So what of Wales? Throughout the turbulent Scottish referendum, it has been the bystander, the afterthought, the constitutional Cinderella. When Scotland toyed with departing the United Kingdom, Wales shuddered. When Scotland was wooed with lavish gifts, Wales feared those same gifts might pass it by. Now Wales is suddenly thrust on stage: the campaign for “further devolution” is coming its way. Can Wales seize the moment and refashion itself as more than a “nearly nation” in the new political geography of Europe?

I am Welsh, or rather half-Welsh – a member of that Celtic-Saxon crossbreed which historians say made Britain what it is. Like thousands of his compatriots, my father left Merthyr on a university scholarship and never returned except for holidays. My English mother would react fiercely if we said we were Welsh. We were half-Welsh, half-English. A family treaty dictated that during rugby matches we cheered for England in the first half and for Wales in the second.

My father’s Welsh pride was strictly cultural. It was limited to sport and the success of fellow expatriates. He assured us that half of London was born within a mile of Dowlais Top. As for the Welsh language, he professed to understand but not speak it, and despised Welsh politicians who forced it on others. He regarded Welsh politics as inherently corrupt, and saw devolution as a bad joke. When, in 1979, Wales voted four to one against self-rule, my father sighed with relief. I grew up never knowing quite what Wales was, despite spending some two months a year throughout my life in a village in the north.

After its conquest by Edward I in 1278, and its incorporation into England three centuries later by the Tudors, it had no governmental existence; it was 13 counties of “England and Wales”. In 1965, as a sop to Welsh sentiment, Harold Wilson set up a Welsh Office with its own secretary of state; I remember hearing it described as “the colonial office for Wales”.

Then, in 1997, came Tony Blair’s grand appeasement of Scottish nationalism, the offer of a devolved parliament which dragged Wales reluctantly in its train. The previous four-to-one rejection of devolution was converted into a referendum majority of 50.3% for a new Welsh assembly, on a meagre 50% turnout. It was the most nervous possible mandate for self-government.

Facebook Twitter Pinterest The Welsh Assembly building in Cardiff Bay

The subsequent 15 years have seen Wales transformed. The Cardiff assembly has been through four elections and three first ministers. More remarkable, when Wales returned to the polls in another devolution referendum in 2011, 63.5% voted in favour of more powers. Surveys prior to the vote showed 72% of Welsh people “trusting” the assembly government against just 35% who trusted Westminster. At the time, only 18% said they wanted an independent Wales – now down to a mere 3% – but just 15% wanted a return to rule from London.

On the back of this consent, Wales acquired formal law-making powers from London in 2007, with more promised in a further Wales government bill now before parliament. Critics of Welsh devolution forget that all this has come from a standing start. Whereas Scotland previously ran its own schools and justice system, Wales had no common political personality. It had only the old coalition of Labour and the miners’ union that dominated Glamorgan local government. Today a polity of just three million people, hardly more than the city regions of Birmingham or Manchester, runs its own NHS, social services, schools, transport and planning. Wales in a real sense has become autonomous. But does it want more?

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Wales’s seat of government spreads round an open quayside facing the calm waters of Cardiff Bay. It was planned in the 1990s as the beating heart of Welsh nationhood, a costly henge of assembly building, opera house, luxury hotel and office blocks, all an uncomfortable two miles from central Cardiff. It has the air of an out-of-season seaside resort.

I have walked this concourse many times in recent months, trying to catch a distant echo of Scotland’s constitutional turmoil. Could a sort of independence ever bless these acres? Could Cardiff and Swansea grow to emulate Edinburgh and Glasgow? Could the rhetoric of an Alex Salmond or Gordon Brown rise above the low drone of the assembly?

On the eve of the Scottish vote, the chief excitement on Cardiff Bay was a visit from the football star Gareth Bale

The answer so far is no. In Wales north or south, I have found few headlines, hardly any media debate and little conversation on the topic of devolution, except among political addicts. The assembly does not ring to acclamations of nationhood. It has the sobriety of a Quaker meeting house. On the eve of the Scottish vote, the chief excitement on Cardiff Bay was a visit from the Welsh football star Gareth Bale.

