From Alasdair Galloway:
Stewart’s acute perception is well used on his recent “Is Scotland’s economic fate already sealed for the next 50 years?”. https://talkingupscotlandtwo.com/2022/08/31/is-scotlands-economic-fate-already-sealed-for-the-next-50-years/
I agree completely with all the points that he makes there. It is lazy journalism in the extreme to call a projection a forecast – but then for many of the journos ‘confused’ in that way, it is politically expedient to do so. He is also right about the claimed precision of economic forecasting. I still recall 45 years later, going in to see my new head of department (the Department of Economics & Management) who was working on an economic forecast, and was pleased that his “best fit” line appeared to explain 30% of the variance. He was less pleased when his newly appointed lecturer asked about the other 70%. The great Canadian economist, JK Galbraith (above), once said that economic forecasting was devised to make astrology seem respectable.
It is though when Stewart turns to the second part of his observations that his article becomes particularly interesting. There can be no doubt that future Scottish economic performance as part of the UK we need “TO CONSIDER UK GOVERNMENT FUNDING AND SPENDING PROJECTIONS as well as UK ECONOMIC PERFORMANCE, not only the Scottish Government’s Budget and the Scottish economy in our ‘Approach to fiscal sustainability: consultation’ paper’.” It is galling (to be polite) when zoomers like Murdo Fraser berate the Scottish Government for the poor performance of the Scottish Economy when so many of the necessary powers to do significantly better are in the hands of Westminster.
But it goes further. There are two further important points to all of this.
The first of these is to accept that Scottish economic performance is NOT good, whatever the cause might be, and just becoming independent is not some magic wand that is going to remedy this. For instance, while only 3% of private enterprise in Scotland is externally owned, it still contributes 35% of employment and 53% of turnover. In other words, the largest part of the wealth generating part of our economy is not in Scottish hands, and there is nothing about independence of an by itself that is going to change that. More importantly, while we can focus on Scotland’s economic assets – energy production, tourism, food and drink etc – how much of this generates wealth which ‘sticks’ in Scotland, or, alternatively, is exported abroad. For instance, how much of the Scotch whisky industry is owned in Scotland? How many hotel chains are owned in Scotland? At the beginning of this year Crown Estate Scotland auctioned off seabed plots for the next generation of windfarms. The income from this sale is estimated at £700 million and to quote the Guardian at the time “the capacity of the new Scottish windfarms to be developed over the next 10 years will be more than double the UK’s existing 10GW of offshore wind, and equal to Europe’s current combined capacity. The UK plans to quadruple its fleet of offshore windfarms to reach 40GW by the end of the decade”. Great, BUT how many of the successful bidders – Shell, BP and even Scottish Power are in Scottish hands. The first two by definition not at all, and despite its name Scottish Power is Spanish owned.
The winning bidders have also “promised” to invest about £1bn in sourcing materials and services from Scottish supply chain companies for every 1GW of offshore wind capacity built, which could put local firms in line for £25bn of investment. Note here the use of the word promised, rather than committed, or legally obliged.
This is a UK approach to allocating energy production opportunities that is redolent of North Sea Oil fifty years ago, in that companies buy a licence, get on with getting the oil out the ground and then flogging it for their own profit . This time we have sold off the sustainable generating opportunities for what seems a large wedge of cash, but I have seen it argued that many of the companies will pay for the 25-year licence in the first year and the next 24 years are (after direct operating costs) all profit. Did we really learn nothing from North Sea oil, particularly with the price of electricity at the moment? Would an approach that followed the Norwegian approach to oil not have been better. That winning bids would have to accept a state ownership component in their operations? Perhaps, after a bit, set up a state production company to parallel Statoil in Norway, which means that community gets two bite at this cherry – first taxing the revenue of the private sector companies, but also generating state revenue through participation agreements and even our own operations?
Electricity is only one example, but in general I think it can safely be said that following UK practice is not going to enhance our economic performance as much as it might. We need to think differently – after all current thinking has got us where we are now.
The second point is even more critical. Scotland generates more electricity than it needs, so what does it do with the (growing) surplus? Well the obvious answer is that it should export it to other countries not as blessed as we are. The less obvious supplementary question is “how”? Right now, Scotland could sell, as part of the National Grid, its surplus elsewhere in the UK, and at the same get right royally screwed by the Grid’s access charges. We could sell to Northern Ireland, for there is an interconnector between us. Other than that? Pass, for right now there is no other opportunity within Scotland to export this power as the following map shows:
Two things to note here. First that the interconnector shown between Scotland and Norway is only proposed. It’s a great idea – to quote one report from earlier its aim is “to link hydro power from Norway with wind energy from Scotland”. This might go some of the way to addressing the “what do we do when the wind doesn’t blow” arguments, as the interconnector would allow us to sell electricity to Norway to pump the water back up the hill in their hydro schemes, and then we buy theirs when the wind doesn’t blow (Scandinavian energy consortium to build £1.3bn international connector between Scotland and Norway | Scottish Energy News). The report goes on to say the project “is scheduled to start operating from 2022” – but it won’t do this as it was put on hold in 2020.
Moreover, while an interconnector to Norway would be a very valuable development, note the number of proposed interconnectors between Europe and the rest of the UK – mostly in the south east with none north of Middlesborough. This reflects a key weakness in the Scottish economy, in that increasingly we only do business with the rest of the world through the rest of the UK. How do we export to Europe other than trucks travelling all the way south to Dover and Felixstowe? Where are the “hub” airports? How many parts of the world can you travel to without going via Heathrow or Gatwick? Of course, we could do what the Irish have done since Brexit, and begin to construct our own trade that excludes the UK – Irish exports to Europe are now increasingly sent from Dublin or Cork straight to Europe, sailing round the UK. Independence will allow us to think differently like this, and we need to. Sharpish.
In short, while the Fiscal Commission’s report, and certainly how it has been reported, might be misleading, Scotland’s future economic development is held back not only by being part of the UK, and our lack of economic powers, but by structural factors, including how little of the wealth we generate remains here, and that so much of our trade is conducted through the UK. For instance, if/when we rejoin the EU, how feasible is it for our exports to have to be passed by a “third party” (the UK) in that exports would leave the EU to pass through the UK and then be reimported into the EU once they fight their way to Dover . The very idea is ridiculous.
A successful independence will require quite a different mindset than the UK one that has landed us where we are.