WalesHome.org

The communists remain in charge, but China has made great leaps forward never envisaged by the still-venerated Mao

YESTERDAY’S WalesHome.org article discussed how first Eastern Germany and then Russia walked away from communism and into the commercial world, and asked if the private sector had produced a better life for millions of new Europeans.

Extending that theme, today it is worth assessing, from a Labour Party perspective, how in a free western democracy, we use our political system to attack poverty, looking in particular at how the public sector can deliver a better life for the most vulnerable, deprived and disadvantaged in Wales.

In our country the Labour Party is closely aligned to public services. This is reflected in the membership and through the strong public sector. It is therefore understandable that the privatisation of public services (especially in health) and the rejection of PFI (ironically, in everything but health) is stronger in Wales than England.

It is well known that Wales has a higher proportion of jobs in the public sector than most of the rest of the UK. In addition, Wales is a less wealthy place than most of the rest of the UK. The most quoted form of this is GVA – short-hand for the measure of the amount of money that each person contributes to the economy. We are less rich and less well than the UK average, and therefore our demands are higher. Wales is often said to have 5% of the UK population, but has 6% of the need and only 4% of the wealth.

The irony of personal wealth creation in Wales over the past 10 years is that much of it has come from a very un-socialist source – unearned income from house price gains. There have been times over the past few years when the absurd house price bubble has been the economic equivalent of motherhood and apple-pie – no-one would argue against it. But the losers are not just tenants who missed out on the housing ladder; they now include swathes of amateur landlords and private house-owners in negative equity. Also, they are now UK tax payers who are saddled with huge government debt, the consequent drop in pension values and the plummeting value of sterling.

However, to say that much of Wales is now worth less than two years ago is madness, because that wealth didn’t really exist at all. So do the public services assist in driving out poverty and helping the most disadvantaged?

Taking health first, the evidence shows that there is far lower life expectancy and lower educational attainment and worse education in poorer communities. For education, the proximity to better schools is dictated by the price of houses; for health, the contributory factors such as smoking and diet favour the wealthy, but so does the knowledge of the health service. Sometimes it is as simple as a middle-class family knowing a doctor as a family friend, and using that contact to work the system. This doesn’t mean that they will be able to jump the queue, or have treatment that is specifically denied to others, just that they know what questions to ask of their GP and know what rights they can expect.

What is true for education and health is also true for crime. An analysis of the salary levels generated by the public sector is interesting. Clearly there are a number of obvious lower-paid jobs (local authority cleaners, auxiliary staff, and hospital porters) but also a vast number of higher paid middle managers and civil servants.

But at the very top of the pile are the super-remunerated. In London and much of the South East, this is dominated by business owners, corporate lawyers and senior financial staff, including investment bankers. In Wales, where there is both a lower level of business activity and a skew towards regional offices, rather than head-offices, there are far less of these jobs and where they do exist, they are less well paid.

But Wales has many jobs paying £100k per year. While some are very senior managers with responsibility for delivering large budgets and reporting directly to government, many others are delivering services including GPs, hospital doctors and head teachers.

According to the 2007 Annual Population Survey (the most up-to-date information available), the total number of public sector employees in Wales was 314,000, compared with 1,017,000 in the private sector. But the interesting fact is that almost half the pay in Wales on employees with a degree goes to the public sector. This is because over a third of all the public sector employees are graduates, and the public sector pays more.

More importantly, for those with no qualifications, the public sector pays less (£290 vs £310 per week) and employs less. Only 12% of the unqualified Welsh working population are employed in the public sector. However, most would accept that the better way of getting a fairer solution to the relative poverty that blights much of Wales is not to demonise the public sector. Rather it is to increase or re-balance the private sector. Peter Hain and others have spoken and written on this subject many times.

In the current Labour leadership election, poverty – especially child poverty – has, sadly, been one of the key themes. For many years the Joseph Rowntree Foundation and our own Bevan Foundation have researched poverty. This highlights the need to achieve some, albeit limited income. While the Labour government has achieved much with Sure Start and the tax targeting of child benefits, the key is employment.

These arguments are very familiar to any observer of Welsh politics – the loss of large scale employers in Wales is well known. We no longer have the benefit of low-wage but highly skilled workers, as other countries such as India and in East Europe, have far lower wages and often higher skills. Government strategy is based on manufacturing and knowledge economy. So the real challenge is to find these small, high value, high growth, knowledge-based businesses. This strategy is currently being followed by both Finance Wales and Cardiff Council.

But, the employment opportunity available in each individual business is small. Large scale employers in the technology sector certainly exist, such as Oracle and Google, but they require significant levels of skilled and experienced technical staff, and, sadly in the UK the best location for that is the Reading and Bracknell area. By comparison, Amazon’s wonderful facility in Swansea is a distribution centre, not a centre for software development.

The greatest shock of the Berlin Wall collapse was not that it happened, but rather its sheer pace. In a recent piece in the New York Times, Mikhael Gorbachev recalls that when he and Helmut Kohl were asked about a possible time-scale for a unified Germany in the summer of 1989, “The chancellor and I both pointed to the 21st Century”. As we now know, things moved a lot quicker than that.

The last 20 years have seen an acceleration of global change. While much of this has been driven by communication and information technology, we also need to accept that some countries simply move quicker than we do.

This pace of change is a threat to Wales. While we have some good examples of regeneration, including the developments in Cardiff Bay and SA1, these schemes feel more like gradual betterment, not the revolution that is being experienced in so many areas of Asia.

A friend has just returned from China. He flew into Chonquing. Maybe you’ve not head of Chonquing – it’s not a well-known city. The friend was shocked to drive for 50 minutes from the airport to his meeting along three and four-lane motorways almost continually overshadowed by modern high-rise housing and business developments. He later discovered that Chonquing has a population of 30 million people.

Only history will tell if the collapse of Lehman Brothers in September 2008 will be seen as a seismic event equal to that of the fall of the Berlin Wall. But it was certainly instrumental in China taking huge lumps of ownership of US treasury debt, and thereby becoming the only third world country ever to underwrite the debt of a first world country.
So as East Germany came in from the political cold in 1989, some 20 years later China did much more, leap-frogging several countries to become the economic powerhouse of the 21st Century.

So where does this leave the Labour Party in Wales ? Here’s four things:

Which leadership candidate is bold enough to carry out all of these?