The Economy Needs Us to Get Stuff Done 

A report from the V-Dem Institute landed in my inbox recently that, at first glance, appeared to have little to do with the Welsh economy.

The latest V-Dem Democracy Report estimates that just seven per cent of the world's population now lives in what it classifies as a liberal democracy, where governments are elected through free and fair elections, the courts operate independently of politicians, individual freedoms are protected, and those in power are subject to meaningful checks and balances. According to the report, global levels of democracy have fallen back to those last seen in the late 1970s.

It is a striking statistic.

Reading the report prompted me to think about a question that economists have debated for many years.

What is it that allows some countries to deliver sustained economic progress while others struggle to turn political ambition into economic outcomes?

Democracy is certainly part of the answer, but it is unlikely to be the whole answer.

Many of the world's wealthiest economies are long established democracies. Strong legal systems, secure property rights, transparent institutions and political accountability help create an environment in which businesses are willing to invest, innovate and take risks.

Yet some of the fastest growing economies of recent decades have operated under political systems where executive decision-making faces fewer constitutional or political constraints. In some cases, this has enabled governments to approve major infrastructure projects, pursue long term industrial strategies and implement reforms more rapidly than many democratic countries.

Rather than providing a simple answer, these contrasting experiences point towards a more fundamental question.

Perhaps what matters most is not simply how governments are chosen, but how effectively they are able to govern once they are in office.

Economists often describe this as state capacity.

State capacity refers to the ability of governments to develop policy, make decisions and implement them effectively through their public institutions. It encompasses the capability of the civil service, the consistency of regulation, the efficiency of planning systems and the ability of different public bodies to work together towards common objectives.

Countries with strong state capacity are not necessarily those with the largest public sectors or the most ambitious policy programmes. More often, they are countries where responsibilities are clearly defined, institutions function predictably, and policies are translated into practical outcomes.

This matters because businesses value certainty.

Businesses can adapt to changing tax rates, regulation and economic conditions. What makes investment more difficult is prolonged uncertainty, inconsistent decision making, and lengthy delays between policy announcements and implementation. For firms making investment decisions that may shape their operations for decades, confidence depends not only on the direction of policy but on whether governments possess the capacity to deliver it.

Recent experience across many advanced economies illustrates this well.

There has been no shortage of industrial strategies, infrastructure plans and economic visions. Yet the success of many of these initiatives has depended less on the quality of the strategy itself than on whether governments possessed the state capacity to implement it consistently over many years.

The same lesson has clear relevance for Wales.

The recent Senedd election recorded the highest voter turnout since devolution, demonstrating the importance people attach to the decisions now facing the new Welsh Government. Elections provide democratic legitimacy. Improving economic performance requires governments to translate that mandate into effective delivery.

The economic challenges facing Wales are well understood. Productivity remains below the UK average, earnings continue to lag behind most parts of Britain, and pressures on public finances leave limited room for policy error. At the same time, businesses continue to operate in an environment characterised by high borrowing costs, technological change and growing geopolitical uncertainty.

There is also little disagreement about many of the priorities. Improving productivity, strengthening skills, supporting innovation, expanding renewable energy and improving infrastructure all feature prominently within current economic debate.

The greater challenge lies in implementation.

Planning decisions need to be made more efficiently. Infrastructure projects need to progress at a pace that gives businesses confidence to invest. Skills systems need to respond more quickly to changes in labour market demand. Public bodies need to work together more effectively so that businesses encounter a coordinated rather than fragmented system.

These issues may appear administrative rather than economic. In reality, they have become increasingly important determinants of economic performance.

A well-designed industrial strategy has limited value if projects remain delayed within the planning system. A Development Agency will only strengthen the Welsh economy if it changes how investment is coordinated and delivered. Similarly, ambitions to close Wales' productivity gap will only be realised if public institutions possess the capability to implement policy consistently over many years.

I was reminded of this on a flight home from New York several years ago.

I asked the passenger sitting next to me what they thought of Donald Trump. They admitted they were not particularly a fan but had nevertheless voted for him.

When I asked why, their answer was remarkably simple.

“Republicans get stuff done.”

Whether that assessment was fair is almost beside the point. What struck me was that they were judging government less by ideology than by its perceived ability to deliver.

There is an important lesson there for Wales.

For businesses, households and investors, the success of the new Welsh Government is unlikely to be judged by the number of strategies it publishes or consultations it launches. It will be judged by whether those ambitions translate into tangible improvements in productivity, investment, public services and living standards.

That may ultimately prove to be one of the defining challenges of this Senedd term.