DURING her visit to the Golden State of California for Tartan Week, Nicola Sturgeon gave a speech at Stanford, one of the world’s greatest universities. I wonder if she noticed how the campus contains a special car park reserved just for its Nobel prizewinners – 20 of them, including five for economics, are based there at the moment. Something extra in the balmy air of the San Francisco Bay area must have been working on the First Minister, because she delighted her audience with an address I would describe as liberal in economic terms, the first by her that I have ever read or heard of.
I had always regarded Nicola as just a socialist, if in the loose and fuzzy sense common in Scottish parlance. For the purposes of this column, however, I Googled “Sturgeon socialist” and found an article from the Guardian (May 2, 2015) in which she disclaimed any such description for herself and said rather that she was a social democrat.
But no mere label had prepared me for what I came across when I read Nicola’s remarks at Stanford. In outlining the present political situation in Scotland, she declared: “The EU referendum also posed a challenge for those of us who support free trade, who welcome immigration and who believe that the benefits of globalisation, if they are properly managed – and that’s an important caveat to stress – these benefits should outweigh the costs. It demonstrated that we can only sustain support for a dynamic and open economy if we do more to build a fairer and inclusive society.”
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That still begs a lot of questions, but the First Minister pointed above all to “the German economic model developed after the war … It was based on a strong sense of partnership between workers, trade unions, businesses and the public sector. It encouraged competitive markets, but combined them with strong social protections. And of course it has resulted in high levels of innovation, high productivity and strong exports.”
Nicola might have added, but did not, that Germany is also fanatical about running a balanced budget.
It is a policy pursued by governments of every hue, including the Social Democrats, who before the last German election were pressing for an even faster reduction in the deficit dating from the financial crash of 2007-8. Three years ago, Germany returned to a surplus, which in 2016-7 amounts to £20 billion. By contrast, UK Chancellor Philip Hammond is hoping to keep his deficit down to £64 billion. Which country has the more flourishing economy?
As a result of German providence they have brought austerity to an end – and long before other countries, our own included – and seek to resist it in different ways. The rest of us may worry about finding the cash for new hospitals, schools and roads, but the government in Berlin is free to invest in just whatever it needs. While Germany has also seen something of a housing crisis develop, the money is there to solve it. As if all this were not enough, a million refugees have been taken in from Syria and other troubled parts of the world because the resources for receiving them are available. Meanwhile, Scotland’s Finance Secretary, Derek Mackay, says he wants to “max out” the government’s borrowing. With the broad hint from his boss about the value of the German example, he should take a long, hard look at it.
In fact, anywhere you cast your eye, well-ordered public finances go together with private prosperity. German levels of taxation are not drastically different from British ones, but citizens feel happy to pay because they never feel robbed by a meddlesome and incompetent state. Meanwhile, a better balance between public and private spending leaves room for individual enterprise to develop the manufacturing that here we have largely lost (and are still losing, on the latest figures). Over time, the difference it makes can become huge. Germany has a manufacturing sector twice the size of the UK’s – 23 per cent of gross domestic product, compared with our 11 per cent.
And, unlike the UK, Germany runs a large surplus on trade in goods. The market all western countries target these days is the Chinese one. The UK should have a big advantage here because of its imperial legacy – it has been doing business in China for more than two centuries. But the present British exports run at about £600 million a year, while the present German exports run at more than £1 billion – almost double. The difference can probably be summed up in three letters: BMW. It is hard to see how the UK will ever again compete at the same level.
The relationship with China works two ways. Last year, the Scottish Government moved heaven and earth to find a buyer for the Dalzell plant at Motherwell, so as to save the last remnant of the nation’s steel industry. We must all wish it well, while noting that this and every other steelworks in the western world stands under permanent peril from dumping by China, which accounts for half of global production. The Germans? Well, they have not buckled under the oriental pressure. On the contrary, with agile specialisation they still promise themselves a shiny future in steel. Scotland, I’m sorry to say, is no longer capable of such a policy.
Altogether, Germany is in a different league to Britain. It has more global leaders in a wider range of sectors – Siemens, E.ON, Bosch, to name a few – supported by a denser network of small and medium enterprises. It is in these SMEs that any Scottish hopes for emulation must lie. We have few big companies left, even fewer under indigenous ownership. SMEs account for 99 per cent of all our private firms, for 55 per cent of their employment, and for 40 per cent of their turnover. To draw one more German comparison, it was in the same sector that the revival of a country ruined by Nazism started after the Second World War. In our ravaged, post-industrial Scotland we should set out to achieve the same.
This is why I found Nicola’s speech at Stanford so refreshing.
The kind of SNP supporters I usually encounter through the columns of The National are more interested in Cuba and Venezuela than in Germany, and presumably would prefer a Cuban or Venezuelan standard of living to a German one. I myself would happily settle for the German model. True, I would really rather have the more radical and dynamic Slovak or Slovene model, but if neither of these is on offer the German one will do just fine. It means an independent Scotland will remain a capitalist country, which is the most essential thing of all.
We do still have the small matter of finding the right policies to fit this guiding concept. There has been no noticeable effect from the policies for growth, such as they are, pursued by the SNP since it came to power 10 years ago. Now the effects of North Sea oil have been removed by the collapse of that industry, we find there has been hardly any growth at all in the rest of the economy.
We must hope the growth commission headed up by ex-MSP Andrew Wilson will produce badly needed ideas.
Meanwhile, we are faced with a stark fact that came to light while Nicola was away in California: the Scottish economy shrank at the end of last year. Probably it continued to do so in the first quarter of this year, in which case we have a recession on our hands. That’s what happens when you get your economic priorities wrong. Let’s start getting them right.