Wales’s leader and first minister, Carwyn Jones, is no firebrand but an agreeable Swansea barrister – the sort of desirable match sought by Welsh mothers for their daughters. In five years Jones has gained quiet authority over Labour’s “one-party state”. His government survived the Labour debacle of 2010 and fended off Plaid Cymru’s nationalists and the Welsh Tories, who run neck and neck behind him in the assembly.

Since this month’s constitutional giveaway to Scotland, Jones has recited the mantra that “Whatever is offered to Scotland must be offered to Wales.” But he strikes an uncertain note. During the referendum campaign, he was adamant for “no”, declaring that he “feared for Wales’s future if Scotland votes yes”. But it is unclear what he and his party really want. In a recent appearance on BBC Wales, he declared himself averse to “new powers when we cannot afford to do things with them”. To him, devolution is “a car that needs a service; it is not broken”. When I asked which bits need servicing, he fudged the issue by suggesting “a convention to look at devolution in the round”.

The Tories are no clearer. In public statements, their new leader, Andrew Davies, muses that he is “open-minded” about future devolution and looks forward to debate. The party’s senior statesman in the assembly, David Medling, confesses himself alarmed by “the powerful forces unlocked by devolution”. Gazing out over Cardiff Bay with the air of a man who has seen it all, he prays for “constitutional closure”, an end to the “constant drift to ever further devolution”, and a new federalist settlement.

This sense of incoherent ambition typifies Cardiff on the brink of its greatest constitutional challenge. Shortly before the Scottish referendum vote, the Institute of Welsh Affairs summoned a conference of politicians and academics to debate the implications for Wales. The very title was frustrating, of “implications” rather than “opportunities”. At one point, the Welsh economist and tax expert, Professor Gerry Holtham, came near to losing his temper. Long an advocate of Welsh tax reform to “blaze a trail for the rest of the UK”, he told the assembled politicians their country had a rare opportunity – one they would squander because “you just don’t know what you want”. Unlike with Scotland, the London political establishment was under no pressure to be generous to Wales. By constantly passing the buck to “a convention”, Holtham said, “you will end up with nothing. England will just go on bailing you out”.

The only clarity I could find in this miasma was from the party which, for all its limitations, knows devolution’s direction of travel, Plaid Cymru. In much of modern Europe, nationalism is acquiring the best tunes. It offers dreams of empowerment to those who feel historical repression. In Scotland, Salmond could brush aside all objections to his project with the simple cry, “Let the Scottish people decide”. Independence was about destiny, not detail.

Wales’s answer to Salmond is a 42-year-old former probation officer from the Rhondda, Leanne Wood. Elected leader of Plaid Cymru two years ago, she has the same likable briskness as Scotland’s rising political stars, Nicola Sturgeon and Ruth Davidson. When I met her on her return from supporting the yes campaign in Scotland, she was ecstatic, uplifted by “the sheer enthusiasm of the grassroots, the lack of apathy, the thirsting for information”. It was not just the signs of a nationalist surge but “the presence of politics on the streets”.

Plaid Cymru, unlike the SNP, does not demand “full independence”. It has grown to maturity after devolution, winning 28.4% of the poll in the first assembly elections in 1999, a larger share that year even than Salmond’s SNP won in Scotland. It has since fallen back, but remains on level pegging with the Tories. For Wood, the biggest challenge is to wean her party off its long identification with a single issue, the Welsh language. Described by the party’s interwar co-founder, Saunders Lewis, as “the only political question deserving of a Welshman’s attention”, it condemned the party to an image of sign-daubing and grant-grabbing, keeping it from the Welsh political mainstream for decades.

