Executive Agencies and Welsh Economic Development - Professor Gerald Holtham

Executive Agencies and Welsh Economic Development
Professor Gerald Holtham

Consider the following paraphrased statements about development policy from leading academics, which we have come to accept:

• ‘Know how’ is critical, and extending know how to develop related businesses is the way forward. This may require helping SMEs with “entrepreneurial exploration” (Haussmann).
• Industrial policy has been more successful targeting SMEs (Overman et al)
• Ownership matters because it helps to keep firms grounded and Wales lacks a Mittelstand; companies are mainly very small or branch operations (Karel Williams et al)

Our own Hodge Project research with Welsh companies has found promising firms who lack managerial bandwidth to do entrepreneurial exploration on their own, and has noted the absence of substantial patient continuity finance to prevent premature trade sales and other forced exits (Holtham, Mason).

What do such views mean for the functions of a development agency?

Our research suggests that Welsh companies require an Agency (at arms-length from Welsh Government) that would employ a cadre of ‘rainmakers’ who will visit promising firms, talk through their situation, and identify possible deals or tie ups. They may also offer finance for managerial training, for recruitment, or for additional research in-house or out.

That kind of approach would require links to research establishments preferably, though not exclusively Welsh, to source research. It could also involve linking to training suppliers and accrediting programmes such as the 20Twenty Leadership Training Programme at Cardiff Metropolitan University. It would also have the capability to identify and help acquire sites for developing businesses to expand.

Rainmakers, their job done, would pass growing firms on to account managers. Promising firms would then interact with account officers with strong sectoral knowledge, who can respond quickly to requests for working capital. This may come from private banks with the aid of an underwriting scheme, which would leverage a given budget.

In a few sectors (2 or 3, not 9 or 12), there could be hubs, such as the current Life Sciences Hub (https://www.lifescienceshubwales.com/), where there is a dedicated venture fund, a forum for interested companies, and a plan to attract targeted foreign investment to reinforce the cluster of local companies. Possible candidates would be a software hub, particularly cyber security, and agriculture and food manufacture, whilst Microprocessors is also a strong possibility.  Auto and aerospace are mature industries dominated by multinationals, so are best handled through existing fora, though there is a possibility in specialist steels.

Finally, there has to be the capacity within an agency to broker and take part in large deals to secure a Welsh future for growing medium-sized companies via large scale continuity or succession financing.  This is a function that would be carried out in co-operation with the Welsh investment bank (The Development Bank of Wales).

What would an agency look like, which could undertake these kind of actions?

Evidently it would be at the centre of a network of private suppliers of finance, research, and training, and it would guide firms around the network. The Development Bank of Wales would be an important part of the network, but would not be sufficient on its own to meet all finance needs, given the limitation on the size of loans it can extend.

The agency would have sector experts with industrial or business experience to run any sectoral hubs. The hubs would have an associated team that would be tasked to look to encourage specific foreign investment. Sector experts would also act as account managers for individual firms. Finally it would have a cadre of highly-paid ‘rainmakers’, with financial and commercial experience, who would go out looking for situations to be developed.

The Agency is not a resurrected WDA

The contrast between this type of agency and the WDA is that the latter had a stronger focus on encouraging foreign investment to create jobs, and had a strong land acquisition arm to put up commercial buildings ready for investors.  The structure and budget of the new Agency would differ substantially from the WDA given its different functions, different context, and different types of expertise that would be required.