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Welsh Economic
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Welsh Economic Review
© Welsh Economy Research Unit 2005
ISSN 0965-2450
The Welsh Economic Review is produced twice yearly, by the Welsh Economy Research Unit (WERU) at Cardiff
Business School. The aim of the Review is to provide an authoritative and objective analysis of the Welsh
economy in a manner that promotes understanding and informs decision-making. The core section of the Review
is written by members of WERU, with feature articles contributed by academics or practitioners within or outside
Wales. The Review is circulated widely within Wales, to both private and public sector organisations, including the
education sector and the Welsh Assembly Government.
Notes for Contributors
Authors should send papers for potential publication in the Welsh Economic Review to the Editor at the address
given below, preferably via e-mail in a Word for Windows format. Papers are welcome on any topic that would be
of general interest to the readership, and should be written in a style suitable for non-specialist readers. Papers
should be approximately 3,000-4,000 words, and any graphs or figures should be accompanied by the underlying
data to allow reproduction.
Articles will be refereed within WERU. The Copyright for articles published in the Welsh Economic Review will be
retained by WERU.
Dr Jane Bryan,
Editor, Welsh Economic Review,
Welsh Economy Research Unit,
Cardiff Business School,
Aberconway Building,
Colum Drive,
Cardiff, CF10 3EU.
Tel 029 2087 4173
Fax 020 2087 4419
e-mail [email protected]
£35
Welsh Economic Review
In March, the Review editorial team met Henry Engelhardt, the Chief Executive of Admiral Insurance Services. In
September 2004, Admiral received a flurry of media attention when it was floated on the stockmarket, in a move
which created personal wealth for many of its employees. In the interview Mr Engelhardt described his business
background, his unique approach to management and his plans for the firm.
The first feature article ‘Tourism Satellite Accounts: Progress in Wales and the UK’ has been contributed by Calvin
Jones of the Welsh Economy Research Unit, Cardiff Business School. This paper reports on a project undertaken by
the Unit and partners, including Ian McNicoll and Donald McLellan, to develop a Tourism Satellite Account (TSA). A
TSA is an extension to a set of national or regional accounts that enables a consistent comparison of the value of
tourism with other economic activities and with tourism elsewhere.
After 28 years as head of the Cardiff Business School, Professor Roger Mansfield is standing down this summer. In
this issue of the Review, in his article entitled ‘In search of Respectability: The Changing Role and Contribution of
Business Schools’ Professor Mansfield offers some incisive reflections on those years, which have witnessed the
growth in numbers of business schools in the United Kingdom, and their acceptance within the business and
academic milieu.
Welsh Economic Review Survey
We would like to thank those who participated in our
recent survey on how the Welsh Economic Review is
being used. A number of readers requested coverage
on specific topics, and the feature article on tourism in
Wales, and the interview with Henry Engelhardt reflect
these requests.
WERU 2005 Conference
The Welsh Economy Research Unit’s annual
conference is being held at Cardiff Business School on
Friday 20th May 2005; entitled Wales’ Comparative
Advantage: building on success. Papers from the
conference will be summarised and published in the
Autumn edition of the Review.
WERU Activities
Information about WERU publications, projects and
activities can be found at www.weru.org.uk.
Alternatively please contact Clare Baldwin, WERU
Administrator,
tel.
02920
874173,
email
[email protected]
Welsh Economic Review
Contents
Page
Economic Commentary
5
Economic Events Diary
7
Public Sector Spending
9
Labour Markets
10
Property Markets
13
Industrial Activity
15
Interview with Henry Engelhardt,
Chief Executive of Admiral
Insurance Services
18
Tourism Satellite Accounts: Progress in Wales
and the UK
Calvin Jones, Welsh Economy Research Unit,
Cardiff Business School, Cardiff University.
20
In search of Respectability: The Changing
Role and Contribution of Business Schools
Professor Roger Mansfield, Director,
Cardiff Business School, Cardiff University.
25
The views expressed in feature articles are those
of the authors and not necessarily the
opinions of WERU.
Editor:
Assistant Editor:
Contributors:
Jane Bryan
Max Munday
Gill Bristow, Jane Bryan, and Max Munday.
Welsh Economic Review
Economic Commentary
World Economy
The International Monetary Fund (IMF) in its September 2004 World Economic Outlook was able to report that a global economy
recovery was well established and that the world economy had grown by around 5% in the year to mid-2004. Improvements were
founded on stronger growth in the main developed states, and with continued strong growth in the Chinese economy. However,
the IMF also reported that, whilst growth in the first quarter of last year was stronger than forecast, the rate of recovery had
slackened since this time, with growth of the US and Japanese economies lower than expected. Uncertainty remained over
prospects in the Euro zone.
The above conclusions were echoed in
the Organisation for Economic Cooperation and Development (OECD)
November 2004 Economic Outlook.
Table 1 shows a summary of OECD short
term projections. The OECD reported
that there were sound reasons to expect
world economic growth to increase in
momentum. In particular the OECD
predicted improvements in business
investment in North America and the
EU, with better prospects resulting from
a strengthening in consumer spending
in anticipation of a reduction in oil
prices. The OECD forecast growth across
its member states (of which there are
thirty) to average 2.9% this year,
increasing
to
3.1%
in
2006.
Unemployment was expected to fall in
the OECD area from 6.5% this year to
6.3% in 2006. The OECD have linked
economic growth to an increase in world
trade of 9% this year and 9.5% in 2006.
However, the pattern of short term
growth is likely to be geographically
uneven. Whilst prospects in Asia will be
buoyed up by the continued growth of
the Chinese economy, and growth
prospects remain strong in North
America, there are residual concerns
over the role of the Euro zone
economies in any upswing. The OECD is
rather bullish on this and expected a
significant increase in demand in the
Euro zone in 2005-06. Clearly, any
appreciation of the Euro, and/or
continuing upward volatility in oil prices
would
hit
Continental
Europe
particularly hard, although the OECD
does note that European dependence on
oil has fallen significantly in the last two
decades.
The UK Economy
In the UK, the Chancellor of the
Exchequer in the Budget was able to
make some political capital from the
stability of the domestic economy, and
its reaction to improving global trading
conditions, particularly when compared
to poorer performances in the mainland
European economies. During 2004 it is
estimated that the UK economy grew by
around 2.9%. Unemployment rates in
the UK are at record lows and inflation
rates are relatively stable (retail sales
volumes increased by 3.6% in the year
to February). Treasury ‘headlines’ make
much of the fact that UK employment
has increased by an estimated 2.1m
since 1997, and that the unemployment
claimant count has fallen below 1m
people for first time since the mid1970s.
The Bank of England Agents’ Summary
of Business Conditions is a synopsis of
monthly reports by the Bank’s agents
across the UK regions. This is one
source used by the Monetary Policy
Committee to inform decisions on
interest rate changes. The latest
summary, published in March 2005,
highlighted that growth of consumer
spending had slowed during the early
months of this year, but that confidence
in the housing market had improved a
little. While, manufacturing output was
reported to be growing slowly, business
investment intentions were observed to
be upbeat. However, these intentions
might be curtailed if consumption
spending continued to ease off during
the year. Services sector output growth
was reported as strong. A key feature of
the March report were conclusions
relating to the tightness of the UK labour
Table 1 OECD Summary of Short Term Projections (% growth rates)
2004
2005
2006
United States
4.4
3.3
3.6
Japan
4.0
2.1
2.3
Euro area
1.8
1.9
2.5
Total OECD
3.6
2.9
3.1
Real GDP growth
Inflation
United States
2.0
1.8
1.7
-2.3
-1.3
-0.3
Euro area
1.9
1.7
1.8
Total OECD
1.8
1.7
1.7
Japan
Unemployment
United States
5.5
5.3
5.1
Japan
4.8
4.5
4.2
Euro area
8.8
8.6
8.3
Total OECD
6.6
6.5
6.3
World trade growth
9.5
9.0
9.5
Source: OECD Economic Outlook; November 2004
5
Welsh Economic Review
market, although the agents felt that
labour market pressures had eased
somewhat
in
recent
months.
Importantly, businesses were reporting
that wage costs were remaining under
control. Input prices (particularly oilbased products) were, however, steadily
increasing, but there were indications
that the annual rate of input price
inflation may have peaked.
The key question is where this leaves
the UK economy for 2005 and 2006.
Table 2 shows the results of a recent
Economist poll of GDP growth forecasts.
The UK economy is currently expected
to grow by 2.5% this year and by 2.4%
in 2006. This is lower than Treasury
estimates, and lower than growth during
2004. The expected determining factors
are a slowdown in consumer spending
and in the housing market, and a
moderation of investment growth.
Clearly these forecasts are dependent
on the absence of any political shocks
during 2005, and assume steady oil
prices.
The Welsh Economy
According to the main establishment
surveys business confidence was fairly
robust in Wales during the first half of
last year. The Welsh index of
manufacturing output (see later in this
Review) showed a strong upward trend
during the second and third quarters of
2004. A survey by the South Wales
Group of Chambers of Commerce
reported in October that regional
manufacturers were taking their highest
level of domestic orders for more than
six years. However, this survey also
reported that prospects were weaker for
services industries, with falling domestic
sales and fewer firms recruiting new
staff during the year. During January of
this year the Royal Bank of Scotland
Purchasing Managers Index showed that
Welsh business activity had grown for
the 21st successive month in December
2004,
and
that
the
regional
manufacturing sector had expanded
output at a faster rate than the services
sector.
Later parts of this Review reveal that
unemployment in Wales is at historically
low levels, and that overall employment
has continued to grow steadily, although
with concerns about the loss of
manufacturing employment. Housing
markets in Wales have slowed. The
period of rapid catch up of house prices
in the periphery of Wales is coming to an
end. For example, the Halifax showed
that in the year to 2004Q3 the highest
UK county level house price inflation had
been in Gwynedd (40%), and West
Glamorgan (38%). However, the boom
appears to be over with the November
Royal
Institution
of
Chartered
Surveyors’ survey of the UK housing
market showing the first signs of a
national decline in prices since March
1996. This report also found that new
sales had fallen slightly in Wales in the
period to November 2004. New housing
starts in Wales fell by 28.2% in the year
to 2004Q2.
Prospects across Welsh industries are
expected to vary greatly during this
year. Welsh agriculture continues to
recover from recent problems. Farm
incomes are growing only slowly. Mining
and quarrying prospects continue to be
hit by extraction taxes, environmental
pressures, restructuring amongst the
larger firms, and pressures in the
construction sector to use more recycled
materials. Regional manufacturing
employment still appears to be
vulnerable, particularly in large sectors
such as electronic and electrical
engineering (with further job losses
expected amongst key inward investors)
and the automotive components sector.
Overall, much of the growth of
employment and output in Wales is
expected to result from improvements
in the service sectors and through
growth in the non-market sectors,
particularly education and health.
