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Public Venture Capital in a Regional Economy: The Welsh Development Agency, 1976–1994

Published online by Cambridge University Press:  12 July 2019

LEON GOOBERMAN Open the ORCID record for LEON GOOBERMAN [Opens in a new window]  and
TREVOR BOYNS
LEON GOOBERMAN
Affiliation:
Leon Gooberman is Lecturer in Employment Relations at Cardiff University’s Cardiff Business School. His research interests include the state’s historic role in regional economic development, as well as the evolving nature and role of employers’ organizations. Cardiff Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff, CF10 3EU, Wales. E-mail: [email protected]
TREVOR BOYNS
Affiliation:
Trevor Boyns is Professor of Accounting and Business History at Cardiff University’s Cardiff Business School. His research interests include the economic and business history of the British coal industry and the development of cost and management accounting. Cardiff Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff, CF10 3EU, Wales. E-mail: [email protected]
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Abstract

Between 1976 and 1994 the UK Government’s Welsh Development Agency made 2,304 loan and equity investments totaling £117.8 million. The agency aimed to address difficulties faced by firms in obtaining finance, and such intervention was justified by the market failure and spillover hypotheses. This article assesses the agency’s investment activities against both justifications. It finds that while some investments succeeded, the portfolio’s financial performance was poor, and the agency did not address widespread market failure. Evidence of spillover returns existed, but cannot be quantified accurately across the portfolio. The article argues that the agency’s two venture capital objectives, to assemble a profitable portfolio and to grow employment levels through boosting commercial activity, were incompatible within a poorly performing regional economy. Although spillovers can justify public venture capital in such economies, expectations as to financial performance should be realistic in the absence of an ecosystem that facilitates demand for capital.

Type
Article
Information
Enterprise & Society , Volume 20 , Issue 4 , December 2019 , pp. 978 - 1006
Copyright
Copyright © The Author 2019. Published by Cambridge University Press on behalf of the Business History Conference. All rights reserved. 

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References

Bibliography of Works Cited

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Gooberman, Leon. From Depression to Devolution, Economy and Government in Wales, 1934 to 2006. Cardiff: University of Wales Press, 2017.Google Scholar
Griffiths, Dylan. Thatcherism and Territorial Politics. Aldershot, UK: Avebury, 1996.Google Scholar
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Carnevali, Frances. British and Italian Banks and Small Firms: A Study of the Midlands and Piedmont, 1945–1973. Unpublished PhD thesis, London School of Economics, 1997.Google Scholar
Carnevali, Frances, and Scott, Peter. “The Treasury as a Venture Capitalist: DATAC Industrial Finance and the Macmillan Gap, 1945–60.” Financial History Review, 6 (1999): 47–65.CrossRefGoogle Scholar
Coase, Ronald. H. “The Problem of Social Cost.” Journal of Law & Economics, 3 (1960): 1–44.CrossRefGoogle Scholar
Cosh, Andy, and Hughes, David. “Size, Financial Structure and Stability: UK Companies in the 1980s.” In Finance and the Small Firm, edited by Hughes, Alan and Storey, David J., 18–63. London: Routledge, 1994.Google Scholar
