I WAS SENT a very interesting podcast published by the Scottish think tank Enlighten, discussing Sir Anton Muscatelli’s paper commissioned by the Scottish Labour Party, titled Regional Economic Development in Scotland.
I am sure readers will be aware that, as the former Principle of Glasgow University and now the President of the Royal Society of Edinburgh, Sir Anton is at the core of the establishment and as such his words carry significant weight and insights into policy preference.
The podcast started well. We agree Scotland and for that matter the UK and EU has a problem. No growth and far too much debt. Muscatelli acknowledges that Governments have been far more preoccupied with short term spending than the more critical matter of baking a bigger cake. Economic growth is the driver not just of prosperity but as the bedrock of taxes and thus public services. That should be obvious.
So far so good. What perhaps his introduction lacks was context. Just how far down the league table Scotland has fallen. Scottish growth has consistently underperformed the UK and over the last decade averaging a derisory 0.9 per cent, well less than half the OECD average and the poorest performance of any major nation since 2015, as seen from the chart below.
As a reference the numbers since the advent of devolution are not much better.
Worse, Scotland runs a fiscal deficit that by a margin is the weakest in all Europe at 12 per cent GDP, which, without the support of the UK, is utterly unsustainable. No other country in Europe comes close to this. What this effectively means is Scotland’s economy is nowhere near big enough to support the current public spending base independently.
This deficit is despite much higher taxes than the rest of the UK which, giving the simple example of an employee earning £50k, means an extra £1600 in tax pa. Muscatelli’s paper references the jargon on ‘progressive taxation’ as a throw away as if that was a positive thing. Perhaps Scotland’s poor performance is partially because of this progressive policy crowding out private enterprise?
What is missing from the Labour commissioned paper is context. It assumes Scottish policy is just a slightly progressive form of normality and thus a nudge here and committee meeting there, or a subsidy here and a control cypher there – and magically it will all fall into place and growth will abound.
What is not clearly referenced is at the start of the devolution process back in 1997 the public sector was around 44 per cent of the economy – when today it is 55 per cent. Yes 55 per cent, the sort of level of state spending that Communist Poland enjoyed with similarly poor results.
Scotland’s economy is thus largely the State and as the State has increasingly morphed into more and more aspects of Scottish life and not just through extraordinary scale but also increasing regulatory reach (much of this is a UK problem as it is a Scottish one). This is killing the golden goose, driving away creativity to a statist managerialism and crushing hope. It’s a matter of fact that since 2015 real public spending is up well over £20bn while the size of the private sector after accounting inflation has declined over that period. In plain language this looks like a death cult.
So the problem is far more entrenched than the Establishment thinks but then the solutions offered are the real disappointment.
While there is sensible acknowledgement of hot and cold spots – Edinburgh doing well, many other parts not – the take is all management speak. It’s about energy transitioning, convening regional partnerships, lack of local authority focus on growth and a debate on harnessing pension funds and VC money to deliver growth as if those organisations were not focused on that already. The policy implication is the State’s helping hand is needed to sort things out. This is not how people and companies grow.
Let’s look at some truly successful economies and see if they micromanage, tax and centralise? Let’s start with one of the most successful and creative economies the world has ever known, Scotland in the 19th and early 20th century.
Did the State say to McAdam lets develop a scheme to tarmac a road? Or perhaps to Watt – now there Mr Watt, let’s build that condensing steam engine. Or to Mr Dunlop, design that pneumatic tyre? Eh no, in almost all cases Scottish invention and innovation came from a guy with a brilliant idea. The State was nowhere to be seen.
And talk of the Scottish golden age the other factors that were critical was a genuinely world class education system open to all based on rigour and excellence, not mood music and relativity. A local civic pride that build parks, libraries and even the Scottish football league. Almost none of this was centrally planned but organised at local and individual level.
Contrast this with today – money showered on creating the most expensive energy in the world, 4x the power cost of the US for turbines, solar panels largely made in China and Germany in what can only be described as the biggest wealth transfer from poor to rich ever invented. Or on spending hundreds of millions on a ship yard then tangentially finding we have hardly any trained welders to build the next ship.
Or let’s look at another successful economy the US. So successful that a generation ago the average American was only $5k better off than the average Brit – it’s almost $25k now. If Scotland became a US state it would be the poorest of all 51 in the Union, Mississippi included.
Taxes in America are around 10 per cent less, employment law far more flexible. Sure it may be less cossetted but the upside of that is it gives opportunity. There is a balance between our extreme caution and rights based culture and vibrancy. We have gone far too far in the direction of caution and it is making us poorer and in less control of our destiny.
19th Century Scotland is closer to America today. For Fairbairn’s, John Brown’s, Coats Patons and Yarrows read today NVidia, Microsoft, Alphabet, Amazon, Meta and Tesla. What do those companies have in common? They are all little more than a generation old, some much less; all are at the cutting edge of new technology and all were started in some back yard with a guy with a bright idea. Government was nowhere to be seen.
I could go on. We all suffer normalcy bias and our normalcy bias is shaped in World War II thinking. The Man from the Ministry knows best. But this managerialism has been a disaster. It has sucked the life out of communities, innovation and business under the guise of ‘I know best’ and the guise of kindness. It is well intentioned but disastrous. Our entire European continent is in massive structural decline because of this philosophy. We have become the low growth statist anti-freedom region of the earth. No other region follows this European model and Scotland has got the bug badly.
We should welcome Prof Muscatelli’s paper. It recognises decline and does make some important observations; notably the tendency to centralise at Holyrood, but it fails to understand why we are in this mess and it gently implies more control and managerialism is the answer. Empirically it is not. This web of control is what has gotten us slowly but surely into this mess. We must break that. The next essay shall show how.
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Photo of the Royal Society of Edinburgh by Enric – Own work, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=72854413
