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Welsh Economic Review 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, 25 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 Feature Article 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 26 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 Feature Article 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 27 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 Feature Article 28 Welsh Economic Review 17.1 SPRING 2005