TO anyone hoping for a commentary on the Scottish Budget, my apologies. Deadlines mean I cannot comment on the Scottish Government’s plans this week. In the coming months, however, there will be plenty of time to go through them in detail and to look at the implications of the medium-term financial strategy for changes in the pattern of government expenditure.
My message for this week is that devolution is working well and that should give us confidence that independence will work well, too.
That was my immediate response to reading a short piece on Scottish productivity, written by John Tsoukalas of the University of Glasgow, picked up by Douglas Fraser for the BBC, and, on my Twitter timeline, roundly condemned by independence supporters.
Tsoukalas was discussing trends in Scottish productivity as part of a much larger UK project. Expect to hear much more about the subject from the Scottish Government in the next few months.
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Low productivity has been a chronic problem in the UK, going back to Harold Wilson talking about the “white heat of the technological revolution” and Ted Heath’s “dash for growth”. The Scottish Government’s economic transformation strategy will pick up that deep-seated anxiety, arguing for changes to the economy’s structure to increase productivity.
We know that over the last 20 years, productivity increased quite quickly across the UK, and in Scotland, until the financial crisis, but has grown much more slowly since then.
In that time, Scotland’s productivity has increased from about 90% to 95% of UK productivity. There’s quite a bit of variation, but draw a graph which compares Scotland’s productivity with that of other parts of the UK – English regions, plus Wales and Northern Ireland – and the Scottish line slopes up sinuously.
Here’s the good news: since the start of devolution, Scotland has been closing the gap with UK performance. Thinking of Scottish and the regional English economies, I have got into the habit of dividing the country into three.
There’s London and the south-east of England, which is doing much better than the whole country. There’s the rest of England (and Wales, and Northern Ireland), which is doing worse that the whole country. And there’s Scotland, with its own government, which is now doing as well as the whole of the UK.
Trying for a moment to adopt a Unionist mindset, this seems like a fairly good justification for giving more authority to local government in the north of England.
Kenny Farquharson, who writes for The Times, claims to see major constitutional reform in the UK Government’s latest piece of tinkering with local authority powers. He ignores the implicit belief that all reform requires is strong men – I know, it should strictly be people, but the implied model of heroic leadership has a masculine mindset – so, yes, men who will fight their corners and get things done.
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It is no accident that this is a government which looks askance at the judiciary and wants to have the authority to over-rule the courts to hide its shameful incompetence.
Falling short of his childhood ambition to be World King, the Prime Minister cannot overcome his authoritarian urges, or indeed his like for shiny new toys. Buses and bridges – and, of course, partying – come immediately to mind.
There are several other ways of looking at this productivity story. Firstly, it looks like a sign of weakness in the English economy that one part is always in danger of over-heating, while the rest is tundra, barely touched by the warmth of Johnsonian largesse. Secondly, is it really true? Here, I defer to Richard Murphy’s much deeper knowledge. With his training as an accountant, and expertise in tax avoidance, he’s in a very good position to point out that economists like numbers, but don’t always know what they’re measuring.
If a business operates in, say, Perth and London, with production taking place in Perth, but invoicing being done by the London office, what goes into the national accounts?
We economists are one-eyed, and always follow the money. It doesn’t matter that almost all the business’s activities take place in Perth. From Richard Murphy’s experience of following money – to tax havens, where it can be reported conveniently as profits, he is all too aware that official statistics may show patterns of financial activity – but not the underlying economic activity.
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This is of course the GERS story. We are good at measuring the wrong thing, carefully. If Scotland sends money to London and the south-east and the government levies taxes on economic activity in those regions, and then sends money back to Scotland, the money which government spends in Scotland will of course be greater than the tax raised. It may well be that centralised political and economic power in the UK is the fundamental cause of its problems. Just as relatively low productivity has been seen as a problem throughout my life, so have regional disparities.
The obvious challenge for Scotland, on independence, will be to avoid a similar situation. In a small country, it would be very easy to try to run everything from the capital. Given the concentration of the financial sector in Edinburgh, and the probable emergence of the sustainable energy sector in the north-east, perhaps government and Parliament should be sent somewhere else.
With absolutely no thought about it, other than that it is geographically central, perhaps somewhere on the A9 in North Perthshire.
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