Evans, Neil. “Two Paths to Development: Wales and the Northeast of England.” In Regions and Industries: A Perspective on the Industrial Revolution in Britain, edited by Hudson, Pat, 201–227. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Gooberman, Leon. “Welsh Office Exceptionalism, Economic Development and Devolution, 1979 to 1997.” Contemporary British History, 30, no. 4 (2016): 563–583.CrossRefGoogle Scholar
Hood, Neil. “Public Venture Capital and Economic Development: The Scottish Experience.” Venture Capital, 2, no. 4 (2000): 313–341.CrossRefGoogle Scholar
Jones, Calvin. “Comparative Disadvantage? The Industrial Structure of Wales.” In Wales in the 21st Century, edited by Bryan, Jane and Jones, Calvin, 11–24. Basingstoke: Macmillan, 2000.CrossRefGoogle Scholar
Mason, Colin, and Harrison, Richard. “Closing the Regional Equity Gap? A Critique of the Department of Trade and Industry’s Regional Venture Capital Funds Initiative.” Regional Studies, 37, no. 8 (2003): 855–868.CrossRefGoogle Scholar
Mazzucato, Mariana, and Caetano, C. R. P.. “Beyond Market Failures: The Market Creating and Shaping Roles of State Investment Banks.” Journal of Economic Policy Reform, 19, no. 4 (2016): 305–326.CrossRefGoogle Scholar
McNabb, Robert, and Shorey, John. “The Labour Market.” In The Welsh Economy, edited by George, Kenneth D. and Mainwaring, Lyn, 111–132. Cardiff: University of Wales Press, 1988.Google Scholar
Morgan, Kevin. “The Regional Animateur: Taking Stock of the Welsh Development Agency.” Regional & Federal Studies, 7, no. 2 (1997): 70–94.CrossRefGoogle Scholar
Morgan, Kevin, and Henderson, Dylan. “The Fallible Servant: Evaluating the Welsh Development Agency.” In Nationality and Planning in Scotland and Wales, edited by Thomas, Huw and Macdonald, Roderick, 77–98. Cardiff: University of Wales Press, 1997.Google Scholar
Munari, Federico, and Toschi, Laura. “Assessing the Impact of Public Venture Capital Programmes in the United Kingdom: Do Regional Characteristics Matter?” Journal of Business Venturing, 30 (2014): 205–226.CrossRefGoogle Scholar
Perchard, Andrew, and MacKenzie, Niall G.. “Too Much on the Highlands? Recasting the Economic History of the Highlands and Islands.” Northern Scotland, 4 (2013): 3–22.CrossRefGoogle Scholar
Pugh, Rhiannon, MacKenzie, Niall G., and Jones-Evans, Dylan. “From ‘Techniums’ to ‘Emptiums’: The Failure of a Flagship Innovation Policy in Wales.” Regional Studies, 52, no. 7 (2018): 1009–1020.CrossRefGoogle Scholar
Robertson, Lewis. “The Scottish Development Agency.” In Scottish Government Yearbook for 1978, 21–31, accessed October 1, 2018, www.scottishgovernmentyearbooks.ed.ac.uk/record/22762/1/1978_2_Scottishdevelopmentagency.pdf.Google Scholar
Ross, Duncan. “The ‘Macmillan Gap’ and the British Credit Market.” In Finance in the Age of the Corporate Economy, edited by Cotrell, Philip L., Teichova, Alice, and Yuzawa, Takeshi, 209–226. Aldershot, UK: Ashgate, 1997.Google Scholar
Stiglitz, Joseph, and Weiss, Andrew. “Credit Rationing in Markets with Imperfect Information.” American Economic Review, 3 (1981): 393–410.Google Scholar
Zacharakis, Andrew, Shepherd, Dean, and Coombs, Dean. “The Development of Venture-Capital-Backed Internet Companies, an Ecosystem Perspective.” Journal of Business Venturing, 18 (2003): 217–231.CrossRefGoogle Scholar
Central Statistical Office. Abstract of Regional Statistics, No. 7 (1971).Google Scholar
House of Commons. Committee on Finance and Industry, Report, Cmd. 3897 (“Macmillan Report,” 1931).House of Commons. Committee on the Workings of the Monetary System, Cmd. 827 (“Radcliffe Report,” 1958–59).Google Scholar
