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Wales’ Foundational Economy: why it’s time for action

March 6th 2017

Ahead of the debate on the Foundational Economy in the Senedd on Wednesday and in the Economy, Infrastructure and Skills Committee a week later, Victoria Winckler suggests what needs to be done to make the most of the opportunities.

The Foundational Economy is a grand name for those business activities that we use every day and see all around us. It includes businesses like retail, care and food industries. The Foundational Economy has been been pretty much overlooked in public policy, despite providing around four out of ten jobs in Wales and making a substantial contribution to Wales’ GVA.  Wholesale, retail and transport industries, for example, make a slightly larger contribution to Wales’ GVA than the much-vaunted manufacturing.

The debates in the Senedd are a welcome start to turning round the tanker that is the Welsh Government’s economic strategy, still firmly rooted in the inward investment / high value-added approach.  Our  response to the Cabinet Secretary on the Economy’s consultation recommended a whole-economy approach, with no job dismissed as not important.

The reasons for adopting a strategy are very clear. The Foundational Economy:

  1. Provides jobs to around half a million people. These jobs are no less valuable to the people who hold them than a job in high tech industries.
  2. Provides essential services too – and their loss can be keenly felt, whether it’s the loss of a village shop or the closure of a care home.
  3. Is relatively stable, so offers some protection against external economic shocks. For this reason, our agenda for Wales after Brexit called for a reorientation of economic policy towards foundational sectors.
  4. Is relatively evenly spread across Wales, so supporting them could help to stimulate development outside the M4 corridor.
  5. Has poorer terms and conditions, so supporting the sector could improve people’s pay.

So, a big round of applause for the Foundational Economy! We can only hope that Assembly Members from all parties support the motion to establish a strategy for foundational sectors on Wednesday.

Then what?

As always, the devil is in the detail. It would be entirely possible to put a label ‘strategy’ on a load of codswallop, meaning the government ticks the box but nothing changes (it has happened before ….). It’s also possible that producing a ‘strategy’ could take years – the Welsh Government’s consultation on its economic priorities has now been running for nine months with no end yet in sight!

So as well as calling for a strategy, maybe Assembly Members might like to suggest what should be in it and agree a timescale while they’re at it.  Here is our list of suggestions on what a foundational sector strategy could include. It draws on a detailed review of evidence of ‘what works’ by the Joseph Rowntree Foundation.

  1. Support innovation: Businesses in the foundational sectors tend to have lower levels of innovation. Yet there is every reason why these businesses can develop new products (whether it’s kale smoothies or renewable energy), new processes (whether it’s delivery by drone or Uber taxis), better design and better marketing.
  2. Improve management: These industries often have weaker management skills so investing in better management and leadership could result in some quick wins.
  3. Fill skills gaps and build progression routes: Gaps and skill shortages exist across the occupational spectrum, with employers reporting a lack of basic skills such as customer handling, team working and numerical skills as well as higher level and technical abilities.
  4. New business models: Although some foundational sectors have been at the forefront of business models based on the supposed self-employment of operatives, there is potential for other models too. For example the foundational sector has also been where many successful co-operatives have been established.
  5. Better pay and conditions:The voluntary Living Wage should be introduced as a high priority in all public sector employers, and rolled out in public procurement contracts. Private sector employers should be supported and encouraged to introduce it too – if Lidl can do it so can many others.

Last but not least, there needs to be a draft written strategy within six months. Theresa May has managed to produce an industrial strategy in less than this time – there is no reason it should take longer in Wales.

Of course any change in direction is risky. But so too are the challenges of Brexit, continued pressure on the incomes of the least well-off, and inequality between different parts of Wales. The time is right for change.

Victoria Winckler is Director of the Bevan Foundation. 

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