A few new powers, a lot more confidence required

Marine-Technology-with-Marine-Eng-BEng-H504-cropIn the latest of our big-picture pieces on priorities for the incoming Scottish government, Iain Docherty explores what we can do with the economic powers we have – building “strategic capacity” as a preparation for independence

This month could have seen the first government of a newly independent Scotland take office, equipped with the widest possible array of policy tools to help make the country fairer, greener and wealthier.

But since Nicola Sturgeon’s incoming administration is not in such a fortunate position, what should it do with the powers it does have to stimulate the economy now, and also develop the kind of approach to economic governance that an independent state will need in future, if it is to prosper?

One of the biggest fallacies about the outcome of the Smith Commission is crystallised in David Cameron’s assertion that Scotland is now one of the most powerful devolved jurisdictions in the world.

Although it is true that the Income Tax provisions of the 2016 Scotland Act give the Scottish Government responsibility for raising a larger proportion of its revenue than most other non-sovereign states, the actual level of extra policy autonomy afforded by the 2016 Act is minimal.

A very small number of additional taxes have actually been devolved. This means that the Scottish Government has no power, for example, to reshape Capital Gains Tax (the revenue from which remains reserved to Westminster) to avoid leakage from Income Tax. Nor can they alter R&D Tax Credits to support our most important innovation clusters.

All of this means that, given the imperative to get on and do the best we can with what we have, the Scottish Government must be as creative as possible with the ‘soft’ measures at its disposal. They must use them to push the economy in the direction of the higher value and better productivity required, if we are to close the prosperity and wellbeing gap with our Nordic cousins.

This will require taking some risks. Scotland needs to have the kind of entrepreneurial ‘smart state’ recognised as being behind the recent success of the Danish wind power sector. A smart state also needs to be prepared to channel the limited available resources into promising and potentially high-return industries such as marine renewables.

This is an infant sector in danger of being strangled at birth – not just by vested established energy interests, but also by a UK government machine more focused on other ‘priority’ sectors (such as automotive technology) in the south east of England.

Give our highly skilled and specialist public sector bodies more power, support and recognition for their contribution. Not only will the economy do better, but we’ll also have the strongest possible base from which to grasp the opportunities of independence when it finally arrives.

We also need to keep investing as much as we can in the skills of our people and the capital stock of the economy, in the form of better infrastructure, more housing and so on. These both support jobs in the real economy now, but also improve the potential for future growth.

The new government must also explore some inconvenient truths about the state of the Scottish economy and the challenges it faces. Prime amongst these is the over-reliance on financial services as a source of jobs, revenue and growth.

We know that too much dependence on financial services crowds out innovation in more productive and socially useful sectors, particularly in manufacturing and knowledge intensive service industries. Countries whose numerate and skilled workforces are more likely to work in the science lab, rather than the trading room, have more resilient, diversified and wealthier economies.

Germany, the Nordic countries, South Korea and even to a surprising extent the US, generate more sustainable and stable patterns of economic development through precisely this approach. In contrast, Scotland is at risk of smothering its manufacturing and higher tech services sectors outside financial services. Innovative small firms – the very business actors that are at the heart of successful diversification and new product development – are being particularly hard hit.

There may not be much money available and little scope to alter the tax system in the short term in order to address these issues. But at least the conversation has to begin about what we might do to make our economy more resilient in the long run.

Then there is the need to do more of what we know already works. Scotland’s strong relative economic performance vis a vis other parts of the UK since devolution is based on how it has been able to better deploy and leverage the existing powers and resources it has at its disposal.

One of the most important reasons for this – contrary to the usual sniping from the right wing press – is that Scotland is, in fact, rather well governed.

In particular, we have assembled a range of specialist government agencies and quangos, such as Scottish Enterprise, Skills Development Scotland, the Scottish Environment Protection Agency and Transport Scotland, that are really rather good at what they do.

If you still doubt this, go and ask any informed observer about the chaos lurking beneath the surface of the so-called ‘Powerhouse’ of the North of England, as they struggle to put together the necessary skills and organisational nous to deliver on their objectives.

We need more of this specialised, confident government – “strategic capacity“, in the jargon. And although formal control over the civil service is another power yet to be devolved, there is much that can be done in the meantime to increase the relative power and influence of these European-style specialist bodies. Particularly compared to the traditional core civil service – in which the person leading schools reform this year was in charge of fisheries last year, and worked in prisons the year before that.

Give our highly skilled and specialist public sector bodies more power, support and recognition for their contribution. Not only will the economy do better, but we’ll also have the strongest possible base from which to grasp the opportunities of independence when it finally arrives.