House of Commons. Report of the Committee of Inquiry on Small Firms, Cmd. 4811 (“Bolton Report,” 1971).Google Scholar
House of Commons. The Financing of Small Firms, Interim Report of the Committee to Review the Functioning of Financial Institutions, Cmd.7503 (“Wilson Report,” 1979)Google Scholar
House of Commons. Committee of Public Accounts, Appraisal of Investment Opportunities and Monitoring of Investment, Investment in P. Leiner and Sons Ltd, HC 782, 1980.Google Scholar
National Audit Office. Investment Activities of the Scottish Development Agency, Welsh Development Agency and the Highlands and Islands Development Board, London: National Audit Office, 1985.Google Scholar
United Nations Conference on Trade and Development. The Role of Development Banks in Promoting Growth and Sustainable Development in the South . New York and Geneva: United Nations, 2016.Google Scholar
WDA. Annual Accounts, various editions.Google Scholar
WDA. Annual Report, various editions.WDA. The First Five Years, 1981.Google Scholar
Welsh Council. The Availability of Capital for Small Firms in Wales. Cardiff, 1969.Google Scholar
Welsh Office. Welsh Economic Trends, various editions.Google Scholar
National Archives, Kew (TNA), WDA Board Papers (WA 8), Welsh Office (BD/41), London.Google Scholar
National Library of Wales (NLW), Crickhowell Papers, Aberystwyth.Google Scholar
The Western Mail, Cardiff.Google Scholar
Carnevali, Frances. Europe’s Advantage: Banks and Small Firms in Britain, France, Germany, and Italy Since 1918 . Oxford: Oxford University Press, 2005.CrossRefGoogle Scholar
Cole, David, ed. The New Wales. Cardiff: University of Wales Press, 1990.Google Scholar
Collins, Michael, and Baker, Mae. Commercial Banks and Industrial Finance in England and Wales, 1860–1913. Oxford: Oxford University Press, 2003.Google Scholar
Coopey, Richard, and Clarke, Donald. 3i: Fifty Years Investing in Industry. Oxford: Oxford University Press, 1995.CrossRefGoogle Scholar
Deacon, Russell. The Governance of Wales—The Welsh Office and the Policy Process 1964–99. Cardiff: Welsh Academic Press, 2002.Google Scholar
Edwards, Nicholas. Westminster, Wales and Water. Cardiff: University of Wales Press, 1999.Google Scholar
Gooberman, Leon. From Depression to Devolution, Economy and Government in Wales, 1934 to 2006. Cardiff: University of Wales Press, 2017.Google Scholar
Griffiths, Dylan. Thatcherism and Territorial Politics. Aldershot, UK: Avebury, 1996.Google Scholar
Humphrys, Graham. Industrial Britain, South Wales. Newton Abbot, UK: David and Charles, 1972.Google Scholar
Johnes, Martin. Wales Since 1939. Manchester: Manchester University Press, 2012.CrossRefGoogle Scholar
Keynes, John Maynard. The Collected Writings of John Maynard Keynes, A Treatise on Money. Vol. 1. The Pure Theory of Money. London: Macmillan, 1971.Google Scholar
Lerner, Josh. Boulevard of Broken Dreams, Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—And What To Do About It . Princeton, NJ: Princeton University Press, 2009.CrossRefGoogle Scholar
Mazzucato, Marina. The Entrepreneurial State . New York: Public Affairs, 2015.Google Scholar
McCrone, Gavin. Regional Policy in Britain. London: George Allen, 1971.Google Scholar
Moretti, Enrico. The New Geography of Jobs. New York: Houghton Mifflin Harcourt, 2012.Google Scholar
Morgan, Kevin, and Sayer, Andrew. Microcircuits of Capital . Cambridge: Polity Press, 1988.Google Scholar
