Michael Fry: Kate Forbes seems to be taking her cue from an economic genius

One rapidly rising figure is Kate Forbes, Scottish Cabinet Secretary for Finance and the Economy, aged just 31. She has only held her portfolio for about a year, when it was created for her after the shabby departure from office of Derek Mackay. The Budget she presented at Holyrood last week was the first to have been entirely her own work. It seems to me, for the long term, to be as significant as any number of public statements being made by others at greater length and with louder noise in these distracted days.

I must admit that up until now I had found little reason to take much notice of her politics. When we both spoke to an audience of pro-SNP businessmen in 2019, I was about four times her weight and twice her height so I don’t suppose she found me comfortable company.

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Now I hope those days are gone! While she delivered her Budget speech in quite a subdued tone, it was to my mind the most significant discourse we have heard in Scotland this whole year. I believe it is destined to open a new financial era for us.

Kate is a graduate in politics, philosophy and economics from Oxford, with a degree in which much of the UK ruling class is educated. That may not seem a recommendation, but it does keep the students up to date with the hottest ideas in public affairs.

And she must have been there in 2010 when the Nobel Prize in Economics went to Joseph Stiglitz, of Columbia University, New York. Oxford is traditionally a “home of lost causes” and, up to the point where Stiglitz got his prize, it might have been said he was digging up rather too many of them. While economics is going through a dismal phase, he is one of its most commanding authorities, always making his fellows sit up and think.

Most notably, Stiglitz has turned his back on the neoclassical economics that dominated the field for several decades. He has returned to a more varied range of theories, not all of them fully respectable in an academic sense. Alex Salmond spotted him early on and appointed him to the working group of Scotland’s Fiscal Commission, which set out to identify the best policies for the independent nation.

Joseph Stiglitz

Its members do not have an easy job, because the period of its existence has been one of global turmoil. For Scotland, the growth rate has stagnated while public spending has shot up to a dizzy height. In a small, open economy, not all the resulting deficits are our own fault. That does not alter the fact we are the ones that must deal with them. Do we carry on with the cosmetic treatment usual in the UK? Or can we rise to some serious economic analysis and, if possible, action?

Stiglitz has reached the heights of his reputation amid the global conditions since the financial crisis of 2008. From Columbia, he has extended his influence round the world, at the highest level as a member of Bill Clinton’s government – which he only left to become chief economist of the World Bank. Today, he is free to interest himself in any problem that takes his fancy. Scotland is one of them.

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Stiglitz likes coming to events such as the Edinburgh Book Festival to meet the general public. These are chances to talk about anything he likes, or more especially to comment on matters as obscure (from a global perspective) as the options for an independent Scottish currency.

His job in that case was to stake out the normality of the project.

So far from being perilously out of bounds for louts like the Scots, it had been visited by many countries advancing from dependence to full statehood – which is after all what most of them have done since 1945.

CURRENCIES can wander between different standards – such as the Canadian dollar, which has from time to time been aligned to both the US dollar and the pound sterling. Panama, a thriving financial centre, has used the US dollar since the state was founded a century ago. European nations adopted currencies of their own on their liberation from communism.

None of these projects were simple and straightforward, yet none failed – the enviably sound Canadian dollar is one of the world’s strongest currencies. Scotland remains unique only in being weighed down for discussion of its money by the gloomiest presuppositions and prophecies.

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Stiglitz said in Edinburgh: “One of the things as an outsider I’ve looked at in the debate, particularly from the No side – I’ve been a little bit shocked how much of it is based on fear, trying to get anxiety levels up, and how little of it has been based on vision.” By contrast: “There is a vision on the Yes side that I see – what would an independent Scotland be like, what could it do that it can’t do now?”

The currency would help, not hinder, the formation of the state. And Stiglitz concluded: “There are many currency arrangements that can work, I think this is a lot of to do about nothing … What really matters of course is the quality of the institutions … The main issues here are not currency, they’re probably not even North Sea oil. I think the main issue again is the vision of society, what do you want to do.”

It seems to me Kate Forbes is advocating something like this, too, in her quietly understated way. Her Budget speech made no mention of the crackpot schemes of socialism that her predecessor Mackay had been bandying about, without being called to order by the First Minister.

Derek Mackay

The priorities of the new Finance Secretary were practical ones, arising directly out of her experience of the last 12 months – tackling child poverty, helping businesses to recover from Covid and the transition to net-zero carbon emissions. The long-term plan is therefore not to storm any barricades, but to raise Scottish productivity in such a way as to allow a shift of resources from private consumption to public investment, especially where government can help directly, in technology, training and research.

In essence, Kate Forbes has herself to take charge of the transition, and this will test her practical political skills. 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. The responsible minister will need to be tough as well as tender.

A worry is that we will get a paper plan full of liberal but ultimately meaningless phrases, such as the First Minister’s “just transition”. Any serious economic plan shifts resources about. That redeployment results in winners and losers. Derek Mackay has been a loser. Let us hope Kate Forbes will be Scotland’s winner, as well as another product of Stiglitz’s genius.