The Foundational Economy was one of the vogue economic policy ideas of the fifth Senedd (2016-2021). It had many parents. The works of the Foundational Economy Collective gave it a sound academic basis. A group of politicians – Lee Waters (who later led on the concept in government), Jeremy Miles, Vikki Howells, and the late Hefin David – brought a debate to the Senedd calling for the Welsh Government to develop a strategy to ‘maximise the impact of the Foundational Economy’. Organisations such as the FSB and Wales’ think-tanks also developed their own thoughts on the concept. And organisations across civic life in Wales sought to become a part of a movement that appeared to be the next big idea.
So, what exactly is the Foundational Economy? At Cynnal Cymru we’ve worked with the Welsh Government to help define their response to this question in developing a new ‘Mission Statement’ for their work on the Foundational Economy. The Welsh Government says the following in its Mission Statement:
“The term ‘foundational economy’ refers to the sectors of the economy that provide the goods and services that underpin everyday life. The Welsh Government is focused on the organisations and people in these sectors, as well as the quality and accessibility of the goods and services they provide.
The foundational economy is more than just infrastructure, employment and output. It is also citizens’ sense of control and belonging in their community. These sectors are by their nature immediate to people’s surroundings, and so they are vital social as well as physical infrastructure.”
There are consistent debates about what constitutes the Foundational Economy or a ‘Foundational Economy approach’. Some have argued for a descriptive definition – that is, the Foundational Economy is a description of certain sectors of the economy that underpin everyday life – for example care and health services, housing, food, and transport. The Welsh Government, for its part, has a strategic focus on the following sectors in the Foundational Economy:
- care and health services, including social care and childcare
- management of social housing
- construction of residential and commercial buildings
- energy and utilities
- food
- high street retail and services
- tourism
- public transport
Others have advocated for this to be developed into a more complex ‘analytical’ approach, introducing a ‘three-pillar concept of foundational liveability’, arguing that the liveability concept depends on the alignment of the three pillars of residual income (that is, income left over after spend on foundational goods and services), social infrastructure, and essential services. Whilst less easily communicable than the original concept, the advantage of this approach is that it takes us from the ‘what’ of the Foundational Economy concept to the ‘why’ and ‘how’.
Still more have advocated merger or absorption of the Foundational Economy concept with concepts that have a partial overlap, such as Community Wealth Building.
At Cynnal Cymru, we believe that a continued focus on the Foundational Economy is a welcome one, and we’re pleased to be working with the Welsh Government on this agenda. Here’s why.
Analysis by the Welsh Government finds that the Foundational Economy is a significant part of the Welsh economy. Over 60% of all Welsh headquartered businesses are within foundational sectors, and 51% of employees of Welsh VAT registered businesses are, too. It accounts for 47% of all turnover in Wales.
A geographic analysis of the Foundational Economy in Wales demonstrates the strength of the concept. As the Welsh Government’s Mission Statement states, the “The term ‘foundational economy’ refers to the sectors of the economy that provide the goods and services that underpin everyday life.”
Another way of looking at this could be ‘if you stripped out all non-essential economic activity, what would be left?’ Only that which is necessary to sustain life. The regional analysis of Wales demonstrates this in the real world. Some of the more rural areas see the vast majority (over 70%) of their businesses being placed in the Foundational Economy. Where there is additional economy activity – ‘non-essential’ or tradeable manufacturing and services, for example – the proportion is still high, but lower.
I should state that this economic activity is only ‘non-essential’ in the sense that it does not contribute to the immediate sustenance of life. It is, of course, a vital underpinning to wider quality of life, providing economic growth and good quality jobs.
The Foundational Economy, then, is a solid concept for understanding the economy around us. One Lee Waters quote from an Institute of Welsh Affairs piece stands out – “Of course we should continue to defend our tradable competitive economy, but we must pay more attention to the foundations of our economies”.
For Cynnal Cymru, this is an important framing that underpins the emphasis of governments focusing on the Foundational Economy. The ‘tradeable competitive economy’ can provide good quality jobs, has the potential to bring money into Wales, and can lower poverty rates through these mechanisms. Underpinning the idea of the Foundational Economy is that governments have focused on attracting charismatic sectors (with Artificial Intelligence being the latest focus for policy makers across the world) and paid little attention to the Foundational Economy sectors. A focus on the technologies of the future is important, and Wales should be doing what it can to reap the benefits. But work on these sectors doesn’t have to come at the expense of a focus on the Foundational Economy.
