AN ECONOMIC STRATEGY FOR RURAL WALES


Earlier this week, the Labour AM Eluned Morgan asked the Welsh Government to develop a dedicated plan for the rural economy in Wales given the high degree of uncertainty going forward following the Brexit vote.

I couldn’t agree more but rural Wales, even prior to last June’s vote to leave the European Union, has faced many challenges over the last two decades including depopulation by young people, a decline in household incomes, the increased price of housing (especially for first time buyers), a decline in public services and transport, and the closure of rural schools.

In addition, rural businesses have had to face very different problems as compared to their counterparts in urban areas such as Cardiff, Wrexham, Newport, Swansea and the South Wales Valleys.

For example, one of the key competitive disadvantages faced by many rural businesses is that of small local markets, combined with the distance from major national and international markets.

This emphasises the importance of appropriate business support assistance to help with market development, exporting and marketing, a problem that is exacerbated by the fact that traditional financial and business support is typically weaker in rural areas.

In particular, commercial providers of business services - such as accountants or law firms  - tend be thinner on the ground and have less extensive expertise in key areas.

Lower business densities in rural areas also make it more expensive to deliver business and training support than to comparable urban-based firms, which means that it is important for rural firms to access the right type of advice from the business network.

This ‘rural premium’ can also make it very expensive for firms to participate in training sessions, business meetings and network events.

Of course, this market remoteness is not always a weakness and can also be turned to the advantage of the local economy. This is because many rural businesses will reach the capacity of the local market at an earlier stage than urban firms, and may have to adopt a more proactive approach in seeking our new market opportunities than those businesses based within densely populated areas.

This creates more specific challenges to entrepreneurial rural businesses as they will need to adopt a highly pro-active marketing method in order to extend their geographical markets. This can result in specific management problems for young rural firms as they require specialist knowledge and expertise which is often lacking in the business itself.

Another key issue for many rural businesses wishing to expand and grow their activities is the absence of suitable premises and an adequate pool of skilled labour.

Whereas urban areas are generally characterised by a wide range of different types of business property, this is invariably not the case in rural areas. Whilst there are certain advantages in having space availability at low cost in rural areas, there are also significant constraints affecting growing businesses resulting from the shortage of larger premises.

In many cases, the scarcity of larger premises in these localities is attributed to strict planning policies. This issue needs to be addressed sensitively but practically by local authorities as there is a clear need for a variety of sizes and types of business property in rural areas if the space requirements of businesses at different stages of development are to be met and if growing businesses are going to be retained within the rural economy.

The small size and occupational composition of rural labour markets can also impose a constraint on growing small firms, making it necessary to attract recruits from more distant locations.

Lower pay levels and a reliance on informal recruitment practices can make this difficult to achieve.

As a result, rural firms attempt to retain labour, with a willingness to train as a means of obtaining the required skills, although locational factors and their distance from centres of population means that many rural firms are disadvantaged in terms of access to suitable training opportunities which are based within towns and cities.

Finally, rural firms must take advantage of the potential offered by new technologies to improve links with customers and suppliers, and reduce the comparative disadvantage of remoteness. But whilst broadband is allegedly being made increasingly available across the whole of Wales, it still seems likely that many parts of rural Wales will be amongst the last areas to receive access because of the relatively low and dispersed nature of the demand.

Therefore, Baroness Morgan is right to highlight the issues facing the rural economy in Wales and it is clear that any economic support to businesses in rural Wales needs to take account of the distinctive environment in which firms operate such as the relatively small size of the local market, the limited opportunities to trade and network with other local businesses, and the small size and restricted skill base of the local labour market.

However, if the Welsh Government can begin to appreciate the unique economic nature of rural
Wales and develop a strategy that can address their particular weaknesses, then the entrepreneurial potential of many rural businesses can be realised and they can make a real difference to the wealth and employment of this very special part of the Welsh economy.

AN ECONOMIC STRATEGY FOR RURAL WALES


Earlier this week, the Labour AM Eluned Morgan asked the Welsh Government to develop a dedicated plan for the rural economy in Wales given the high degree of uncertainty going forward following the Brexit vote.

I couldn’t agree more but rural Wales, even prior to last June’s vote to leave the European Union, has faced many challenges over the last two decades including depopulation by young people, a decline in household incomes, the increased price of housing (especially for first time buyers), a decline in public services and transport, and the closure of rural schools.

In addition, rural businesses have had to face very different problems as compared to their counterparts in urban areas such as Cardiff, Wrexham, Newport, Swansea and the South Wales Valleys.

For example, one of the key competitive disadvantages faced by many rural businesses is that of small local markets, combined with the distance from major national and international markets.

This emphasises the importance of appropriate business support assistance to help with market development, exporting and marketing, a problem that is exacerbated by the fact that traditional financial and business support is typically weaker in rural areas.

In particular, commercial providers of business services - such as accountants or law firms  - tend be thinner on the ground and have less extensive expertise in key areas.

Lower business densities in rural areas also make it more expensive to deliver business and training support than to comparable urban-based firms, which means that it is important for rural firms to access the right type of advice from the business network.

This ‘rural premium’ can also make it very expensive for firms to participate in training sessions, business meetings and network events.

Of course, this market remoteness is not always a weakness and can also be turned to the advantage of the local economy. This is because many rural businesses will reach the capacity of the local market at an earlier stage than urban firms, and may have to adopt a more proactive approach in seeking our new market opportunities than those businesses based within densely populated areas.

This creates more specific challenges to entrepreneurial rural businesses as they will need to adopt a highly pro-active marketing method in order to extend their geographical markets. This can result in specific management problems for young rural firms as they require specialist knowledge and expertise which is often lacking in the business itself.

