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.