2007 - 2022

An Alternative for Scotland: the investment-led model

The future is arriving faster than most people think. When we look around us, we see that digital technology is woven into the fabric of our lives. Where the pace of change is accelerating and the trajectory has become exponential. We are now living in a looking-glass world where everything we think we know is being challenged, beyond technology to the economy itself, including our notions of success and failure. The key success to any world leaders is to start thinking differently and re-imagine the future.

The challenges our society: demographic ageing, climate change and increased inequality, are being encouraged by an additional threat to our economy such as disruptive technologies and their impact on the Scottish workforce. Common Weal recently released a report which builds an understanding of how technology will begin to reshape the economy. The paper looks to build an alternative model for the economy which can allow inclusivity and sustainability to be ingrained in the structure of the investment-led model.

The UK economic model has been geared towards four disastrous economic approaches: asset value inflation; financial speculation; debt-fuelled consumption and monopolistic concentration. These approaches crowd out real investment into the economy, reducing productivity and lowering wages. The UK economy has inhibited growth, development, investment and self-reliance in the overall economy, instead focussing on two centres – towards the owners of capital and geographically towards London and the South East.

This dual-centric model has captured an excessive proportion of the nation’s economic activity and has, as a result, suppressed the opportunity for economic development in local communities, leading to social damage and draining public investment. If Scotland is to develop an effective alternative it must rebalance away from the UK economic model and towards an investment-led model.

We need the investment-led growth model to ensure economic management creates the availability for investment. This requires us to utilise the public sector as the basis for generating all wealth into the economy. It is necessary to understand the role the public sector plays in the relationship between the private sector and national infrastructure and services.

The private sector’s main focus is to make the maximum private profit from its economic activities. However, in the public sector our attention is on how best to invest and manage these economic activities to maximise their development impact and how best to properly understand their role in the overall economy. That requires the state to run, regulate and intervene in the economy on the basis of securing efficiency, quality and wider economic impact. This could take the form of returning rail and postal services to public ownership and creating a National Energy Company to return the management of the electricity grid to the public sector. Yet, to do this, we need to understand how we can afford to invest in these industry sectors.

Modern Money Theory (MMT) is a form of economic management which argues that taxes doesn’t fund government spending. All money spend by the government is created by the country’s central bank and taxes pay off the national debt. Because of this, governments face no purely financial budget constraints, meaning that a government can create as much money as it needs but it is limited to what can be produced and consumed without introducing significant inflation.

The inflation that the government can cause is through either spending too much into the economy or not taxing enough money out of the economy. The reason this causes inflation is because the available capital spending in the economy exceeds what can be produced by the resources available. These resources include labour, natural resource, skills, etc.

MMT goes on to understand the nature of debt and deficits. As populations grow, we need to constantly run a deficit because the available capital within the domestic economy is reducing per person. The population resource increasing means that there is greater resource available for investment. A deficit is then understood to be surplus to the private economy. If a government is running a budgetary surplus, then that means that’s the state is taxing more out of the economy than capital it is investing in. If our aim is to increase the wealth of the economy without increasing inflation, the government will need to run a deficit at a sustainable level that is appropriate for the economy.

In this scenario, the debt which is accrued by the budget deficits signifies the overall money circulating within the private economy. At times, it may be fiscally responsible to run budget surpluses. However, Scotland is facing a period where economic development is a priority. As automation has a growing effect on the current economic policy in Scotland, we require the government to ensure there is a significant demand-led investment in the economy.

With the Scottish National Investment Bank at our disposal, we can begin a demand-led investment strategy which creates national companies as the driving force for investment from the national investment bank into the Scottish economy.

Depending on the needs of the economy, these national companies would identify the investment needs of their given industry and would then devise business plans to source the necessary investment from the Investment Bank and direct it towards economic opportunities.

The investment that these national companies support would be an injection into Scottish economic activity which would encourage growth and jobs. As this follows an innovation strategy which works alongside disruptive technologies, this ensures that the jobs which are created are created to ensure that there is low risk of automation in the short to medium term. It would be wrong to assume this resolves issues in the long-term as technological advancement is constantly changing. However, this model does create the capability to constantly work with technology as it also injects capital into the economy, ensuring that jobs are sustained in our economy.

Under this model we develop a national energy company, a national pharmaceutical company, shared state platforms, a national space agency, etc. This is all underpinned by a job guarantee scheme which ensures the state offers an employer of last resort, offering employment to anyone in Scotland who requires it.

The Common Weal approach to the economy is a feasible alternative to the failed UK economic model. One which is inclusive and sustainable. We need to stop limiting ourselves to balancing revenue and spending and begin to limit ourselves to our own social and ecological prosperity. Our planet demands it, and so must we.