Facebook Twitter Pinterest Leanne Wood, the leader of Plaid Cymru Photograph: David Levene

At the last census a dwindling 19% of the Welsh population said they could speak Welsh. Surveys suggest only half of that number admit to any fluency. Only 8% of children say they use Welsh in the home or playground. Much of the recent upturn of Welsh-speaking in Cardiff is probably due to discrimination in favour of Welsh-speakers in government jobs. Any identification of Welshness with Welsh-speaking has long infuriated the Anglophone majority. The Welsh Labour hero, Nye Bevan, used to rail against rule “by small pockets of Welsh-speaking, Welsh-writing zealots, with the vast majority of Welshmen denied participation in the government of their country”.

Wood does not speak Welsh – though she is learning. Once expelled from the assembly for calling the Queen Mrs Windsor, she must be the only leader in Europe who needs an interpreter to follow her own party conference. Her election was a signal that nationalism wants to rid itself of cultural xenophobia and not, as she puts it, “to retreat into an inward looking isolationism”. Above all, Wood is careful not to talk of “independence now”. She argues rather that “Britain’s current political union has passed its expiry date. It’s time for a 21st-century redraft.” Naturally saddened that Salmond lost his vote, she feels Wales need not mirror Scotland. Independence is a variable geometry, to be seen in the context of a “neighbourhood of nations” in the British Isles.

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What neither Wood nor any of her colleagues can do is resolve the conundrum that looms over any next step in Wales’s journey towards greater devolution. That is the continued dependency on the annual subvention from the UK Treasury. It stands at £15bn, or £5,000 for every man, woman and child. Wales has no Scottish oil to pit against “English money”. It cannot pretend to be Norway or Iceland. Wood’s nationalists may put “reviving Welsh enterprise” at the centre of their programme, but a desire for Wales to “get control of its own taxes” hardly turns a deficit into surplus. Any tax devolved by the Treasury tends to mean a corresponding cut in grant, and if there is one song all Welsh politicians sing in unison, it is that Wales’s grant is “unfair”.

The subvention, and the Barnett formula on which it is based, is the dull ache in the guts of Welsh politics. The formula was devised in the late-1970s as a way of allocating UK Treasury support to Scotland and subsequently to Wales and Northern Ireland. It related changes to population but not to economic need, age or unemployment. While Wales does better than the UK average under Barnett – with £9,709 per head in spending to England’s £8,529 – it does not do as well as Scotland or Northern Ireland.

In 2010, a commission headed by Gerry Holtham calculated that if devolved public services in Wales and Scotland were funded on the basis of need, Wales would receive an additional £300m per annum, or roughly £100 a head. Scotland would be severely cut. Hence the fury in Welsh Labour circles when Ed Miliband signed up to conceding “no change to Barnett” in the final promises to Scotland before the referendum. The fury, justified in itself, allows them to avoid mentioning the underlying dependency on which it is based.

Wales has not been short of inquiries and commissions on its post-devolution future. The latest and most detailed commission, appointed by the UK government, produced its final report in March this year. It was chaired by a former Welsh civil servant, Paul Silk, and suggested devolving income tax, stamp duty and a range of lesser imposts, as well as responsibility for matters such as policing, youth justice, energy, broadcasting and, above all, transport. It is the usual menu of what in Scotland is dubbed “devo-more”. Given the dire state of Welsh road and rail links, transport is the most urgent. Cardiff must be one of the few European “capitals” not reached by an electrified mainline railway. The one motorway, the M4, is a perpetual bottleneck, and Wales’s north-south “transnational highway”, the A470, is still mostly a winding single-carriageway, slowed to a crawl by tractors and hay wagons.

What the Silk commission did not address was how to fill an annual deficit in the order of £8bn. The assumption that “tax-raising” powers mean more money is unrealistic. Scotland can already raise or lower its income tax, but has declined to do so. The truth is that no local politician will want to touch the subject of raising (or lowering) income tax – and Carwyn Jones has frequently indicated he is not interested.