During December of last year new gross
value added (GVA) figures were
released by the Office for National
Statistics. The data showed that Welsh
GVA per capita was just 79% of the UK
average in 2003, placing Wales only just
ahead of the North East and Northern
Ireland. This is of some concern with
little evidence of the income per capita
gaps closing between Wales and the UK
average
despite
strong
reported
employment growth, and during a
period when large parts of Wales have
qualified for the highest levels of
European structural funding under the
Objective 1 programme. Unfortunately,
this data actually suggests that the
income per capita divide between Wales
and the UK is still growing. This poses
questions about the type of employment
which is being created in the regional
economy, and in particular how new
opportunities are divided between part
and full time, and between male and
female employees. The evidence points
to an increase in female opportunities,
and increasing numbers of part-time
jobs in sectors where pay is much lower
than comparative UK averages. Coupled
to this has been an expansion in the size
of the Welsh non-market services sector.
This leads to the conclusion that growth
in the Welsh economy will continue to
lag behind that forecast for the wider UK
economy. Growth of real GVA of around
2.0% is expected this year in line with
improvements in employment, and
continued growth amongst selected
Welsh services sectors. In 2006, and in
line with lower expected growth in the
UK economy, Welsh economic growth is
forecast at around 1.8%.
Table 2: Economist poll of GDP growth forecasts April 2005
2005
2006
UK
2.5%
2.4%
US
3.7%
3.2%
Euro Area
1.6%
1.9%
Source: Economist, April 2nd
Table 3: Forecast Change in Real GVA (%).
Wales
2004
2005
2006
1.9
2.0
1.8
Source: Economist, April 2nd
6
Welsh Economic Review 17.1 SPRING 2005
Welsh Economic Review
Economic Events Diary
October 2004 to March 2005
formal structures to innovation are statistically more likely to
produce better financial results than those that do not.
October
Professor Peter Sloane, of the Welsh Economy Labour
Market Evaluation Research Centre at the University of
Wales, Swansea, commented that delays in getting vital
economic statistics are hampering important economic
projects, with out-of-date information being used to make
key government decisions.
December
The Property development and investment company Quest
Property has gained planning permission for 165 waterside
apartments at Swansea’s SA1 Waterfront development. The
SA1 development is also likely to include a £16m De Vere
Group hotel, creating 300 jobs.
A survey by Mitial Research International, commissioned
by the Welsh Development Agency and the Welsh Call Centre
Forum revealed that employees in Wales’ call-centre industry
are now being paid at rates higher than the UK call centre
average, and that the industry in Wales has the best staff
retention levels in the UK. Andrew Davies, Minister for
Economic Development and Transport, welcomed the report’s
findings; ‘Wales has a strong and successful track record in
attracting and supporting contact centre organisations, which
now employ around 24,000 people at operations in 29 towns
and cities across Wales’.
Radnor Hills Mineral Water company was named as Welsh
Exporter of the Year at the 2004 Food from Britain Export
Awards sponsored by the Welsh Development Agency.
A high court judge has given the go-ahead for the £60m
Bluestone holiday park project. The chief executive of the
Bluestone project said ‘This will create 600 full time jobs and
300 spin off jobs and will provide a huge economic boost to
what is an Objective 1 area’. Bluestone, near Narberth,
should open to the public in the summer of 2006.
Figures published by the Assembly Government show a net
loss in manufacturing jobs every year since 1997, despite
Britain enjoying a sustained period of economic growth.
Manufacturing now accounts for just 17% of all Welsh jobs
compared to 21% in 1998.
January
In 2005 Cardiff celebrates its 100th birthday as a city and
50th birthday as the capital of Wales. A whole year of events
is planned to mark these milestones.
Cardiff-based civil engineering and construction company
Opco has been identified as Wales’s fastest growing business
in this year’s Western Mail Fast Growth 50. 39 of the 50
businesses have a turnover of more than £1m. Five of these,
including Opco, had turnovers exceeding £10m.
According to latest estimates from Customs and Excise,
Welsh exports were £1.98bn, in the three months to the
end of September 2004, compared to £1.73bn in the same
period of 2003; a growth of 7.3% over the year. This was the
third highest percentage increase among the UK regions over
the 12 month period, with only Northern Ireland and southwest England achieving higher percentage rises over the
year. The main destination for Welsh exports was the
European Union, which accounted for £1.25bn during the
period.
November
The Welsh Assembly Government has awarded Biss
Lancaster Euro RSCG, a London-based firm, a £150,000 a
year contract to promote Broadband Wales. The initiative
aims to recruit people and businesses to the faster internet
network.
The urban regeneration company Newport Unlimited began
the first stage of work on Newport’s historic Old Town
Docks. The projects are valued at approximately £500m in
total, and will create 4,000 jobs over the next five years. The
£1.5m initial remediation phase, funded by the Welsh
Development Agency, will clear 18.7 hectares of derelict land
in preparation for 1,500 new homes and apartments, a
business district, 80-room hotel, local shops, restaurants,
bars and cafes.
Redrow, the house builder based in Flintshire, has seen
reduced activity in the housing market, with customers
taking longer to commit to buying a new house and housebuying chains lengthening. However, the business’s current
position is strong. In September 2004 Redrow reported
record pre-tax profits of £124.1m in the 12 months to June
30th 2004, representing an increase of 17% on the figure of
a year earlier.
The car insurance company Admiral announced profits in
line with forecasts after its number of policy holders
exceeded one million in 2004. However, the company was
expecting slower growth and lower profits in 2005. The
company employs around 1,700 staff in Cardiff and Swansea.
Henry Engelhardt, the Chief Executive, is featured in the
Interview section of this Review.
The Streetcar, a hybrid form of public transport (a cross
between a tram and a bus) is being developed by transport
company FirstGroup. The vehicle will go into service in 2005
in Swansea.
Figures released by the Land Registry showed that the
average price for a detached house in Wales reached
£200,000 for the first time, compared to £163,000 to the end
of October 2003. Seven out of the top 10 highest average
price rises measured at the Unitary Authority level were in
Wales.
Airbus announced that it had secured another contract for
its A380 super jumbo in the United States. Airbus, which
employs 8,000 people producing aircraft wings at Broughton
in Flintshire, delivered 320 planes in 2004, exceeding the 285
aircraft delivered by Boeing.
Building the Dragon Economy - Innovation in Wales, a
report compiled by PricewaterhouseCoopers with CBI Wales
observed that fewer than half of the 737 businesses surveyed
had introduced new products or services over the previous
three years. The report also showed that companies adopting
Gyrus, the Cardiff based medical equipment manufacturer
announced higher than expected annual profits, despite the
strong pound against the US dollar. The company, which
specialises in equipment used in keyhole surgery, expected
7
Welsh Economic Review
sales to rise by 11% to around £87m following strong
demand in the final quarter of 2004.
Comings and Goings: Companies’ Activities
in Wales
February
Aldi, the German discount supermarket chain is creating
nearly 300 jobs in South Wales, through a £30m investment
in an office and distribution headquarters for Wales and the
west of England. The company intends to build a 340,000sq
ft centre at Capital Business Park, Wentloog.
The North Wales venture, DeepStream Technologies
announced that it had secured a £5m development and
supply order with a major European electrical device
manufacturer. The firm achieved £10m in initial funding,
including £2.8m from venture capitalists Doughty Hanson
Technology Ventures and ongoing bank support from HSBC.
It employs 26 people but will have 65 employees by the
middle of 2006.
In November 2004 the Peacock Group revealed it was
intending to open 100 new stores in the UK creating 1,300
jobs. In June 2004 the company expanded by purchasing the
Fragrance Shop chain for £11m. The Group now has a total
of 783 stores, with 411 trading under the Peacocks name,
336 trading under the Bon Marche name, and 36 Fragrance
Shop stores. In total the company employs more than 5,000
staff.
The latest RBS Purchasing Managers Index for Wales
found that levels of business activity in Wales grew robustly
in January, as the Welsh index posted its 22nd consecutive
month of positive growth. It was the second month in which
growth in Wales outpaced that of the UK as a whole.
In December, EnviroWales, a car battery recycling plant
announced it is to open in Ebbw Vale, creating more than
new 120 jobs. The enterprise has secured £2.5m in regional
selective assistance funding, to part finance a new 80,000 sq
ft. purpose-built car battery recycling facility at Rassau
Industrial Estate.
Monmouthshire-based Frank Sutton is investing £1.5m in a
new sales outlet near Pencoed. The firm recently won the
British Agricultural and Garden Machinery Association
(Bagma) dealer of the year award 2004 for agricultural
equipment.
A new management consultancy CMC Partnership is hoping
to double its turnover to £2m this year and plans to employ
100 people within the next five years. CMC Partnership,
which has secured a number of major government contracts
to support change programmes and projects, was formed by
Rhiannon Cooke who is based at Dingestow, near Monmouth.
She and her fellow co-directors previously led the
management consultancy division of the international
consultancy firm Atkins. The firm currently employs 11 staff
and 18 associate consultants.
Companions 2 Travel (www.companions2travel.co.uk),
based in Corwen, has recently been set up to offer a secure
automated travel companion matching system, allowing
people to share trips. The service has already attracted
3,000 subscribers since going live and new members are
currently signing up at the rate of around 300 a week.
GeraldEve’s Prime Retail report rated Cardiff as the 11th best
shopping destination in the UK. In terms of retail growth
prospects for the next five years Cardiff ranked 7th overall.
GDS Publishing, a publisher and event organiser, is
expanding its operations to Wales and hopes to create 75
jobs over the next 12 months with the opening of a Cardiff
office.
Boomerang Television, based in Cardiff, has acquired two
of its rival independent production houses Alfresco and Fflic
for undisclosed sums. Gwenda Griffith, managing director of
Fflic, and Ronw Protheroe, managing director of Alfresco,
have been appointed directors of Boomerang.
Communications Direct, a mobile phone business, is
planning to create 200 jobs at its Cardiff headquarters and at
a new satellite operation in Swansea. The company, part of
CDL Europe, is a direct sales operation that sells third
generation broadband and other communication services
across all five mobile networks.
Finance Minister Sue Essex confirmed that over the next
three years more than 1,000 civil servants are to move to
new Assembly Government offices in Aberystwyth and
Llandudno. The Aberystwyth office will hold 500 staff,
including 179 relocating from Cardiff, and will house the
Environment, Planning and Countryside department and
some other smaller offices. The Llandudno Junction office will
house 525 staff, including 130 posts from Cardiff.
Following the takeover of Deeside-based Big Food Group by
Icelandic firm Baugur, Mr Malcolm Walker has been appointed
as Chief Executive of Iceland, the company he originally
founded. He has announced plans to reduce job numbers in
Iceland’s Flintshire head office by one third.
March
This month, the £7.5m Galeri theatre opened in Caernarfon.
The 400 seat Galeri will show four films a week, and will also
be able to accommodate concerts, workshops, conferences,
lessons and other activities.
The Knowledge Exploitation Fund (KEF) is to finance a
£300,000 pilot project which is intended to attract young
people into engineering and to improve the competitiveness
of small and medium engineering enterprises through the
enhancement of staff skills.
Following a difficult 5 year period which saw 3,000 job losses
in Wales, Corus posted a pre-tax profit of £559m, for the
first time since the merger in 1999 of British Steel and Dutch
firm Hoogovens.
