By Leanne Wood
Plaid Cymru Leader, Leanne Wood suggests 'progressive procurement' should be the Plan C for the Welsh Economy.
"The UK remains in the midst of the deepest recession in living memory with few predicting a change in fortune anytime soon.
People in Wales are particularly feeling the pinch. Unemployment is higher than the UK average and our latest Gross Value Added (GVA) figures show that the value of goods and services produced in Wales are a mere 74% of the UK average. The cull of the public sector has, and will continue to, hit us especially hard since it employs a higher proportion of our workforce than in England or Scotland.
There can be little doubt that the Welsh economy is weak and needs urgent attention. My party, Plaid Cymru, will continue to call for the devolution of borrowing powers and responsibility over macro-economic levers to turn things around. In the meantime, we have called for a re-think of the one very powerful tool at our disposal; public procurement. In order to revitalise the Welsh jobs market, there is a need to begin looking at public procurement as a driver of economic development rather than as a source of efficiency savings.
Every year a budget is passed in the Senedd that represents just over a third of Wales’ GVA. About a third of that again constitutes the purchasing of goods and services by suppliers in the private and social enterprise sectors where over 70% of Welsh employees work. It stands to reason therefore that the people of Wales — are, directly and indirectly, the biggest customer in the land whose purchasing decisions have huge ripple effects. This opportunity to pursue progressive procurement is the foundation of what I call Plan C — the plan to revive the Welsh economy, and it is an opportunity that we cannot afford to miss.
It would remiss of me at this point not to acknowledge the progress that has been made in this field. Welsh public sector contracts with Welsh-based companies have risen up from around a third in 2003, to a little over half today. That has safeguarded 98,000 jobs in total. However, there is so much more that can be achieved. Germany sources 98.9% of its public sector contracts domestically — and we wonder why they have weathered the storm. France does almost as well at 98.5%. The UK achieves a self-procurement rate of 97%. Yet in Wales half of the value of our procurement budget is lost through leakage.
So shouldn’t we in Wales have a goal of matching the Scottish rate of 75% of internal procurement by the time of the next Assembly election? And we shouldn’t be content with that — the Scots aren’t. Is it too ambitious to aim towards a goal of 90% by the end of the decade, to be on a par with most other countries? By achieving Scottish levels of self-procurement of 75%, the direct and induced employment effects would mean we would create another 48,000 jobs, potentially reducing Welsh unemployment by 40%, increasing GVA growth by an additional 0.5% a year and beginning the task of closing the gap between the widening gap between the economic performance of England and Wales that we in Plaid Cymru have termed Offa’s Gap.
To get to this point, we must embrace all of the 28 recommendations in the McClelland report on public procurement in Wales which was published earlier this month . But I think Wales can go one bold step further and do what the Senedd was empowered by the people to do: legislate. The only sure way to reform procurement is to mandate it through passing a Welsh Procurement Reform Act. This would be legislation of the type that the Scottish Government is currently consulting on. Such a law could make community benefit clauses mandatory above a certain level and ensure a single simplified pre-qualification system across Wales with limits on the level of turnover required and a duty to consider the impact of the tendering process on SMEs and the Third Sector. It could mainstream the living wage and environmental sustainability making Wales the greenest and most pro-social procurer in the whole of Europe.
There could be opportunities to influence local procurement even by public agencies and bodies that are normally outside of the National Assembly’s competence. Plaid Cymru has received advice that Scottish procurement law could potentially cover contracts signed in Scotland by non-devolved UK Government agencies, as well as Utilities. While this wouldn’t effect centralized and specialist UK procurement deals, it could cover the local sourcing of food, for example. Another key plank of Scotland’s procurement legislation is to increase apprenticeships and reduce youth unemployment. Welsh legislation should interpret these lessons, according to Wales’ own needs.
Creating our own legal framework, setting our own parameters is the first step — but being creative within those parameters — thinking within the box — is the next. Wales is constrained by limited powers, but that just means we have to be more imaginative. In an age of enforced austerity economists have begun to talk about the role of unconventional fiscal policy — not cutting taxes or raising spending — but changing the composition of public spending as a catalyst for growth. That is perfectly designed for a situation like ours where our financial straitjacket prevents us from varying taxes or raising additional borrowing. Unconventional fiscal policy involves shifting the balance from revenue spending to capital expenditure. Why? Because capital expenditure’s multiplier is greater. This “investment effect” has been confirmed in international studies, for example the effect of capital versus revenue expenditure at the regional level in the Japanese economic crisis of the 1990s. Shifting the balance in capital versus revenue expenditure in the current Welsh budget by 1% a year will have significant and immediate effects on Welsh economic recovery, all the more so when coupled by a progressive procurement strategy.
One of the key factors in delivering this Welsh economic boost is overcoming the barriers that exist between the silos of Welsh Government. It is time they were torn down. The Welsh Government’s Economic Strategy has nine key sectors. Shouldn’t the procurement strategy be geared to driving innovation in these key sectors? In other countries and regions across the EU they call this process pre-competitive procurement, pump-priming Research and Development by being a demanding customer to locally-based firms? And it’s not just me arguing this. Competiveness guru Michael Porter in his advice to the Welsh Government in 2002 said: “Use public procurement as early and sophisticated demand.”
The Welsh Government should probably have listened. His advice doesn’t come cheap, and in the decade since, Wales has slipped further behind.
For all the constraints and the limits on our powers, there are things that can be done. Plan C is for a ‘can-do’ country and a ‘can-do’ assembly. It’s for a new consensus — because nothing can be done in the Senedd without that — a new creativity in politics and policy, and confidence in our ability to chart a new course.