BEFORE we bid a final farewell to a momentous political year, I’d like to highlight a thought-provoking intervention that came right at the end of the parliamentary session at Westminster from Roger Mullin, MP for Kirkcaldy and SNP Treasury spokesman.
The House of Commons was debating a motion from Labour which hinged on the question of fiscal rules, that is to say, the imposition of long-term budgetary limits of various kinds, on expenditure itself, or on the balance of revenue and expenditure or on the public debt. The rules should be simple so that not only the government but also the country can know and understand them – prompting behaviour likely, we hope, to restore to the economy the stability it has lacked for the last decade.
Independent Scotland will one day have to think about fiscal rules too, and apply whichever of them seems right for our circumstances. Independence is not going to be, as some of its more naïve supporters appear to believe, a bonanza of infinite public spending. This aspect is what concerns the acute Dr Mullin. As he spelled out to the Commons, it is not so much a question of “what are your fiscal rules?”, rather “do you have an understanding of the nature of the economy that underpins any rules you may wish to set?”.
The UK governments after the great financial crash of 2007/08, first Gordon Brown’s, then David Cameron’s, lacked such understanding. Their macro-economic measures did not produce the desired results, and sometimes brought about the opposite of what they intended.
George Osborne mounted a stupendous squeeze on the various deficits, yet left them not much better than he found them. His successor as Chancellor, Chancellor Philip Hammond, has abandoned all the previous targets, and we wait with interest to see what he is going to put in their place. At the moment, I don’t think he has much more idea than the rest of us.
Indeed, he cannot indeed have much more idea, because our society has been changing too fast for economic theory and Treasury modelling to keep up. These were first devised for a British economy under indigenous ownership, guaranteeing employment, incomes and living standards. It was all easy enough to plan and manage, as governments on the whole did up until 1979, if less successfully at the end of the era than at the start in the Second World War.
That kind of economy at all events got smashed in the era of globalisation then unleashed. Britain stopped being a manufacturer of any great importance and became reliant on services. Multinational corporations took over our corporate sector as they transmitted drastic economic change round the globe. The world of work turned into a lottery, with people switching jobs every couple of years instead of expecting security from cradle to grave. Many exited the sphere of formal employment to set up on their own account, and rely on themselves for what they wanted out of life.
Unfortunately, among the other things that could now be transmitted round the globe were recession and unemployment, especially by political leaders clueless at what they were facing. Dr Mullin in his Commons speech approvingly quoted Professor David Simpson of Dunbar, who had summed up matters like this: “Discontent with neoclassical economics has finally boiled over with the failure of Treasury civil servants and central bankers along with almost all academic economists to anticipate the largest recession since the 1930s, and the powerlessness of these policy-makers in the face of the subsequent stagnation of output.”
Dr Mullin added his own gloss: “Economics should involve qualitative at least as much as quantitative measures. A market economy needs to be understood as an evolutionary process. Its changing nature inspires innovation and thereby creates complexity.”
Sound stuff. After the nation attains its independence, I hope Dr Mullin will come and enlighten us as much at Holyrood as he now does at Westminster. I hope so with all the more fervour because it strikes me that the Scottish Government is not possessed of superior wisdom to the British, or any other government, when it comes to understanding its own economy.
The Scottish Government does have a Purpose, so capitalised in a document first published in 2008, “to focus government and public services on creating a more successful country, with opportunities for all of Scotland to flourish through increasing sustainable economic growth”.
This Purpose has been elaborated on over the years – now to include the worthy aims of solidarity, sustainability, participation, cohesion and so on, which I wrote about last week. The trouble is we have still not created a more successful country. We have, in fact, been going backwards on the only measurable item included in the Purpose, a Scottish growth rate raised to the UK level (and supposed to happen by 2011). Despite all efforts, we are further away from that than we were when the Purpose was put together. We are likely to drift yet further away as we suffer from the Brexit blues.
How can this be? It may be a matter of Scottish government lacking the powers to match its ambitions, a fault possibly remedied (though I doubt it) by the new Scotland Act and transfer of responsibility for some taxation. Or else, the fault may lie deeper, in a mismatch between the Purpose and the actual needs of the Scottish economy, just like the mismatch between Osborne’s austerity and the needs of the UK economy.
When I look at the aims of solidarity, sustainability, participation and cohesion, they strike me as options best suited to a prosperous economy of large and rather static corporate structures, able to call on both the resources and the will to create a cosier kind of country: like Denmark, like Norway, or indeed like the UK of half a century ago where today’s SNP leaders grew up. The Scotland that has developed since is much more jaggy: we have instead an oil industry in decline, cross-border privatised utilities and a lot of financial services, none of them especially amenable to the government and some actively hostile to it.
The strength of the Scottish economy lies rather in its small and medium enterprises, the only possible source of renewal and of the growth we need above all. I doubt if they are interested in any solidarity or sustainability-implying regulation bound to make them less viable. Survival is what they have to worry about most at the moment – and the Scottish Government should start worrying about it too, by freeing them up rather than tying them down.
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