8
Welsh Economic Review 17.1 SPRING 2005
Welsh Economic Review
Public Sector Spending
The Welsh Assembly Government is
likely to face some tough choices in
respect of public spending in the years
ahead. The Assembly has a total of
£12.6 billion at its disposal in 2005-06,
with the budget set to grow to £14.3
billion by 2007-08. The budget has
almost doubled since the Assembly was
established in 1999. This period of
strong and sustained growth in funding
is, however, coming to an end and the
rate of growth in the Assembly finances
will be much slower over the next three
years. In the context of a more frugal
UK public expenditure climate and in the
wake of the Gershon public sector
efficiency
review,
public
sector
organisations in Wales, as across the
rest of the UK, are going to be expected
to make considerable savings in the
years ahead.
In the light of this, the Welsh Assembly
Government
has
published
a
consultation document - Making The
Connections: Delivering Better Public
Services for Wales - on its proposed new
model for the public services in Wales
and its approach to achieving the
required efficiencies (Welsh Assembly
Government, 2004). The targets set for
resource savings are indeed ambitious
with a total of £600 million’s worth of
value for money improvements to be
achieved by 2010. This is equivalent to
around 5 per cent of the current total
investment in public services, which in
broad terms will require that public
sector agencies become around 1 per
cent more efficient year on year for the
next five years. This is to be achieved
through a new, more co-operative
model of service delivery in Wales, with
scale economies to be achieved through
more effective co-operation and coordination between agencies across the
whole of the public sector in Wales and
more innovative use of ICTs in service
delivery. For example, it is estimated
that £120 million’s worth of value for
money improvements are attainable
through better, more collaborative,
public procurement by 2008, building on
the foundations laid by the Welsh
Procurement Initiative.
There are already positive efforts being
made across many of the major public
bodies in Wales to achieve efficiency
savings. Local government, for example,
is already making good progress
towards the development of more joint
working arrangements, particularly in
the area of routine, back-office
functions. For example, Cardiff and
Blaenau Gwent Councils have developed
joint delivery of key IT services. There is
room for further progress here,
particularly
in
relation
to
the
development
of
shared
service
consortiums
such
as
for
the
procurement of social care goods (e.g.
medicines and health care equipment).
Further progress is also needed in the
area of e-government which is not
particularly well-developed across Wales
compared with England. More dedicated
funding in the short-term for such
initiatives will clearly be needed in order
to release resources over the longerterm.
An even tougher challenge lies ahead.
As well as making savings or spending
less, the Assembly will have to become
more adept at spending better. The
magnitude of this challenge is perhaps
best illustrated using the example of the
NHS in Wales. Since its inception, the
Assembly has presided over an
unprecedented increase in NHS funding.
Indeed,
health
spending
has
consistently been given the highest
priority in the Assembly’s spending
plans with a 30 per cent increase in
spending on health and social services
occurring in Wales between 2002-03
and 2005-06. As well as rising
substantially in absolute terms, health
spending consumes a larger share of
total Assembly spending than in 199899. Yet Wales does not get as much out
of its health spending as it should. This
is one of the central messages contained
in the Wanless review of health and
social care in Wales (Wanless, 2003).
The Review observed that in every year
but
one
since
1994-95,
NHS
organisations have reported deficits of
over £10 million in Wales. In social care,
cost pressures are increasing, and there
is significant variation in the level of
spending on social services between
local authorities (as one would expect)
and in its cost-effectiveness. Moreover,
the NHS in Wales has been plagued by
continuing poor overall performance
against key indicators such as waiting
times for cardiac surgery and availability
of beds, whereas similar indicators in
England have shown considerable
improvement.
Clearly this situation reflects in part the
nature and scale of health problems in
Wales. But the current debates around
health service spending also point to
some more general issues around public
spending which are likely to become
more prominent in the more prudent
spending climate ahead.
First, it is clear that new performance
management and incentive systems
which are necessary in health provision
and other public services in Wales to
help create best practice are themselves
resource intensive in the short-term and
inevitably take time to bed in and yield
positive results. The Welsh Assembly
9
Government has, for example, set aside
some £30 million in 2005-06 to
implement key elements of the Wanless
recommendations for the NHS with this
figure set to rise to £167 million by
2007-08. Change, whether in respect of
front-end delivery or in broader
organisational and strategic terms,
incurs costs which need to be built into
financial management plans. The NHS in
Wales has experienced considerable
organisational upheaval in recent years,
particularly with respect to scrapping
health authorities and their replacement
by local health boards. Similarly wideranging organisational reform will
impact upon many other areas of
spending in Wales with the proposed cull
of the quangos and the merging of key
development
agencies.
This
will
inevitably incur some considerable
financial and social costs, at least in the
short-term.
Secondly, there is a growing case for
changing the metrics used to measure
public sector spending efficiency.
Statistics gathered by the Office for
National
Statistics
reveal
that
productivity in the NHS across the whole
of the UK had fallen by 8 per cent
between 1995 and 2003 in that the
costs of providing services had
outstripped the value of services in cash
terms. While NHS output grew by 28 per
cent during this period, spending grew
by between 32 and 39 per cent, with
spending on hospitals alone rising five
times as fast as the number of hospital
treatments. However, these statistics
fail to capture changes in the quality of
health care such as the long-term
improvements in health that may be
achieved by increased spending on
measures which prevent illness in the
first place and promote better health
and well-being. Such measures are
clearly becoming more important in
Wales with initiatives such as Health
Challenge Wales. Developing more
innovative ways of measuring the
impacts of such initiatives will be
important in assessing where resources
will be targeted most effectively in the
years ahead.
References:
Wanless, D. (2003) The Review of
Health and Social Care in Wales: The
Report of the Project Team Advised by
Derek Wanless, Report commissioned
by the Welsh Assembly Government,
June 2003.
Welsh Assembly Government (2004)
Making the Connections: Delivering
Better Public Services in Wales, Welsh
Assembly Government, October 2004.
Welsh Economic Review 17.1 SPRING 2005
Welsh Economic Review
Labour Markets
Both the Welsh and the UK labour markets remain stable. The seasonally adjusted employment rate for the three months to
January 2005 was 72.2%, up 0.1 percentage points on the previous year. Meanwhile the seasonally adjusted unemployment rate
was 4.1%, and 0.8 percentage points down on one year earlier. The seasonally adjusted number of claimants in February 2005
was 38,400, giving a rate of 2.9%; also down (by 0.2 percentage points) on the previous February. The Labour Force Survey (LFS)
estimate of economically active people in Wales was 1.39 million in January 2005. The number of economically inactive people in
Wales, at 966,000 (of which 437,000 were of working age), was up 13,000 over the year.
Table 4: Labour Market Summary, November 2004 to January 2005
Economic
Activity
Change on
year
Employment
rate
Change
on year
Change
on year
1.4
ILO
Unemployment
rate
5.5
North East
75.2
0.8
71.0
North West
77.5
0.0
74.0
0.4
4.5
-0.4
Yorks & Humber
78.1
East Midlands
79.9
-0.1
74.6
0.3
4.4
-0.6
-0.2
76.5
0.1
4.2
-0.3
West Midlands
78.3
0.3
74.5
East
82.0
-0.7
78.7
0.9
4.8
-0.7
-1.4
4.0
0.7
London
74.8
-0.6
69.5
South East
82.3
-0.1
79.1
-0.5
7.0
0.0
-0.1
3.8
0.0
South West
81.7
0.1
78.7
-0.6
3.6
0.8
England
79.0
-0.1
75.2
-0.1
4.6
-0.1
Wales
75.4
-0.6
72.2
0.1
4.1
-0.8
Scotland
79.9
1.3
75.2
1.2
5.7
0.0
Northern Ireland
71.8
0.3
68.4
1.0
4.6
-1.0
UK
78.7
0.0
74.9
0.1
4.7
-0.1
-0.8
Source: Labour Force Survey
Table 4 summarises the state of the UK
regional labour market. Wales is ranked
eighth out of the twelve (regions) in
terms of economic activity and
employment
rates.
The
poorest
employment rates are recorded for
London and Northern Ireland. The South
East and East head the employment rate
rankings. The unemployment rate in
London at 7% is almost twice that of the
South East region (3.6%) which had the
lowest rate. While London’s relatively
high unemployment rate is nothing new,
it does appear that the differential
between London and its neighbours is
increasing.
Table 5 shows unemployment claimant
count rates in Wales by unitary authority
area at February 2005. While claimant
counts in Wales are down on the
previous February, some unitary
authorities have experienced a very
slight deterioration in their position.
Claimant count rates in Blaenau Gwent
are persistently higher than elsewhere
in Wales, and have risen slightly over
the year to February 2005. Other UAs
with rising claimant count rates are the
Vale of Glamorgan and Anglesey (both
up by 0.1 of a percentage point).
Bridgend and Caerphilly rates were
unchanged on the year, whilst the
remaining UAs all experienced slight
reductions.
Earnings
From October 2004 the Annual Survey
of Hours and Earnings (ASHE) replaced
the New Earnings Survey (NES). This is
part of a modernisation programme
being undertaken by the Office for
National Statistics (ONS). The NES
tended to produce biased estimates for
a number of reasons. For example,
survey responses were not weighted to
the population of employees. There
were also problems relating to nonresponse, and under-recording because
of job changes between sample
selection and survey. ASHE data is the
product of a new questionnaire. These
survey
changes
have
introduced
discontinuities in earnings statistics.
However, the ONS has published a set of
historical estimates using an approach
consistent with ASHE to allow users to
understand the impact of the new
methodology (a discussion of this can be
found in the December 2004 edition of
Labour Market Trends).
Table 6 shows median gross weekly
earnings by Government Office Region
(GOR) for men, woman and all people,
in full-time employment. Earnings were
highest in London at £541, and lowest in
Northern Ireland (£372). Wales was
ranked 10th, just higher than the North
East region. Average weekly earnings
10
for all those in full-time employment in
Wales are around 9 percentage points
below the UK average. It is the case that
the difference in wages between London
(and less so the South East) and the
rest of the UK is significantly greater
than any differences between each of
the other regions. London wages are 28
percentage points higher than the UK
average.
Table 7 shows median weekly pay by
Welsh unitary authority, by place of
work. Work in Neath Port Talbot,
Flintshire, Wrexham and Cardiff offered
the highest returns. These Unitary
Authorities also have relatively high
shares of manufacturing employment
contributing
to
the
earnings
differentials. Corus steel-making and
processing activities in Port Talbot and
Flintshire also play a part in raising
average earnings. The lowest wages
were paid for jobs in Carmarthenshire
and Ceredigion. Clearly, these UA wage
rankings are substantially altered when
average wages are measured according
to the residence base of workers.