Another key issue for many rural businesses wishing to expand and grow their activities is the absence of suitable premises and an adequate pool of skilled labour.

Whereas urban areas are generally characterised by a wide range of different types of business property, this is invariably not the case in rural areas. Whilst there are certain advantages in having space availability at low cost in rural areas, there are also significant constraints affecting growing businesses resulting from the shortage of larger premises.

In many cases, the scarcity of larger premises in these localities is attributed to strict planning policies. This issue needs to be addressed sensitively but practically by local authorities as there is a clear need for a variety of sizes and types of business property in rural areas if the space requirements of businesses at different stages of development are to be met and if growing businesses are going to be retained within the rural economy.

The small size and occupational composition of rural labour markets can also impose a constraint on growing small firms, making it necessary to attract recruits from more distant locations.

Lower pay levels and a reliance on informal recruitment practices can make this difficult to achieve.

As a result, rural firms attempt to retain labour, with a willingness to train as a means of obtaining the required skills, although locational factors and their distance from centres of population means that many rural firms are disadvantaged in terms of access to suitable training opportunities which are based within towns and cities.

Finally, rural firms must take advantage of the potential offered by new technologies to improve links with customers and suppliers, and reduce the comparative disadvantage of remoteness. But whilst broadband is allegedly being made increasingly available across the whole of Wales, it still seems likely that many parts of rural Wales will be amongst the last areas to receive access because of the relatively low and dispersed nature of the demand.

Therefore, Baroness Morgan is right to highlight the issues facing the rural economy in Wales and it is clear that any economic support to businesses in rural Wales needs to take account of the distinctive environment in which firms operate such as the relatively small size of the local market, the limited opportunities to trade and network with other local businesses, and the small size and restricted skill base of the local labour market.

However, if the Welsh Government can begin to appreciate the unique economic nature of rural
Wales and develop a strategy that can address their particular weaknesses, then the entrepreneurial potential of many rural businesses can be realised and they can make a real difference to the wealth and employment of this very special part of the Welsh economy.

WHO IS THE ENTREPRENEUR?

I was recently an external examiner on a Ph.D which examined graduate entrepreneurship and how young people perceived starting a business here in Wales.

A central theme was the challenge of the age old question of “who is the entrepreneur?”, which has been asked by economists, sociologists, psychologists, anthropologists and even the odd business academic for nearly three hundred years.

Whilst many think the term entrepreneur derives from the French, that fact is only half true. Indeed, it was Richard Cantillon – an Irish economist of French descent – who first coined the term in 1730 to describe someone who organizes and assumes the risk of a business in return for the profits.

Unfortunately, his ground breaking work recognising the important influence of this individual was largely forgotten over the next two centuries and a half as large corporations came to dominate economic and business thinking across the World.

In fact, the UK Parliament became so concerned about the diminishing impact of the small firm sector that it commissioned a seminal report in 1971, by John Bolton, which looked to understand those challenges restricting the role of entrepreneurial firms and develop policies to

A few years later, economists such as David Birch in the USA began to show that, contrary to popular thinking at the time, small firms were significant job creators in the economy.

Since then, various studies have shown that new businesses established by entrepreneurial individuals are major contributors to employment. For example, the Kauffman Foundation has shown time and time again that almost all new net job growth in the American economy has been created by firms less than five years old.

They also stimulate innovation, establish new markets and act as a competitive spur for existing businesses to increase their productivity.

In fact, the social media revolution – which has transformed the way we communicate and live our lives over the last decade – was not created by established multinationals but by young hungry entrepreneurial firms such as Facebook, Twitter, Paypal, Linkedin, AirBNB to name but a few?

And the growing interest in entrepreneurship is showing no signs of slowing down.

Earlier this month, the Centre for Entrepreneurship showed that business formation rates in the UK had reached another record high with a total of 657,790 new businesses started last year. That equates to an incredible 1800 new businesses being created every day in 2016.

More importantly, an increasing number of these new businesses are being established by young people who are educated, are without families or mortgages to tie them down and are not wedded to a career. Most importantly of all, they have a strong entrepreneurial spirit and display incredible drive and enthusiasm.

That is why it is important that universities play an increasing important part in supporting enterprise and developing more entrepreneurial students who could create the growth businesses of the future.

In 2008, a seminal report entitled “Developing Entrepreneurial Graduates” was published by NESTA and the National Council for Graduate Entrepreneurship.

In the foreword to this excellent work, Lord Karan Bilimoria – the founder of Cobra Beer – said that the UK’s competitiveness hinged on its ability to create business-ready graduates with entrepreneurial skills.

Yet, how many higher education institutions here in Wales can truly say that their students, whether they are studying engineering, nursing, accountancy or fine art, will leave with an experience of enterprise that will change the way they think about the World?

How many can make the claim that they will have helped to develop an enterprising and innovative graduate who will make a real difference to an organisation, whether it is one they work for as an employee or one they set up themselves?

We know the growing importance of entrepreneurship to an economy but Wales is, unfortunately, lagging behind the rest of the UK when it comes to new business creation. For example, whilst 93 new businesses were created for every ten thousand people in the UK in 2015, in Wales, only 60 businesses were established.

Given this, it is time our higher education institutions stepped up and provided not only the academic knowledge to our students but also new opportunities to develop entrepreneurial mindsets, behaviours and skills.

Indeed, as the 2008 report stated, these abilities that will help their own futures but will also make a significant contribution to the UK’s economy and to its global standing.

And with the world becoming a more uncertain place during the last twelve months and significant challenges on the way, this should be a priority for the Welsh economy over the next few years.