Measuring Economic Change

George Kerevan assesses the relatively better performance of the Scottish economy compared to the UK average and the levers of change required to make a difference.

SCOTLAND’s LABOUR MARKET: WORKING OR WORKING TO DEATH?

THE latest labour market stats for Scotland, for January 2019 to March, reveal a reasonably robust picture. Official unemployment is down to 3.2 per cent, the lowest on record and better than the UK’s 3.8 per cent. Some 75.4 of 16 to 64-year olds are in work in Scotland compared to 76.1 per cent for the UK – OK that’s within margins of error but the Scottish lead is fairly consistent. The female employment rate North of the Border is 72 per cent, a tadge higher than the UK figure of 71.8 per cent. Scotland’s youth unemployment (i.e. 16-24-year olds) is a low 6.6 per cent, especially compared to the 14.5 per cent average across the EU.

Let’s nit-pick for a moment. The high employment levels in Scotland and the UK (compared to Europe) are the flip side of low wages, employer flexibility in hiring and firing, the decline in welfare provision, making men and (especially) women work longer for their pension, and the Tory government’s obsession with forcing the physically and mentally infirm into any job going (even if this results in the circa £10bn annual UK NHS bill for mental health).

My point is that there is a big danger in the SNP government trumpeting Scotland’s high job numbers as unashamedly positive. Surely good wages and the quality of employment are equally as important.

Consider: a recent report from the Scottish government’s Chief Statistician shows that some 88,600 people aged 65 years or over were in employment in Scotland in 2018. That’s twice as many as ten years ago when the banks crashed. As one of these “mature” workers, I enjoy earning a crust in journalism. But the doubling of pensionable age workers in Scotland probably has more to do with pensioner poverty than any sudden desire to clock in again.

IS SCOTLAND DIFFERENT?

That said, how do we explain the relatively better performance of the Scottish economy compared to the UK average? For instance, the Scottish economy grew by 0.3% in the final three months of 2018, according to the latest official figures. This compares to a figure of 0.2 per cent for the UK as a whole.

Some of this is down to higher per capita public spending, thanks to the Barnett Formula and to the willingness of the Scottish government to use its new capital borrowing powers. Some extra demand must also bleed through into the local, onshore economy from the recent, greater activity in the North Sea oil and gas sector. Plus Scotland’s whisky and food exports remain strong, despite the Brexit uncertainties destabilising the rest of the UK economy. A recent report from the Scotch Whisky Association reveals the industry has grown by 10 per cent since 2016 and is now worth £5.5bn annually.

Nevertheless, the economic levers currently in the hands of the devolved Scottish administration remain insufficient to really shift gear – especially if we remain trapped inside a hard-Brexit UK. Ultimately, we need to be in a position to raise our domestic productivity and for that you need three things.

First, a more highly skilled workforce. Today, some 11.6 per cent (387,400) of Scots aged 16-64 have low or no qualifications (SCQF level 4 or below). Get that fixed!

Second, you need more capital investment in machinery and infrastructure. That’s where the new Scottish National Investment Bank comes in.

Third, you need to pump cash into research and development. Scotland invests circa 1.67 per cent of GDP in R&D (2017 figure). Around half comes from the Scottish government and universities, and the other half from business (a quarter of which is chipped in by foreign EU companies).

However, to catch up with other small economies, never mind get ahead of the game, we need to up our R&D spending to more like 2.5 per cent of GDP per annum (it’s nearer 4 per cent in Sweden). That’s a two-thirds increase or around an extra £1.6bn a year. True, Scottish R&D spending is on the up. It jumped 8.3 per cent in real terms between 2016 and 2017, compared to a miserly 2.8 per cent increase for the UK. But in gross terms, we are barely making our population share of UK R&D spend, never mind looking likely to hit 2.5 per cent of GDP any time soon.

Of course, independence will give Scotland more of the policy tools to up its R&D game. But we need to start now. The issue is not more money per se but shifting priorities inside current GDP allocation. There are, of course, a plethora of agencies and funds in Scotland focused on driving R&D and innovation. But their collective impact still falls short of the necessary mark. Perhaps the fragmented nature of Scotland’s innovation ecology is part of the problem.

Comments (7)

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  1. Andy Anderson says:

    This is a very helpful and useful analysis of the macro-economic figures for us in the Yes Movement, George is right the Scottish Government needs to use what economic levers it has even if they are not many available to them, particularly to drive up productivity in Scotland where we can.

    1. Alasdair Macdonald says:

      I agree to a fair degree. Indicators on their own, no matter how good have to be set in the context of longer trends and of progress towards particular goals. We need good data to inform policy and the practice of governance.

      The SG cannot just (and I do not think it does) focus on being better than the rest of the UK, it has, as the author says, ensure that it uses its current, somewhat hobbled, powers to maximise outcomes for the country. However, given that for so many years the unionists and their media have played and continue to play the ‘Scotland Is Bad’ record, it is important to present the wider picture, in the way Professor Robertson does on his Talking Up Scotland site.

