Wales currently stands at a crossroads between two economic ideologies, both of which will harm its economy.
One the one hand is Labour’s increasingly hard-left socialism and on the other, the crony-capitalism on the Tory party.
Neither is the answer to Wales’ economic problems, and if the economy is to improve Wales requires the economic levers to chart its own middle path.
First I’ll explain why these two choices would be damaging for Wales before explaining why a different path is needed.
The track record of socialist countries (such as the USSR, Mao-era China, Ceausescu-era Romania and North Korea) to create prosperity has been pitiful.
A ‘command’ or centrally planned economy will never function as usefully as one where the individual has the fundamental right to make her own decisions, insofar as she does not harm anyone else.
The capitalist incentive of doing what is best for yourself and your family is undoubtedly the main driver of the innovation that brings new products, the competition that lowers price for consumers and the mass production that improves standards of living.
Socialism in the narrowest sense is as much of a danger to society as extreme laissez-faire governance.
In the (possibly misattributed) words of David Lloyd George; ‘a boy who is not a socialist doesn’t have a heart, a man who is a socialist doesn’t have a head.’
However, ultra-capitalism doesn’t work either. While individual self-interest is the engine that drives the economy, it also needs tempering and direction.
Economic growth is pointless if it doesn’t benefit the majority. In the US, GDP has doubled over the course of 30 years yet median household income has only increased by 16%.
Economic freedom is also worthless if you are faced with crimes from impoverished people, the whims of diseases hidden in your genes, poor job opportunities or dangerous air quality.
Allowing governance to be guided only by vested commercial interests creates countries that don’t work for its citizens. The UK’s woeful rail network and the US’ ineffective healthcare are good examples.
Crony capitalism is epitomized in the UK by more than £400 per person going towards fossil fuel sector subsidies, while disabled citizens see their benefits cut and the poorest families choose between heating and eating.
A socialist economy is dysfunctional while an ultra-capitalist one is heartless. For Wales, the trick is not to pick between two extremes but to get the balance right.
Unfortunately, it stands at the periphery of a centralized UK economy and does not even have the economic levers to change course.
To change that, Wales must demand a Parliament with legislative and tax-varying powers.
This would allow Wales to create a positive environment for innovation and business operations.
Wales must attract scale-up businesses that can grow quickly to provide for more of its citizens with research and development tax credit.
This will create jobs and reverse the outflow of capital and labour, thereby producing technological spillovers and a feedback loop of employment prospects and capital accumulation.
State ownership works in some cases; where natural monopolies occur (such as rail), where more investment in human capital is needed (such as education) and where a safety net can encourage consumer spending and investment with greater confidence (such as healthcare).
Commercial expertise will always be valued for each, but the provision of effective public services is crucial for a well-functioning economy.
Our government should provide the level of spending required to adequately provide for citizens and ensure that those with the broadest shoulders bear the highest tax burden, and provide the renewable energy initiatives and right type of stimulative fiscal policy.
People-led (rather than ideological) governance driven by sound logic, evidence and empirical analysis will serve Wales far more effectively than blind adherence to market forces or state ownership.
It is the only way for Wales to truly prosper in the modern global economy.