and are dependent on the Wealth Creators for their success – they follow the economy – they do not drive it. The creation of ‘Type B’ jobs should be only passively encouraged and facilitated, for example by the removal of red-tape. However, they should not receive any precious grants, and tax-holidays should be limited to say 2 years.

The biggest legacy of the Thatcherite years was her policy of eradicating the Wealth Creators in favour of the Wealth Distributors. This worked well in the City of London, where the distribution is on a global level – but has resulted in the devastation of many Welsh communities. I am not advocating reopening the mines, as there were underlying reasons for their closure – but we have to replace them with real jobs – that are wealth creating and will encourage the creation of others, for example in manufacturing and construction.

The Wealth Consumers are those jobs that do not directly contribute to the economy, and are generally funded as public services – these include health, education, government etc. Despite their negative name, these jobs are an essential part of our society, without which the economy can not operate. But we can only afford a limited number of these jobs, and must ensure that these deliver value for money. I consider these jobs to be broken down into a further 3 types:

C1: Service Providers
C2: Service Supporters
C3: Service Passengers

The Service Providers are the front line jobs – the teachers, doctors, even our AMs. To provide these services effectively we must establish service levels (eg the right to a doctors appointment within 24 hours) and ensure that we provide the right resources to meet these service levels (eg one dentist per 10,000 population). These service levels should become manifesto commitments for our politicians and they should be judged against them.

The Service Supporters are those essential support staff, without whom the Service Providers can not function, eg school secretaries, hospital cleaners. We must develop ways to ensure that these support services are provided in the most efficient manner, using benchmarking to compare different service providers (eg Hospital A costs £x per patient to clean – Hospital B only costs £y – how can Hospital A match the Hospital B level?). This is not a question of ideology but of efficiency. I do not advocate that all such positions should be in the private or public sector – simply that we must spend our limited money wisely to ensure that our service target levels are met.

The Service Passengers are those staff that exist but which do not directly contribute to meeting any agreed service level, for example management, administration, compliance officers etc. While some of these staff are necessary, others clearly are not, and some hard questions need to be asked - Why does Powys County Council need a Communications Manager? Why does Bridgend Council employ an IT Manager to read staff’s e-mails? Why do some councils want to employ race relations compliance officers? What would happen if these positions simply ceased to exist ?? Some of these positions are a necessary evil, but many are simply jobs for the boys, and usually highly paid ones.

I suggest that we should grade every job in our local councils and public sector bodies as either C1, C2 or C3, and publish annual statistics on the percenteage of such jobs, and their cost.

The harsh reality is that in Wales we have become too dependent on such Wealth Consuming jobs, and that there are too many Service Passengers. Of course, this issue is not related to Welsh Independence, and can be adressed at any time. But this issue will become critical following Independence as we will have limited resources, and we will have to carefully prioritise our spending.


Ward said...

I work for myself, I purchase goods from Europe and sell items at a significant profit to companies outside the UK and Europe, I then spend most my money in Wales (except on my mortgage), I would say this come under a "wealth distribution" job as you describe. While I agree with most of the rest of what you are saying, I think it is possible to turn wealth distribution into a net contributor to the Welsh economy. In order to do this, other people in Wales who create these B-Type jobs must create them to supply external markets, and by doing so, offer their products to other countries, so many Welsh companies look inward not outward when looking for a market. Oh and tax incentives would be great.

Jarvis Rockhall said...

Interesting but your idea of 'wealth creation' seems biased towards an outdated concept of the manufacturing industry as the sole contributor to the balance of payments, and so you have ignored the export of intellectual products, an example of which would be computer programs. Take Microsoft Windows for example, surely you would recognise that the coding of this program in the US has led to the creation of wealth, within the US. Similarly many 'wealth distributors' (which I assume includes accountancy firms and banks) create wealth by offering their services and expertise abroad (effectively exporting their knowledge). I would also point to design firms such as the Norman Foster architectural company, which design buildings, in London, for clients across the world. To be really successful the Welsh economy must embrace all forms of wealth creation, and not be limited by our past industrial tradition. A fully diversified economy will be better able to stand shocks and downturns in the global economy. To do this we must improve and expand our education system, especially higher education such as universities, and that may mean cutting out the dead wood courses, we should encourage students to take up degree disciplines that contribute to the economy, such as engineering, the languages, mathematics or the sciences, rather than the soft courses which now seem to dominate Welsh universities (isn't Swansea still offering a degree in Surfing?).

Anonymous said...

Your intentions maybe honourable but desire to dissect and control the economy is doomed to failure.

Studies indicate that only 20% of the population is needed to work to provide all the goods and service s needed for a good standard of living for all.

The idea that everyone MUST be employed to justify a share (income) in the mass of goods being produced is a false myth.

BTW, no job 'creates money'. Banks create 98% of the money - as debt to be paid back with interest. (The other 2% is notes and coins) That's what drives the economy (over the edge at present).

Restore the power and responsibility of money creation to the government (an independent Welsh government lets say) and we could pay down and eliminate debt over time, abolish income tax, and replace the welfare benefit system with a basic income paid to every Welsh citizen as a basic right.

The result would be a steady state sustainable economy that provides for all without the need to force people into ridiculous "C" jobs, as you label them.

We don't need to control and regulate people to have a great economy. We just need to regain control over the money supply.

Simple really.