Scottish Investment Bank Gets Closer

Plans to create the state-owned Scottish National Investment Bank (SNIB) are getting closer, thanks to the SNP government. The legislation to set up SNIB should go to Holyrood in February or March next year and the bank could open its doors in 2020. That’s a fast-track by in legislative terms and means SNIB will be fully operation by the May 2021 Holyrood election.

However, there are still holes to fill in regarding how the bank will operate and – crucially – who will run it. The good news is that the Scottish government and the civil servants running the show are very clear SNIB will not exist simply to fill holes left by the failures of the commercial banking system, i.e. correcting so-called market failure.

In fact, commercial capitalist banking markets fail all the time, and existentially once a decade on average. The only true way of eliminating market failure is to eliminate capitalist financial markets altogether and replace them with a rational system guided by social need rather than greed and rampant speculation.

As it happens, the past few weeks have seen everyone from Gordon Brown to analysts at JPMorgan, the giant US investment bank, start predicting that the next banking disaster will happen circa 2020 – exactly when SNIB will be available to help the Scottish economy keep motoring.

Who Will Run the SNIB?

Present civil service thinking says SNIB will be run by a professional board appointed by Scottish ministers and operating under a strategic plan signed off by the Scottish government. There will also be a separate advisory committee monitoring the SNIB board and feeding advice to ministers.

Worry #1 is that the SNIB board is stuffed full of risk-averse, professional bankers from Charlotte Square. Actually, you might be surprised (as I was) by the number of lefty, radical bankers you find working in the City of London. If you employ 700,000 folk, some of them are bound to be anti-system. Let’s hire some convinced public sector interventionists but pay them less than the First Minister.

As a democratic precaution, the SNIB CEO should be subject to approval by the Scottish Parliament. If we need to hire a few specialists at exorbitant market fees, let it be on a short-term contract only, milk them for what they know, then send them back to Goldman Sachs or Barclays whence they came.

Worry #2(a) is that the strategic guidelines under which SNIB operates are too loose (because ministers like to be all things to all voters), meaning the bank’s professionals can do what they like. Worry #2(b) is that the guidelines are subject to random shuffling as Holyrood administrations change or when ministers feel the need to save a factory in their constituency. The solution is to give the external advisory committee a serious planning role enshrined in legislation.

Rather than have ministers mouth platitudes and the SNIP professionals lend to their pals, we want a return to serious indicative planning in Scotland. This would be driven by the SNIB external advisory group, rechristened as the Scottish Popular Planning Council. The PPC would have a mandate and budget to consult widely (not just with industry) on the social and economic goals Scotland wants to achieve over the appropriate planning horizon, say ten years to smooth out global cycles. The PCC would have to sign off on the bank’s strategic plan and monitor its implementation through statutory reports to the Scottish Parliament.

Note: by indicative planning I don’t mean the PCC should write a detailed, inflexible sectoral output plan on the old (and failed) Stalinist model. I mean it should consult the Scottish people at a popular level – a genuine exercise in participatory planning in which (once a decade or so) communities, councils and trades unions discuss a draft plan that defines a hierarchy of social and economic goals. From this exercise the SNIB’s strategic plan should emerge. The plan will not be sector driven, but mission driven. Loans and investments would incentivise those coming to the SNIB with concrete proposals for projects that helped meet the target goals.

Worry #3 is who sits on the external advisory group, the Scottish Popular Planning Council. SNP governments have had a weakness for stuffing quango boards full of business grandees with a hostility to the independence movement or Establishment types whose main credentials are that they won’t frighten the horses. We need a SNIB that has an appetite for risk, so we need advisors willing to think outside the proverbial box.

Cliff Edge, Anyone?

As I write, monetary events in the UK look less than propitious. The growth rate of the Bank of England’s ‘broad’ measure of the money supply – M4x, which measures the available liquidity in the economy – has been slowing for the past two years, and economic growth with it. But recently M4x has suddenly fallen to stall speed. Brexit cliff edge ahead?