Iain Docherty is Professor of Public Policy and Governance at the Adam Smith Business School, University of Glasgow

Comments (24)

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  1. Alf Baird says:

    “our highly skilled and specialist public sector bodies”

    You surely have to be joking Iain. Or maybe seeking a place on a board? The Scottish economy, or what’s left of it after decades of public sector incompetence, would not miss the likes of Scottish Enterprise if it were abolished. Surely far better to spend £500m a year on new hooses than waste it on high salaries and endless consultant reports, or throwing £millions of public cash into ‘big ideas’ like failed wave energy schemes. The public sector couldn’t deliver a pizza.

    1. James_Mac says:

      Are you a Tory Alf?

      1. Alf Baird says:

        Good question James. The answer is no. However, I do believe a far better public sector is possible in Scotland but it requires robust ‘fixing’. Over the years many of our public bodies have proved they are inherently incompetent, and in some respects corrupt. Perhaps there is a connection here with the fact Scotland’s public bodies are still predominantly led and run by an overpaid unionist elite. To put this another way, I expect most of the senior public servants/officials who run Scotland’s numerous public bodies probably voted Tory the other day. Many readers here might appreciate the connection between unionist elites and public sector incompetence in Scotland – we have had many decades to consider the outcomes. In my opinion these people have a questionable interest in Scotland being all it can be.

  2. Bill Melvin says:

    This article just highlights the reality of Scots not having the courage to vote for independence. The big difference between what our government can do and many of those mentioned in the piece, like Denmark and Ireland, is control of all the powers necessary that come with independence. The competent but not as radical as many would like governance of the SNP should be all the evidence we need to see that independence would allow us to achieve great thing for our people. We are a potentially rich, resourceful country capable of world leading change in so many aspects that meet the modern challenges of society, but we are brainwashed to believe our safety and security is somehow dependent of the corrupt self serving governance that comes from Westminster. Yet again our country has been hoodwinked by empty promises on which Tories have no compulsion about reneging on, meantime we talk about trying to make our country a leader with our hands tied behind our back. its both depressing and disappointing.

  3. Alan Weir says:

    Very interesting article and it’s great to have expert academics contributing to Bella. One comment: the author assumes that the Smith powers are all we will have to work with in the near future and that looks a reasonable assumption. However I think we ought to question it. We have a pro-independence majority in the Scottish parliament and a government which has argued for full fiscal autonomy (given an appropriate fiscal settlement). All this in the context of a referendum in which Scots were promised Devo Max, nearest thing to federalism etc, if they voted No. We also have a Tory govt in London with a majority of 12 but a govt tearing itself apart, a Tory party which might erupt in near civil war after the EU referendum, regardless of the result. And of course we have 50+ SNP MPs at Westminster.

    That raises the possibility, if the numbers of Tory rebels falls nicely, of the SNP in the summer doing a deal with whoever is PM: extended ‘SuperEVEL’ i.e. an agreement to abstain on a large array of economic and welfare measures for rUK in return for rolling out many more tax and welfare powers to Scotland over the course of the next parliament, including powers which Prof Docherty mentions such as Capital Gains tax, but also NI and Corporation tax, plus in work benefits and, ideally, pensions (to show us auld yins that we can run our own pension system as well as any other advanced democracy our size).

    For although a loss of momentum since 2014 is a big worry, I think pushing for a quick 2nd referendum is a misguided response which fails to appreciate the rather tectonic shift nature of the rise of Scottish Identity over the last half century. What we need, as Prof. Docherty suggests, is to increase the levels of confidence, in particular of No voters, in order to fight the unionist mantra that we are spongers incapable of paying our way in the world and to do this by the most direct route possible: taking over as many of the economic powers of normal small W. European nations as we can and demonstrating that the sky won’t fall in. Once that is in place, the majority for full independence will come. Overall, that strategy is very much in line with the gradualist one which the SNP have correctly adopted but gradualism is compatible with there being periods when fairly rapid change is desirable and arguably, for momentum-sustaining reasons, this is one of them.

    1. Ian Bonnar says:

      I agree with your comment. My fear is that I don’t hear the SNP talking about economic issues at all. Can you point me to anything substantive?

      1. Alan Weir says:

        Well the manifesto had some quite detailed stuff on what would be done within Smith powers but was very circumspect, no doubt deliberately calculating it would have a negative effect via the media to do otherwise, about anything further. ‘We will implement the new powers being devolved in the Scotland Act 2016 and make the case for even greater powers over tax, welfare and the economy to be devolved to Scotland.’ is about the height of it.