Comments (16)

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  1. Graeme McCormick says:

    You don’t mention a property owning democracy. I think everyone should have a share in that property.
    One way to achieve this is for everyone to receive a Universal Citizens Income of say £10000 of which at least 10% must be invested in a menu of Scottish enterprises at anyone time. A share could be realised at any one time provided there was a minimum investment of £1000.

    This would create an investment fund of £5.5 billion each year for the Scottish Investment Bank, etc.

    The UCI and all other public funds would be sourced from an Annual Ground Rent charged on all land , floor and roof space per square metre depending on the land type involved. This would replace all existing taxes.

    1. Craig Berry says:


      Thanks for the comment. I am a supporter of UBI. However, I believe that UBI and the job guarantee are two different answers to two different questions. More than happy to support that.
      On the AGR. Although I do support forms of land value tax, under MMT tax has two purposes; distribute concentrations of wealth and to coordinate against inflation. If AGR were to replace all forms of tax then that becomes a restraint for these two aims. I’d be happy to introduce some for of AGR though.

      1. Graeme McCormick says:

        Hi Craig,

        I don’t think your proposal will attract a large section of the Scottish population and business to support Independence. It will be perceived as too socialist. I think it is a debate to be had after we secure Independence.

        My proposal for AGR is to produce a model which has financial benefits for almost all people and businesses in Scotland, and to sell it on the basis that the Scottish Government could introduce it now and offer rebates of UK taxes to Scottish taxpayers from the Barnett Consequentials until we are independent. That would drive the wedge between us and rUK which the Uk government couldn’t live with.

        Once Independence is achieved and the AGR model has been given a few years (say 5) to bed in, a review can be made to see if it has had any effect on land and wealth distribution, wealth creation, etc.

        I’m not so sure that idea of a job guarantee is the way forward. Given the changes to work and technology I reckon that instead we should work towards an UBI and a better work life balance of say 25 hours paid work per week for those in employment. We did this in my firm with no loss of salary provided the work done in 35 hours was done in 25 hours.

  2. Block says:

    MMT is a hobby horse of some bloggers. Proposing it as the basis for a new nation’s economy is bonkers.

    As for the Common Weal currency “plan”: Scotland’s producers do more trade with the rUK than they do with the ROW combined. Introducing exchange-rate risk into that trading relationship makes ALL those trades less profitable. And, given that the rUK market is 10X the size of the Scottish market, it is just one more reason for any company that can move to do so.

    1. Craig Berry says:

      Common Weal has produced a paper which details how Scotland can raise sufficient foreign exchange reserves to ensure a stable launch of its own independent currency and to maintain a stable exchange rate with the currencies of its principle trading partners. Please see below;


      1. Block says:

        Regarding that “paper”

        1) Denmark, roughly same size and prosperity as Scotland, sharing a border with a much larger currency area with which it does the preponderance of its trade, backs its currency with the equivalent of £55bn in reserves. You plan claims we only need £40bn; and when considered in the cold light of day, it nets around 1/10th that.

        2) Your plan says we’ll inherit $15bn from the BoE. You fail to mention this is GROSS, & that proper analysis would include the liabilities that come with it, in order to arrive at a NET figure.

        3) Your plan depends upon the rUK agreeing to buy £10bn of the new currency at the exchange rate set by the new Scottish Government, rather than simply waiting to see if they actually need any of it, and, if so, seeing what value the market assigns to it at that time. This is, essentially, Salmond’s currency union blunder all over again. You refuse to concede that the rUK can and will simply say “why would we? there is nothing in it for us that we can’t accomplish more cheaply by other means”.

        4) Your plan assumes that you will force the conversion of £5bn of sterling notes, coins and bank accounts to the new currency, and that is pure profit for the new Scottish Government. However, people will see this coming and therefore there will be massive capital flight as everything that isn’t nailed down leaves Scotland for the rUK so that its owners can convert it to the new currency as and when they choose to. Or never.

        5) Your plan is still several billion £s short, so it says we’ll just borrow the rest. The idea of using borrowed funds to defend the value of a currency is a chocolate teapot.

  3. David Milligan says:

    Interesting article, National Investment Banks while not new globally may well be applicable in the Scottish case . Given that Scotland is often at the wrong end of the cyclical peaks and troughs of the UK economy it may well be that a national investment bank could lessen the impact of a downturn. The thinking behind this is a type of revisionist Keynesianism adapted to current economic challenges and politics.

    1. Craig Berry says:

      Thanks David. The ScotGov is currently going through the process of launching a SNIB. However, there are some structural changes I would make. Such as long-term investment in infrastructure and demand-led investments.

  4. Swiss Toni says:

    How will these “national companies” be financed?

