Robin McAlpine: The economy isn't Scotland's problem – it's everyone but London's problem

CommonSpace columnist and Common Weal director Robin McAlpine says unionist analysis of UK economics is fundamentally flawed

WHEN in conversation with a unionist, generally you are never far away from the broad assumption that the Scots are economically backwards and that it is the fate of the union to save us from our inherent weakness.

So they say: "look – Scotland's economy is struggling while across the UK the economy is booming. Nationalists should do something about it and stop moaning."

Two big problems with British unionism are contained in the errors in this statement.

They take Scotland out not as a national economy (we don't have a national economy with national monetary and macroeconomic policies) but as a region. To be meaningful, that comparator should only be made with other regions of the UK.

The first error is the word 'across'. Whenever unionists analyse Scotland as part of the UK, they use a trick which is partly what I explained last week – they compare a nation to a region.

They take Scotland out not as a national economy (we don't have a national economy with national monetary and macroeconomic policies) but as a region. To be meaningful, that comparator should only be made with other regions of the UK.

But that's not what they do. Rather they merge and then average all the other parts of the UK. Or rather, they take a nation state with full monetary and macroeconomic powers and a powerful international capital city, subtract one region and then compare the region to the nation-minus-one-region.

If it was some sort of a problem with the Scots, you'd therefore expect to find that the other regions of the UK were each individually doing well. If that was the case then you might reasonably argue that given the same macroeconomic conditions, lots of parts of the UK were succeeding so failure must be unique to Scotland.

But that's not what they do. Rather they merge and then average all the other parts of the UK.

You see, that would be an accurate meaning of 'across' – as opposed to 'on average'. So is that what we find?

No-one can accuse me of selective use of statistics - let's use only numbers from the Office for National Statistics as analysed by the House of Commons (a more generous analysis by the Bank of England is linked to below) and let's use the most recently available ones which taken a longer run view of economic performance (over five years) to even out any annual blips.

Have a look for yourself (this link will directly download a PDF). The first thing that should jump out at you is the number of regions of the UK which are above the UK average for growth.

There are two – just. The south-east of England is above the UK average for growth by a whisker. And, of course, London is above UK average growth by miles. Not another single region of the UK has achieved average UK growth this decade.

And if you look, Scotland is doing slightly better than most of the UK – there are five regions with better growth and six with worse.

Or rather, they take a nation state with full monetary and macroeconomic powers and a powerful international capital city, subtract one region and then compare the region to the nation-minus-one-region.

The picture gets better for Scotland if you go down the report a bit and look at economic growth over the same period but adjusted for economic growth per head of the population. By this measure, Scottish economic growth actually exceeds economic growth in the south-east of England and places Scotland in third place in the UK, a fraction behind Wales.

This tells two interesting things for me. The first is that it reveals just how much economic growth in London and the south-east is tied to population growth. What if Scotland could manage immigration for growth just like London and the south-east has?

But it also raises a seldom-raised question – why are we not using GVA per capita as our primary measure? If wealth doubles but it is shared by exactly twice as many people, wealth per person has not changed at all. Surely it's wealth per person that indicates policy success? The London economic miracle looks less miraculous when you take into account the number of people it is meant to be shared between.

For most people, it is the ability of the economy to create jobs that they mean when they say they think the economy is important. Here, the most optimistic person in the world just couldn't use the expression 'across the UK'.

Because when a study was done six years after the financial crisis it discovered that of the new jobs created during the 'recovery', 80 per cent of them were in London. It's worth repeating that in reverse – over six years after a crisis caused by London, the whole of the rest of the UK which isn't London got to share one in five of the new jobs created by Westminster's attempts to rescue the 'UK' economy.

For most people, it is the ability of the economy to create jobs that they mean when they say they think the economy is important. Here, the most optimistic person in the world just couldn't use the expression 'across the UK'.

If you want to look at the kinds of things that mean the London economy is always protected, have a look at this report by the Sheffield Political Economy Research Institute at Sheffield University. Have a look at the first graph.