Morris, John [Lord Morris of Aberavon]. Fifty Years in Politics and the Law. Cardiff: University of Wales Press, 2011.Google Scholar
O’Sullivan, Timothy. Julian Hodge—A Biography. London: Routledge & Kegan Paul Books, 1981.Google Scholar
Redwood, John. Views from Wales. London: Conservative Political Centre, 1994.Google Scholar
Wade, Robert. Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation. Princeton, NJ: Princeton University Press, 2004.Google Scholar
Walker, Peter. Staying Power—An Autobiography. London: Bloomsbury, 1991.Google Scholar
Wiener, Martin. English Culture and the Decline of the Industrial Spirit 1850–1980. Cambridge, Cambridge University Press, 1980.Google Scholar
Williams, Hywel. Guilty Men: Conservative Decline and Fall 1992–1997. London: Aurum Press, 1998.Google Scholar
Williams, L. J. Digest of Welsh Historical Statistics, 1974–1996. Cardiff: Welsh Office, 1998.Google Scholar
Wren, Colin. Industrial Subsidies. Basingstoke: Macmillan, 1996.CrossRefGoogle Scholar
Baber, Colin, and Dessant, Jeffrey. “Modern Glamorgan: Economic Development After 1945.” In Glamorgan County History, Vol. 5, edited by John, Arthur and Williams, Glanmor, 581–658. Cardiff: University of Wales Press, 1980.Google Scholar
Berger, Allen, Miller, Nathan, Petersen, Mitchell, Rajan, Raghuram, and Stein, Jeremy. “Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks.” Journal of Finance Economics, 76, no. 2 (2005): 237–269.CrossRefGoogle Scholar
Carnevali, Frances. British and Italian Banks and Small Firms: A Study of the Midlands and Piedmont, 1945–1973. Unpublished PhD thesis, London School of Economics, 1997.Google Scholar
Carnevali, Frances, and Scott, Peter. “The Treasury as a Venture Capitalist: DATAC Industrial Finance and the Macmillan Gap, 1945–60.” Financial History Review, 6 (1999): 47–65.CrossRefGoogle Scholar
Coase, Ronald. H. “The Problem of Social Cost.” Journal of Law & Economics, 3 (1960): 1–44.CrossRefGoogle Scholar
Cosh, Andy, and Hughes, David. “Size, Financial Structure and Stability: UK Companies in the 1980s.” In Finance and the Small Firm, edited by Hughes, Alan and Storey, David J., 18–63. London: Routledge, 1994.Google Scholar
Evans, Neil. “Two Paths to Development: Wales and the Northeast of England.” In Regions and Industries: A Perspective on the Industrial Revolution in Britain, edited by Hudson, Pat, 201–227. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Gooberman, Leon. “Welsh Office Exceptionalism, Economic Development and Devolution, 1979 to 1997.” Contemporary British History, 30, no. 4 (2016): 563–583.CrossRefGoogle Scholar
Hood, Neil. “Public Venture Capital and Economic Development: The Scottish Experience.” Venture Capital, 2, no. 4 (2000): 313–341.CrossRefGoogle Scholar
Jones, Calvin. “Comparative Disadvantage? The Industrial Structure of Wales.” In Wales in the 21st Century, edited by Bryan, Jane and Jones, Calvin, 11–24. Basingstoke: Macmillan, 2000.CrossRefGoogle Scholar
Mason, Colin, and Harrison, Richard. “Closing the Regional Equity Gap? A Critique of the Department of Trade and Industry’s Regional Venture Capital Funds Initiative.” Regional Studies, 37, no. 8 (2003): 855–868.CrossRefGoogle Scholar
Mazzucato, Mariana, and Caetano, C. R. P.. “Beyond Market Failures: The Market Creating and Shaping Roles of State Investment Banks.” Journal of Economic Policy Reform, 19, no. 4 (2016): 305–326.CrossRefGoogle Scholar
McNabb, Robert, and Shorey, John. “The Labour Market.” In The Welsh Economy, edited by George, Kenneth D. and Mainwaring, Lyn, 111–132. Cardiff: University of Wales Press, 1988.Google Scholar