    1. Craig Berry says:


      The state must understand the role our industries and infrastructure play in the economy, utilising the public sector on the basis of securing efficiency, quality and wider economic impact. In a practical sense, this means utilising an investment bank to drive a demand-led investment model, funding national companies as the driving force for investment into the economy. These national companies would identify the investment needs of their given industry and then would devise business plans to source the necessary investment from the investment bank and direct it towards economic opportunities. This injection into economic activity provides and encourages inclusive growth and sustainable jobs.

      In short, the state funds these because the public value outweighs the costs, as this is an investment into the private economy which drives economic opportunities in a more people-centric manner.

      1. Swiss Toni says:

        So taxpayers fund the state which funds the national investment bank which funds the “national companies”.

        Why not let investment decisions be made by the market?

        What are “people centric” economic opportunities?

        1. Scott says:

          Building an economy, Toni, is very much like making love to a beautiful woman…

      2. Block says:

        “The state must understand the role our industries and infrastructure play in the economy, utilising the public sector on the basis of securing efficiency, quality and wider economic impact.”

        The nationalists have been in charge of the Scottish Government for 11 years now. They have handed out millions in public sector funds to corporations in the name of job creation and economic development.

        I can’t think of any of them that have delivered even a fraction of the return that was promised.

        If they can’t do it on a small scale, in an economy in a relatively stable condition, why is it going to succeed on a large scale in an economy going through a seismic change?

  5. John B Dick says:

    The greatest benefit of the Union may prove to be the neglect of rural Scotland, particularly the North and West coasts. It has left the opportunity for post independence governments, using 21st C science and technology to reverse depopulation through new sustainable industries and nearby renewable power sources.

    LVT could play a part in this. Hitherto it has been seen as a better way of collecting tax, but it could develop Power Sharing and Paticipation (two of the Founding Principles) to a hitherto unimagined extent while at the same time driving development and using The-Will-Of-The-People to dampen the enthusiasm of capital to profit without regard for any downside for others or the planet.

    Lets suppose that LVT has been introduced (as a replacement tax) at a universal low rate, to get the systems established and working,

    The next step, independently of raising or lowering the total amount collected is to createrate rate band, higher and lower, including negative rates for favoured classifications of land use or locations. There could also be short term discounts and surcharges to influence the direction and speed of changes in land use.

    The ‘nanny state’ need not be involved in banning fracking or open cast coal mining. If the tax on the activity is set to recover the loss to the communitydue to the damage to the environment. Whether capital would assess the activity as worthwhile is simply a matter of price.

    In this we are in the domain of the discussion between Bernard shaw and the actress.

    Would she sleep with him for money? Certainly not!

    Not even for a million pounds? Well, that might be different.

    Here’s £5. Don’t be disgusting. What sort of woman do you think I am?

    We’ve already established that, what we are doing now is negotiating the price,

    In principle, there is nothing that the pro-capital right could object to. Self-interest and the ability to make a profit could still be promoted, The left could still use the ‘jobs’ argument to oppose change – as they do on Trident – to defend the income of Trade Unions.

    The provision of a public benefit, such as employment, or disabled employment, could be the subject of a discount or allowance.

    An annual review of rates could replace the budget as the government’s policy enabler.

    Interested parties and campaigners would direct their efforts towards persuading government to change banding, which would make the activity more/less financially attractive.

    Do you want to help or eliminate private education? Lobby to change the banding.

    What about Animal welfare? Betting shops? Churches? Shooting estates? Chip shops and sugary drink manufacture? Brothels? Food banks? Recycling operations

    Government might need the world’s biggest spreadsheet, but there would be rules for limiting the extent of rate change in any one year or small number of years, and changes could be deferred in implementation.

    Eventually, the annual debate could be moved step by step from a government workload to The-Will-Of-The-People, increasing Power Sharing and Participation by using new media and TV to advise government.

    1. Graeme McCormick says:

      LVT or AGR gives certainty of public funding which existing taxes cannot do as they are dependent on consumption or earnings which highly variable .

      To maximise the benefit not just to the public purse but quality of life requires government to focus peoples minds on the stewardship of land and property. That has to include public property as well being subject to AGR.

      So much of what is owned by the public sector has remained unloved and unused for generations. With AGR these dormant assets become liabilities which force councils etc to use or hand over to others to do.

      Banding could be as small as 4 or up to25 or more. I favour a rate per square metre on the land and floorspace within a band as that means there is no need for individual valuations by professional values and owners can make their own online returns to a public AGR website which can be largely self and peer policing . It would also encourage land owners not to maximise what they own if their titles were not registered in the Land Register and this accelerate the completion of that Register. A return to Revenue Scotland would be deemed to be the extent of what they owned.

  6. SleepingDog says:

    What is “demand-led investment”?

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