Here Professor Andrew Henley takes up the debate on regional policy. He argues that while Brexit offers an opportunity to move away from traditional time-contingent regional support programmes, if its successor is to benefit those most in need, a new model must maintain and develop the principles of subsidiarity that the EU operates – that social and economic issues should be addressed at the lowest possible level consistent with their resolution.
Recently I had the chance, as an academic interloper, to join a group discussion on the impact of worklessness and austerity on the lives of people in the Rhondda.
One of the poorest local authority areas in Wales, if the not in the UK as a whole, where we were meeting at the junction of Rhondda Fawr and Rhondda Bach is only 30 minutes by car from Cardiff.
It was a meeting of local community development activists, social housing managers, social entrepreneurs and faith leaders working to promote economic and business development in the area. The discussion was simultaneously gloomy and angry, but also full of hope about the unfulfilled potential of local people.
One of the puzzles of the June 2016 referendum was that Valleys areas like the Rhondda, beneficiaries of the three programmes of European Structural Funds since 2000, voted by some margin to leave the EU (61.2% to leave in the case of the Rhondda constituency).
However, it is clear to anyone spending time listening to those close to the lives of people in the area, that there is considerable deep-seated frustration, relating to the way that they perceive an absence of control over institutions and policies which affect everyday lives. It also connects to a strong sense of injustice about the distribution of economic resource and opportunity between prosperous areas of both Wales and the wider UK and the local areas in which they live and, in many cases, want to stay.
Individuality of the Valleys
The south Wales valleys are quite distinctive compared to other areas of economic disadvantage across the UK.
Firstly, by comparison a very high proportion of the population were born in south Wales. In fact, across virtually all of the south Wales valleys localities fewer than 15% of the population were born outside Wales (2011 Census), whereas the figure for Wales as a whole is 27%.
Secondly the south Wales valleys have high rates of owner-occupied housing. In Rhondda Cynon Taff, for example, according to the 2011 Census the rate of owner-occupation (outright or with a mortgage) was over 71%, whereas in Cardiff it was just under 60%. Across similar localities in northern England the figure is around 65% and in disadvantaged inner London it is typically well below 50%. The population in the Valleys is very rooted, both in terms of sense of belonging, but also because of the low levels of mobility which follow from high rates of home ownership of low value properties.
A further feature of the economy of the south Wales valleys is low attainment of skills, or strictly speaking low levels of formal academic qualifications – not necessarily the same thing.
For example, in 2016 the proportion of adults with qualifications at or above National Qualification Framework level 4 (equivalent to the first year of higher education) in the Valleys local authorities varied between 26% (Merthyr Tydfil) and 35% (Rhondda Cynon Taff) whereas in Cardiff and in the Vale of Glamorgan it was almost 50%.
Data from the Seren Project show that, across the five Valleys authorities of Blaenau Gwent, Merthyr Tydfil, Rhondda Cynon Taff, Caerphilly and Torfaen, a combined total of 868 pupils secured three A grade at A-level, sufficient to guarantee a place at a leading Russell Group university. In Cardiff and the Vale of Glamorgan the combined total was 1,874. Even allowing for differences in the population of 18 year olds, this reveals that young people in Cardiff and the Vale were almost three times more likely to get top A-level grades.
In an earlier blog, I also commented on self-employment data across Wales, noting that rates of self-employment are much lower in valleys areas than in more prosperous parts of Wales and the UK. Taking this as a crude indicator of perceived levels of entrepreneurial opportunity, this raises a further issue about the extent to which the most disadvantaged areas of Wales are not seen by their local populations as fertile ground for new business.
This feeds further into a problem of low aspiration and low achievement. And yet those “on the ground” in the Valleys will point to the significant levels of resourcefulness and practical skills of the population – a self-help mind-set that, in more opportune economic circumstances, has the potential to support indigenous and creative enterprise activity.
Regional policy and institutional theory
So what sort of regional policy do we need in Wales to address these stubborn levels of disadvantage, once we leave the EU and opportunities for further European Structural Funding has gone?
Professor Kevin Morgan has already written about this, and importantly commented on what has worked in the past, on the importance of the “foundational” economy, and on the role of partnership between national and local public bodies and the private sector.
I would endorse all of these points. But I would like to frame how we think about regional policy in institutional theory.
Economists tend to a very narrow view of the role of institutions – to regulate and constrain undesirable activity, such as anti-competitive behaviour, and to effect fiscal transfers stimulating private economic activity in places where more is wanted.
However, institutions, broadly defined, do much more than this. Sociologist Dick Scott identifies three functions, or “pillars” of institutions: regulative, normative and cognitive. These latter two focus on the informal arrangements in societies which provide the “glue” through which people agree on what is important to them and reinforce those values through “taken-for-granted” assumptions about what works, how to behave and how to build and negotiate relationships with others. No economy can function well without this stuff.
If regional policy just moves money round, and fails to recognise and support wider institutional development, then it is doomed to fail.
The how of regional policy
So, what does this mean in practice? We need to pay careful attention to the “how” as much as the “what” regional policy.
How policy is designed, agreed and implemented matters, because it needs to mesh with local values, involve local social and economic actors and networks, and be constructed in a way that supports rather than undermines trust-building.
To take a concrete example, if local people value home energy which is supplied on a sustainable basis then it could be produced in a way that employs local people in order to reduce local fuel poverty, rather than merely feeding green electricity into the grid at national tariffs.
If infrastructure is improved, questions need to be asked about how people will seek to use those resources. National investments to improve broadband, alongside programmes to train people to access government services electronically will only add to the sense of “control loss”, if at local level austerity policies result in libraries closing depriving access to IT equipment and assistance to use it.
This all implies careful thought being given to the governance structures around regional policy, a point that is increasingly understood by regional scientists. Complex layers of bureaucracy can take hold in which some decisions (for example concerning social welfare entitlement) are set at the UK level, others (for example education policy) are set at a national level in Wales, and still others (for example public transport pricing policies) are set are the local authority level.
Behind much of how the European Union works is the principle of subsidiarity – that social and economic issues should be addressed at the lowest possible level consistent with their resolution. This principle is something that the UK should retain and develop further after Brexit.
In order to do this, we have to move away from time-contingent regional support programmes, which create a sense of funding dependency for local agencies.
Social networks and the trust and values that reinforce these can take a long time to establish, and once established can be deep-seated. Both a strength and a weakness, this does imply however, that regional policy also has to be designed for the long haul.
It would be a huge mistake for Wales if it is unable to establish a new approach to regional policy which learns from the paradox that, over the past two decades, those whom that policy was most intended to benefit, were those who perceived that they had benefitted least from it.
Andrew Henley is Professor of Entrepreneurship and Economics and Director of Research Engagement and Impact at Cardiff Business School.
This post represents the views of the author and neither those of the Welsh Brexit blog, nor Cardiff University.