Michael Fry: Holyrood must consider how to manage indy Scotland's finances

I took the opportunity at the same point in 2019 to review a book that I thought was pretty far-sighted, with its analysis in depth of much material that economists scarcely look at in their habitual surveys of humdrum realities.

Extreme Economies by Richard Davies, a well-placed whizz-kid in emerging specialisms, had not just one but two subtitles: Survival, Failure, Future and then Lessons from the World’s Limits. Like many of his fellows, Davies felt frustrated by the failure of economics either to predict the great financial crash of 2008 or to show any way forward in the aftermath. I commented: “We are still stuck in stagnation, so it is reasonable to suppose this might have deeper roots than a single crisis, however shattering.”

If I had the chance to write that again, I think I might say something different. Reasonable to suppose indeed! This was how at first I took the measure of the worst crash for a century, perhaps several centuries, just as it was about to burst on us. I suppose I should not really blame myself, since every other commentator was in exactly the same position. It just shows you what a mug’s game prediction is. In that case, why bother with economics at all?

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Things have got worse rather than better when it comes to delusion and prophecy. Prime Minister Boris Johnson was still wishing us a Merry Christmas a week ago. By the weekend he was enforcing a lockdown over regions of England which, at the last General Election, had been wooed by his unique way with waffle. I now seriously wonder if he can carry on like that all through the four years till the next election is due.

At any rate, for myself this Christmas I’m going to forsake benevolent pussy-footing around and challenge anybody who comes along, regardless of political conviction, with the question that is really bugging me about Scotland.

It bugs me even though I join in the general approval of the way First Minister Nicola Sturgeon has been handling the coronavirus crisis. Her regular broadcasts have appeared to me a model of how an intelligent leader should address a national audience in terms that are neither superior nor patronising.

She is there to give reasonable Scots as balanced a view as possible of the mysterious and unfathomable conditions in our shops and offices, on our trains and buses, in our pubs and on our streets. She makes herself plain, yet she does not ignore the possibility that she could be wrong and might need to change her sincere advice.

How is it, then, that her overall view has indeed turned out to be wrong, in the sense that it does not correspond to a true picture of our external reality? After taking a strong Scottish line on the pandemic, she has not achieved in our society a lower rate of infection and mortality than in England, but a rate that is almost the same, or even perhaps slightly worse, according to some commentators.

How can moral sense and clear-sighted candour bring such a perverse consequence? She is doing it for our sakes as much as for her own. And yet the impression created is misleading. Our pandemic is not noticeably better than the one in England.

I’m sorry to say I have absolutely no answer of my own to these questions. At best I can only ask you to wait till my Christmas column next year, when I might (but no guarantees) have worked something out. Meanwhile, I’m going to extend the interrogation to an equally current but no less important matter, to the question of how Scotland is going to manage its finances in the case (which I warmly wish for) of early independence, that is, next year or the year after.

The treatment of inflated public finance is going to mean cuts. Political memoirs tell you how some sorts of spending are far easier to cut. Much capital expenditure can be easily ditched because it stretches away into a distant future and affects different groups of workers at different times.

On the other hand, we could expect subsidy packages for the rescue of failing companies to be run down rather quickly. Bail-outs can be trimmed without being slashed or, better, subjected to inquiries that will outlast the immediate crisis.

For really expensive projects, there may need to be some initial gestures if public commitment to them is to be sustained. We could not just sit on our assets and wait for something to turn up. An independent government can go beyond a devolved one in turning to the international capital markets. It is probably preferable to rely on foreign borrowing than to

tax our own citizens – though the loans will carry with them a credit rating, which might be bad news. Our politicians, officials and financiers would need to be just as expert as their shady foreign rivals. In recent times this has not always been true.

Alone among western governments, the one in Edinburgh hankers after nationalisation. It has taken action on several projects – Prestwick Airport, Ferguson Marine and Burntisland Fabrications – with others possibly in the pipeline. None, however, has established a viable new enterprise, and the assets sit in limbo. Some call this patient finance. At least the patience is heroic.

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This seems to be of no concern to the Scottish Government. Perhaps the aim is to turn the country into a museum of outdated industries, though nobler motives can be ascribed to it. Surely, as an international example, we might create a people’s paradise of equality – equality in everything from personal incomes to educational standards to the range of consumer goods available. If all were the same for every citizen, there could be no complaints of inequality.

I do not claim this is an easy political programme. So far from being a hotbed of barely repressed revolutionary fervour, Scotland remains a douce wee backwater. It wants to share the social democratic ideals of Europe’s happiest peoples, with their high rates of taxation. The people pay them gladly because they also have high incomes, and they have high incomes because they organise their economies with realism and stringency. They achieve growth in order to make a reality of their ideals.

The Scottish Government shows little interest in economic growth, in fact treats the concept with indifference or suspicion. But, after independence, it would have to change its mind. Faced with a big budget deficit, it could either enforce cuts all round to bring the public finances into balance. Or else it could raise taxes with the same end in view. Or else it could start to think seriously for the first time how to make the Scottish economy grow faster. In any fast-growing economy, problems with revenue solve themselves and vanish. But a government does need to think seriously how this should be achieved – and so far, this is something the Scottish Government has not done.