Welsh Economic Review
Table 5: Unemployment in Wales; Claimant Count by Unitary and Local Authority Area - February 2005, % of
Population (not seasonally adjusted)
Men
Women
People
Wales
3.6
1.2
2.4
Blaenau Gwent
6.2
1.8
4.1
Bridgend
3.7
1.3
2.6
Caerphilly
4.4
1.4
2.9
Cardiff
3.8
1.1
2.5
Carmarthenshire
2.8
1.0
1.9
Ceredigion
1.9
0.9
1.4
Conwy
3.3
1.1
2.3
Denbighshire
3.1
1.1
2.1
Flintshire
2.4
1.0
1.8
Gwynedd
4.0
1.6
2.8
Isle of Anglesey
5.1
1.8
3.5
Merthyr Tydfil
5.2
1.5
3.4
Monmouthshire
2.3
0.9
1.6
Neath Port Talbot
4.1
1.4
2.8
Newport
4.3
1.3
2.9
Pembrokeshire
4.1
1.6
2.9
Powys
2.1
1.0
1.6
RCT
3.9
1.2
2.6
Swansea
3.8
1.2
2.5
Torfaen
3.3
1.1
2.3
Vale of Glamorgan
3.7
1.1
2.4
Wrexham
2.7
1.0
1.8
Source: Jobcentre Plus administrative system
Table 6 Median gross weekly earnings by government office region (full-time adult whose pay was unaffected
by absence) April 2004.
£ per week
Men
Women
All
All
UK = 100
UK
462.0
358.0
422.1
North East
412.0
318.3
372.6
100
88.3
North West
440.5
332.3
397.1
94.0
Yorks & Humber
433.1
334.6
392.9
93.0
East Midlands
430.5
316.8
385.5
91.3
West Midlands
431.9
329.9
393.6
93.2
South West
439.1
332.0
393.0
93.1
East
465.9
353.8
422.3
100.0
London
597.0
478.3
540.8
128.1
South East
497.2
377.3
449.1
106.3
Wales
421.9
321.8
383.2
90.7
Scotland
432.2
345.5
392.7
93.0
Northern Ireland
401.9
335.4
372.3
88.2
Source: 2004 Annual Survey of Hours and Earnings
11
Welsh Economic Review
Table 7 Median gross weekly pay by Unitary Authority by place of work (full-time adult whose pay was
unaffected by absence) April 2004
£ per week
Wales
Men
Women
All
421.9
321.8
383.2
Blaenau Gwent
358.3
na
352.5
Bridgend
407.0
318.9
371.5
Caerphilly
367.8
344.1
356.7
Cardiff
453.7
359.0
422.1
Carmarthenshire
357.5
260.5
332.1
Ceredigion
359.3
307.5
346.2
Conwy
415.5
na
408.9
Denbighshire
377.5
276.1
358.3
Flintshire
475.8
320.6
428.0
Gwynedd
362.3
310.7
339.8
Isle of Anglesey
407.3
285.1
369.1
Merthyr Tydfil
399.9
300.3
380.5
Monmouthshire
412.5
297.9
379.8
Neath Port Talbot
477.4
318.4
421.8
Newport
423.7
369.5
403.5
Pembrokeshire
381.2
290.8
335.7
Powys
346.4
na
330.2
RCT
383.3
327.7
363.4
Swansea
411.5
319.3
361.1
Vale of Glamorgan
447.9
332.4
423.5
Torfaen
411.5
277.5
379.9
Wrexham
461.4
291.6
391.9
Source: 2004 Annual Survey of Hours and Earnings
12
Welsh Economic Review 17.1 SPRING 2005
Welsh Economic Review
Property Markets
At the March meeting of the Monetary Policy Committee (MPC), members voted to maintain the interest rate at 4.75% (two voters
preferred a small rise), amid concerns regarding an apparent slowdown in consumer spending for non-essential goods and in the
housing market. Meanwhile, predictions for the UK housing market show some variation. Halifax, The Royal Institute of Chartered
Surveyors, and Nationwide all predict that house prices will continue to rise over 2005. Hometrack (a property research company)
predicts a stable market and Capital Economics (an independent economic research company) expects house prices to fall over
the coming twelve months.
The last quarter of 2004 saw the
negative trend in house price inflation
set by London establishing itself in the
regions with the exception of the North,
Yorks and Humber, the North East and
Northern Ireland. In fact, the biggest
declines in house prices during that
quarter were experienced by Wales
(-6.2%) and the South East (-1.6%).
House prices for 2005Q1 are shown in
Table 8. This indicates that the annual
rate of house price inflation is continuing
to slow, dropping below 10% in March
for the UK as a whole for the first time
since November 2001 (Halifax, March
2005). After having declined in the two
previous quarters, houses prices in
London increased by 0.1% in the latest
quarter, suggesting that the market
there is stabilising. Meanwhile, house
prices in Wales suffered a slight drop in
2005Q1, while still making a 5.6% gain
over the year. The differential in the
average house price between London
and the UK is now at its lowest (in
percentage terms ) for seven years. The
gap was its smallest in 1995 when the
Figure 1: House Prices Index. All Houses - All Buyers Seasonally Adjusted (1983=100)
600
550
500
450
400
350
300
250
200
02Q2
02Q3
02Q4
03Q1
03Q2
03Q3
03Q4
04Q1
04Q2
04Q3
04Q4
Wales
Source: Halifax House Price Index
05Q1
UK
Table 8: All Houses, All Buyers (Seasonally Adjusted) 1st Quarter 2005
Region
Index
1983=100
Standardised
Average
Price £
North
515.4
130,053
Quarterly
Change
%
-0.6
Annual
Change
%
14.2
Yorks & Humber
532.5
122,946
1.7
15.5
North West
506.4
129,533
0.2
15.3
East Midlands
567.7
148,375
1.6
12.2
West Midlands
561.1
158,354
0.3
9.9
East Anglia
537.6
161,741
-0.9
8.4
Wales
531.6
137,564
-1.2
5.6
South West
549.9
181,826
1.3
4.6
South East
537.3
218,102
0.1
1.1
Greater London
607.6
241,918
2.4
9.9
Northern Ireland
457.6
117,666
6.1
22.9
Scotland
364.4
105,397
3.1
25.0
U.K.
527.0
162,840
0.5
9.7
Source: Halifax House Price Index
13
Welsh Economic Review
Table 9 Average House Price by Welsh County, 2003Q4 and 2004Q4
County
Average House Price - £
Average house Price - £
%
Clwyd
2003*
2004*
Change
122,083
145,403
19%
Dyfed
119,037
143,344
20%
Gwent
115,443
138,388
20%
Gwynedd
105,866
140,657
33%
Mid-Glamorgan
93,918
115,490
23%
Powys
153,421
183,916
20%
South-Glamorgan
142,951
168,152
18%
West-Glamorgan
95,598
128,135
34%
* 12 months to December.
Source: Halifax 2004
average house price in London was a
mere 1.25 times the national average.
Table 9 gives a breakdown of average
house prices by Welsh county for
2004Q4 (latest available quarter) and
2003Q4. West Glamorgan and Gwynedd
experienced the greatest price rises
over the year to 2004Q4.
The prolonged period of buoyant house
price
inflation
accompanied
by
confidence regarding its durability has
significantly altered the buy-to-let
market in the UK as a whole. A recent
report published by the Council of
Mortgage Lenders examined the profile
and intentions of around 1340 buy-tolet investors (Scanlon and Whitehead,
2005). The market has grown rapidly
over the last 5 years. At the end of 2004
there were 526,200 outstanding buy-tolet loans compared to only 73,200 at the
end of 1999. Around one quarter of
buy-to-let investors owned only one
property, another quarter owned three
to five properties, with a median of four
properties (less than 2% owned more
than 50 properties).
Landlords having small portfolios (1-2
houses) estimated their average value
to be between £100-200,000. This
suggests that they are probably
competing with first time buyers. More
than two thirds of landlords had another
full-time job. Only one fifth of all
landlords could be defined as being
‘professional’ i.e. receiving rental
income of at least the national average
income, and being able to live off their
rental income without selling off
realisable assets. The authors of the
report concluded that the buy-to-let
market was an influential component of
the current housing market. It also
appeared to be relatively stable, with
most landlords having relatively low
loan to value ratios. The authors believe
this segment of the market is likely to
become more important and to be a
stabilising factor.
The difficulties faced by first time
buyers, certainly exacerbated by buyto-let investors, have not been lost on
the Chancellor of the Exchequer, who
announced as part of Labour’s election
campaign, that he wanted to raise the
level of property ownership from 70% to
75%. He hopes to achieve this by
releasing
more
public
land
for
development and by considering a
scheme whereby the government helps
to finance a share in the equity of
purchased houses. This highlights the
persistence of the first time buyer
problem.
Construction News
A number of construction projects are in
prospect in Cardiff, including the £500m
St Davids 2 retail development, the
£700m International Sports Village, and
the re-development of Cardiff City FC
stadium and surrounding area at
Leckwith. The St Davids 2 project will
combine retail stores, restaurants, 300
residential properties, and a new library,
to be completed during 2009. The sports
village will offer sports, leisure and
entertainment facilities with waterfront
residences, hotels, casinos, bars,
restaurants and retail stores. New
stadium plans for Cardiff City FC are
progressing and the city council has
approved two applications from the
retail developers associated with the
stadium development, and further retail
applications are under consideration.
Work has begun on the second phase of
the £14m 60,000 sq ft Fusion Point
office development in the city. This is a
speculative development, but the
developers are confident that Cardiff has
sufficient repute as a prime office
location. A third phase would deliver a
further
45,000sq
ft
of
office
accommodation.
Recently
completed
or
ongoing
residential schemes include Bellway
Homes (Prospect Place, apartments),
Redrow (Windsor Village), Persimmon
14
(The Plaza, apartments), Wimpey, and
Westbury(Century Wharf). At Atlantic
Wharf, Future Inns has opened its new
200 bed hotel during July of last year.
Other large developments nearing
completion including the new debating
chamber for the Welsh Assembly
Government.
Unite,
a
national
student
accommodation provider, has recently
put up two new student accommodation
blocks in Cardiff; Ty Pont Haearn (which
it claims is one of the tallest buildings in
Cardiff) and Allensbank House, opening
fully in September 2005 opposite the
University of Wales Hospital. Unite now
have student accommodation in twenty
six UK cities.
Stretton Estates Queensferry Ltd has
purchased four acres of land from the
WDA at the Tir Llwyd Enterprise Park in
Kinmel bay for the construction of a
50,000 sq ft business unit. The project
is being supported by a £1.1m property
development grant from the WDA, and
is the largest private sector project of its
kind in the North Wales Objective 1
area.
A £32m food processing plant has been
completed for Dawn Pac at Cross Hands
in West Wales. The site is located on a
dedicated Food Park being developed
jointly by the WDA and Carmarthenshire
County Council.
The Anglesey-based property company
McCarter Group will undertake its
largest project to date in converting the
Argyle Hotel in Llandudno into luxury
apartments to go on sale in June 2005.
References
Scanlon, K and Whitehead, C (2005)
‘The profile and intentions of buy-to-let
investors’, London, School of Economics
for the Council of Mortgage Lenders,
March
2005.
Available
from
www.cml.org.uk.
Welsh Economic Review 17.1 SPRING 2005
Welsh Economic Review
Industrial Activity
The Index of Production (and Construction) for Wales is the result of a collaboration between the Welsh Assembly Government
and the Office for National Statistics (ONS). The index provides a measure of movements in Welsh industrial output, and is one
of the ways in which the strength of the regional economy can be assessed. The index of production includes information on
manufacturing, mining and quarrying, and electricity, gas and water supply.
