Ben Wray: Derek Mackay, do you want to pursue dangerous London-style economics or support Scottish business and prosperity?


CommonSpace columnist and Common Weal head of policy Ben Wray says the Scottish Government must realise that economic sovereignty is just as important as political sovereignty

WHAT kind of investment does the Scottish Government want? 

The kind that is sustainable, that creates things we need, that makes us more self-reliant, that is socially and environmentally conscientious, and that creates high-paying jobs? Or the kind that is wealth extracting, that is susceptible to capital flight, that deepens inequality, and that makes our lives more expensive and precarious?

The reason I ask this is that on Wednesday [28 February], the Scottish Government sent out two very different signals about the sort of investment strategy it is pursuing for the Scottish economy.

READ MORE: Publicly-owned and ethical: ‘Transformative’ Scottish national investment bank moves ahead

On the one hand, First Minister Nicola Sturgeon launched the implementation plan for a Scottish National Investment Bank. The plan is full of promise about how a public bank will support “mission-orientated” investment with social and environmental purpose; help to provide small businesses anchored in Scotland with the long-term finance they need to be sustainable; and support the
building of public infrastructure with financing far cheaper than the failed PFI/PPP models. 

This is investment with a sense of purpose in mind about what sort of economy and society we are trying to build.

On the other hand, Finance Minister Derek Mackay wrote an article in The Herald newspaper about his trip to London to speak to “senior investors, fund managers and decision makers about the benefits of investing in Scotland”.

“Bringing investment into Scotland is a key priority of the Scottish Government and one of the aims of our trade and investment strategy,” Mackay explained. “Investment brings jobs, prosperity and and the revenues to support our public services. Put simply, we’re all better off when businesses locate here, invest here and create new jobs here.”

If only it was so simple. The reality is that much of what passes for “foreign direct investment” (FDI) is the purchasing of existing assets and firms so that the profits, and quite often the firms, can be shifted abroad. Inward investment is often code for wealth going outwards, with wages and conditions declining and offshoring of taxable income rising.

Take a look at this graph from The Economist showing the impact on the warehousing and storage industry in Lexington County, South Carolina, when Amazon sets up a new warehouse.

The new warehouse was hailed by politicians in South Carolina as good news for everybody, just like Mackay argues above, but warehouse wages have fallen by 17 per cent. In California the figure is 16 per cent.

Amazon, the world’s biggest company, leads a race to the bottom which the rest of the industry has to follow in order to compete.

Here’s the difference between counties with and without an Amazon presence.

Amazon has received subsidies in Scotland from Scottish Enterprise worth over £3m but still does not pay the real living wage. Amazon workers in Dunfermline were found to be sleeping in tents in winter because they were paid so little they couldn’t afford the transport costs to get to work. Is this the sort of
foreign direct investment Mackay is after?

Mackay’s list of “exciting investment propositions” he was promoting to the London-based investors is evidence enough of what sort of investment we’re talking about: commercial property in Aberdeen, office space for banking clusters in Glasgow and, perhaps most worryingly, the new advanced manufacturing district in Renfrewshire.

The new manufacturing district and institute was supposed to be established with the express purpose of revitalising Scotland’s ailing manufacturing industry through supporting domestic manufacturers to combine together and make use of cutting edge technology, so that they could expand domestic production and exports. 

Opening the door for multinationals to piggy back on the Scottish Government’s public investment in the future of manufacturing is not the way to turn the
industry around.

The little known story of one-day disposable contact lenses, an innovation developed by a Scottish businessman with the support of government grants before he sold the business to a bigger company – which eventually closed down its Scottish production branch and moved it to Ireland – is indicative of the dangers of foreign-direct investment when it comes to innovation.

READ MORE: Robin McAlpine: You now have a powerful investment bank on your side – it’s up to you to use it

Mackay argues that a £2.3bn investment in commercial property “with overseas investors accounting for more than one-third of that sum” is “compelling” evidence of the need to attract international investment. But is following the London model of a property boom really the way to go in Scotland? 

As London proves, rising commercial property values makes it impossible for small businesses to afford lets and pushes up the price of rents. We can have high commercial and residential property values or we can have land use for affordable housing and productive business activity, but we can’t have both.

While Mackay highlights the building of the St James’ retail centre in Edinburgh as proof of FDI’s value, he doesn’t mention the case of the St Enoch Centre in Glasgow, purchased by the US private equity giant Blackstone in 2013. 

The Panama Papers revealed that, with the help of accountancy firm Deloitte, Blackstone avoided paying tax on that purchase by using offshore companies to hide millions that would have otherwise been collected by Mackay’s Revenue Scotland and contributed to Mackay’s annual budget for public services.

The reality is that Scotland needs to become much less reliant on foreign investment – more than one third of businesses in Scotland are foreign owned, the highest percentage of overseas ownership of any region in the UK. It is galling that a nationalist like Mackay is committed to political sovereignty for Scotland but seems to have no concern about ensuring the country’s economic sovereignty.

It is galling that a nationalist like Mackay is committed to political sovereignty for Scotland but seems to have no concern about ensuring the country’s economic sovereignty.

So I ask again, what sort of investment do you want, Scottish Government? The sort that the UK Government has been committed to for decades now, which has left its economy massively over-reliant on its financial services sector, with a major trade deficit and highly exposed to another global economic downturn? 

Or a new model for Scotland that its new Scottish National Investment Bank could lead by increasing the amount of indigenous Scottish businesses anchored in Scotland and producing for domestic consumption? A model that makes land cheaper and more readily available for productive use, and works to a strategy for green reindustrialisation, synchronising economic and environmental
sustainability and security.

It’s time for clarity, not confusion.

Picture courtesy of First Minister of Scotland

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