Remember how we had to 'cut our cloth according to our means' and all that? Well guess – by miles – who did the least cutting of public sector jobs? Yup, London. All across the UK, Westminster policy decided to cut sharply the number of public sector jobs, but not in the capital.

Yes, isn't it brilliant when you can be a bit Keynsian to yourself (keep ploughing in the public expenditure to prop up the wider economy in your own region) while slashing the same thing in all the other parts of the country?

And if you want to claim there is a fundamental problem with the Scottish economy, you would possibly want to demonstrate that there is another consistent economic factor contributing to it. For example, if Scotland's productivity was substantially worse than other UK regions, you could argue that there is a cause of poor productivity which was specific to the Scottish economy.

But again, there are only two regions in the UK that really outpace Scotland on productivity and that's London and the south-east. It's not something fundamental about the Scots.

Over six years after a crisis caused by London, the whole of the rest of the UK which isn't London got to share one in five of the new jobs created by Westminster's attempts to rescue the 'UK' economy.

In fact, it IS something fundamental about the UK. The UK is now 35 per cent less productive than Germany. And at the same time, a study from a couple of years ago showed that 25 out of 37 subregions in the UK are below the average per capita GDP of the European Union.

Perhaps we should just leave the conclusion to the Bank of England working from ONS data and reported on the BBC (so hardly a nationalist conspiracy). Between 2007 and 2015, Scotland was the best performing economy in the UK other than London and the south-east. (You can read the full speech by the chief economist of the Bank of England on which it is based here and draw your own conclusions.)

That's the reality. Scotland isn't lagging behind the UK – the UK is lagging behind London and the south-east. Or more accurately, everywhere in the UK suffers from London and the surrounding economy monopolising the benefits of the UK economy – such as they are.

So to the second error in the statement at the beginning – 'do something about it'. Let's just ask a search engine of your choice what the generally accepted policy levers used to manage the economy are.

You can do this for yourself but here's a kind of unobjectionable summary of generally accepted theory on this. You have monetary policy (managing money supply) and you have fiscal policy (taxing, borrowing, spending). Personally I'd have added regulatory, trade, immigration and employment powers to that list but whatever.

Remember how we had to 'cut our cloth according to our means' and all that? Well guess – by miles – who did the least cutting of public sector jobs? Yup, London.

Just have glance for yourself – these are monetary powers and Scotland has absolutely none of them. And these are fiscal powers and Scotland has a very limited range of them (we can raise income tax and borrow a minuscule amount – that's it).

(Oh and incidentally, we have virtually no regulatory powers, no trade powers, no immigration powers and no employment powers. And next to no social security powers and we've had no seat at the table in the setting of EU economic policies.)

So, oh wise unionists, do what exactly? And I swear to god, if one of you replies 'more apprenticeships' I'll honestly cry.

I'm a long way short of being content with what Scotland actually has done with the limited powers it has. In fact, it's not long since I described Scotland's economic narrative as an embarrassment. But it is a widely shared embarrassment – my criticism is that the Scottish Government came in and did almost nothing to change the economic agenda set by Scottish Labour.

Sure, we could do better than we do, but when unionists say things like "stop complaining about London and concentrate on the powers you have", I have to ask who it is, then, that should concentrate on London and what it does? I get lost with this – are we supposed to pretend that actually London has no real effect on our economy and we should be grateful for the powers we have?

Yes, isn't it brilliant when you can be a bit Keynsian to yourself (keep ploughing in the public expenditure to prop up the wider economy in your own region) while slashing the same thing in all the other parts of the country?

I'm frankly disappointed about how weak the Scottish Government is on this subject. A cabinet secretary with Google, some wit and some nerve could fight our corner effectively. We could be framing this so much better.

For example, I think I may stop referring to the Scottish economy (technically, I don't think there really is one) and instead talk about 'the UK economy in Scotland'. After all, isn't that exactly what the unionists are saying – that we are one economy and must stick together?