In Wales income tax at present yields £4.8bn. Only some 90,000 earners pay the 40p rate and a tiny 4,000 the 45p rate. Unless basic payers are to be penalised, which is politically unthinkable, there is no gold in this coffer. Separatists the world over crave control of corporation tax – whose reduction fuelled Ireland’s “Celtic tiger” boom (and bust). But this is the one tax the London Treasury will not delegate, fearing a rash of competitive tax cutting between different parts of the UK.

The one truly local Welsh revenue source is council tax, which was revalued in 2005 and raises £2.5bn for local councils. Wales stole a march on England with a new top I-band rate, which hits a small group of 5,200 properties with a rate of roughly £3,200. That is double the equivalent top rate in London’s richest borough of Westminster. While admirably “progressive”, it hardly presents Wales as enterprise friendly, and is a foretaste of Welsh tax policy were Cardiff really to be in charge.

Even the worst-hit parts of England do not harp on the Depression and Thatcherism as Wales still does

While Wales may have been good for devolution, there is less evidence that devolution has been good for Wales. The first government in Cardiff splurged on free prescriptions, free fares for the elderly and lower university tuition fees (later abandoned). It pioneered charging for plastic bags. But the Welsh economy since devolution has moved to bottom of the UK’s 12 regions. Growth moved in step with that of the UK as a whole between 1970 and 1990, but since then it has slumped: real income in the UK has grown by 42%, and in Wales by only 27%. One in five Welsh households is now below the poverty line and among children the figure is an extraordinary one in three. These are dire statistics.

This has further increased Welsh dependency on government in general. Roughly 60% of Welsh domestic product is public spending, against roughly 50 in Scotland and 40 in England. A quarter of Wales’s workforce is employed by the state. The £9bn in UK-wide welfare paid to Welsh families means that benefits have risen in the past 25 years from a quarter to a third of gross household income. The former first minister Rhodri Morgan once described his ambition for devolution as putting “clear red water” between Wales and England. He should have said red ink. Wales is not benefits street but benefits country.

The newly independent Welsh NHS is no advertisement for small is beautiful. Open any local newspaper and you will read tales of “fury over hospital closures”. While 1% of English patients wait more than six weeks for an MRI scan, half of Welsh patients do. In 2012 the Welsh MP Ann Clwyd revealed the horrific treatment received by her dying husband in Cardiff University Hospital and called attention to half a dozen Welsh hospitals which, she claimed, merited similar investigation to the scandal-hit Mid-Staffordshire hospital. She got nowhere. When David Cameron suggested in April that Offa’s Dyke was “a boundary between life and death”, he was criticised for discourtesy rather than inaccuracy.

Education has proved little better. Wales’s schools were once its pride and joy. The new assembly rejected England’s academies and free schools, but found it hard to show better results in consequence. A smaller percentage of Welsh teenagers get good GCSEs than in England, and fewer get the top A-level grades. Even literacy is behind England. The OECD’s Pisa tests show Welsh 15-year-olds not just the most backward in the UK but, in maths, 43rd among 65 countries tested.

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The most common jibe made at Wales’s ruling Labour party is that all it does is “lie back and blame England”. The political historian Richard Wyn Jones, of Cardiff University’s Welsh Governance Centre, calls this “the politics of grievance”. He traces it back to the Great Depression, Wales’s equivalent to Ireland’s famine. It was “the more traumatic a collapse for Wales because it had previously been prosperous”, he said.

Certainly Wales was prosperous. Ever since the Tudors, its fertile valleys were rich with stock-rearing and wool, to feed and clothe the English Midlands and south. The mountains were flush with tin, copper, lead, slate and even the gold that gave Princess Diana her wedding ring. By the 19th century the discovery of coal made Glamorgan probably the richest county in Britain, memorialised in the Edwardian civic palaces of central Cardiff.

