What Economic Strategy?
AS we appear to approach the denouement of Brexit, it is pertinent to consider what future economic strategy Scotland needs. In this context, it is interesting to note that the political rationale for Andrew Wilson’s Growth Commission report has been altered subtly.
Originally the GC was conceived of as a set of solid ripostes framed to placate those hardcore, conservative sceptics who doubted the economic viability of an independent Scotland. Fair enough, though it risked marooning the Scottish economic agenda squarely on the terrain of existing, Blairite objectives; i.e. “balancing the books”, low business taxes, high GDP growth, high personal consumption, an educational system geared slavishly to economic requirements, and a relatively liberal regulatory regime (especially for banking).
The GC report does a creditable job in satisfying this meagre agenda. Many of us might have lived with that outcome had the GC report served simply to blunt the edge of Project Fear II, during the forthcoming IndyRef2. However, with Brexit and the upheaval in the global economic system, the GC report has been transformed suddenly in the blueprint for a future Scottish economy. Witness the draft motion to the SNP Spring Conference, in the names of Keith Brown and Finance Secretary Derek Mackay.
Unfortunately, the GC muddles wholly decent aspirations (e.g. equal pay, inter-generational fairness etc.) with a defective model of how the global, capitalist economy is evolving, post Trump and post Brexit. As a result, the economic agenda posited in the GC is frankly unworkable. Adopting it wholesale at the Spring Conference will disarm the movement.
For nowhere in the GC report is there any criticism of how actually existing global capitalism works – or does not work. Yet to reboot indy Scotland we will need to break out of the current global economic model. That, ultimately, is why the Brown-Mackay economic resolution to the SNP Spring Conference is deficient.
DEATH OF THE SCANDINAVIAN MODEL
Since the 1960s, the SNP has pursued an implicit model patterned on the Nordic countries; e.g. wage and social equality, with a legitimate role for both public and private sectors operating in mutual partnership. The state would aid industrial productivity while the private sector would accept its role in funding extensive welfare services. Economically, this model assumed a core, high-wage industrial sector exporting at premium prices and high consumption based on steep, redistributive taxes.
Andrew Wilson’s GC report still has this Scandinavian model buried deep within it – or at least the core elements of “social partnership” between state and private sector, and the aspiration for equality, community and welfarism. Unfortunately, the world has changed out of all recognition from when it was first espoused.
That includes Scandinavia itself, where the virus of neo-liberalism (and attendant anti-immigrant racism) has taken root. Sweden had the largest increase in inequality of all the OECD industrial countries between 1985 and the early 2010s, growing by a massive third.
The new situation is crudely as follows: so-called globalisation, especially since the 1990s, has replaced local ownership of key parts of the economy with foreign control and integration into international supply chains. Result: there is no local industrial class to form part of the tripartite state-private industry-trade union partnership on which the classic Scandinavian model depended. The largest shareholder in Volvo, for instance, is Chinese. Globalisation has also made it difficult to raise business taxes. Sweden has slashed its Corporate Tax Rate from 60 per cent in 1989 to 22 per cent today.
The same pattern has been followed in Scotland, even inside the UK. Key sectors such as the power industry, media and brewing have been sucked into foreign ownership since the 1990s. Promising, high-tech start-ups like Wolfson Microelectronics were gobbled up by well-financed US predators. HBOS became a ward of Lloyds and RBS sold off its crown jewels – including the payments fintech Worldplay which is now worth £32.5bn.
Result: the notion of a Sixties-style, Scandinavian high-wage economy in a future indy Scotland is a chimera, if we stick to the present, free-market system (as the GC implicitly assumes). With the incorporation of China into the global marketplace, competition has intensified. Result: real wage rates have flatlined in the West. Another factor is the bifurcation of Western labour markets into a tiny, high-paid elite of managers and bankers, and a vast, low-wage, “gig” economy sector. The GC ignores this reality and offers nothing to alter it.
True, the GC proposes raising Scottish GDP growth from an historical average of 1.5 per cent to 3.5 per cent, inside roughly a decade. However, that does not cure the problem of static real incomes in the current capitalist system. The notional GC growth target implies adding circa 20 per cent to GDP. How does Andrew Wilson propose to achieve that? The main avenue the GC suggests is by raising population through immigration. That might raise absolute GDP, but it is unlikely to raise income per head, because much of any extra output will be needed to feed and house the new arrivals.
Conclusion: unless an indy Scotland can impose some degree of public and community control over Scottish economic assets, investment flows and decision-making, nothing much will be altered in the real economy. That means breaking with the logic of globalism and neoliberalism. But that discussion is missing from the GC report.