Scottish devolution gives room for optimism amid UK economic own goals

US PRESIDENT Joe Biden, confident, relaxed, combative and on his game, delivered an upbeat 2023 State of the Union speech earlier this month.

Biden has much to be pleased about. He is in a much stronger position than most pundits had anticipated. US unemployment is way down to 3.4% – the lowest level since 1969. Unemployment among African Americans is down to 5.4%, also a historic low.

Wages are rising at an annualised rate of 5.1% and even faster for the lowest paid. Headline inflation has fallen from a high of more than 10% to 2% in the last six months of 2022. Natural gas and petrol prices are falling back to levels seen before the Ukraine war. A post-pandemic soft landing and a growing US economy despite geopolitical tensions is good news indeed.

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America might be experiencing what Paul Krugman coined as “immaculate disinflation” – prices cooling without a recession. Could this even be Biden’s 21st-century “Morning in America”, to repurpose President Regan’s phrase? It appears that way to an increasing number of observers.

So, why is America on the rebound, while the UK languishes right at the bottom of the international pile, its economy forecast by the IMF to contract by 0.6%, even as Russia grows?

At its most basic, progressive interventionist economic lessons are being relearned thanks to an activist green Biden administration. The key lesson: to cushion shocks and redirect economic models requires large commitments of long-term capital investment in infrastructure ($1 trillion); climate change and green collar jobs ($371bn and counting); chip technology, and in innovation. This retooling for growth, sustainability, and net zero by 2050, is speeding changes in business expectations, investment plans, markets, and outcomes.

Biden’s economic rebound is rooted in thousands of investment projects in all 50 states, all of which will impact local, regional, and national industries over the years ahead. Many are capital investments that otherwise would move far more slowly, or perhaps not get built.

Across the country, work on schools, hospitals, roads, wind farms, solar PV, electric, power, and EV infrastructure, agriculture, forestry, land development and conservation is under way. Expenditure will be allotted over years, not all at once, sustaining growth. Taken together, this amounts to an economic and industrial transformation. A historic commitment to reimagine, re-seed, re-green, and localise the American industrial economic model for a new era.

A retort to Britain’s foolish, damaging austerity can be seen in Biden’s American reboot and regrowth. The UK path is a low-wage, low-investment, low-productivity economy, a self-reinforcing downward shrinking spiral, not a route to future prosperity.

In contrast, Biden’s economic plan marks a positive change to the US economic outlook, adding to America’s potential maximum growth rate, boosting worker productivity, supporting higher wages and increasing tax revenues, without necessarily adding to inflation.

We should remember that the 1950s and 1960s were likewise a period of activist state investment, industrial policy, broad based economic growth, rebuilding, increasing prosperity, even as geopolitical tensions (and war) also loomed.

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It looks as if in 2023 the danger of secular stagnation will in part solved by Biden’s green economic and industrial policies as the US also simultaneously acts, with UK and European allies, as the arsenal of democracy.

What might be the lessons for the UK and Scotland? Economic austerity over the long term does not engender strong economic growth. Quite the reverse. It undermines the foundations needed for future prosperity, and it weakens communities, impoverishing citizens.

Chaos, incompetence, and unpredictability shock markets, businesses, and consumers, worsening expectations, and further seriously damaging the economy.

Economic own goals such as Brexit, and Borisonian and Trussian mistakes should be avoided whenever possible. When they occur, rapid policy changes are needed and must be pursued, up to and including renegotiation of deals with allies, European, regional and local.

Instead, prudent, planned, reliable, and credible policy and investment plans will always matter for society, economic growth, and the long-term material outlook.

Careful, well-designed, large-scale and long-term government commitments can work, shift markets, business calculus, creating new opportunities, incentives, and outcomes.

In this manner, public policy and commitments leverage private capital while resetting the rules and shifting consumer expectations.

Here, Scottish devolution provides some room for modest optimism. For the Scottish Government and Parliament – and whoever leads the government now that First Minister Nicola Sturgeon announced her resignation – can continue to chart sensible considered economic pathways, in place of roads to nowhere.

Scotland has taken measures to differentiate its economy: via the Scottish Investment Bank; via a more aggressive net-zero goal; through more inclusive economic and social policies designed to act as business and economic magnets for inward investment and growth.

Looking ahead, the government of Scotland must continue to demonstrate what political and administrative competence looks like, and why less drama, fewer jokes, and a focus on delivery are better for citizens, voters, and stability.

At a UK level, polls show voters have had enough of what bankrupt English Conservatism has to offer. It is well past time for a new government. It is time for competence, certainty, planning and ambition. Keir Starmer may not set the heather alight but neither does Biden. Yet sometimes a boring exterior can hide a dynamic political and economic actor.

It remains to be seen if a UK Labour government can, alongside new leadership in the Scottish Government, start to construct and enact an effective inclusive long-term plan for investing in the green transition, grow the national economy, and enlarge everyone’s economic, educational, and social possibilities.

I certainly hope it can be done.