Kate Forbes: Finance Secretary needs more than one 10-year economic plan

DEAR Cabinet Secretary,

I write this in response to your call for ideas to incorporate in a new 10-year economic recovery plan for Scotland. I note you have also set up an advisory panel of economists, business people and NGO representatives to help you write this plan, and that they have just had their first meeting.

The initial thing to say is that this panel of experts is decidedly eclectic in its views. It includes representatives of the right and left, pro-market and market-sceptical views, plus the man who gave us austerity (former Treasury boss Nick Macpherson) and one of the most eloquent opponents of austerity (economist Mark Blyth). Any consensus this group achieves will surely be of the lowest common denominator. I recommend you publish the minutes of its discussions and allow for minority reports. A bland final report will tell us nothing.

Incidentally, I can find no references as to where independence fits into the deliberations of your new advisory team. Yet the First Minister (below) continues to affirm that we will see an independence referendum in short order.

The economic policy framework for an independent state, with full powers over borrowing and spending, is surely very different from that of a Scotland still subsumed under the control of an incompetent English nationalist government at Westminster?

It seems to me to be impossible to produce a coherent economic plan that straddles the two eventualities – independence or continued and diminishing devolution. At best, Cabinet Secretary, you need two economic plans: one for after independence and one for the status quo. Actually, producing two versions would help make for clarity in the public mind. What you cannot do is produce some policy melange that conflates the economic direction of a sovereign state and the defensive measures taken by Holyrood within the UK superstructure.

While on this subject, where does the SNP Growth Commission report now figure in your planning scenario? Is the new economic policy committee taking the Growth Commission as a baseline or does it start with a clean sheet? This would be good to know as you are also soliciting the views of the general public on your 10-year plan.

Where should we start? Are the GDP targets (a doubling) and fiscal rules (reduce deficit before increasing spending) still operational, in your view? A failure to address these questions publicly would imply you are more concerned with political mood music than serious economic planning.

Then there is the question of EU membership. A 10-year plan for an independent Scotland inside the bigger EU market is a very different thing from a blueprint for a regional economy inside a deregulated British tax haven.

Cabinet Secretary, you need to address your policy response to a series of different, prospective scenarios. Actually, in business planning, companies often do so-called “scenario planning” – producing policy prescriptions for a series of potential outcomes. I recommend your advisory committee does just that. If you only emerge with a one-size-fits-all policy paper, no-one will take it seriously.

A genuine 10-year plan cannot be an eclectic shopping list. It has to state measurable objectives that other economic actors can use as benchmarks. Begin with the fact that Scotland has a very poor productivity level compared to similar-sized economies. Low productivity equates to a low standard of living. Raising productivity saves on inputs and increases the standard of living, assuming an equitable distribution of income.

READ MORE: Those angry at 'arch Unionist' on Scotland's economic council must face reality

However, here’s the rub – increasing Scotland’s productivity means shifting resources from private consumption to public investment (in machines, training, research), over the planning decade. Do we have the political gumption to do that?

I THINK the electorate would support such a move if it believed it would result in better pensions and higher wages. But the plan would have to be sold to the voters.

Are you up for that, Cabinet Secretary? My worry is we will get a paper plan full of liberal but ultimately meaningless phrases, such as “just transition”. Any serious economic plan redeploys resources. That redeployment results in winners and losers. You need to be up front about that.

Next, a proper economic plan has to be clear on the role of the state and the role of the market. A small independent Scottish state will have to survive in the global economy. That implies a vibrant, private export sector whether we like it or not, to generate foreign currency earnings, pay for necessary imports and ensure our productivity matches the global norm.

However, recasting the economy to decarbonise, create a better distribution of income and shift investment towards social goals all demand public intervention – whether at a state or community level.

Cabinet Secretary, is your 10-year plan a public mission or are you going to cede control to the vagaries and chaos of the marketplace? You can’t avoid choosing a direction or the market will do it for you.

At root, this strategic choice boils down to who controls the banking and credit system. Almost uniquely, an independent Scotland will inherit a financial system that is foreign-dominated. Which implies that investment and consumption flows inside Scotland will be decided largely by the profit and risk appetites of foreign bankers.

Cabinet Secretary, your 10-year plan will be a dead letter unless the Scottish Government can impose its own will over our credit system. I’m not suggesting political management of every loan. But public control over the broad direction of credit must be a top priority.

You need to shift investment to Scottish manufacturing, training and research projects. You need to ensure lending through and against economic downturns. And while foreign inward investment is useful, you must not let it dictate Scottish priorities.

READ MORE: Who's on the Scottish Government's new economic council?

But what should a Scottish Government do with control over credit? A key problem is the nature of the western consumption model.

Crudely, manufacturing has shifted to Asia. Western economies depend on debt-enabled consumption of cheap Asian goods. This debt is secured by home ownership and ever-rising house values (a long-term impossibility). The bulk of western employment has shifted to low-wage service industries and health care. How can tiny Scotland escape this dubious economic model?

Fundamentally, Scotland has to shift back to a production-based economy, with full employment and high wages. Only with that, and decent pensions, will we wean people off the insane illusion that their homes will go on increasing in value forever. Once we can start lowering the price of houses, real standards of living will shoot up and young folk can get control of their lives again. But are you up for such a radical re-ordering of the economy, Cabinet Secretary?

Finally, what about decarbonisation? Currently, Crown Estate Scotland (on behalf of the SNP Government) is auctioning off the right to develop the latest tranche of offshore wind projects on the seabed around Scotland’s shores. Alas, ScotGov is simply selling these rights to the big global energy corporations who caused climate change in the first place.

Cabinet Secretary, a successful economic and decarbonisation policy boils down to public direction and control – not selling the family silver. Which is why we need independence. I guarantee you won’t hear that from your new economic advisers.