‘Economic forecasting was devised to make astrology seem respectable.’ A rejoinder (sort of) to Stewartb

Image: New York Review 1982

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.

15 thoughts on “‘Economic forecasting was devised to make astrology seem respectable.’ A rejoinder (sort of) to Stewartb

  1. I agree with everything in this article.
    It’s both disturbing and depressing that a pro-independence government has zero planning for the future they claim to champion.
    If the Scottish government set up a high powered, expert forum to plan for independence, then London, the media and the world would start to pay attention.
    A virtuous circle of positive feedback, where each problem gets confronted and solved, turns the ratchet a notch, and the very act of solving a problem leads the public to seeing independence in a better light.
    Scotland has assets and must aim to control them.
    Colonialism is where a country controls and profits from, the assets of another country.

    Liked by 2 people

  2. Pardon my confusion over the “proposed” Norway “gas” interconnector to Scotland Alasdair, but there never was such a interconnect proposed for gas exports, it is in reality cover for gas imports to England.
    The proposed power interlink to Scotland from Norway is particularly amusing as it replaces the now totally erased Peterhead-Norway power interconnect proposed decades ago, gazumped at the last minute by HMG just as it was to get the green light from Norway for construction to interconnect to Europe’s grid – ultimately installed to supply DRAX via Blyth, designed and installed in under a year if memory serves.
    It’s blindingly obvious HMG are anxious England remain gatekeepers for ALL energy, but there’s a sting in the tail, and they gave it away by their own skullduggery.
    If Norway can proceed to design and install an interconnect in less than a year, I predict a large queue forming at Holyrood on day one on Scottish independence, to direct Scotland’s excess generation to Europe…

    Liked by 2 people

    1. I’m not sure of the tech details, but Germany views Scotland as an ideal partner to help develop German ‘ hydrogen ‘ programs, it was only paragraph in an article so I’m not very clear on this, using Scotland’s surplus renewable electricity.

      Liked by 2 people

      1. On the subject of Scotland-Germany collaboration, this from the Royal Society of Edinburgh’s (RSE) website:

        ‘The new RSE Scotland-Germany Hydrogen Research Scheme is funded by the Scottish Government with the purpose to facilitate international collaboration between Scottish and German institutes. It aims to develop hydrogen-related research which can inform Scottish Government policy objectives. This aligns with the RSE’s ‘knowledge made useful’ mission.

        ‘OBJECTIVE: This scheme seeks to foster research- and practice-based partnerships between Scotland and Germany to lead the way towards a decarbonised future. The objectives of the RSE Scotland-Germany Hydrogen Research Scheme are as follows:

        – ‘To facilitate and strengthen co-operation and learning between Scotland and Germany in the area of hydrogen research;
        To foster partnerships/networks within and beyond academia, including with local authorities and small and medium-sized enterprises (SME);

        – ‘To encourage the initiation of new partnerships and/or the development of existing partnerships;

        – ‘To contribute to policy discussion in Scotland around hydrogen.’

        The deadline for research proposals was in February 2022.

        Corporate media or BBC Scotland coverage? Anyone recall anything? I suppose research collaboration between Scotland and Germany over a future hydrogen-based economy is hardly newsworthy, especially as Scotland is now outside the EU!

        And then from the Scottish Power website dated 10/11/2021: ‘Scottish and German collaboration to look at potential of exporting green hydrogen from Scotland to Germany. As outlined in the Scottish Government’s Draft Hydrogen Action Plan today, the project aims to identify future opportunities to unlock massive green hydrogen demand in Germany

        ‘The Scottish Government’s hydrogen assessment in 2020 found Scotland exporting green energy to Europe could result in £25bn GVA with over 300,000 jobs by 2045

        ‘Working together on the project, ScottishPower, Wood, KPMG Germany and DS Consulting, each bring their own expertise to the collaboration. ScottishPower will be responsible for assessing renewable energy and hydrogen production capabilities in Scotland, Wood will be responsible for engineering and distribution challenges and DS Consulting and KPMG Germany will identify customer demand and examine infrastructure and regulatory requirements.

        ‘The collaboration will aim to create a business case for an initial green hydrogen production facility in Scotland to be developed, constructed and operational in 2024.’

        Again, media profile … anyone?

        Liked by 1 person

        1. Wow, thanks for taking the time to look for that. It only came to mind when reading Bob Lamont’s comment, where ever I picked that up from had none of that detail.