  4. Ian Bonnar says:

    IMO the lead into Iain’s article misrepresents what the body is about. The article is fundilmundily that we need to be more confident in our current organisations, whereas the lead is suggesting that the new powers can help us do things better. I doubt it.

    I tend to both Bill’s and Alf’s view that we have one hand tied behind our back, perhaps deliberately so.

    The economy and unemployment were almost absent from the election campaign which is a travesty. Given the GERS figures it surprised me that the SNP chose not to attack the unionist parties with a challenge on what their policies were to close the relative gap with the U.K (really London & the SE). IMO view this is where the unionists are most vulnerable and the SNP and Greens have the greatest opportunity, to keep banging on the door that our relative underperformance (by their own figures) is a consequence of the Union. If the southern Tories openly suggest that we are subsidy jumkies the challenge for the Scotish Tories is what their plan is to eliminate this subsidy. Or do they just accept it, because they aren’t really for Scotland at all?

    1. Alan Weir says:

      My feeling is that the SNP should aggressively challenge this whole notion that there is a subsidy, a £15 billion deficit or whatever. Scotland doesn’t have a deficit precisely because it is not fiscally autonomous. This figures are projections of what the deficit would be if Scotland were fiscally autonomous (yet followed the same tax and welfare policies as just now) *given a particular fiscal settlement* built into GERS, one which includes, e.g. £3-4 billion transfer to rUK as share of UK debt repayments. Choose a different fiscal settlement, e.g. one which includes a transfer from rUK in compensation for the gigantic subsidy by Scotland of rUK from oil revenues, or a transfer representing the ‘union dividend’ promised in the referendum, and you get completely different figures for deficits (if deficit at all). The SNP do flag up the possibility of fiscal settlements other than those proposed by the unionists, but not boldly enough for me.
      They also seem to have committed to holding the UK to the Barnett formula over the next parliament, which means abandoning FFA. Perhaps this is wise, because I assume one could roll out more tax and welfare powers whilst still adhering to the current settlement of enhanced grant under the Barnett formula and more extensive indexation (and Barnett would protect us while oil prices are low).

  5. Ian Bonnar says:

    By the way, could Bella please start running a series of articles with such a title as “The Scottish economy for dummies”?

  6. tartanfever says:

    I love the idea that we should invest money in stuff when we have no money (as pretty much the entire ‘developed’ world is running a deficit) and we have absolutely no way of borrowing money, nor the full set of government powers to alter economic policy that will allow us to even start new industries.

    I don’t want to have a conversation about it, thats been going on for years. I want hard and fast plans, thought out business models and moreover, what exactly will be cut in public services to provide investment capital for these new ideas ?

    Pipe dreams are easy to write about, hard choices not so much.

    1. Bill Halliday says:

      Sure I heard that pal of DodgyDave’s Andrew Niel say that now Holyrood and Local Authorities have borrowing powers. Or we could take some of Willie Rennie’s 1p tax to generate jobs rather than have the best educatede unemployed workforce in the world. Or combine both.

      1. Alf Baird says:

        Valid point Bill, also we will surely have the best educated under-employed workforce, though I still can’t find a decent tradesman. I’m not convinced on the need to teach in-depth maths and science subjects so intensively at schools – is there really any point to this, its not subjects the majority ever use afterwards – what jobs really need high level maths and science and do these subjects help develop people skills in any way? I would rather see teaching of Scots language (and English) as more important and more focus on expressive arts such as dance, which many schools still ignore as well as politics (16 year olds now vote), and economics and IT. Teaching of some subjects at school seem more to do with outdated tradition than what is needed now and in the future.

        1. Muscleguy says:

          A scientist replies. While not wishing to denigrate the value of the arts in any way your attempt to suggest that studying science and maths is of no use is very misguided. Do you want us scientists, technologists and computer geeks to evolve into unchallengeable priesthoods, lording it over ignorant dancers and singers? Or do you want those dancers and singers adequately educated to understand the highly technologically and scientifically advanced world they live in? Are they to hold Doctors in the awe and esteem of hold through ignorance? Are they to be conned and fleeced by people whose maths is better than theirs? do you want them not to understand probability so they are easy prey to betting sites? Do you want them ridiculed for advancing stupid, ignorant, luddite objections to perfectly sensible scientific or technological advances?

