The Welsh Economy XIV: Foundations & Revolutions

(Title Image: Dallas Observer)

This piece focuses on two separate philosophical, economic and socio-political concepts. One of them most people won’t have heard of before despite being very familiar with it, the other is developing a bit of a mythology around it and may transform what we mean by work (not just how we do it) or could just as easily not happen at all.

The first one is The Foundational Economy. The other, the Fourth Industrial Revolution (aka. Industry 4.0).

The Foundational Economy

The Foundational Economy is a concept developed by Manchester Business School in 2017 (What Can Wales do?pdf). In essence, the Foundational Economy consists of what are described as “mundane and overlooked” tasks, rooted in local communities and based around either rudimentary services or occasional purchases.

Some of the types of economic activity counted as part of the Foundational Economy include travel, personal services like care and cosmetology (hairdressing, pedicures etc.), convenience food/takeaways and restaurants, skilled tradespeople, hospitality, vehicle repairs, logistics and retail.

The Foundational Economy in Wales


(Pic: South Wales Argus)

The work by Manchester Business School (linked earlier) looked specifically at its role in the Swansea Bay region. The city deal is focusing on “next generation industries”, but the report says these are unlikely to replace the jobs lost in manufacturing. The Foundational Economy was actually more important to Swansea Bay in terms of jobs and economic contributions.

The paper argues that instead of focusing on “the next big thing”, it was worth re-examining what was already there and what is often a far more secure, far more socially-integrated part of the economy in post-industrial areas.

An example’s given of local foundational SMEs – like Llanelli-based Jenkins Bakery – which have the potential to grow and offer steady employment but are overlooked in the chase for high-end, high-tech services.

Estimates put the proportion of the Welsh workforce who work in the Foundational Economy at anything up to 40%. The Foundational Economy also has a number of key strengths that are relevant to Wales.

Firstly, the Foundational Economy is said to be economically sheltered. Businesses operating in the Foundational Economy often weather major economic shocks because they’re inherently local in scale and rely on short supply chains and less on global trade.

Secondly, Foundational Economy services are “inelastic”; demand doesn’t really change over time and isn’t as reliant on consumer income as high-end services. They’re the universal basic services that support everything else in the economy.

Nonetheless, despite these strengths, there are notable weaknesses.

Foundational economy jobs are marked by low pay, low-tech/skills and shorter working hours (making up a large proportion of part-time jobs). The chase for profits has also seen major players in the Foundational Economy – like major supermarkets (the biggest private employers in Wales) and care home providers – crowd out local suppliers and smaller, locally-based, players.

What can be done to boost the Foundational Economy?


The potential of the Foundational Economy has been discussed several times by AMs (Pic: BBC Wales)

There are a number of suggestions, both within the report and raised by others (including AMs).

The reorganisation of adult and child care – It’s said that reform to how care is delivered could be to the 21st Century what the NHS was to the 20th Century. Some suggestions include effectively combining social work with personal care, introducing rotas of fixed visits, breaking up “blockhouse” style care homes into smaller “greenhouse” shared housing and provide training to informal carers.

A larger role for community hubs and community politics – The report suggests that community hubs, owned by the community, should become the focal point for local political and social life.

Building up small and micro firm capabilities – Wales lacks what are described as “Mittelstand” businesses (independent, long-term focused small and medium-sized companies) because, historically, business owners in Wales have sold companies off once they reach a certain size (Part XV); but these smaller businesses are said to be a great asset to a community when properly supported.

Improve local sourcing and local procurement – The primary driver for this is likely to be local authorities and public agencies. Procurement contracts could have social benefits included within them (i.e. creating a certain number of apprenticeships or full-time roles for locals).

Upskilling the foundational workforce – Some suggestions include flexible training schemes for managers of SMEs, flexible workspaces for the self-employed, flexible workspaces to experiment in manufacturing and moving to a German-style apprenticeship system where technical and vocational qualifications are held in the same esteem as academic ones (and cover a wider variety of occupations).

The Mondragon Model – There may be a romanticism for co-operatives in Wales that isn’t evident on the ground. Nonetheless, co-operatives, mutuals and friendly societies were once very popular in Wales in the past and they might be the long-term answer to some of our problems in the present. Co-operatives are, in essence, owned by the members and workers but still run as a business. The Basque Country’s Mondragon Corporation – a federation of 266 co-operatives, providing everything from supermarket retail, industrial equipment, banking, insurance and even a university – employs up to 80,000 people with an annual turnover of more than €12billion. Could something like this work in The Valleys?

If the Foundational Economy is the run-of-the-mill, unglamorous but safe side of the Welsh economy, then the Fourth Industrial Revolution is the opposite; but perhaps these two incompatible (on paper) economic movements could complement each other more than we think.