Comments (16)

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  1. Dougie Blackwood says:

    Interesting thoughts. I had forgotten about the SNIB as there has been little above the radar recently. Let us hope that it is adequately funded and used wisely. We must not hope that every project shows immediate return on investment but be in for the longer haul. There have been all too many brilliant start ups that get to the stage of needing investment capital and are then gobbled up by multi-nationals who strip the IP and move elsewhere to cream off the profits.; too many others that die off for lack of investors at that stage.

  2. Joe Gibson says:

    Hi I am 81 years young and would love for this project to get of the ground before I go there. I do not have much but what I leave I would love to leave it in OUR BANK so lets get this project of the ground, I almost just cannot wait, you really have me raring to go so please George lets go.

  3. Fearghas MacFhionnlaigh says:

    Banca Inbheisteadh Nàiseanta na h-Alba
    Scottish National Investment Bank

  4. SleepingDog says:

    Hmmm. Surely the main concern is not with employing bankers (who may have a net negative value) but with employing people who are knowledgeable about what investments and businesses are going to be helpful in meeting Scotland’s economic needs into the future? I remember having a discussion with my bank’s financial advisor who told me he’d studied under Professor Salter (of Salter’s Duck fame), and this seems the kind of expertise (updated to modern social, technological, scientific and environmental concerns) that seems relevant.

    I don’t think return on investment is a particularly relevant primary concern. Planning for the failure of international banking system however should be. Let’s see some robust, resilient, emergency-ready thinking.

  5. Graham Ennis says:

    All this is great, but essentially, until Scotland has its existing currency (yes, thats why the bank notes look different) and a scottish currency board, there will be bits missing. Its like building a cart, and forgetting the wheels

  6. Alf Baird says:

    Unfortunately, as you know George, almost every institution and body the Scottish Government creates ends up being led and managed by the unionist elite who also run the Scottish Government on behalf of SNP MSP’s and Ministers. SNP Ministers need to start appointing their own people to head up all of Scotland’s public/semi-public institutions. Because that is precisely what Lang and Forsyth used to do pre-devolution even with just a handful of Tory MP’s in Scotland. So lets have independence minded people in charge of everything in Scotland for a wee change. Lets show a wee bit intent, remove the Naw folk, get rid of them, for they do down Scotland at every opportunity. Ye can anely ser ane maister.

  7. Alistair MacKichan says:

    Communities have set up Credit Unions to allow residents to borrow and save against a small locally raised capital sum. This kept capital within the community, and prospered a small sector of those involved to a limited degree. The same model now needs to be adopted nationally, a radical departure from international investment circles, which depend massively on the arms trade and military activity for their vigour. A different economics releases the natural groundswell of life in communities and the Scottish society. The only way to stop the siphoning off of wealth to the rich unaccountable 1% is to take Scottish graduates straight from Scottish Universities into the top banking positions, with no experience in the failed system of western banking, full of idealism for the economic welfare of Scotland and let them build a new future. The check and balance they will need will come from experienced Holyrood operators used to fending off the interference of Westminster. When RBOS failed it was stuffed with a professional banking class drawn from outwith Scotland, and driven by a get-super-rich agenda epitomised by Sir Fred, their chairperson, getting massive severance package after criminal failure at the helm. We need new courage to avoid these jackanapes. There is a lack of understanding about the generation of money. It blossoms and fruits where rock solid principles are in place, where the rich soil of good human stock is at work, where the invigorating atmosphere of vision and determination to succeed are at play, allowing the natural genius of a people to flourish. To follow the Norwegian model, and then to conserve the proceeds of endeavour for the people is what we need in Scotland above all else, for the present Westminster political class is siphoning off the wealth of Scotland all the time, and failing to invest in Scottish opportunity.

  8. Jamsie says:

    So let me get this right ……the SNIB will look to eliminate capitalist financial markets in Scotland and replace them with a rational system guided by social need!!???
    Just how will this be achieved?
    Instead of jobs for professional bankers and economists it should only be jobs for SNP or Indy supporting bankers and economists?
    Then you say that we need a SNIB with an appetite for risk ffs!
    Is the risk not that the SNIB is stuffed with political pygmies incapable of identifying schemes which will provide a return to the taxpayer?
    Let’s talk Bifab and Fergusons.
    Or look at the big enterprise organisations and the failures you have so readily criticised.
    But perhaps the biggest single issue is that by the time 2021 comes and the elections the whole idea will need to be kicked into the long grass and yet more taxpayer money will be wasted by this incompetent administration.

