Banking on Ourselves
Next month sees the first of the SNP’s internal assemblies to discuss Andrew Wilson’s Growth Report. Andrew will appear in person to justify his strange dismissal of a separate Scottish currency following independence. For the record, I don’t think the Growth Report is some secret, pro-austerity manual. However, it is far too conservative in its proposals.
In particular, Andrew veers in the direction of first fixing any fiscal deficit Scotland will inherit after independence, and only thereafter going for economic growth. This leads him to placate the banks and financial markets by sticking with the pound sterling for the foreseeable future. He also wants to adopt wholesale the current – and in my view grossly inadequate – regulatory apparatus for supervising those financial institutions. First, in practice, this will leave the Scottish economy subservient to interest rates, mortgage rates, foreign exchange rates, investment decisions, inflation and labour costs being set largely by the City of London. What price independence then? And second, Andrew’s desire to appease the financial markets will lead working class voters to stay at home in any second referendum. Message to Andrew Wilson: Ross McEwan, boss of RBS, won’t embrace Scottish independence just because you promise him the financial status quo post IndyRef2.
The truth is that we need to use every economic lever we can grab after independence to boost economic growth from its recent historic nadir of 1.5 per cent to something nearer 2.5 per cent or more. That demands we create a Scottish currency. Unless we do so, Andrew’s proffered fiscal rule – increasing public spending annually by one whole percentage point less than GDP growth – will quickly become the fiscal squeeze he seeks to avoid. Four years of 1.5 per cent real growth would yield barely 2 per cent GDP equivalent of real spending increases. But if you safeguard NHS spending, which normally races above inflation in the rest of the economy, Andrew’s rule threatens to squeeze other public spending. After independence, we need to prioritise a Scottish currency and a Scottish central bank with powers to get growth moving.
DEFICITS CAN BE GOOD FOR YOU
Chancellor Hammond is feeling smug because the UK Treasury ran a budget surplus of £2bn in July, meaning that government borrowing in the quarter to the end of July was the lowest since 2002. However, there is a bit of jiggery-pokery in these numbers. They include the one-off sale of RBS shares (at a loss to the taxpayer), artificially low EU payments (due to rescheduling), and booking higher VAT returns. Put another way, Hammond is fiddling the Treasury books to make them look good in advance of his November Budget.
Talking of deficits, the latest GERS figures claim the notional Scottish public deficit fell from 8.9 per cent of GDP to 7.8 per cent last financial year. That’s an 11 per cent reduction, by the way. Of course, this “deficit” is not real but an accounting fiction. It does not take into account the actual outcome of any independence negotiations covering the split in assets and fiscal responsibilities between England and Scotland. Besides, deficits can be a good thing. An independent Scottish government – particularly if we had our own currency – would borrow from its own citizens saving for their pensions. Our Scottish National Debt would be an asset owned by Scots and yielding them an income. And it would eliminate being subservient to foreign lenders.
We also need to force a complete separation between investment and retail banking – something Andrew Wilson rejects in the Growth Report by sticking with inadequate UK rules. Such a separation will encourage retail banks and mortgage lenders to hold Scottish government debt as their capital reserve. This will ensure a stable local market for public debt and eliminate the instability that comes from banking institutions borrowing liquidity from each other short-term. Having thus created a domestic financial market, the state-owned Scottish National Investment Bank can issue its own bonds to fund infrastructure development, boosting economic growth. QED, Andrew.
LABOUR MARKETS: BACK TO THE FUTURE
Another bone of contention I have with the Growth Report is that it maintains a stony silence regarding labour markets. True, Andrew Wilson makes an important point that an unfair economy is a low growth economy. But he is singularly quiet about how to reform the labour market to make wages grow faster and end the iniquitous lack of equal pay for women. Here’s how. Back in the Seventies, the first demand on the neo-liberal agenda was to end collective bargaining agreements and create so-called flexible labour markets; i.e. crush unions and isolate workers company by company. Result: frozen real wages because those sections of the workforce with limited bargaining power (including most women) got left behind. An independent Scotland should reinstate some system of centralised wage bargaining involving statutory representation by worker representatives. Scotland is a community – we should bargain as a community.