For balance at the end of this piece let me say that there are some genuine economic questions that independence supporters have to answer properly and soon: how we'll set up a currency and central bank, how we're going to handle the complex issue of trade, what fiscal policies would Scotland set - we must take these seriously.

But the argument that the poor economic performance of a region of the UK in comparison to the overheated madness of the grasping London economy shows just how much that region should cling on to the self-obsessed city-state which is driving its underperformance?

That's a difficult case to make within the framework of classical economic theory. Or in other words, away and chase yersel.

Picture courtesy of Robin McAlpine

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Comments

rosspriory

Thu, 04/06/2017 - 18:58

"I'm frankly disappointed about how weak the Scottish Government is on this subject.". I agree Robin.
Did you here Cabinet secretary MacKay this morning, with Hayley Millar? He was struggling to justify the rubbish proffered by the BBC. The rubbish that you have just exposed in this article. Who is briefing our government? No one in authority within our Government has a clue on how to deal with/respond to Industrial (don't start me) and economic policies for an independent nation. Not as you are constantly saying; a region of the UK.
When are they, anybody going to get to grips with this.
"Its the economy, stupid".

Arthur Blue's picture

Arthur Blue

Thu, 04/06/2017 - 21:32

An important point, Robin, and it should be more widely known.
Danny Dorling's book "People and Places - a 21st Century look at the UK " illustrates all this very well, and can be recommended.

MauriceBishop

Thu, 04/06/2017 - 21:38

GERS denialism is still GERS deminialism, no matter how many words are expended doing it.

Last March the First Minister explained that Scotland really does have a deficit, and it is because Scotland generates about the same amount of tax revenue as the UK average but services cost much more than the UK average because of the sparse population.

That situation has not changed.

Also, I'd like to point out that the draft white paper offered on this very website assumes that Scotland starts out life with a £8.8bn structural deficit.

Mike Fenwick

Fri, 04/07/2017 - 11:07

To add further context to Robin's article - these are extracts from a speech by Mark Carney, Governor of the Bank of England, today. They illustrate further the imbalance in the economy, and the risks that poses, with the evidence all too apparent in 2008, with a wholly unclear future post Brexit.

- Financial services ... contributes around £70bn, or 11%, of annual tax revenues.
- Financial services are the UK’s most important exports, running a trade surplus of around £60bn or 3% of GDP. The rest of the economy runs a deficit almost twice as large.
- The UK financial system is almost ten times GDP, and is arguably the most sophisticated and complex in the world. Large complex financial institutions and major wholesale financial markets are inherently risky. Left unattended, these risks can easily spill over and damage the domestic real economy.

mickyoung86

Fri, 04/07/2017 - 11:26

Excellent work. I am really worried though that our government and those who are heavilly involved in the Indy campaign haven't or wont grasp this. Such as Derek MacKay. I'm worried because it's these people who will be in front of cameras, participating in live debates and on radio programes etc etc. It almost leaves the job down to organisations like this and it's subscribers to debate and convince others.

Isembard

Fri, 04/07/2017 - 16:58

I assume that Peter Dow, who seems to LIKE capitals for SOME REASON, was present at the negotiations with the Westminster government, so therefore KNOWS what choices were open to the First Minister of Scotland (A.K.A. 'Sturgeon' to him the BBC).

Does he seriously think that anything better was offered, or indeed that greater borrowing powers will EVER be offered to the odious separatist regime by the Westminster government? (sorry, GOVERNMENT?)
They will never offer any real economic powers to Scotland - only independence can do this.

"Only DISAGREEMENT with "minuscule" borrowing powers should be acceptable" says he - and then what? Walk away with the head held high, knowing that you HOLD the HIGHER moral ground, but came away with NOTHING?

If that is the extent of his negotiating skills I advise keeping the day job.

Bill White

Sun, 04/09/2017 - 19:42

So, Maurice.

What's your plan to reduce the deficit? More of the same?

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