          I took to task a silly person who objected to the extremely precise and clean genetic alterations CRSIPR technology offers on the basis that any genetic change must be different. I pointed out that almost every sexual offspring of animals and plants carries from dozens to hundreds of mutations not present in the parents. This is a plain and common scientific fact gleaned from the genome age.

          We had a man come give us a quote for a new boiler. The scheme offered seemed too good to be true and it was, the quoted interest rate was monthly, not per annum. Put forward deliberately to attract the gullible. Added in were add-on devices of very dubious mechanical and scientific point, validity or veracity. I’m quite sure that guy makes a living gulling the vulnerable. Do you want your children to be vulnerable? In the world you want low level technical ‘priests’ will multiply and take in gullible flocks and fleece them.

          1. Alf Baird says:

            (A social scientist replies). The tradition of mass unconditional forced teaching of higher level maths and science in our schools is largely unnecessary as the vast majority of folk don’t need it in their career, far less in life generally. Those that need it, fine, take it. As for our so-called ‘world class’ scientists, they seem pretty useless at helping Scotland achieve economic growth, far less develop a competitive edge. Higher level maths and physics – most kids could do without the grief, and we’d be better employing teachers to teach more interesting and useful subjects to keep kids motivated and give them more useful life skills.

    2. c rober says:

      Tartan Fever

      Then perhaps the 1p income tax is a good place to start with the creation of a Peoples Bank , with a view to funding investment , even mortgages , removing the proper global banking system and of course the private central banks?

      As Einstein remarked , compound interest , eight wonder of the world. So If the people hold their own mortgages , within their own bank , they can then have an interest rate set outwith of profit.

  7. Alf Baird says:

    Trade is critical for economic growth and economic growth will simply not happen without major trade growth. But we cannot hope to develop trade using Scotland’s Victorian era seaports on Forth, Clyde or Tay (more especially when these obsolete/over-priced ‘ports’ are owned and regulated! by offshore tax haven private equity bankers):

    http://reidfoundation.org/2016/01/sort-out-our-ports/

    Unfortunately “our highly skilled and specialist public sector bodies” such as Transport Scotland or Scottish Enterprise or even the 900 civil servants at Marine Scotland (or most ‘expert academics’), have yet to notice this fundamental impediment.

    1. c rober says:

      Gourock is a great deep harbour port , with high unemployment and cheap land for expansion.

      Couple this with the old decom line direct to Glasgow for freight , removing it from the roads.

      Bit like HS2 and the new south coast super port really.

      1. Alf Baird says:

        Gourock has no land available, but I think you mean Greenock, which also has limited land, and is too shallow for the big boats anyway. The best options are Cockenzie (for intra-Europe markets) and Scapa Flow (for global markets). These two locations also make for more optimal Scottish naval/coastguard facilities than Faslane which is too far from open sea (better Troon on s.west coast).

        1. c rober says:

          Gourock , Greenock and Port Glasgow are sometimes confused as being the same thing. But has a long Shipping history combined.

          Gourock already had a containerised port , with a direct freight only rail line to Glasgow which has lay unused for 20 or 30 odd years.

          Greenock , already has a history of being an export and import port. Tobacco , Sugar , steel , coal and exporting radicals to Australia of course. But its not as deep as Gourock for for todays shipping.

          There is always using Hunterston , lots of land , nearby rail and has plenty of cheap land around it thats barely able to support sheep , and in combination with Gourock , should they decide to expand the rail line south of Wemyss.

          Hunterston already sees large coal imports , so that might mean empty ships going to China , Australia , Europe empty , thus a competitve export edge…. at least until zero cabon powerstations.

  8. John Page says:

    Can I just say a Big Thank You! To Bella for the large number of excellent pieces over the last week………three things:

    1 we all need to remember to pitch in financially to keep this going

    2 there are always trolls who repeatedly come in with the same story regardless of the article…………it is very difficult but best to ignore them and they will go way eventually

    3 as well as the “official” politics I hope Bella can provide us with continuing ideas around practically leading lives now as if Scotland were a good, clean and fair place ……… In terms of the Scots leid, localism, investing in Scotland, developing community through volunteering around nutrition, land use and the attainment gap.

    Thanks, Bella

    Regards

    John Page

    1. Drew Campbell says:

      On the same page, John!

      Bella continues to be the most broad-minded, thoughtful and engaging of all our new media. Well done to Mike & team, especially for remaining clear-headed and robust in the face of all the bile spat in your direction.

      We need you guys!

  9. Bill Halliday says:

    What a state of affairs where we have to spend more time researching the ‘pedigree’ and stable of the author and who owns the horse before we spend time reading them.

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