Facebook Twitter Pinterest Abergavenny and the Brecon Beacons in South Wales. Photograph: Christopher Thomond for the Guardian

Wales never suffered from depopulation and emigration, as did Scotland and Ireland. The small towns of Clwyd, Powys and Gwent still display the houses of comfortable farmers and merchants, not the mean terraces of provincial Scotland or Ireland. The Welsh language survived because there were none of the clearances that bled Ireland and the Highlands of their linguistic heritage and professional classes. Most of Wales was too near to England not to be part of it. Many people from North Wales saw themselves as part of Liverpool and Manchester rather than the south. They identified with “Granadaland”, invented by a Manchester-based television company; in football they supported Liverpool, not Cardiff.

The modern “grievance narrative” holds that Wales’s wealth was stolen by the English, through capitalist expropriation and fiscal meanness. This comes up time and again in Welsh political conversation. In truth, most of the wealth went into rebuilding Wales’s towns and villages – almost all of which are Victorian – and giving them chapels, schools, institutes and probably the best working-class housing in Britain. When my father moved from Merthyr to Yorkshire, he recalls being appalled at the tenements and general living conditions of northern mill workers. The Depression might have left Wales poor, but not that poor.

Now it is the poorest region of Britain. Most of Europe has put not just the Depression but subsequent de-industrialisation behind it. Even the worst-hit parts of England do not harp on the Depression and Thatcherism as Wales still does. Nor is there any sign of a sophisticated way forward. One economic plan after another states that its future lies in “renewing the manufacturing base”. Frantic efforts are made to secure inward investment, with ministerial trips to Europe and south-east Asia. But each year sees another closure crisis, over a Corus steel plant, a Hoover factory or a Burberry warehouse. Welsh industrial policy is driven by “getting jobs back into the valleys”, because that is where Labour and the unions are strong. This makes no sense. Wales is trying to catch the last bus but one.

There is no denying the poverty of the old valley communities of Glamorgan, the county that comprises 40% of the Welsh population. The grime of the slag heaps has gone, but with it went almost all of Wales’s industrial heritage, destroying a tourist destination of European significance and a source of potential employment. The 1977 demolition of Merthyr’s historic Triangle houses was typical of the failure to see the valleys as potentially attractive dormitories in the hills behind now booming Cardiff. Much of outer London and outer Manchester are equally bereft of jobs, but there is a transport infrastructure to integrate communities across the wider city. The Welsh valleys are still waiting for electric trains.

Wales should be rich. Its analogue to Scotland’s oil is an environment ideally suited to the “post-digital economy”, that of ex-urban employment, distance commuting, weekending, leisure and semi-retirement. I have travelled to every corner of Wales; almost all of it is extraordinarily beautiful. Apart from the old industrial belt of south Glamorgan and the northern coastal strip of Conwy and Clwyd, it is rural, under-populated and dotted with attractive small towns and villages. The border counties of Gwent and Powys are lovelier by far even than adjacent Gloucestershire, Herefordshire and Shropshire. Gwynedd’s Snowdonia is more dramatic than any part of Britain south of the Lakes. Tenby and Llandudno are two of the UK’s most elegantly preserved Victorian resorts.

Most crucial, all this could be readily accessible to the richer regions of central England, round Manchester, the West Midlands and Bristol. Half of Wales’s population lives within 25 miles of England while 10% of England lives within 25 miles of Wales. The country is near enough to the “metroplex” of Bristol, the Midlands and south Lancashire to be to them what the home counties are to London. It should not be poor.

Facebook Twitter Pinterest A holiday caravan park north of Barmouth in Gwynedd, north Wales Photograph: Christopher Thomond for the Guardian

Wales is starting to reflect the changing demography of modern Europe. Back in the 1980s, the economist Graham Day saw “a million on the move” in Wales, potentially a third of the population. The young were leaving home, as they do everywhere, in search of education, jobs, excitement. Rural towns and villages were being re-occupied by newcomers with new money. A quarter of Wales’s population was born “abroad”.