The latest information on the Welsh
index of production relates to the third
quarter of last year. Figure 2 provides a
summary of trends in the indices of
production for Wales and the UK. In
comparison to the UK, the Welsh index
showed considerable variation during
2003 and the first half of 2004. Figure 2
also shows the sharp divergence of the
UK and Welsh indices of production
during 2004Q2 and Q3. The overall
Welsh index of production increased by
7.3% in the year to 2004Q3, whilst the
UK index fell by 0.4%. Much of this is
attributable to the volatility of electricity
production in the regional economy. In
the first three quarters of 2004 the
index of output in electricity, gas and
water increased by 25.1%.
the first half of 2005. Overall signs are
good. In January 2005, the Royal Bank
of Scotland Purchasing Managers Index
reported that Welsh business activity
had grown for the 21st successive
month in December 2004, and that the
regional manufacturing sector had
expanded output at a faster rate than
the services sector. Also in January, the
Lloyds TSB Corporate Business in Britain
Survey revealed that 55% of firms in
Wales had increased sales during the
second half of 2004. Set against these
more optimistic findings, were concerns
in the latest CBI quarterly Wales
Industrial Trends Survey that Welsh
firms were facing rising costs and falling
export orders (but see also export
figures below).
Figure 3 focuses on the Welsh and UK
indices of manufacturing output. The UK
index of manufacturing increased by
0.5% in the year to 2004Q3, whilst the
Welsh index increased by 3.0% over the
same period. However, of more interest
were movements during the third
quarter of last year, with the Welsh
index of manufacturing increasing by
0.6% whilst the UK index fell by 1.0%.
A key question is whether or not the
increasing trend in manufacturing
output will have been maintained into
Prospects in Welsh manufacturing have
varied considerably by sector in the year
to 2004Q3. Sectors experiencing the
largest increases in output over this
period included food and drink (by
10.1%), chemicals (7.4%), and basic
and fabricated metals (by 15.1%). Set
against this have been reductions in
output in the year to 2004Q3 in textiles
(-11.4%), pulp and paper (-16.8%),
and other manufacturing (-7.6%).
Capacity losses in the electronic
engineering sector, and the automotives
sector will be of some concern this year.
In the latter case the first quarter of this
year has seen UK motor manufacturers
reducing production to cut stock levels.
This has potential ramifications for the
Welsh automotive components sector.
More generally, Welsh manufacturing
will come under further pressure this
year as a result of higher fuel prices, and
as easing consumer spending hits
domestic sales.
New information from HM Customs and
Excise (HMCE) has revealed that Welsh
exports
in
2004
had
increased
substantially on 2003 levels (Table 10).
The value of Welsh exports in 2004 was
an estimated £8.2bn. This was around
£1.0bn higher than 2003 levels;
representing a 22.4% growth in exports
to non-EU states, with a smaller
increase (10.3%) to EU states i.e. an
overall increase of around 14%. In
2004Q4 total Welsh exports were
£2.23bn. This was an increase of 9.7%
over the 2003Q3 figure. During 2004Q4
an estimated 63.6% of Welsh exports
went to the EU, with a further 18.1%
going to North America. Particularly
encouraging was the fact that Welsh
export growth during 2004 surpassed
that in all other UK regions.
Figure 2: Welsh and UK Indices of Production - Recent Trends
110
108
106
104
102
100
98
96
94
92
90
88
1
2
2 3
3
1
4
Q 8Q 8Q 8Q4 9Q 9Q 9Q 9Q 0Q1 0Q2 0Q3 0Q4 1Q1 1Q2 1Q3 1Q4 2Q1 2Q2 2Q3 2Q4 3Q1 3Q2 3Q3 3Q4 4Q1 4Q2 4Q3
98
9
9 9
9
9
9 0
9
0
0
0 0
0
0
0 0
0
0
0 0
0
0
0
0 0
0
Source: Statistical Directorate: National Assembly for Wales
15
Wales
UK
Welsh Economic Review
Figure 3: Wales and UK Indices of Manufacturing - Recent Trends
110
108
106
104
102
100
98
96
94
92
90
88
1
Q
98
2
3
2 3
1
4 1
4
2
3
3 4
4
Q
Q
Q 9Q 9Q 9Q 9Q 0Q 0Q 0Q 0Q 1Q1 1Q2 1Q 1Q 2Q1 2Q2 2Q3 2Q4 3Q1 3Q2 3Q3 3Q4 4Q1 4Q2 4Q3
98 98 98
9 9
9
9 0
0
0
0 0
0
0
0 0
0
0
0 0
0
0
0
0 0
0
Source: Statistical Directorate: National Assembly for Wales
Wales
UK
Table 10 Welsh Export Highlights 2003-04
2003
2004
£7,196m
£8,217m
EU
68.0%
65.6%
North America
13.8%
17.2%
Asia and Oceania
10.6%
9.8%
7.6%
7.4%
Welsh exports total
Of which to:
Other
Source: HMCE
Note: 2004 figures still provisional.
16
Welsh Economic Review 17.1 SPRING 2005
Interview
& Feature
Articles
Interview
Interview with Henry Engelhardt
had recently become deregulated, so
from
having
fixed
commissions
regardless of the worth of a transaction,
there were now much greater profit
opportunities. Henry moved onto the
phones, then through to general sales
and marketing, and eventually became
vice-president. He moved to Paris to
start up a splinter business there, but
working in one room and living in the
next did not really suit him. In 1986, he
tendered his resignation and used the
momentary freedom to travel Asia for
six months with his wife. The following
year he joined INSEAD to study for a
MBA.
Following a successful year at INSEAD,
he came to the UK and worked as a
management consultant for Stanford
Research Institute in Croydon. Soon
after, he took a job in financial services.
He had to swallow his initial qualms of
involvement in insurance, and accepted
the challenge to set up a direct
telephone response firm. Henry sees
one of his strengths as marketing
brands. He pioneered the name
Churchill, and enjoyed two years at this
firm before being head-hunted to
manage a new direct response firm
developing out of a Lloyd’s managing
agent.
In March, the Review team met Henry Engelhardt, the Chief Executive of Admiral
Insurance Services. He has been a headline-maker for some time, but particularly so
with the flotation of Admiral in September 2004; a move which created personal
wealth throughout the firm. Henry originates from Chicago, but found his way to
Wales in 1991, as an inward investor when he first brought Admiral to Cardiff. He has
an honours degree in Journalism, Radio and Film from the University of Michigan, and
an MBA from INSEAD, Paris. Before moving to the insurance sector he worked in
futures in Chicago and Paris, and had a brief spell as a management consultant with
the Stanford Research Institute (SRI) in Croydon. He has a French wife, who is a
lawyer, and they live with their family in Cardiff.
That Henry was destined for business
success is evident not so much in what
he achieved in early childhood, but more
in what he observed and considered
important. For example, he describes
his first job in a hamburger/hotdog
emporium called Poochies in a Chicago
suburb; ‘It was an interesting business the owner only used the best
ingredients and charged a premium, he
hit a rich seam in the suburbs –
housewives who wanted good quality
but convenient food for their children so
as not to feel guilty’. The owner had a
profitable business and expanded over a
number of sites – the result of hard
work and finding the right niche. Henry
also worked as a caddy for the local
country club. Several of his golfing
‘clients’ worked in futures (Chicago is a
centre for futures trading) and he
observed that they worked very hard
until 3.00 pm when trading finished, and
then picked up their golf clubs. Henry’s
father was in the wholesale meat
business, and working long hours, did
not see that much of his son.
Steeped in commerce from an early age,
and by now a graduate Henry moved to
France on a temporary work permit.
With this grounding, a subsequent
period in Paris and a French wife, Henry
is now nearly fluent in French. Following
his year in Europe, Henry travelled
around the Middle East and Israel.
The 1980s were difficult times
economically, with rampant inflation and
high unemployment. Henry found
employment in the Chicago futures
market as a ‘runner’ -the lowest position
on the rung. He was also offered a job
as a journalist at this time, but enjoyed
the tension and excitement in the
futures exchange. The futures market
18
Admiral, specialising in car insurance,
was set up on January 2nd 1993, within
Lloyd’s, and was bought out in 1997 by
a Bermudan reinsurance company. A
period of uncertainty over the future of
the firm ended in 1999 when Henry led
a management buy-out (MBO), with
support from Barclays Private Capital.
Unusual was the fact that as part of the
MBO arrangement Henry set up a Staff
Trust such that employees had a direct
equity stake in the firm. At the time of
the firm going public in 2004, this Staff
Trust was worth £56m from which 1,400
employees benefited financially at the
time of the listing.
Admiral Insurance group has two main
offices; one in Cardiff and one in
Swansea, together employing around
1,700 people. They fall into the ‘call and
contact centre’ category of employment
that has been characterised as
industrialised white collar work by some,
but with whom the Assembly and the
WDA have had an enduring love affair.
So what is different about Admiral?
Henry admits that expansion recently
has included a site in Bangalore, and
one in South Africa in response to
difficulties in getting local staff to work
during the evenings; having high staff
attrition rates on those shifts.
In general though, and setting it apart
Interview
from other selected call centres, Admiral
has a low and stable staff turnover.
Much more importantly Admiral in
Cardiff is a head office. This means
there are plenty of other (sometimes
highly paid) functions carried out in
Capital Tower, interesting in themselves,
but also offering important succession
opportunities,
from
the
rather
formularised claim work to more
complex insurance and underwriting
work, as well as marketing, human
resources, and pricing roles.
A ‘people focus’ is one characteristic
that shines out of Henry Engelhardt, and
this also must contribute to the
‘difference’ between Admiral and other
call-centre firms –‘if people like what
they do, they will do it better’. His office,
on the 22nd floor of Capital Tower
commands a breathtaking view of the
city in which he has made his home. The
office is an unpretentious space and the
shelves behind his desk are populated
with an eclectic collection of business,
humour and psychology books. Family
photographs, birthday cards and a flip
chart where new ideas are teased out
and developed add to the personality of
the office.
When we met him, Henry had just
returned from London after receiving,
on behalf of Admiral, a 2005 Sunday
Times Award as the 20th best company
in the UK for people management.
Persuasive qualities include recognition
of his approachability; he meets all new
staff during their induction period, and
he is happy to be addressed by his first
name. He encourages social activities;
the firm spent over £125,000 on social
events in 2004. Over 80% of the staff
are under 35, and they appreciate the
chill-out rooms that are provided along
with radio and televisions on each of the
floors. Having such a youthful employee
age profile also explains why more than
1100 (over two thirds) of staff earn less
than £15,000 per annum. On the other
hand, and less typical for ‘call and
contact centre’ firms in Wales, higher
paid, senior jobs within the company are
retained in Cardiff and Swansea.
We asked Henry how he came to choose
Wales, when his business could have
been located anywhere in the UK. The
answer was interesting. He sent out
enquiries to ten grant assisted areas
including Leeds and Corby, and some
areas that were closer to London but not
development regions, such as Brighton.
Only South Glamorgan County Council
(as it was then) responded. They were
investment hungry. Subsequently, the
Welsh Development Agency put up £1m
to
support
the
firm’s
initial
developments. Over the years that
investment has reaped a good return
with Admiral paying over £200m back to
the local economy in wages alone.
