‘IT’S the economy, stupid.” Thus runs the famous political mantra that governs most elections.

The 2026 Holyrood election will be no different. The national cause will be defeated by Labour and the Unionists come May 2026 unless the SNP are able to recapture the political agenda.

And that agenda is overwhelmingly about economics. Or rather the startling non-performance of Scotland’s economy. The sad truth is that our economy has underperformed dramatically and uniquely over the past decade. The headline from a new report by well-known economists Mariana Mazzucato, of the UCL Institute for Innovation, and Laurie Macfarlane, co-director of the Future Scotland think tank, sums up the situation pithily:

“A chronic problem of low investment has undermined living standards, hampered productivity growth and stifled innovation.”

That’s pretty damning. It’s not just that we are in the slow lane – the Scottish economy has crashed. Since the benchmark global financial crisis of 2008, Scotland’s economy has imploded relative to other advanced economies, big and small.

And it’s getting worse. In 2023, Scotland’s gross domestic product (GDP) grew by a miserly 0.1% – the lowest figure since 1999 outside of the Covid-19 pandemic. Even if you switch the emphasis from GDP growth to sustainability as an objective, the starting point is that the Scottish economy is not working – period.

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Why? The root cause – as Mazzucato and Macfarlane reaffirm – is a virtual total lack of investment in the things that create productivity, innovation and well-paid jobs. Capital investment in Scotland is consistently among the lowest in the advanced industrial economies.

In 2021, the most recent year for which data is available, investment in Scotland was only around 18% of GDP. Among the industrial countries, only Greece had a lower level! And Greece was forced to cut investment by its EU lenders following the eurozone crisis.

If you don’t invest in factories, in new technology, in infrastructure and in skills, then productivity stagnates and incomes fall. This is not about growth for growth’s sake, this is about the economic engine dying. With no engine, there is no point in arguing about where we want to go.

And this dire performance underpins the crash in living standards in Scotland – a crash that explains the sudden loss of SNP support in the General Election.

Average earnings in Scotland are now lower than they were in 2008. That is the record of the SNP in government. Yes, I agree the party is hampered by the London Treasury holding the main levers of economic power. That’s why I want independence.

Average earnings in Scotland have dipped since 2008

But my beef is that the SNP in recent years took their eye off the economic ball. Successive SNP administrations relegated economic policy to second rank. Distribution trumped investment. Social policy looked easier than the hard graft of making the economy work better.

The result is that folk are poorer in Scotland – literally – than when the SNP entered government in 2007. It’s as stark as that. Yes, of course, the real cause is Tory (and now Labour) austerity. But nobody at Holyrood made the economy a real priority, so the Scottish Parliament can’t wash its hands entirely of blame.

Since 2008, real weekly earnings in Scotland (adjusted for inflation) have cratered. Although they recovered a bit after 2015, they declined again (by a whole 5%) in 2022 due to surging energy inflation. Which is a bit bonkers, you must admit, given that Scotland has energy coming out of its proverbial ears.

Real median weekly earnings for full-time workers in Scotland in 2023 were actually £10 lower than they were 15 years before. If, instead, real earnings had grown at their pre-financial crisis trend, workers in Scotland today would be taking home an extra £15,000 per year! And that’s why Labour could win Holyrood in 2026.

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We have to get out of this black hole.

The SNP Government has two years to at least show some interest in economic performance. It’s too late to turn the ship around – ferry pun intended – but it’s not too late to begin. Making economic policy front and centre of the political debate will shut Scottish Labour out, as Sarwar will always kowtow to Starmer and Reeves in London.

The report by Mazzucato and Macfarlane offers a first stab at a new industrial policy for Scotland. I don’t agree with all of it but it kicks off the debate. There’s a lot of the usual impenetrable gobbledygook in the report, “the Scottish Government should align Scotland’s ecosystem of public institutions around a mission-oriented approach” or “creating a more symbiotic and mutualistic partnership that better aligns risks and rewards between public and private actors”.

But the main thrust is clear – raise investment levels all round, remove bottlenecks rather than try to pick sectoral winners, and streamline government intervention rather than attempt everything.

Here is the political problem.

All governments, not just Scottish ones, are poor at prioritising.

This is because they need to satisfy a host of competing claims from the community. In a democracy, it is always difficult to say “no” too loudly as the electorate will bite you.

But investing more in industry means spending less in the short-run on consumption and redistribution. That’s a hard trade-off to sell to voters struggling to pay for the weekly groceries.

Nevertheless, without shifting resources from consumption to investment – maybe by five points of GDP – we are not going to make economic headway.

One key point made by Mazzucato and Macfarlane is that the plethora of economic institutions run by the Scottish Government should have their goals and management operations synchronised around a common mission.

We’re talking here about Scottish Enterprise, the Scottish National Investment Bank (remember that?) and the training agency Skills Development Scotland.

Co-ordinating the work of these agencies should be a priority but somehow it never happens.

Reason? Separate agencies always defend their own turf. The more agencies, the more bureaucracy. And generally, the boards of these organisations are stuffed full of the self-interested.

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Maybe we need to think out of the box. Perhaps the time has come to scrap this plethora of development agencies and merge them into a new Department for Re-industrialisation. Centralisation brings its own problems but the time has come to impose a new direction on the Scottish economy.

Certainly, we need to debate a new five-year national plan and demand that all Holyrood departments and government agencies commit to its implementation. And we need a new Re-industrialisation Council bringing together government, business and trades unions to co-ordinate the national effort.

Re-industrialisation is not simply a mission for government alone. To succeed, it needs everyone to buy in. The role of politicians in this endeavour is not just to win votes but to lead a national economic resurgence. And in doing so, the need for Scottish self-government will make its own case.

Such a project will take at least a decade to bear fruit – two electoral cycles. But rebuilding the economy – and with it, rebuilding the Scottish nation – is a worthy goal. Besides – as we look at the riots across England – there is no alternative.