    1. Me Bungo Pony says:

      Scottish ambition …. nasty, terrible ambition! It must be ridiculed and pilloried. Kill it …..kill it now! It cannot be allowed to grow and undermine our glorious union. Rule Britannia etc, etc ….

      1. Jamsie says:

        Scottish ambition?
        How does this in anyway represent Scottish ambition?
        The whole exercise of a central investment bank is to provide support to business in the form of capital.
        The same businesses will already have private investors who put their own money up.
        Those same investors will be engaging in the capitalist market this bank is supposed to be eliminating.
        The problem this “government” has is that it can only put money into this bank to allow it to function if it takes money away from public services and providing the U.K. continues to subsidise it’s incompetence.
        This is not a bank which will facilitate Indy as it will not have any powers over currency or exchange rates and neither is it a bank which will generate revenue for reinvestment. Rather it will replace Scottish Enterprise and HiE to a large extent in providing businesses with money already provided by the taxpayer which is distributed through a difference vehicle controlled by another board of fatcats.
        What is ambitious or progressive about that?

        1. Me Bungo Pony says:

          Whatever J*msie. Nothing’s possible; everything’s doomed to failure; simply because we’re Scottish and that is the natural order of things in the unionist mind-set. Sigh ….

    2. Kenny Smith says:

      Foaming and farting, farting and foaming

  9. w.b. robertson says:

    sounds like a great idea – but how will this Bank actually operate, who will be the experts to run it, and how will it make profits for reinvestment? I think we should be told! The last time Scotland tried something like this was called the Darian Scheme, if my school memory serves me correct.

    1. Kenny Smith says:

      You never learned anything about Darien in school. In fact we never really covered anything about the union coming into being either. All I got was 1066 the Normans, Henry 8th and Churchill. I always ask if the union was a such a fantastic occasion for both kingdoms then why is it not taught both sides of the border, why not have a public holiday celebrating this great event that everybody should be grateful for. Someone did answer that union day was the 12th of July but that kinda showed the whole farce up because obviously that happened pre 1707 but why let details bother you. The SNIB will more than likely be sabotaged at some point perhaps even like Darien with a bit of an under hand from our neighbours

  10. florian albert says:

    It appears that the Scottish National Investment Bank will finally open for business in 2020 – 13 years after the SNP won control at Holyrood. The reason for the delay is that there has been nobody in the Scottish Government for whom this project is enough of a priority to get it launched earlier. This fact alone must work against the Bank being able to make a transformative impact.

    George Kerevan writes in favour of indicative planning. (Almost nobody under 50 will have heard of the idea.) The Labour Government of 1964-70 was keen on indicative planning even if it never did much of it. It was associated with France’s post-1945 economic progress. However, French indicative planning was very different from what George Kerevan envisages. It was ruthlessly elitist. It was the project of the Enarques; graduates of the elite Ecole National d’Administration. Today, in France it is seen to have outlived its usefulness though President Macron retains the intellectual outlook of the indicative planners of post-war France.
    In Scotland, what he anticipates happening in economic planning is similar to what has happened in schools’ education for the past 40 years. Vested interests agree on proposals which are implemented with consensus support. Unhappily, this has left us with the ‘attainment gap’, ‘educational apartheid’ and an unloved Curriculum for Excellence. Indicative planning might be just what Scotland does not need.

  11. e.j. churchill says:

    There are NO state investment banks, in any corner of the globe that are NOT political swamps. Some are worse, but all stink. If politicians are going to find the oak tree plantations needed to operate an IB, they ARE going to have a say-so, and should.

    The one thing of which you can be sure is the IB will NOT be an eleemosynary fountain of social good like Jim envisions.

    The word, ‘Bank’ says why.

    Enterprise and Highland, etc. will still be around dropping expected bundles of leaves, but bank terms are never the same.

    Recipients will be fiduciaries, for just one small detail.

    rgds,

    CityBankster

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