The insurance sector has undergone
considerable restructuring over the
years. In the 1990s 10 companies held
50% of the total market share. Ten
years later, just two firms hold 50%. The
sector has experienced a period of rapid
consolidation. The two key players are
Norwich Union and Royal Bank of
Scotland; the latter owning Churchill,
Privilege, Tesco, Direct line and a host of
other brands.
Admiral owes much of its success to
shrewdly identifying particular niches
within the insurance market – women,
inner city drivers, younger males, higher
risk motorists, and van drivers. The firm
currently sells under six brands names;
19
Admiral, Confused.com, Diamond, Bell
Direct,
Elephant
and
Gladiator.
Confused.com is a one-stop insurance
shop with access to 94% of the market,
and they are paid by other insurance
providers on commission for every sale.
Diamond provides car insurance for
women, recognising that female driving
patterns differ from men’s; they drive
shorter distances, accumulate lower
annual mileage, and tend to drive more
slowly. Elephant is a low-cost internet
insurer, while Gladiator is a ‘van
intermediary’. All the Admiral brands
show a quirky, clever understanding of
marketing. The strong imagery of the
distinctive Admiral hat and spy-glass,
and its appearance at the beginning of
the alphabet, are not accidents.
Similarly, the elephant as the ‘king of
the jungle’ and the Gladiator helmet
logo both convey a sense of reliable
leadership, and superiority, perhaps.
Henry estimates that there are about
24-25m risks in the UK private car
insurance market. The Admiral Group’s
target market share is roughly 50% of
the total (but they also write for the
other half as well). With respect to the
direct brands, they have just over 1m
policy holders, representing a 4%
market share. Hence, there remains
huge potential expansion for the firm
provided it can keep abreast of
competitors. There is still a lot of scope
to provide low cost insurance, and there
is huge growth potential via the internet
market in the UK and also to take that
expansion outside the UK – Henry sees
future growth in exports. However, the
firm is careful and shies away from
expansion at all costs, knowing that this
might endanger parts of the business
where Admiral excels.
Welsh Economic Review 17.1 SPRING 2005
Feature Article
Tourism Satellite Accounts: Progress
in Wales and the UK
Calvin Jones, Welsh Economy Research Unit, Cardiff Business School
Cardiff University, [email protected]
Introduction
and
Background:
Measuring the Tourism Economy
This paper reports on a project
undertaken in Wales, to develop a
Tourism Satellite Account (TSA). A TSA
is an extension to a set of national (or in
this case, regional) accounts that
enables, for the first time, a consistent
comparison of the value of tourism with
other economic activities, and with
tourism elsewhere.
The measurement of tourism in
economic terms has historically been
very difficult. This is because tourism is
not an industry (in the same way as,
say, electronics, or insurance for
example). Rather, a wide range of
products is purchased by visitors from
their destination (in this case Wales)
before, during and after any tourist visit.
It is the economic value (to Wales) of all
these purchases made, and the
employment dependent upon the
production and distribution of these
goods, that we should think of as the
‘tourist economy’.
Following the above, measures of the
economic importance of tourism which
rely only upon enumerating visitor
expenditure will be misleading, as not all
expenditure will be on Welsh goods and
services, and hence not all expenditure
will support Welsh incomes and
employment. For example, when a
tourist purchases an item of clothing in
a Welsh shop for £50, it is only the retail
margin
which
directly
supports
economic activity in Wales. The valueadded associated with the production of
the imported good itself, and any sales
taxes, leave the Welsh economy.
Equally, counting up all employment in
‘tourist related industries’ such as hotels
or recreation will also be inaccurate.
Such measures ignore that some
employment in other industries is
dependent
upon
tourism,
and
conversely, that not all employment in
tourism industries will be tourismdependent if industry sales rely in part
on the purchases of people who are not
visitors (for example in the case of a
hotel bar used by local residents).
The Tourism Satellite Account
In order to overcome the measurement
difficulties outlined above, the World
Tourism Organisation (WTO) has
championed the development of the
Tourism Satellite Account (TSA). The
TSA enables us to measure the true
economic ‘worth’ of tourism, and for the
first time to examine the nature of
value-added due to tourism. The TSA
method also enables us to estimate with
some accuracy how much employment
is dependent upon tourism. WTO, the
Organisation for Economic Co-operation
and
Development
(OECD)
and
EUROSTAT have adopted the method as
the most appropriate way of assessing
the economic contribution of tourism for
nation-states.
A Satellite Account is an extension to a
System of National Accounts (SNA)
which enables an understanding of the
size and role of economic activity which
is usually ‘hidden’ with such accounts.
For example, an SNA will not distinguish
between a newspaper purchase by a
tourist or by a local resident. Within the
TSA these purchasing groups are
separated (usually tourists are further
separated into different types). This
enables the estimation of key variables
such as how much individual industries
depend
upon
tourists,
and,
by
extension, how much value-added and
employment is supported by tourists.
The first pilot set of accounts was
developed for the UK during 2004.
The TSA as suggested by WTO and
EUROSTAT consists of ten tables, though
only eight are recommended as
currently suitable for development
(there remain unresolved issues with
TSA Tables 8 and 9), and only six are
considered ‘core’ tables (TSA Table 7,
employment and TSA Table 10, nonmonetary indicators, are not directly
linked to the SNA) The illustration below
outlines what information is contained in
the TSA.
Table 1- Tourism Satellite Account – The Constituent Tables
TSA Table
Coverage
Notes
1
Inbound tourism expenditure
Part of aggregate demand; i.e. an export
2
Domestic tourism expenditure
Part of domestic total consumption
3
Outbound tourism expenditure
Not generally linked to other TSA tables so is
often not estimated
4
Domestic ‘tourism final consumption’
Synthesised from Tables 1 & 2
5
Production of tourism commodities
For example the services and products of ‘tourist
6
Domestic supply & consumption
related’ industries but also of non-tourist related industries
A reconciliation of Tables 4 & 5. The heart of the TSA
by product
7
Employment & labour use
8
Tourism Fixed capital formation
Structure not yet fully agreed
(investment)
Not currently reported
9
Tourism Collective Consumption
Not currently reported
10
Non-monetary Indicators
e.g. tourism volumes/nights; types of tourist etc.
Structure can reflect most useful indicators
20
Feature Article
Many nations have developed pilot
accounts, including, as stated, the UK in
2004. However, few regions have
developed TSAs; those in Norway and
Canada, and several in Spain. However,
even here regional results are usually
top-down allocations of national totals
rather than ‘bespoke’ regional tourism
accounts. Recently, work has been
undertaken in Wales and Scotland to
develop ‘bespoke’ TSAs for these
regions.
The Tourism Satellite Account for Wales
is, then, along with the Scottish account
developed in 2004, innovative and
novel. The Welsh TSA is in its second
iteration and (like the UK and Scottish
accounts) relates to the year 2000,
although key estimates have been
‘rolled forward’ to 2003. As with the UK
project, year 2000 was chosen to
provide a “benchmark” year prior to the
upheavals of foot and mouth and
September 11th 2001.
The Welsh Tourism Economy
Results from the TSA show that in 2000,
total visitor expenditure in Wales was
£3.5bn. The most important portion
was that due to day visitors at £1.5bn.
The TSA estimates that, of non-day
visitor spending, 64% was holiday
related, 20% business tourism and 16%
Visiting Friends and Relatives (VFR) and
other (tourism day-visit spending is all
leisure-related).
Around 9% of sales in the retail and
distribution sector, including motor fuel
sales,
are
tourist-dependent.
Comparison with figures for the UK
reveal that the accommodation and
restaurant sectors in Wales are more
dependent on tourists than in the UK as
a whole (although proportionately
smaller), whilst transportation sectors in
Wales are far less tourist dependent.
Comparison of tourism spending in
Wales with the output of tourism related
industries in Wales provides us with an
estimate of direct tourism-related valueadded. For 2000, this was estimated at
£1.1bn. This was 3.7% of wholeeconomy value-added in Wales in that
year. It is important to remember that
this figure does not include indirect
value-added that occurs, for example, in
the supply chain as tourist-facing
businesses purchase goods and services
from other Welsh businesses (Table 3).
This latter finding is probably explained
by the relative lack of non-road
transport infrastructure in Wales, and
the consequent reliance by tourists on
private transport. It also illustrates that
a proportion of tourism value-added
arises from well-developed international
transport
infrastructure
(air
and
seaports).
The TSA also tells us how dependent
different industries in Wales are upon
visitor spending. Different industries sell
different
proportions
of
their
commodities to tourists. Important
products in this respect include:
• Accommodation (serviced and nonserviced) (85% tourist-dependent)
• Restaurants and bars (51%)
• Transportation services (10%)
• Recreation (8%)
• Tourist attractions (100%)
Tourism-Dependent Employment in
Wales
If we apply the tourism ratios outlined
above to the different industries which
produce those commodities (often more
than one industry will produce a
commodity) we can estimate the
amount of employment which is
dependent on tourism in Wales.
Typically, not all jobs in a given “tourist”
industry are tourism-dependent as
Table 2 - Tourism Consumption by Purpose of Visit (2000)
Purpose of visit
£m
Holiday Tourism
1,220
64%
Business Tourism
390
20%
Visiting Friends and Relatives/Other
300
16%
Spending by Welsh residents before a trip abroad
130
-
Day Visitors
1,450
-
Total Tourism Consumption
3,495
-
Table 3 - Derivation of Tourism Value-Added from Gross Visitor Consumption
21
Feature Article
Table 4 - TSA Results – British Isles Comparisons (2000)
Tourism Consumption
Tourism Gross Value-added
Wales
Scotland
Ireland*
UK
£3.5bn
£7.4bn
€6.8b
£90bn
3.0%
3.8%
2.9%
3.7%
(% of economy)
(3.8%*)
Tourism Employment
76,000
130,000
147,000**
1,260,000
(as % of all workers)
6.2%
5.0%
8.6%**
4.7%
*Scottish GVA re-worked on same basis as UK & Wales
**Ireland employment estimates include indirect employment thus not comparable.
Abstracted from DCMS (2004); Hayes and Boag, 2004; Deegan et al. 2004
some turnover and hence incomes will
depend on non-visitor demand.
The TSA for 2000 gives an estimate of
76,000 tourism-dependent workers in
Wales for this year, including self
employed and owner-managers. This
comprises around 6.2% of all workers
in Wales. If we convert this to full-time
equivalent jobs, we achieve an estimate
of 59,000 FTEs or 5.5% of all FTEs in
Wales, showing that tourism-related
employment is relatively more seasonal
and/or part-time in nature. By far the
largest portion of tourism dependent
jobs are in restaurants and bars, at
29,000. Meanwhile, in hotels and other
accommodation, 18,400 jobs are
tourist-dependent.
It should not be forgotten that the
above
figures
relate
to
direct
employment only, and do not take
account of multiplier effects which are
discussed below.
The figures above imply that tourism is
more labour intensive (and hence lower
value-added) than most other industries
in Wales. However, this varies widely
across tourism industries, with transport
sectors in particular having very high
levels of value-added per employee.