The Fourth Industrial Revolution


Why it’s called the “Fourth” Industrial Revolution (Pic:

I’ve written about this several times and this has also been debated several times in the Senedd. The two posts worth pointing you towards are, “How will automation hit Wales?” and “Prepping Wales for the next industrial revolution“.

The Fourth Industrial Revolution is the economic era, currently underway, where technology, people and businesses work as one. Related concepts include artificial intelligence (AI), automation, “big data”, 5G (aka. the internet of things), augmentation/augmented reality and 3D printing.

Expected Advantages

Greater connectivity – Industrial and business processes are likely to become far more efficient than at present because of the use of data to avoid wasteful/inefficient actions and the application of carefully controlled decision-making. The increased use of sensors and wireless technologies like 5G make it far easier for different systems to communicate with each other instead of having entirely separate input-output processes.

Open data & AI – Use of open and big data can improve the efficiency of public services. The Senedd inquiry heard how the use of open data in medicines management could potentially save the Welsh NHS £27million alone. AI could be used to provide faster access to the right treatment and triage in the NHS, or even provide company and rudimentary personal care services to people in care homes. Autonomous vehicles may result in fewer accidents and less traffic congestion if they can make decisions, using for more information, in a faster time than a human driver.

Productivity Boost – Productivity is what drives economic growth and handing over many economic processes to programmes, AI and other machinery – which can work 24/7 – is no doubt going to be a major boost to productivity in all sectors of life, not just manufacturing. Precision agriculture, for example, could make farming more efficient and if it were combined with new methods of farming like earth sheltered farming and vertical/urban farming then it would provide a level of food security.

Expected Disadvantages

Ongoing skills mismatch – New technologies are going to require new skills and the harsh fact is very few people in the modern workforce are going to have them. An additional problem is that the pace of change has been so quick over the last few years, skills and technologies that are currently taught to children might be obsolete by the time they’re ready to enter the workforce.

Mass redundancy – Some estimates suggest that up to 700,000 jobs in Wales could be at risk from automation over the next 20 years. It’s inevitable that some job – particularly those “middle” roles between processes (shop floor retail, logistics etc.), are likely to be automated in the long term – though new jobs and roles would be created to partly replace them (I come back to this later). Jobs likely to be safe from the threat of automation are those which require building specialist and complex relationships, advanced training, creativity, high levels of “trust” and/or come with a measure of unpredictability (i.e. legal practice, law enforcement, creative industries, IT systems, skilled trades, most healthcare roles).

Cybersecurity – Having everything connected sounds great, but in practice could cause as many problems as it solves, particularly if the systems are vulnerable to attack. Security issues in relation to the internet wouldn’t just be the reserve of banks and online retail but will start to affect manufacturing and public services. We all know how damaging a data leak can be, but imagine if that starts to become more commonplace or hackers manage to break into an automated traffic system?

How to deal with the side-effects of Industry 4.0?



Which sci-fi future lies for us with Industry 4.0?: Robocop (bad) or Star Trek (good)? It depends on our politicians. (Pic: Dallas Observer)

Truly lifelong learning – The pace of technological change is such that it’s going to have to become routine for people in their 30s, 40s and older to take up higher and further education courses to keep up. Going to university two or three times in a lifetime will likely become normal or even expected. As a result, changes would have to be made to how such courses are provided and funded; for example, could we cram a three-year degree into one year?

Augmented workplaces – Emerging technologies should be used to make specific repetitive tasks more efficient, not fully replace human roles (though no doubt some roles would be fully replaced). This could well apply to businesses in the Foundational Economy; retailers could use big data to predict consumer trends and monitor stock but people will still supervise; mechanics can use digital technologies to correctly diagnose faults or predicted points of failure and repair them etc.

Basic income – Automation might be the driving factor behind a basic income (where everyone is paid a certain non-means-tested stipend by the government). If people are going to find themselves out of work with no hope of ever finding full-time employment again they’ll need to be sustained somehow and a basic income is one part of that. I’ll come back to the practicalities of this another time.

Different working patterns – If there are fewer jobs to go around it makes more sense to share them out or reduce the working week instead of having people to drop out of the employment market altogether. This would lead to falls in income (unless offset by a basic income or something similar), but it could also mean people having a much better work-life balance, being able to take up healthy habits like sport or even leading to a boom in things like performing arts and lifelong education as people have more free time.

Start valuing “hidden work” – Childcare, volunteering, community work, unpaid care – these are all roles that go unrecognised and unrewarded in the current economy but are likely to be cornerstones of society in an automated economy. Again, it would raise the question of a basic income or local currencies to give these roles the respect, recognition and “worth” they deserve.

Cybersecurity as a national defence priority post-independence (See also, Defending Wales VII) – Many governments now have specialist cyber-security teams or training centres while many also carry out organised cyber attacks against other countries. Wales should set up a cybersecurity unit (whether run by the police, military or security services) with people recruited directly from relevant or specially-designed university courses.