After government, the biggest employer in Wales is tourism. It supplies one job in 10, and five in 10 in rural areas; it is more important to the Welsh economy than tourism is to Greece or Egypt. Yet Wales’s government has long treated it as a badge of shame. Tourism lacks political virility. Mention the Welsh countryside, its heritage, its visitors or its charm and Cardiff gives a collective shudder. It suggests “Mickey Mouse” jobs and English invaders. When I complimented a former culture minister on Wales’s splendid medieval castles, he muttered they were “symbols of English oppression”. I wondered how many English saw the Tower of London as a reminder of “French oppression”.

The fearful image of the 1980s – the burning of holiday cottages – is not entirely dead; witness a recent outbreak of anti-English vandalism in Caernarfon. A look at Zoopla’s property listings along the Welsh border suggests a £100,000 discount for houses on the “wrong side” of it.

Meanwhile, farmers bombard local councils for permission to build wind farms. The wildness of the Cambrian mountains is planned to disappear under some 800 turbines, the biggest onshore power station in Europe – until the English subsidies run out. Much of the coast has been equally despoiled by ill-designed caravan sites – what Bill Bryson described, in 1995, as “holiday hell – endless ranks of prison camp caravan parks standing in fields in a lonely, wind-beaten nowhere”. The old accusation rings true, that the Welsh have “a good ear, but no eye”.

All is by no means lost. The economic and environmental recovery of Wales from the place I knew as a boy has been remarkable. There are few of the derelict or empty streets found in parts of Yorkshire, Lancashire and Durham. Hill farm subsidies have been kind to Wales and its countryside looks prosperous. The hotels are more welcoming and the tally of Michelin star restaurants rose this year to five. Welsh music remains safe in the hands of Bryn Terfel, Katherine Jenkins and Cerys Matthews. Viewers of the sitcom Gavin and Stacey see a Wales that is both distinct and yet on a par with its English cousins and in-laws.

As a son of Wales I can see the impact a shift from the old town-country divide to a more dispersed, informal economy can have on the psychology of nationhood. When the flight of the young erodes a language of such richness it fuels paranoia in a way that does not apply to Yorkshire or Norfolk or Cornwall. A Welsh friend brought up all her children speaking Welsh, but none of their children does. The cottage villages of my youth lay half empty and derelict, entombing the memories of the past. They are now full of English.

To call this “cultural genocide by substitution”, as does Plaid Cymru, is spitting in the wind. It will not be stopped by further devolution, any more than by compulsory Welsh lessons or banning the sale of houses to “outsiders”. If Welsh culture is to survive it will only be by embracing the money and enterprise of newcomers. When I look out from my part of Wales, I see new jobs from incoming hoteliers and restaurateurs, from shopkeepers, craftsmen and interior designers, renewables investors, academics, writers and artists, from holiday-makers and the semi-retired. Many of these are from elsewhere in Wales, but most are from England.

Such money is indeed “English” money in the sense that much of it is or was earned in England. But it belongs to people who have chosen to live in Wales. They fill the Welsh language courses and uphold the chambers of trade. They champion Welsh conservation and cheer on Welsh rugby. They will become Welsh as immigrants to London become Londoners.

The challenge for devolutionists is that Wales can seem an unrealistic autonomous unit. It is small and its long border with England is permeable. It lacks the isolation of Ireland or even Scotland. But similar European states have prospered, from former coal-producing Luxembourg to Slovakia, Slovenia or the near-independent Basques. Where the nationalist will is strong, nothing is impossible.

I believe Wales could be more than a “nearly nation”, enjoying ever more political autonomy within a looser British confederacy. But this will come only if can break from the politics of grievance and subsidy. The Scottish referendum has given Welsh leaders their chance. But first, they need to want it.

Illustration by Mitch Blunt. Animation by Alex Purcell

• This article was amended on 30 September and 3 October 2014. The original stated that Cardiff must be the only European “capital” not reached by an electrified mainline railway. In fact it is one of the few capitals in this situation. This has been corrected. This article was further amended to correct a reference to Caernarfon, from Caernarvon as an earlier version said.