Michael Fry: The SNP should have scrapped GERS figures

Perhaps I should start organising package tours to Scotland for parties of them about the time of year – this time of year – when our GERS figures are published, our annual record of government expenditure and revenue. While the rest of the northern hemisphere basks in the sun, in our cloudy climate Scots need to seek heat in furious spats over economic statistics. Light is less in evidence.

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In yesterday’s The National, Andy Anderson of Saltcoats described the GERS figures as a trap that we ought by now – after they have bamboozled us for more than 20 years – to have stopped falling into. I agree, but at the same time warn we need to avoid confusing them with measures of Gross Domestic Product (GDP), from which they are in part abstracted.

GERS is something quite small often blown up into something too big for what it is worth. GDP, for all the faults in it that I concede as well, is by far the widest measure of our economy that we have.

It produces contradictions and absurd paradoxes, but so do many other descriptions of the real world: this is the origin of comedy.

The First Minister’s “wellness” does not compare. It has the airy-fairy idealism of a naive novelette, not usually a good guide to that real world. Try constructing a graph or an index of Scottish wellness during, say, the last five years and you will see what I mean.

The latest GERS figures showed an improvement over the past year so slight as to be probably meaningless. Time was when the approach of their publication day towards the end of the summer holidays spread doom and gloom among those condemned to follow these things, just when they needed a little fillip for the rigours of the hard winter ahead.

At least I can pat myself on the back and say I never fell for all this. I am interested in the truth of our economic situation rather than in the spin put on it, and the merest glance at the GERS figures would show me they were pure mince.

For a start, it seemed to me inherently unlikely that a country with only one-twelfth of the UK’s population could somehow generate half of its deficit. When I went into the matter, the first thing that struck me was the makeshift and sloppy way in which the figures are collected. On the revenue side of the Scottish accounts, 25 of the 26 estimates going into the GERS totals are extrapolations from UK data, by population share or some other crude measure. Only one has any independent statistical basis. In other words, virtually nothing in GERS comes from a reliable record of everyday economic activity on the ground in Scotland, logging real flows of real money. It is all about theoretical allocation through squiggly equations, often derived from future situations which may not in fact arise. Garbage in, garbage out.

Like Andy Anderson, I never understood why the Scottish Government did not just stop publishing this piffle. Had the SNP given it the chop on first coming to power in 2007, a hell of a row would have erupted, amid charges of having something to hide.

But after the initial kerfuffle the whole business would have blown over, and nobody would have bothered to undertake at any later stage an exercise yielding results of such poor quality. Now it is too late for such a bold but beneficial move. If indyref2 comes along before the end of 2020, the same charges can no longer be risked. That is another trouble with having a cabinet almost wholly ignorant of economics, and unable to recognise statistical tripe when they see it.

Still, I will say this for Keith Brown, till a year ago economy secretary and today depute leader of the party, in which capacity he is making the contingency plans for indyref2. Nothing daunted at the hostile headlines generated by this year’s GERS, Keith threw them straight back in the faces of the malevolent Unionist press. Instead of retreating into flustered silence as SNP leaders have done in the past, he said that yes, Scotland could cut its budget deficit to 3% of GDP within two years of a Yes vote, and yes, that is precisely what Scotland would in fact do.

I’m not sure I agree with Keith’s every detail. He thought the savings could be delivered by a slimmed-down defence budget and reduction in debt servicing. He obviously had not jogged his own memory about the huge catalogue of uncosted promises that arouses such ecstasy from the floor of every single SNP conference. But at least there seems to be in the Scottish corridors of power some recognition that independence will not be just a flow of milk and honey. Certain sacrifices will need to be made, including budgetary sacrifices. But they will be worth it in the end.

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I agree the 3% borrowing target might be the optimal level to aim for, because it would have its compensations.

For one thing, it would bring Scotland broadly into line with other European economies, so that our deficit would not be so obviously an outlier likely to be punished by eye-watering levels of interest rates on borrowing from international markets. For a second thing, it would signal an intention to adhere to the so-called Maastricht criteria which must be met before we can contemplate joining the European exchange rate mechanism, an effective condition of returning to EU membership. For a third thing, the very fact of having credible intentions would help in establishing a separate Scottish currency. This is a lot of ground to be covered in one ministerial declaration, and Keith is to be congratulated on it.

We still need to go further. Now that the end is in sight for Scotland’s brand of pork-barrel politics, still we hear no word of our most basic problem of all, which is to raise the productivity of the economy.

Indeed, I have yet to hear the term productivity drop from any Scottish minister’s lips, so I’m not sure if they know what it means. I often write about it in this column, and the replies I get from readers show me that the term is not widely understood. Yet unless we do understand it and act on improving it, there is no chance at all of any long-term rise in living standards for the Scottish people, whatever delusory pay claims are conceded by employers or empty promises are mouthed by politicians.

Productivity means getting more output for your inputs of labour, capital and technology. To highlight the particular case of labour, it takes Scots workers five days to produce what French, German and American workers produce in four days. There is a whole host of reasons for this woeful level of performance, often connected with having people and resources stuck doing the wrong things in the wrong places.

We still hear calls to “save jobs”, just as if we were living in the 1980s with thousands threatened by the dole. Actually, we already enjoy full employment, so what we should do instead is find means to move workers as quickly and smoothly as possible from less profitable industries to more profitable industries.

By enriching ourselves in this way, we will break the last chains of the Union.