Wednesday 15th June 2011 – Welsh Lib Dem Debate: Building a Strong Economy

Mark Drakeford: Llongyfarchiadau, Ddirprwy Lywydd, am eistedd yn y Gadair am y tro cyntaf y prynhawn yma. Yr wyf yn cymryd rhan mewn dadl yn y fan hon am y tro cyntaf y prynhawn yma, ac yr wyf yn siŵr ein bod yn rhannu rhai o’r un teimladau.   
[Deputy Presiding Officer, congratulations to you on taking the Chair for the first time this afternoon. I am participating in a debate here for the first time this afternoon, and I am sure that we are sharing some of the same feelings as we do so.
Thank you for the chance to speak in this afternoon’s debate. When Kirsty Williams opened the debate, she referred to the challenges facing the Welsh economy as being fundamental, long-term and entrenched. In the few minutes that I have to speak, I want to try to concentrate on just one aspect of the debate that I think shares some of those characteristics.   
Those who have spoken on the motion have tended to assume that economic growth is a straightforward and uncomplicated goal and that, if only we could achieve it, everything in the Welsh economy would turn out to be fine. In some ways, that is understandable because, across the great sweep of the twentieth century, workers in the developed world came to be accustomed to sustained year-on-year growth in the real value of wages, particularly as growth in productivity fed through into that sort of remuneration. Economies grew and wages grew with them. As the economists say, a rising tide lifted all boats.   
The question I want to ask is whether that remains a sufficient approach to the Welsh economy at the start of the twenty-first century, because, for the past 30 years, that economic rule has been unravelling. An American worker on average wages in 2009 earned no more in real terms than that worker earned in 1975. Despite the fact that, over the same 30-year period, American GDP had more than doubled, workers on average earnings had no share whatsoever in that economic growth. For a while, economists believed that this was somehow an American phenomenon, and yet a report this week by the TUC and, last month, by the Resolution Foundation, have discovered that that phenomenon is far more widely shared among developed economies and that it is shared in the UK economy as well. Over the past 10 years in the UK, output has expanded, productivity has grown, but the average worker has not seen that feed through into gains in their pay packet at all. There has been what economic analysts call a ‘great decoupling’ of economic growth and the living standards of ordinary working households.   

How do we explain that? Part of the explanation is in the way that the economic cake is cut, and part of the explanation is in the make-up of that cake. Over the same 30-year period, the share of GDP taken by workers, as compared to capital, has shifted hugely. In 1975, 65 per cent of GDP went in wages to workers. Now, that is less than 53 per cent. So, less is going to workers and more is going to capital, largely in the form of profit. Within the money that goes to workers the share taken by very high earners has escalated enormously at the expense of the low and middle earners.   
As well as the way that the cake is shared, the nature of the cake has also changed. Across every developed economy in the western world, jobs in the middle of the spectrum have declined and jobs at the high and low end of the economy have grown; that is true of the economy in the United Kingdom and Wales. All of this is set to get worse over the next few months. Using the projections of the coalition Government’s own Office for Budget Responsibility, real wages will dip significantly as the result of high inflation. By 2015, median real wages in Wales will be lower than they were in 2001—15 years in which real wages will have declined. There are ways in which we have to think about that. If we think of growth, by itself, being enough to raise the living standards of two thirds of people living in Wales, we are beginning to fly in the face of 30 years of accumulated evidence. There are things that we can do in relation to the enforcement of minimum wage levels and in relation to the social wage that we get through the things that the Assembly provides. Should the Minister be responding on the point of zones, will she think of the benefits of social enterprise zones? There are things that social enterprises face that, if they could be addressed, would help them to grow and contribute to that sector of the economy.