CommonSpace columnist and Common Weal head of policy Ben Wray welcomes cross party support for a Scottish national investment bank and says it’s time roll our sleeves up
IT sometimes feels like groundhog day debating the Scottish economy.
The battle is intense but no one ever seems to win. A couple of months of being distracted by other things goes by; then the same battle lines are drawn up all over again. In each turn of the wheel more heat is generated but even less light.
There are obvious reasons for this dull, repetitive cycle. Economic debate is pinned around a small set of periodically updated statistics that do not actually tell us much about the structure and form of the economy.
The Scottish media and political commentry circuit contains little dynamism on economics, and thus rarely probe further or ask deeper questions of our politicians.
The nature of devolved power within a unitary state is such that whenever these statistics go up or down, each side blames/gloats as appropriate. The Scottish media and political commentry circuit contains little dynamism on economics, and thus rarely probe further or ask deeper questions of our politicians.
So, in this column, let’s just start by trying to clear the ground before proceeding, with the hope that we might then be able to move forward onto more interesting terrain.
The UK state is primarily responsible for the economic management of the Scottish economy. The government which controls the key monetary and fiscal levers in the economy has the main mechanisms for managing the national economy.
Beyond this, the UK Government controls secondary levers which are vital to economic management, including company law, financial services, the energy grid, rail infrastructure, control of local authority borrowing limits, corporation tax, immigration, key aspects of social security, pensions and the minimum wage.
The majority of government spending in Scotland still comes directly from the UK Government, out of total spending of over £750bn.
If comparisons are of any use, they should not be between Scotland and the rest of the UK – we should instead compare Scotland to all other regions of the UK economy.
The Scottish Government has a range of tools for intervention into this macro-economic framework set by the UK state. These tools can act to more or less improve Scotland’s economic position within the confines of UK state management. These tools could be classed as, at best, secondary levers, many of which are only under partial control.
They include: local tax, aspects of income tax, a budget for spending on infrastructure of over £3bn per year (including very limited capital borrowing), debt-based construction spending on public projects worth a maximum of five per cent of future government annual revenue, the ability to set up a national company, aspects of energy policy, aspects of social security policy, road
infrastructure, aspects of procurement policy and aspects of housing policy. In total, Holyrood spends about £33bn into the Scottish economy.
If comparisons are of any use, they should not be between Scotland and the rest of the UK. As Robin McAlpine has pointed out: “Scotland isn’t lagging behind the UK – the UK is lagging behind London and the south-east. Or more accurately, everywhere in the UK suffers from London and the surrounding economy monopolising the benefits of the UK economy – such as they are.”
We should, therefore, compare Scotland to all other regions of the UK economy. Even by standard measurements like GDP, Scotland is a better than average performer if you break the UK into regions. It performs even better if you (as we should) take population growth out of the calculation and look at GDP per capita.
Even GDP per capita is inherently flawed. It doesn’t tell you anything about what economic product is being made, how sustainable it is, what the distribution spread of it is, whether it has negative or positive externalities, and so on.
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For instance, rising house value contributes to GDP as it is calculated as ‘owner imputed rent’; an estimate of the amount the owner-occupier would be paying if they were renting. But the rising value of homes doesn’t actually produce anything, and contributes greatly to denying other people access to affordable housing.
Employment is also an increasingly deceptive measurement of economic progress, since social security policy is designed to encourage people to register as self-employed or in-work so that they can gain tax credits and other forms of welfare support that they would not get if registered as out of work.
This does not mean people are working sufficiently to maintain a decent standard of living. The number of people working minimal hours has risen enormously, and so has in-work poverty.
Even by standard measurements like GDP, Scotland is a better than average performer if you break the UK into regions.
The absurdity of continuing to rely on GDP and employment as our standard bearer economic measurements is revealed in this Financial Times graph, showing just how out of kilter it is in the UK with actual living standards.
So, in clearing the ground of economic debate, we can summarise as follows:
– Be deeply suspicious of anyone who tells you that “Nicola Sturgeon is responsible for a good/bad” economic performance in Scotland. At the same time, reserve some suspicion for those who float the notion that Holyrood is entirely impotent on economic matters.
– Be deeply suspicious of anyone who compares Scotland’s economic performance like for like with the rest of UK as a whole without qualification.
– Be deeply suspicious of anyone who uses GDP and employment figures as if they are a definitive statement on economic performance.
With the ground cleared, we should be able to move forward. What could the Scottish Government do to improve the relative position of the Scottish economy versus other regions of the UK on creating sustainable, well-paid, productive work for everyone?
It performs even better if you (as we should) take population growth out of the calculation and look at GDP per capita.
Common Weal has been pleased to see one of our major policy pushes, for a Scottish National Investment Bank to provide billions in financing for well-paid, socially and environmentally useful work (for more on this click here), get a wider hearing over the past week.
Scottish Labour published its industrial strategy for Scotland last week and it reiterated support for the idea which was in the Labour party’s General Election manifesto in May.
It was then put to Keith Brown, Scottish Government economy minister, on Sunday Politics Scotland, who said “of course we would want to set up that type of initiative”.
This is a significant development. The Scottish Government did not include the proposal for an investment bank in either its 2016 Scottish election manifesto or the 2017 General Election one.
Instead, it pushed its £500m, three-year Scottish Growth Scheme – which would provide guarantees to commercial banks to pursue loans worth a maximum of £5m to Scottish companies seeking to boost their exports – as an alternative policy approach.
Common Weal has been pleased to see one of our major policy pushes, for a Scottish National Investment Bank to provide billions in financing for well-paid, socially and environmentally useful work, get a wider hearing over the past week.
Nonetheless, the SNP conference in March backed the proposal for a Scottish national investment bank.
Brown confirmed on Sunday that the first minister’s council of economic advisers is now pursuing a £7bn plan through the Scottish Futures Trust “to do exactly that” with the Treasury – as permission is required to count the national investment bank’s assets and liabilities as off-balance sheet.
It is not clear to us why the Scottish Growth Scheme, which also required permission from the Treasury for special accountancy treatment, was announced by the first minister and then the request made to the UK Government, whereas a national investment bank requires permission first before being pursued.
It seems boldness is only appropriate when a scheme is proposed that is in the interests of commercial banks. Nonetheless, we can count it as genuine progress that now the Greens, Scottish Labour and the SNP have stated their support for a national investment bank.
Now we need to win the argument about exactly what sort of economy the bank is going to help build. Is it going to fund businesses that can easily shift their assets abroad when they are big enough or will it provide incentives for community and co-operative owned companies that are asset-locked and thus will continue to operate on behalf of their employees and the community?
Now we need to win the argument about exactly what sort of economy the bank is going to help build.
Is it going to limit itself to funding the private sector or will it support local authorities to set up local energy and housing companies for direct public investment?
Is it going to make investment decisions solely on the bottom line or prioritise investments that are socially and environmentally useful? Will it shy away from sectors of the economy where the market is dominated by a few players or will it prioritise strategic investment in businesses that can reduce our reliance on global corporations in sectors like energy, clothing and food?
It is about time we started debating these questions, and got past the narrow and fruitless debate that sadly still dominates discussion of the Scottish economy today.
Picture courtesy of michaelgoodin
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