MSC: Problems with Inward-Investment-based Job Creation

Molly Scott Cato has published papers on employment policy in Wales (Contemporary Wales, 2000) and the impact of inward investment on economic regeneration (Local Economy, 2001).

The government’s inward-investment based employment policy in Wales has attracted sceptical attention since its inception, but it was holed below the waterline by the experience of the disastrous LG investment, which led to a terminal undermining of confidence in the reliance on foreign-based companies to solve Wales’s employment problems.

As the largest-ever foreign investment in Europe the LG project was always going to attract attention, and in the early days (it was announced in 1996), it was trumpeted by both politicians and the Welsh Development Agency. The project was in two parts and involved the construction of an integrated monitor plant and a micro-chip wafer manufacturing plant on a greenfield site near Newport.

The exact size of the grant was given in evidence to the Welsh Affairs Select Committee (WAC, 1998) as £1,664m. for the promised creation of 6,100 jobs. The size of public-sector support was also a record at £248m. A simple calculation makes it apparent that the cost per job of this scheme to the public was slightly in excess of £40,600, a sum which has called into question the cost-effectiveness of this sort of employment scheme (WAC, 1998: para. 6).

But worse was to follow, when, as a consequence of a slump in world prices for micro-chips following a global glut, LG reneged on the deal . . .

The result is that the new factory, subsidised as part of the incentive package, stands empty. The promised jobs will never now materialise and most of the £250 million of development grants has already disappeared into LG’s international debts. The Welsh Affairs Select Committee concluded that:

Even when taking into account the potential multiplier effect of such a large enterprise, the value of the public investment in LG must at best be unproven. There has been widespread concern in Wales, outside the Newport area at least, that public sector resources intended to stimulate indigenous industry have been redirected to fund LG (WAC, 1998: para 6).




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