Naively neo-liberal

The SNP’s Sustainable Growth Commission, chaired by Andrew Wilson, reported in May 2018, after a long gestation period. It was immediately subject to extensive criticism. Among the main charges was that it presaged an extended period of austerity – far from the rosy prospect of a painless transition to prosperous independence. That it paid no heed to the pressing need for social change in Scotland – giving the lie to the idea that the SNP was basically a social democratic party. And that it was a standard neo-liberal prescription for economic growth – that could almost have been written by the IMF.

It will be argued here that, while some of these charges are misplaced, the neo-liberal charge is uncomfortably near the truth. But it will also be argued that all is far from being lost from a left-wing perspective. It is perfectly possible that Scotland will achieve independence soon, given that the break-down, and break-up, of Britain is a likely outcome of the Brexit shambles. If Scotland does gain independence, the state would in the event have to play a much more active, and a much more radical, role than the growth commission envisages.

The obvious charge, that the Growth Commission projects 10 years of austerity, looks somewhat misplaced. What the commission is projecting is actually modest (0.5% pa) real annual growth in public expenditure over the first five to ten years of the life of an independent Scotland. This would undoubtedly be a tight scenario in public expenditure terms. But modest real public expenditure growth is not austerity as we have come to know it in British terms, where, for example, Total Managed Expenditure actually fell by 1.7% overall in real terms between 2010/11 and 2016/17.

The second charge against the commission is that its report contains limited discussion of social priorities. In its defence, the commission was never intended to provide a full road-map of how an independent Scotland would tackle all of its manifest social problems. Its remit was narrowly economic. Given the imperative importance of getting the economy moving, it is understandable that the SNP commissioned a report which concentrates on the economy. It is relevant to remember how Ireland saw its priorities at a slightly different stage of its transition towards fully functioning independence. As Seán Lemass said in 1959, shortly before becoming Irish Taoiseach: ‘the historic task of this generation is to ensure the economic foundations of independence’.

But having said that, choosing a particular economic model involves foreclosing options on the nature and conditions of work, and on social conditions. So the commission, despite its limited remit, cannot totally escape the charge that it should have paid more attention to the social implications of its recommendations.

What is really to be criticised about the growth commission, however, is its position on the third charge – that relating to neo-liberalism. In fact, the commission has adopted a naïve, almost formulaic, reliance on standard neo-liberal doctrines to get the economy moving, and to reduce the government deficit. Its recommendations are heavily postulated on getting in place the appropriate structures which would conventionally, in neo-liberal terms, be regarded as the ‘right thing’. There is then a distinct feeling that the market will ensure that the economy responds appropriately. Real GDP growth will resume at the long run trend rate, and ultimately exceed it. The following quotation from the report gives a flavour of this belief in market forces: ‘The discipline of international competition can also help to drive innovation and new ways of working’.

Would that life were so simple. In fact, the commission’s views look overly simplistic, both in general terms – that is, as regards the general characteristics of neo-liberalism, and in specific terms – as regards the particular circumstances Scotland will find itself in post-independence.

In general terms, the commission appears to have made the mistake of looking at its ideal group of twelve small advanced economies as they are now and then assuming that the policies these countries currently espouse are what led them to their present status. This is one of the biggest fallacies in the neo-liberal book. There is a marked difference between the policies which are optimal for a country once it has achieved a competitive edge in one or more fields, as compared with the policies which led it to achieve that edge. This is very clearly demonstrated by examples from within the commission’s group of chosen economies. Look at the high tariff, protectionist regimes historically operated by Austria, Finland, Sweden and Norway to get their strategic industries established and competitive. Look at the important role played by state owned enterprises in the same countries to get key sectors established. Or, the restrictions which were placed on inward investment by Finland and Switzerland to protect key sectors. Or, the Dutch and Swiss historically flouting international norms on the protection of intellectual property so that their economies could benefit from intellectual property developed elsewhere. The world is a messier place, in terms of the development of a successful economy, than the growth commission would have us believe.

But that leads to the second key area where the growth commission is naïve about how successful economies actually work, and where the neo-liberal dogma departs from reality: namely, in relation to the role of the state. The state would, of course, be heavily involved in implementing any of the types of strategy outlined in the previous paragraph, or modern day counterparts of such strategies. But in addition, virtually all of the technological developments which have transformed the modern world, from containerisation to the internet to super-computing, are spin-offs from intelligently directed public procurement. And even leaving aside transformational technologies like these, the power of the state to influence the economy through intelligent procurement is immense.

Turning to more specifically Scottish issues, the commission also shows itself unduly simplistic. For one thing, it understates the initial disruption the economy is likely to suffer on independence. Since this will increase the need to borrow, it also understates the steps Scotland will have to take to convince the markets that it is actually getting a grip on the resources of the Scottish economy. Paradoxically, this increases the need to be radical. At present, within Britain, the resources of Scotland – the land, fisheries, the renewables potential, the hydrocarbon assets, even industries like whisky – are not run and taxed primarily for the interests of state revenues, or the common people. Instead, they are primarily run and taxed in the interests of certain privileged groups or large corporations. An independent Scotland would have to demonstrate that it was willing and able to modify these relationships to secure the interests and resources of the state, if we are to convince the markets that we are serious about securing our own resources, and the basis of our economy.

Further, the commission is also unduly optimistic on the question of currency. Despite decades of evidence to the contrary, the commission still concludes that Britain is close to being an optimal currency area. It is clearly not, given Scotland’s long standing relative decline within the British currency union. So the commission’s recommendation, that an independent Scotland should initially use Sterling as its currency, while virtually inevitable in terms of short term pragmatism, will involve longer term costs. These costs will come, for example, from Scotland having to cope with an exchange rate, and base interest rates, which are externally determined, and sub-optimal. So the move to Scotland having its own currency, which the commission regards as a possible eventual option which may or may not be taken up, should be much more aggressively prepared for and implemented.

Overall, therefore, the transition for an independent Scotland towards a stable and prosperous independence will inevitably be tougher than the growth commission projects. And success will involve a path where the state is more heavily involved, and where the approach is more radical, than a neo-liberal would admit. But it is do-able. And if the state is, effectively, on a war footing as regards the economy – that means it will also have the apparatus, and the mind-set, to address the great social issues.

There is a good analogy here with the situation in Britain during and after the Second World War. It was far from the case that putting the economy on a war footing to defeat Hitler led to a sole concentration on military matters, to the exclusion of social reform. Indeed, quite the reverse. The newly developed capability of the state, and the fact that the crisis highlighted various features of the economy and society which were intolerable, led to a programme of radical economic and social reform which had hitherto been impossible.

So, yes, the growth commission report is too neo-liberal: and does, indeed, over-emphasise the prevalence of free market economics at the expense of the role of the state. But when it comes to the crunch, as it will, the state will have to be very heavily involved: and it will have to be radical, on both the economic and social fronts.

Jim Cuthbert is an independent statistician and economist. He was formerly Scottish Office Chief Statistician. His other writings can be found at http://www.jamcuthbert.co.uk/

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