As the Welsh Government analysis shows, we can’t afford to ignore the Foundational Economy. It is too dominant in too many parts of Wales, and the ‘mundanity’ of some of these sectors has caused it to be a less interesting focus for many than charismatic sectors that employ far fewer people.
The working lives of people in the Foundational Economy matter just as much. And often they are defined by low wages, insecure hours, and non-unionised jobs. The Bevan Foundation undertook a research project into Fair Work in the Foundational Economy (with a focus on social care, hospitality, and retail) and found that working conditions were poor. These sectors found ‘a wide prevalence of comparatively low pay… where the majority of workers do not earn a real Living Wage’, ‘above average rates of part-time working’, and ‘low rates of in-work training’.
This makes a focus on the Foundational Economy the perfect partner for the Welsh Government’s ambition to raise levels of Fair Work in Wales – and the Foundational Economy and Fair Work (predominantly through the Living Wage) are the dual focuses of Cynnal Cymru’s Fair Economy team.
The Welsh Government has now published clear objectives in its Foundational Economy work:
- Identify and support opportunities for more jobs, better jobs, greener jobs and promote fair work, including good pay, representation, security, and opportunity to progress.
- Increase ‘household liveability’ by facilitating rising wages through promotion schemes such as Real Living Wage, helping increase the affordability of foundational essentials to support universal access to high quality goods and services.
- Build local supply chains to keep people, skills and wealth in Wales.
- Contribute towards addressing the climate and nature emergencies.
- Encourage collaborative innovation and experimentation to improve basic goods and services, especially where these build resilient social infrastructure, such as through cooperative and community-owned projects.
These objectives form the basis for real action on the Foundational Economy. The people working in these sectors deserve to have good working lives, can make a real contribution to sustainability aims, and deliver services that all of us rely on.
Examples of the changes the Foundational Economy approach has made are abundant – and there is more to do. For example, Hywel Dda’s ‘grow your own’ approach to tackling recruitment problems by allowing alternative routes into healthcare employment, focused on building skills in the local community, can be spread to other health boards.
The Foundational Economy team’s direct project support has also created new opportunities. For example, it helped set up the Welsh Veg in Schools Programme. Prior to the project, over 94% of vegetables used in primary schools in Wales were sourced from outside of Wales, often frozen and non-organic. The project, beginning with just one grower, has now grown into a vibrant, multi-stakeholder project. By 2024, 8 growers had actively supplied 14 tonnes of organic Welsh veg for use in school meals. This was across 219 schools in six local authority areas. So far in 2025, the number of growers has expanded to 15, with 12 local authorities engaged. This means that approximately 1 million portions of local, organic veg will be served to school children in Wales as a direct result of the Foundational Economy project.
In housing, up to sixty-four local contractors have been supported to secure accreditations required to deliver retrofit work for homes across Wales. Based on feedback from the contractors, the funding will lead to over three hundred and fifty new jobs through the contractors securing additional work.
This is enabling local businesses to grow through securing more work, and creating new, skilled jobs. Delivery of the housing retrofit can be accelerated through additional contractor capacity, enabling residents to live in warmer, more energy efficient homes. This will lead to greater residual income, enable people to live healthier lives and reduce the climate impact of our housing stock.
The Welsh Government’s Foundational Economy programme has already supported the Living Wage accreditation process for major anchor employers in Wales such as local authorities, and there are exciting signs that this will expand in the future.
From a Living Wage for workers in Wales, to building skills and creating jobs for local people, to healthy, Welsh-grown food on children’s plates. All this and more has all stemmed from the Welsh Government’s focus on the Foundational Economy.
The working lives of people in the Foundational Economy and the services they provide for all of us are worthy of concerted focus. From academic concept to on-the-ground delivery, the Foundational Economy concept has delivered and is set to deliver more. We should take it into the seventh Senedd with pride.
Harry Thompson is Head of Fair Economy at Cynnal Cymru. Cynnal Cymru’s Fair Economy team has a dual focus – spreading the Living Wage across Wales, and supporting the Foundational Economy.
Please visit our resources section for more case studies from Welsh Government Foundational Economy team’s Backing Local Firms Fund.
Please visit the Welsh Government’s website for more information about their approach to the Foundational Economy.
