Will Hutton: what’s the point of Swansea?
Paul Diggory, former CIH President, reflects on the speak given by Will Hutton, Executive Vice Chair of the Work Foundation, at the Tai 2011 conference.
Some two and a half years after the near collapse of the entire banking system, Will Hutton, Executive Vice Chair of the Work Foundation, shared his economic reflections with Welsh delegates on the opening morning of the Tai 2011 conference. Clearly he feels that a banking system that Mervyn King himself considers to be a disgrace still has a lot to answer for.
As one of the architects of New Labour, Hutton is better placed than most to comment on the trends that occurred during the Blair years. Such as bank assets growing to five times GDP. It’s easy to forget how close we were to a meltdown of the whole British banking system. Many have claimed to have been the saviour of the system over that fateful weekend but, as Hutton reminded us, success has many fathers.
One of Hutton’s central themes was that we will remain in the shadow of the banking crisis for many years and we have to learn to operate effectively in its aftermath if we are to make an effective recovery. We are evidently lucky to have a diversified economy, but in Hutton’s opinion it’s a national disgrace that we’re enduring such a structural deficit so early.
What about the housing market? Residential property prices are set to fall by 10-15% over the next five years and there’s unlikely to be any appreciation for another ten years. He thought the game was over for property as speculative investment. As evidence, Hutton compared Japan’s position – no growth for 15 years, despite lower debt levels and a lower deficit level than we have now in the UK.
Hutton doesn’t see the labour market growing until after 2015, a factor likely to be reflected in a revised budget this week. Contrary to Government pronouncements, the private sector won’t be picking up the slack any time soon – they’ve not been a good jobs generator. Wales has shown itself not to be over-reliant on public sector jobs. Unlike regions like the West Midlands, where Smethwick’s canalside areas apparently make Merthyr Tydfil look upmarket!
As the nature of work over the last 30 years has changed, the knowledge economy has come to the rescue following recessions in the 80s and 90s. Half of unemployment is arising from the public sector, showing the Government to be acting like King Canute, according to Hutton, pursuing a policy that is "ignorant of what is actually taking place".
So where does Hutton think we should be going from here? He feels we need an Investment and Innovation Ecostructure. This would involve knowledge creation and entrepreneurship, access to finance, mobilisation of resources, new skills, competition and public research. He found the current debate in Wales to be too old-fashioned and said it needs to change. Where are the 21st century prospects, the grand challenges, emerging in Wales? One of his new emerging jobs even has a solution for difficult to let flats with the advent of high rise pharming – the cultivation of genetically modified plants.
We also had Will’s top tips for tomorrow’s budget, which seemed a bit ‘back to the future’ with its 80s ideology – out with the structural deficit, bonfire of regulations and so on. The most positive thing for him was the potential announcement of a ‘Green Bank’ for 2015. The outlook: growth below 2% and persistent unemployment at 8-9%.
Why are the Government hung up about public debt? Because Will Hutton is far more concerned about private debt – that’s the real problem. But Wales, he feels, has some interesting options opening up. But if it’s to take advantage it needs to establish its own institutions. Hutton himself is strongly in favour of a ‘Housing Bank’ – securitising income streams to enable investment in new housing. But the opening up of the economy he warned will be unequal. So, for instance, Cardiff and Cardiff Bay will be able to prosper, as they benefit from opportunities created through the knowledge economy. For those outside the future may be less certain.
Indeed, geography matters. Cardiff/Bristol is a strong employment zone. Each city has good ‘anchor institutions’ and a population that provides a critical mass. But Hutton was concerned for the rest of Wales. In the future, Hutton sees the emergence of cities and city regions of a critical mass being more successful, with difficult times ahead for smaller cities. Market towns that absorb the rural life around them will also be prosperous with little optimism for our villages. "What’s the point of Swansea?" he demanded. It has to ask the question and the answer is probably that it has to play a role as part of the Cardiff / Bristol cluster.
Finally, as the baby boomers of Hutton’s generation look to housing with care in their old age, they’ll need to fund it through equity from their homes. Why not tax such properties to enable the funding of grants for 21 year olds to help them on their way?
The conclusion to all this? Wales should think about what institutions it could put in place to populate an investment and innovation ecosystem here, and exploit any opportunities that might be opening up to us – creating our own knowledge economies to ensure that Wales can prosper.