SNP should look to Bernie Sanders for inspiration on economic policy

First let me offer a benchmark by which the SNP’s future economic policy might be judged. On Saturday, Bernie Sanders launched his bid for the Democratic nomination for the US presidency. In a crowded field, he is the front runner and the man Donald Trump is most worried to take on. Polls show not only that Sanders (77) can beat Trump for the White House, they show he would have trounced The Donald in the 2016 election, had he been the candidate and not Hillary.

Amazingly, Bernard Sanders is a declared socialist running on a radical platform that includes a massive increase in public expenditure, free health care, breaking up the big banks, and exerting greater political control over the Federal Reserve, the US central bank that dictates interest rates. Citing Corbyn’s increased share of the vote in the 2017 UK General Election, Sanders has called for the Democratic Party to abandon its “overly cautious, centrist ideology” and appeal to young millennials.

Which brings me to the SNP spring conference and the Growth Commission report, authored by former MSP and public affairs consultant Andrew Wilson.

Andrew is a gifted, humane and liberal man. I totally get his desire to frame a robust economic case for independence that might convince those who voted No in 2014. But there’s a problem with the Growth Report that goes beyond this, or that quibble about introducing a new Scottish currency.

In order to appeal to a more conservative Scottish constituency – I do not use the word conservative pejoratively – Andrew has adopted a policy perspective that is over-cautious in fiscal and monetary terms. Bernie Sanders, on the other hand, has appealed to those young people who want to build a better world. The risk the SNP runs if it adopts the Growth Report methodology is that we alienate Scotland’s millennials.

The report focuses primarily on doubling and trebling Scottish economic growth while trying to convince former No voters that an independent Scotland will be fiscally prudent. That’s an impossible circle to square; the more so as multiple, runaway global crises demand radical action, not fiscal conservatism.

A new, post-independence economic strategy must begin elsewhere. Specifically, in raising productivity rather than mindless GDP growth. And in reducing social and economic inequalities rather than increasing consumption.

How to raise productivity? There are a lot of platitudes in the Growth Report but the solution to low productivity is deceptively simple: raise wages significantly, particularly in the public sector. Higher wage costs – and the threat of losing workers to well-paid public sector jobs – force firms to innovate and invest in machinery, raising productivity. This was the conscious policy pursued in Sweden in the 1950s.

How to raise public sector wages sharply? Answer: an indy Scottish government would have to run a bigger deficit to pay the teachers, nurses and care workers a decent income. Fortunately, the SNP conference motion on the Growth Report boldly states: “Fiscal targets must never be an end in themselves and an SNP government will not pursue such targets at the expense of the economy or investment in public services”.

Excellent! But how is an SNP government going to borrow money and sustain a higher deficit, until such time as rising productivity (rising tax revenues) closes the fiscal gap? This is where the currency question comes in with a vengeance.

In an independent Scotland with its own currency, any fiscal gap will be funded by the government issuing debt denominated in Scottish pounds. Local savers and institutions seeking a safe asset will buy these bonds, which are secured by Scottish taxes.

But if we don’t have our own currency, then the Scottish government will have to borrow in sterling from the City of London.

In return, the City will impose its own interest rates and fiscal conditions. Expect those to limit the deficit any Scottish government can run. Result: we are stuck with a decade or more of budget cuts and falling public sector real wages. And, of course, with continuing low productivity. Conclusion: an independent Scotland will remain trapped in an austerity cycle for as long as it uses sterling. That is the Catch 22 of the Growth Report.

No wonder the SNP leadership conference motion tries to blunt the membership’s opposition to keeping sterling. It does this by agreeing a new currency in principle but cunningly delaying its implementation. Instead, each year after independence, Parliament will debate a recommendation from the new Central Bank on whether the economy passes six tests (laid down with no explanation in the Growth Report) for “safely” introducing a new currency.

This purported solution gives us the worst of all worlds. For starters, an annual debate on introducing the currency is destabilising. How can you make investment decisions if there is no proper timetable for introducing a currency? More importantly, the six tests can’t be met without imposing a conservative fiscal regime – which is precisely why Andrew Wilson recommended them in the first place.

Test #1 mandates an end to the fiscal deficit before we get the currency, which means cuts. Test #2 mandates that global lenders are satisfied with domestic Scottish tax and spending policies while using sterling, i.e. we eliminate any deficit by foreign command. Test #3 asks nebulously if the (as yet non-existent) currency meets needs of businesses for “stability”. How do you measure that and will RBS ever agree? Test #4 asks if there are sufficient foreign reserves. But you only get those reserves when you convert existing sterling balances for the new currency, not before.

Test #5 asks if currency “better reflects” Scotland’s trade and investment patterns, meaning (I presume) traders can access foreign currency with Scottish pounds. But we already run a current account surplus, earning foreign currency, so that’s not an issue. Finally, Test #6 says the Scottish economic cycle should harmonise with England’s before introducing the currency. But we need the currency precisely to escape the UK’s erratic and baleful economic influence.

The Growth Report focuses on why we lost in 2014. It has since been overtaken by events: Brexit, the outbreak of populist trade wars, the intensification of the climate crisis, and the social havoc wreaked by a decade now of austerity policies.

Bernie Sanders, on the other hand, is responding to the future and to the aspirations of a new generation. We will win the next independence referendum only if we, like Sanders, can solve the problems of tomorrow. To do that we need the fiscal and monetary freedom that comes with a Scottish currency.

Understandably, the SNP leadership motion to spring conference makes a valiant attempt to bridge the gap between the Growth Report and the more radical concerns of the membership.

But the result is a muddle. Better to write a new, more sweeping economic policy document, one that looks forward rather than backward. And dump the six tests.