Comparative Statistics: Wales and
the Rest of the British Isles
Results
from
TSAs
undertaken
elsewhere suggest that the tourism
economy in Wales is, in terms of relative
scale and importance, much the same
as for Scotland and the UK as a whole.
However, in Wales value-added is
concentrated much more in ‘hospitality’
sectors such as accommodation, food
and retail than for the UK, where
transport services are proportionally
more important. This is because Wales
cannot lever much of the spending
associated with international arrivals or
inter-regional public transport due to
the lack of infrastructure in the region.
Tourism in Wales Since 2000
Although the TSA is benchmarked to
year 2000, key estimates can be ‘rolled
on’ using more recent information on
tourism consumption. Undertaking this
exercise illustrates the difficulties
experienced by the sector during 2001
and 2002, when tourism gross valueadded dropped from £1.12bn to
£1.07bn before recovering to perhaps
£1.14bn in 2003. This real decline in
tourism consumption has meant that for
2003, the best estimate of tourism gross
value-added as a proportion of whole
economy is 3.3%. During this period,
tourism
dependent
employment
declined by an estimated 3,000 jobs
although
employment
has
since
recovered to beyond its level in 2000.
Modelling the Impact of Tourism on
the Rest of the Economy
The key results from the TSA are
interesting and informative, telling us as
they do about the overall levels of direct
tourism value-added in Wales, this
totalling £1.1bn in 2000 and comprising
3.7% of all value-added. However, this
is not the full extent of tourism’s impact.
As tourism industries demand inputs to
service the needs of their customers,
and as workers in tourism industries
spend their wages, there will be indirect
(supply chain and wage-related)
impacts.
We are unable to estimate indirect
value-added and other variables without
further manipulation of the TSA. This
manipulation essentially turns the
tourism ‘account’ into a tourism ‘model’.
This Personal Computer-based model is
known as the Tourism Impact and
Planning Model for Wales (TIPM). Its
development is crucially dependent
upon the Welsh TSA but it is important
to remember that the TSA and TIPM are
not the same: TIPM is a modelling tool
which
requires
some
restrictive
assumptions that are not needed for the
TSA.
The modelling of tourism in Wales
indicates an overall (direct and indirect)
total for Welsh tourism value-added of
£1.7bn. Thus, the direct and indirect
impact of tourism in Wales in 2000
amounted to around 5.6% of Welsh
value-added.
TIPM allows us to examine the indirect
effects of tourism activity in other ways,
including the impact upon incomes and
employment, and output or profits of
Welsh-based companies. For example,
directly
and
indirectly,
tourism
supported 80,000 FTE jobs or 7.5% of
Welsh FTE employment in 2000.
Future Development of the Welsh
TSA
The Welsh Tables are now fully
consistent with EUROSTAT and World
Tourism
Organisation
concepts,
Table 5 - Estimated Tourism-Dependent Employment in Wales, 2000-2003
Year
Persons
FTEs
2000
76,300
58,800
2001
75,800
58,400
2002
72,700
56,100
2003
77,900
60,000
22
Feature Article
Table 6 - Key Results from the Tourism Impact and Planning Model for Wales
£m 2000
Direct
Indirect
Total
Multiplier
Approx %
of Wales
Output/Demand
2,080
1,220
3,300
1.60
-
Gross Value-added
1100
610
1,710
1.55
5.6%
Employment (FTEs)
58,800
20,840
79,740
1.35
7.5%
Notes:
The figures here are not identical to those reported in the Wales TSA due to the algebraic manipulation necessary to
achieve economic multipliers.
Figures will not add due to rounding
definitions and methodology, with Wales
perhaps one of the first regions globally
to reach such a stage. Recent
refinement of the TSA in Wales has
included;
•
Disaggregation of tourism products,
to report guest houses/B&Bs and
non-serviced accommodation
separately (not available at UK
level)
•
Limited disaggregation by purpose
of visit; holiday, business and
VFR/other
•
Development of TSA Table 7 –
Employment in tourism industries
There are a number of areas where the
TSA can be refined to provide more
policy-useful information and contribute
more fully towards tourism strategy and
planning in Wales. These developments
vary in cost and benefits, and
discussions with WTB will decide the
most appropriate next steps. However,
issues under consideration are detailed
in the following paragraphs.
Improved Consumption Data – Data
on tourists’ spending are not reliable
and accurate at the UK-regional scale.
However, in 2005 WTB will likely
undertake
primary
research
to
supplement existing national surveys.
The next iteration of the TSA will use
any new data to improve estimates of
overall visitor consumption and hence
key headline outputs such as tourism
value-added and tourism-dependent
employment.
Timely Indicators – The full TSA is
only available several years after its
“reference year” and even annual
estimates are often more than a year
out of date. Work is underway in
Scotland which seeks to link TSA
outputs with quarterly estimates of
value-added in the economy to provide
timely indicators of industry progress.
Whilst Wales does not currently have a
similar GVA time-series, the next phase
of work will investigate the applicability
of this work and that undertaken
elsewhere to the Welsh case.
Sub Regional Indicators – Tourism is
an extremely uneven activity in Wales
and it is likely that for many coastal and
rural areas (including some of the most
deprived) tourism comprises a far
higher share of GVA than for the nation
as a whole. It is difficult to assess this
contribution at present. The next phase
of
the
report
will
examine
methodologies to produce “key” TSA
estimators for sub-regions of Wales,
including value-added and tourism
industry employment. It is not possible
(or desirable) to produce full TSAs for
sub-regions as the cost and data
implications
would
be
extremely
significant.
Progress in the Rest of the UK
As noted earlier, pilot TSAs have been
developed for both the UK and for
Scotland. Also during 2004, pilot studies
were undertaken for the Crown
Dependencies (Jersey, Guernsey and
the Isle of Man), Northern Ireland and
for English Regions. In each of these
cases it is not currently possible to
develop a full TSA as they do not benefit
from
the
economic
accounting
structures that are available for the UK,
Wales and Scotland.
It is difficult to envisage much further
progress in English Regions in particular
without a significant increase in the level
of resources allocated to both tourism
consumption
data
and
regional
accounting in England. So far, there is
little
evidence
that
Regional
Development Agencies can lever this
kind of improvement in the statistical
23
base, given their relatively low level of
resources and lack of direct influence on
the priorities of the Office for National
Statistics. The devolved authorities and
agencies in Wales and Scotland have
meanwhile been more successful in
identifying increases in resource for
basic data collection and analysis which
forms the basis for the TSA and,
potentially, other high-value outputs.
Conclusions
With its adoption by OECD, World
Tourism Organisation and EUROSTAT,
the TSA has emerged as the only
internationally acceptable way to
measure the economic significance of
tourism. At a TSA conference in
November 2004, EU representatives
made it clear that member states would
in future be required to provide
information to EUROSTAT that would be
of use in constructing TSAs. Thus,
development of these accounting
systems within the UK may be important
in justifying future funding and support
for tourism activities and facilities,
including EU grant aid.
It is clear that Wales and Scotland are
ahead of other regions in the UK (and
arguably the UK itself) in TSA
development. English regions will find it
difficult to keep pace unless underlying
statistical systems (that is, well
developed sets of regional accounts)
improve markedly, either as provided by
the Office for National Statistics, or as
individual
Regional
Development
Agencies commission or undertake this
fundamental work. However, the strong
support for the method by the Board on
the one hand, and VisitScotland and the
Scottish Executive on the other,
suggests that, in the short term at least,
the statistical and analytical gap may
widen further.
Feature Article
Endnotes:
The TSA project is funded by the Wales
Tourist Board (www.wtbonline.gov.uk)
and the first iteration was undertaken in
conjunction with Prof. Steve Wanhill and
John
Fletcher
of
Bournemouth
University. Any errors and omissions,
however, are the current author’s.
The research team are extremely
grateful
for
the
significant
methodological support, invitations to
technical workshops and much general
encouragement from Antonio Massieu,
Marion Libreros and others at WTO.
Selected Bibliography:
Allnutt D. (2004) Tourism Statistics
Improvement Initiative: Review of
Tourism Statistics Department for
Culture,
Media
and
Sport,
www.culture.gov.uk
Department of Culture Media and Sport
(2004), First Steps Tourism Satellite
Accounts Project, report by Cardiff
Business School; www.culture.gov.uk
EUROSTAT, OECD, UN & WTO (2001)
Tourism
Satellite
Account:
Recommended
Methodological
Framework
24
EUROSTAT
(2003)
European
Implementation Manual on Tourism
Satellite Accounts
Hayes, C and Boag, C (2004)
Development of the Tourism Satellite
Account for Scotland, Scottish Economic
Statistics 2004, pp 12-28. HMSO
Edinburgh.
Jones C., Munday M. and Roberts A.
(2003) Regional Tourism Satellite
Accounts: A Useful Policy Tool? Urban
Studies, Vol. 40, No. 13, 2777–2794.
Welsh Economic Review 17.1 SPRING 2005
Feature Article
In Search of Respectability: The
Changing Role and Contribution of
Business Schools
Professor Roger Mansfield
Director of Cardiff Business School
On 1st August, 1977 Professor Mansfield became the Director and Chairman of the Centre for Graduate Management Studies in
the University of Wales Institute of Science and Technology. Some nine years later on 1st August, 1986 the Centre was renamed
Cardiff Business School. Just over a year after that the remit of the School was widened significantly by taking over all the
activities of the Department of Business and Economics in UWIST, and the Departments of Economics, Accountancy and Financial
Control and Industrial Relations and Management Studies at University College, Cardiff ahead of the full merger of the two
Colleges in September 1988. From 1977 to the present day Professor Mansfield has continuously been the Director of what is
now Cardiff Business School. As he prepares to stand down from that role after 28 years, he reflects on some of the most
significant changes that have happened during that period.
Business schools were an American
invention dating back to the later years
of the 19th Century. In anything like
their
present
form,
they
were
introduced into the United Kingdom in
the middle of the 1960s with the
creation of London and Manchester
Business Schools.
The spread of
business schools in the UK after that
date was a slow and difficult process,
with substantial opposition from a
number of traditional disciplines in the
older universities. Considerable doubts
were expressed on many occasions
about the academic respectability of
business as a subject at University level
and in many cases it was seen as a
minor part of the study of economics.
In the 1960s and 1970s, in the post
Robbins expansion of higher education
in the UK, it was typically the newer
universities and the polytechnics that
embraced
business
education,
particularly strongly at undergraduate
level. Generally, and with a few notable
exceptions, business studies was the
term
employed
for
relevant
undergraduate
and
sub
degree
education, and management studies
was the nomenclature most commonly
used at postgraduate level. Congruent
with that, it is noteworthy that the
collective body representing those in the
university sector developing the study of
business was the Council of University
Management Schools. This became the
Association
of
Business
Schools
following the merger with its public
sector equivalent in 1992 at the same
time as the polytechnics were upgraded
to university status and the binary line
in
higher
education
in
Britain
disappeared.
Nowadays virtually every university and
other institution of higher education in
Britain has a business school and they
have become common place in
universities world-wide. Depending on
definitions, it is probably true that
around
one
fifth
of
British
undergraduates are now studying for a
degree in the business studies area. At
the same time as this expansion has
taken place, MBAs have become
dramatically more common in the UK
and around the world, and business
schools have become academically
respectable.