Morgan, Kevin. “The Regional Animateur: Taking Stock of the Welsh Development Agency.” Regional & Federal Studies, 7, no. 2 (1997): 70–94.CrossRefGoogle Scholar
Morgan, Kevin, and Henderson, Dylan. “The Fallible Servant: Evaluating the Welsh Development Agency.” In Nationality and Planning in Scotland and Wales, edited by Thomas, Huw and Macdonald, Roderick, 77–98. Cardiff: University of Wales Press, 1997.Google Scholar
Munari, Federico, and Toschi, Laura. “Assessing the Impact of Public Venture Capital Programmes in the United Kingdom: Do Regional Characteristics Matter?” Journal of Business Venturing, 30 (2014): 205–226.CrossRefGoogle Scholar
Perchard, Andrew, and MacKenzie, Niall G.. “Too Much on the Highlands? Recasting the Economic History of the Highlands and Islands.” Northern Scotland, 4 (2013): 3–22.CrossRefGoogle Scholar
Pugh, Rhiannon, MacKenzie, Niall G., and Jones-Evans, Dylan. “From ‘Techniums’ to ‘Emptiums’: The Failure of a Flagship Innovation Policy in Wales.” Regional Studies, 52, no. 7 (2018): 1009–1020.CrossRefGoogle Scholar
Robertson, Lewis. “The Scottish Development Agency.” In Scottish Government Yearbook for 1978, 21–31, accessed October 1, 2018, www.scottishgovernmentyearbooks.ed.ac.uk/record/22762/1/1978_2_Scottishdevelopmentagency.pdf.Google Scholar
Ross, Duncan. “The ‘Macmillan Gap’ and the British Credit Market.” In Finance in the Age of the Corporate Economy, edited by Cotrell, Philip L., Teichova, Alice, and Yuzawa, Takeshi, 209–226. Aldershot, UK: Ashgate, 1997.Google Scholar
Stiglitz, Joseph, and Weiss, Andrew. “Credit Rationing in Markets with Imperfect Information.” American Economic Review, 3 (1981): 393–410.Google Scholar
Zacharakis, Andrew, Shepherd, Dean, and Coombs, Dean. “The Development of Venture-Capital-Backed Internet Companies, an Ecosystem Perspective.” Journal of Business Venturing, 18 (2003): 217–231.CrossRefGoogle Scholar
Central Statistical Office. Abstract of Regional Statistics, No. 7 (1971).Google Scholar
House of Commons. Committee on Finance and Industry, Report, Cmd. 3897 (“Macmillan Report,” 1931).House of Commons. Committee on the Workings of the Monetary System, Cmd. 827 (“Radcliffe Report,” 1958–59).Google Scholar
House of Commons. Report of the Committee of Inquiry on Small Firms, Cmd. 4811 (“Bolton Report,” 1971).Google Scholar
House of Commons. The Financing of Small Firms, Interim Report of the Committee to Review the Functioning of Financial Institutions, Cmd.7503 (“Wilson Report,” 1979)Google Scholar
House of Commons. Committee of Public Accounts, Appraisal of Investment Opportunities and Monitoring of Investment, Investment in P. Leiner and Sons Ltd, HC 782, 1980.Google Scholar
National Audit Office. Investment Activities of the Scottish Development Agency, Welsh Development Agency and the Highlands and Islands Development Board, London: National Audit Office, 1985.Google Scholar
United Nations Conference on Trade and Development. The Role of Development Banks in Promoting Growth and Sustainable Development in the South . New York and Geneva: United Nations, 2016.Google Scholar
WDA. Annual Accounts, various editions.Google Scholar
WDA. Annual Report, various editions.WDA. The First Five Years, 1981.Google Scholar
Welsh Council. The Availability of Capital for Small Firms in Wales. Cardiff, 1969.Google Scholar
Welsh Office. Welsh Economic Trends, various editions.Google Scholar
National Archives, Kew (TNA), WDA Board Papers (WA 8), Welsh Office (BD/41), London.Google Scholar
National Library of Wales (NLW), Crickhowell Papers, Aberystwyth.Google Scholar
The Western Mail, Cardiff.Google Scholar