      What Mr Kerevan does, consistently, in a way in which Mr Gerry Hassan continuously fails, is that he is always constructive and produces plausible alternatives. He is engaging in genuine debate as a means of advancing the case for independence and for attracting slithering NO voters. I look forward to his offerings.

      1. Andy Anderson says:

        I entirely agree Alasdair and the decision of the SNP conference to establish a Scottish Statistic Office is a very important step in the right direction.

  2. Alistair MacKichan says:

    Helpful article, George. Speaking in Europe Arnold Scwartzanegger has said that California has excellent current employment on the back of tough environmental policies. As our kind of economy needs to shift from Growth measurement to sustainability and environmentally harmonious measurements, this news from California is especially significant.

  3. Mark Rowantree says:

    Excellent summation of Scotland’s economic and social position under the existing arrangements.
    In particular, Kerevan highlights the danger of the SNP gaily walking down the neo-liberal economic route so slavishly followed by the British Government and its apparatus.
    Without trying to make nonsensical predictions over a hypothetical future I believe it is vital that the SNP as the political guardians of independence: ensure that a future independent nation can follow a different path. If it so chooses of course, but the building blocks can and should be put in place now.

  4. florian albert says:

    George Kerevan writes that a more skilled work force is Scotland’s top priority. George will remember that Harold Wilson wanted to end the UK’s culture of low pay and low skills. Sixty years on not enough has changed.

    However, some things have changed.

    We have had an SNP government for 12 years. Unhappily, it has done nothing worthwhile to deal with this problem. At the heart of this is an intellectual failure. It has no ideas.
    Further, we have a vastly bigger tertiary education sector than when Wilson spoke in 1964. A quadrupling of university students while a low skill, low pay and low productivity economy remains for the many. Much of the responsibility for this lies – again – with the intellectual and political failure of the SNP.
    On education, the SNP is profoundly unradical. For the middle classes this is mostly fine and dandy; the least well off pay the price.

  5. Derek Henry says:

    An Indy Scotland will need to give the non government sectors that’s Scottish households and businesses a surplus of between 10-12% of GDP. To do everything it wants to do.

    Which means the Scottish government would need to run deficits of 10-12%. No problem as long as it does not cause inflation.

    How do you propose to do that at the heart of Europe George with the growth and stabilty pact, 2 pack, 6 pack excessive debt proceedure and corrective arm ? That only allow 3% deficits. The elephant in the room.

    After indy. The Scottish govt deficit = the private sector surplus and the Scottish national debt is just that surplus moved into Scottish gilts if we decide to issue debt that is as an independent nation. But you and the SNP want the Scottish people trapped in this prison below.

    https://www.reuters.com/article/us-italy-debt-eu/eu-could-slap-3-billion-euro-fine-on-italy-for-excessive-debt-salvini-idUSKCN1SY0JW

    Because Italy is breaking the gold standard, fixed exchange rate neoliberal globalist nonsense in the Eurozone the EU want to fine them 3 billion. That’s what you want for Scotland.

    Japan runs a debt to GDP ratio of 253% George with 2.5% unemployment rate zero interest rates for years now with low inflation. Japan destroys every economic theory you believe in George. You can’t explain it you call Japan a special case instead. When MMT economists could hold your hand and explain exactly what is going on in Japan. MMT economists understand the government accounts.

    Italy’s national debt is just the national savings of Italy George. Private sector savings earning interest. So why on earth would you want to be part of neoliberal globalist cabal that would fine a country 3 billion for saving too much ??? Looks like the Japanese people like to save as well George. How much would you fine the Japanese people for saving too much ??? They save twice as much as the Italians do.

    This is the insanity and madness you get from being at the heart of Europe George it is called the excessive debt proceedure. Not based in reality but based on neoliberal globalist horseshit. Lying and cheating millions of voters to make them believe a country’s national debt is the same as a household debt when nothing could be further from the truth.

    When an Indy Scotland’s households and businesses run a 10% of GDP surplus George and move some of that surplus into interest bearing assets at the new Scottish central bank to earn interest to get a better return on their savings and pensions.

    How much are you going to fine them George ??

    3 billion – 5 billion – 10 billion ??

    Why are you going to allow the EU to punish Scottish savers George which in turn will control the Scottish government and bring them to heel. Like a pet paraded around in a zoo.

    https://thomasfazi.net/2017/03/17/public-debt-in-the-eurozone-a-political-problem/

    I’m pretty sure you fully understand the huge problems that being at the heart of Europe would bring George if the SNP get their way because of the way the Eurozone has been set up. Maybe not and I’m giving you too much credit. Maybe you don’t understand it all.

    Either way you still refuse to talk about it.

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