Indeed,
in
many
universities in Britain and elsewhere,
the business school is the largest single
part of the academic structure. The
changes noted above have had a very
significant
effect
upon
British
universities but have also had a
significant impact on society more
generally, and particularly on economic
development.
As is so often the case with history it is
difficult to envisage the situation and
the attendant attitudes that related to
business schools and their development
in the UK as they were expressed in the
1960s and 1970s.
By that time,
business schools in the United States
were well established and had achieved
a certain respectability in academic
circles. However, they were still treated
with some suspicion by many of those
working in the pure social sciences.
That suspicion was not so much based
on their academic shortcomings but
rather on their hypothesised political
flavour. At that time, in both the United
States and Europe, universities were
being criticised for having too strong a
linkage to the so called militaryindustrial complex and many of the
professional schools, and particularly
business schools were seen as the arch
villains.
In Britain the academic credibility of
business schools, business education
and
management
research
were
regularly called into question by those
from longer established disciplines. At
the same time as the academic
creditability of business schools was
being questioned in British universities,
particularly the older established ones,
the self same business schools were
regarded with suspicion in industry,
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commerce and the public sector for
being too academic and having an ivory
tower approach.
In Wales in the mid to late 1970s there
were no business schools in the sense
that is accepted today, certainly not by
name. The closest was probably the
Centre for Graduate Management
Studies and the related Department of
Business
Administration
and
Accountancy at UWIST.
In the late
1970s and early 1980s a variety of
discussions were held concerning the
possibility of establishing a business
school in Wales, but these discussions
came to very little in the short term. In
the light of what has happened since, it
is not easy to understand the logic of
the discussions held during that period
and the strong opposition to the
development of business schools and
business studies in Wales. The various
ideas concerning a significant new
initiative to create a Welsh business
school came to nothing, and it was, in
the event, the gradual development of
business education in a variety of
different institutions which slowly
changed the whole scenario. Similarly
to what was going on in many other
parts of Britain it was one of the
university institutions created in the
1960s, UWIST, which led the way and
eventually created a business school by
that name in the mid 1980s.
This
development was transformed in the
early stages of the processes leading to
the Cardiff merger which involved the
incorporation
of
a
number
of
departments in both UWIST and
University College, Cardiff into the
embryonic Cardiff Business School
leading to the creation of a Business
School which was recognisably similar,
albeit smaller, to what we have today.
As a signal of obtaining respectability in
university circles, the inauguration of
the transformed Cardiff Business School
in November 1987 by His Royal
Highness the Prince of Wales showed
the way. In the succeeding years, it
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was mainly other institutions of higher
education in Wales that were to follow
and now there are a variety of different
business schools within the Principality,
all of which having experienced
progressive expansion over the last 20
years.
The development of business schools in
Wales and elsewhere in the UK and
around the world in the latter part of the
20th century and the earlier part of the
21st century made a great deal of sense
for a variety of interlinked reasons.
First, it was part of the significant
expansion of university level education
which was going on at that time. One of
the enormous virtues of undergraduate
degrees in business is that they provide
large numbers of students with relevant
knowledge, skills and experience
relating to a wide variety of potential
future careers. Secondly, the growth of
business education was built on a
rapidly increasing intellectual base, as
the
amount
of
business
and
management relevant research was also
expanding at a high rate. In part this
expansion of research was based on
traditional
disciplines
such
as
economics, psychology and sociology,
but also on a new more interdisciplinary
concept of research coming from a
variety of discipline bases and united by
common substantive interests. Thirdly,
there could be no doubting that there
was a growing need for managers in
every walk of life who had at least a
basic knowledge of business and
business related skills. With intensifying
international competition, it was
becoming more and more obvious that
the day of the gifted amateur was over
and there was a need for highly
professional education and training for
managers and those working in staff
specialisms relating to management.
As they developed, business schools
played a growing part in the education
and training of managers and potential
managers
at
undergraduate,
postgraduate and post experience
levels. In addition in the latter part of
the 1980s, ever increasing numbers of
companies as well as government policy
makers were looking for guidance to the
research being carried out in academic
institutions. More often this research
was being done in business schools as
they developed. It should be noted that
this research covered a very wide
variety of areas and ranged from
relatively pure academic style research
through to highly applied, semi
consultancy, projects. In the 1990s and
the early part of the 21st century the
role of business schools in management
education and training, and in providing
research findings relevant to business
and government policy relating to
business has expanded significantly.
Certainly, criticisms of business schools
continue and will no doubt persist into
the future. However, the nature and
tone of the criticisms have changed
significantly since the 1970s. Business
schools are now regarded as an
established part of the university scene
whether viewed from other parts of the
universities or from outside. In many
respects business schools are now an
established part of social science, have
an enviable track record in research and
continue to educate large numbers of
managers and potential managers in the
UK. In addition they have attracted
many overseas students and are
providing a major contribution to
business education internationally.
Over the last 20 to 25 years there has
been
an
almost
complete
metamorphosis to the extent that
business schools are now often criticised
for being too much a part of the
university establishment rather than for
being outsiders in search of academic
and other respectability.
During the
most recent period the contribution
business schools have made is
indisputable in a large number of
different dimensions. They are now an
unchallenged and in many ways central
part of the academic life of many
universities, and the financial and other
well-being of many British universities is
significantly contingent on the success
and prosperity of their business school.
The foregoing is as true in Wales as it is
in other parts of the UK, and indeed in
many countries around the world. The
contribution of business schools to a
large number of economies and perhaps
most importantly to international
business and international relations
generally can no longer be disputed. In
Wales, as elsewhere, it is difficult to
define or quantify the contribution that
business schools have made, but there
can be no doubting that it is very
considerable and has assisted a
multitude of individuals, firms and
industries to develop competitively in a
global economy.
Clearly the business schools in Wales
make a direct contribution to the
economy by employing considerable
numbers of lecturers, researchers and
support staff. As typically the average
pay in a business school is significantly
above the average in the Welsh
economy,
this
contribution
is
substantial. In addition the business
schools attract sizeable numbers of
students from outside Wales, who pay
fees and spend money in the local
economy. In Cardiff Business School
alone over 900 of the students come
from outside the UK. The money they
bring in is a net contribution to the UK
economy. To this can be added all the
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students who come from across the
border with England who add significant
further amounts to the Welsh economy.
As a substantial amount of the money
spent by staff and students is spent
within Wales this indirectly provides
further
employment
and
further
contributions to the Welsh economy.
Obviously, the main role of business
schools is the education and training of
people at all levels and carrying out
research. It is difficult to demonstrate
the effect of these on economic
development but it seems a reasonable
proposition to believe that giving people
increased knowledge of business and
increased skills relating to management
must assist in economic development
wherever those individuals go to work
afterwards.
Numerically the largest group of
students who pass through the business
schools in Wales, as in other parts of the
UK, are those studying for first degrees.
The large majority of these enter at 18
having done ‘A’ levels but there is a
significant minority in some of the
business schools in Wales, as elsewhere,
who come in rather later and with other
forms of qualification. A typical first
degree in business or related subjects is
a 3 year degree although some
institutions offer a 4 year sandwich
degree.
Undergraduate degrees in
business these days provide a rigorous
intellectual learning experience as well
as providing a great deal of business
related knowledge and skills.
The
development of the knowledge base
relating to these degrees over the last
quarter century means that they are
capable of being as intellectually
rigorous as any other degrees offered by
British universities or indeed universities
world wide. Typically they are, of their
nature, interdisciplinary and draw on
knowledge from a number of social
science disciplines and virtually all of
them contain at least an element of
quantitative methods.
Although the
undergraduate degrees provided by
business
schools
are
strongly
vocationally relevant they are not
vocational in the narrow sense of
providing specific training for particular
roles.
They provide a mixture of
theoretical and applied knowledge and
are likely to furnish students with a solid
basis on which they can build a
postgraduate career.
Business schools are also very active in
postgraduate education and commonly
the most significant part of this is the
MBA degree. Increasing numbers of
people world wide now obtain this
qualification which is regarded by many
employers as an important and in some
cases essential prerequisite for a
managerial career. The MBA degree of
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its nature confers a general knowledge
of all aspects of business but also
provides
some
opportunity
for
specialisation in chosen areas. Many
students have relevant first degrees
before undertaking an MBA but there
remain a large number who build upon
degrees in entirely different disciplines
in order to prepare themselves for a
career in management in many different
walks of life. The MBA degree is often
one of the most difficult to obtain in the
British university system because of an
intense workload across a wide range of
business
related
subject
areas.
Although it is different from most other
master’s degrees in that it does not
directly build upon earlier education in
the specific subject area, it does deliver
a rigorous training for an ever-growing
number of students.
At post-experience level business
schools offer a wide range of educational
and training opportunities to diverse
groups. These range from very short
courses to rather longer courses,
sometimes spread over extended
periods. They can serve a wide variety
of purposes depending on the nature of
the programme offered and the nature
of the participants taking it. In some
cases these are provided to give people
a small amount of very specialised
knowledge and in other cases they can
be an updating of previously acquired
knowledge.
Some post-experience
education and training offered has a
significant experiential element to it and
can help develop skills in leadership and
related areas.
Perhaps most difficult to assess is the
contribution of business schools to
research activity.
As has been
previously noted research in business
schools covers a very wide range from
theoretical
research
designed
to
improve knowledge in a generic sense
through to highly applied research
seeking
solutions
to
immediate
problems. In many cases the research
is supported by the potential user of the
research findings, with the result that a
variety of industrial and commercial
concerns have funded substantial
amounts of research, particularly of the
more applied kind. There are a few
instances where a specific cash value
has been put on the benefits to the
sponsor of the research but in most
cases it is merely one factor which
impinges on the profitability or growth
of individual firms or industry sectors. A
significant amount of business school
research is funded by government
departments and government agencies
that are looking for evidence upon which
to base policies or sometimes to justify
existing policies. In these cases it is
usually even more difficult to try and
establish the benefit in monetary terms.
However,
it
is
becoming
more
commonplace for individual firms and
public bodies to sponsor research in
business schools.
In addition, the
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research councils fund business school
research in order to build knowledge
and contribute generally to the
development of the various disciplines
and our understanding of business
phenomena. In the long term, some of
this more theoretical pure research may
make the greatest contribution.
The extent to which business schools
and business school academics have
gained
respectability
is
further
demonstrated
by
the
numerous
occasions their views are sought by the
media on a wide range of issues.
Clearly there are many indicators that
show business schools are believed to
make a significant contribution to
society and particularly to economic
development. Over the last 40 years
since the development of business
schools really started in the UK, they
have become very much part of the
academic establishment and have
achieved
a
large
measure
of
respectability.
Business
school
academics contribute significantly to a
wide range of professional bodies of
both an academic and practitioner kind.
Their influence is now considerable and
this applies in Wales as in almost all
other parts of the world.
Business
schools in Britain have certainly come of
age. It is to be hoped that their new
found respectability will not inhibit their
dynamism and ability to innovate in the
future.
Welsh Economic Review 17.1 SPRING 2005
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Welsh Economic Review 17.1 SPRING 2005