Economic renewal – let’s do it again!
Challenges to be faced – with aspiration not trepidation.
Much has been written on the demise of the oil & gas industry operating on the continental shelf of NW Europe. This has been expressed in different ways at different times: ‘we’ve passed peak oil’; ‘production costs are too high to attract investment’; ‘the fall in oil price makes the province uncompetitive’. And more recently there is this: ’for the climate, we must leave the oil & gas in the ground’. For the latter, advocates range from wanting an end to production now to implementing a longer, ’fair transition’.
However, and whatever the truth/s, it can seem that one feature can dominate of such issues when relating to Scotland: whatever changes in fossil fuel-based economies happen elsewhere, according to Unionists the implications for Scotland will be as dire as dire can be! (This framing was still evident – without any pretence at ‘subtlety’ – as recently as last week in an interview with Ian Blackford even on C4 News!)
Time for change – for more success
It’s worth noting a new report which addresses how another place not unlike Scotland – namely Norway – might successfully transition away from its successful oil & gas-dominated economy. When reading this report certain truths are hard to ignore: Scotland may indeed be similar to Norway in many ways but it is NOT in at least one crucial respect – agency. This is the report:
Rainer Kattel, Mariana Mazzucato, Jonas Algers and Olga Mikheeva (2021) The Green Giant: New Industrial Strategy for Norway. Institute for Innovation and Public Purpose, University College London.
It’s relevant to recall that Mariana Mazzucato, Professor in the Economics of Innovation & Public Value at UCL and the Founding Director of the Institute for Innovation & Public Purpose, is a member of the Scottish Government’s Council of Economic Advisors.
An interesting beginning
My interest in reading on was reinforced by the authors’ choice of quotation with which to open: “Savings from the point of view of an individual and from the point of view of society as a whole are two entirely different concepts. They ought to be distinguished by using two different labels, not the same as now. This just causes confusion. Society as a whole can only save through productive investments.” Ragnar Frisch, Noen Trekk av Konjunkturlæren, 1947.
Frisch (1895 – 1973) was a Norwegian economist and the co-recipient of the first Nobel Memorial Prize in Economic Sciences in 1969, at which time he held a post in the University of Oslo. He won the Prize: “for having developed and applied dynamic models for the analysis of economic processes.”
There’s a lot to get one’s teeth into in the report. However, to avoid a much too ‘long read’, I’ll share only, at least for now, something of the historical economic perspective it offers.
Coping, succeeding with change – back then
These extracts from the report explain something of Norway’s journey since independence (with my emphasis throughout):
‘As the economist Carlota Perez has shown, capitalism evolves through periodic technological revolutions that reshape the economy. Finance and technology are key ingredients in this process, co-shaped by public policy: “While each revolution brings a paradigm shift in the direction of innovation and the general criteria for competitiveness, it is ultimately the social forces and their institutions that define what part of that new opportunity space will be deployed and how”.’
For me, this simply confirms the importance of democratically accountable agency in order to shape our country’s future – in the near to medium term, through a green and fair transition and also through post-Covid recovery. Scotland’s need for agency is now!
The report goes on: ‘Norway’s industrialisation is a case in point, in particular the turn towards electrification following independence. Here public institutional innovations enabled the private investment boom: the concession laws of 1909 ruled that private developers of hydropower and related industrial production had to purchase licenses for access to the resources. Through the hjemfallsretten clause, these installations would fall into public ownership after the end of the licensing period, without remuneration for the investors.’
“An important motivation was the desire for the public control of the natural resources, as Norway became an independent country after the end of the Swedish-Norwegian Union in 1905. After WWII, the expansion of hydropower installations was the centrepiece of the Labour Party’s industrialisation drive.”
Although ‘then’ is of course not ‘now’, the authors still point to the relevance of history.
‘The lessons of Norway’s historic approach to industrial development may prove valuable. Norway has shown before its ability to adapt to a changing context. At defining points in history, the Norwegian state has taken on an entrepreneurial role and set a new direction of growth, through the development of hydropower 100 years ago and a petroleum industry 50 years ago. At both of these turning points the state fostered inclusive growth by watershed decisions, such as placing conditionalities on investors regarding resource ownership and local industrial development,attaining technological sovereignty by investing in science and innovation, supplying industries with patient capital and utilising state ownership to confront the grand challenges of that day and age.’
Coping, succeeding with change – going forward
The key take-away from the report for me – lying above the specific and detailed recommendations being made (which are beyond the scope of the present contribution) – is that Norway has capacity, capability plus feasible, actionable options now and in the future even as its strengths in oil & gas wane, more or less quickly. As a country, it does have big decisions to make but it is able to make these for itself – as it has done before – in order, once again, successfully to set a new economic course for the longer term.
As the report adds, realistically but decidedly NOT to raise fears: ‘It is unlikely that there will be immediate political majority support for all proposals in this report, which span fiscal, monetary and ownership policy. However, the dual challenge of Norway’s carbon lock-in and the urgency of ambitious climate action requires a willingness to rethink established convention. We hope that our recommendations will contribute to the essential debate on how Norway could realistically transition its economy in line with the Paris Agreement, and also help other countries do the same. By learning from the historical lessons of hydro-powered and petroleum-powered industrialisation in the 20th century, Norway will be able to utilise its financial strength and productive capacity towards the grand challenge of the 21st century. Through reducing global greenhouse emissions by way of developing green industrial jobs, yesterday’s Fossil Ogre could become the Green Giant of tomorrow.’
Of course unlike Norway, Scotland has been deprived of a huge sovereign wealth fund. Howeverone thing seems clear, unless Scotland can gain similar agency, even when the time comes round for Norway to engage with the next of the ‘periodic technological revolutions that reshape the economy’, the country our children and grandchildren inherit will still be stuck in centuries-old dependency.
When oil & gas-related economic fears are peddled by Unionists, it’s always worth remembering this for context. In June 2020 the data analysis company Statista published on the ‘Projected oil import dependency in the United Kingdom (UK) 2020-2035’. We learn that: “the UK’s dependency on imported oil is anticipated to rise steadily, as (domestic) production levels decrease over the period. The UK’s import dependency is expected to reach a rate of 64 percent in 2035”.
Official sources of such projections are also available, e.g. on natural gas: ’86% of UK gas demand would have to be imported in 2050’ (see https://publications.parliament.uk/pa/cm5801/cmpublic/Environment/memo/EB09.pdf )
Now we know what the level of England’s oil import dependency will be when Scotland is an independent nation state. And of course we know – even intuitively – the difference between (a) the scale of oil and gas supply required by Scotland during a fair transition away from fossil fuel usage relative to its domestic production; and (b) the scale of supply that will be required to be imported by England. Sound like the basis for a mutually beneficial trading agreement – along with Scotland’s excess electricity – especially if matters are brought to a head soon?