          Liked by 1 person

  3. Export other types of fuel and energy that can be exported. Or stop importing fuel and energy that go throughout Britain. Causing higher costs in Scotland. Ie fracked gas from US goes into Grangemouth. That is not necessary to the fuel and energy sector in Scotland. Oil can be exported in tankers. Solar, wind and water can be used. Instead of importing fuel and energy which is despatched off to other places out with Scotland.

    Oil sector has been taxed up to 80% when the oil price was high. $120. UK Treasury gets half of production. The tax should be higher when the price and profits are higher. Lower when the price and profits drops. Osbourne and Cameron did not lower the tax quickly when the price of Oil fell. Production and investment fell. 120,000 people lost their jobs. There could have been full employment in Scotland. 120,000 people were unemployed.

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  4. I can hardly bear to read about how Scotland is so scammed out of £billions, in fact over decades, it will be £trillions worth of energy, oil, gas, hydro and renewables, it’s totally tragic.

    Scotland needs independence and it can’t come soon enough.

    Liked by 2 people

  5. Slightly OT, there is this continuing fiasco https://archive.ph/sy4Hm which HMG insist on trying to sweep under a now bulging carpet.

    Neither my gas nor power bills contain any standing charges, all is calculated on kWh consumed, and it matters not a damn which part of the country I am in, the rate is the exact same.

    Labour’s introduction of pricing differentials in 2000 cited location of energy production versus consumption as justification, yet despite these having having changed dramatically over the last 22 years, the mechanisms remain as they were.

    Whilst BiS are working hard to spread awareness of this continuing injustice, you would think with the UK’s energy crisis being in the news every day, the media would be leaping on this story an exposing it, yet their silence is deafening.

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  6. Scotland is surplus and nearer the source. Yet pays more for fuel and energy as part of the UK. A burden on the whole Scottish economy. Scotland should pay at least 10% less on average.

    The ridiculous system where the Westminster Gov is not doing a thing to avert a catastrophe. A disaster in the economy and people’s lives as prices reach astronomical level. An absolute disgrace. Every Europe country is taking government action to lower prices to more affordable level. The EU is tackling the situation and coming up with solutions. Westminster parasites have 1+ years to go and are doing nothing to date. They are just leaving their mess behind them. Absolute incompetence. Killing people.

    They should be increasing universal credit. Increasing pension. Scrape the NI increase. Taxing the Oil sector at a proper rate. The NHS would not be struggling with illness from unnourished, depressed people with mental health issues. Increase tax on alcohol and restrict sales and increase tax on tobacco.

    Uk Gov should be supporting students properly. Student, (for a limited period) single carers and old people are the poorest on average. Everyone’s mothers and fathers being treated with disrespect and contempt by the UK Gov. Average pension 1/4 of average income. Topped up with benefits. The administration costs are nearly as much as the payout.

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  7. The UK Gov already has £Billions contract with Norway for fuel and energy. Oil?

    UK/US France stole the Oil from the Middle East and started illegal wars to get it. Illegally. The history of the Middle East. Carved up by UK/Us and France since the 1900s and before. The Balfour Agreement. Churchill stole Persian Oil (Iran) took the lot of it, with no compensation. Illegal and kept secret. CIA/M15. Kept secret under the Official Secrets Act.

    The West overthrew legitimate, democratic governments. Illegally killing and maiming people and causing death and destruction. Total corruption kept secret under the Official Secrets Act. Breaking International Law. Selling illegal weaponry since 1960s. Bribes and corruption. . Harold Wilson. Kept secret under the Official Secrets Act. Left a trail of destruction., poverty and death.

    Still at it causing havoc. Exporting illegal weaponry. It would have been cheaper and more productive to buy it. UK/US still causing havoc breaking International Law in Europe and around the world. Corrupt politicians. The migration in Europe was caused by the illegal wars. US/UK, France responsibility.

    Brexit. Whole UK Gov Accounts. 2019/20. Published June 2022. Internet. Page 35. EU cost nothing and brought benefits. Especially to Scotland.

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  8. Standing charges are common in other countries. A minimum but affect the lowest users proportionately more. Green tariffs and VAT are higher standing charges on fuel and energy sector Cut the tax on petrol. Raise it on the Oil sector, making huge profits. Turbines etc treated as a business. They pay corporation tax, VAT etc on profits. Wind blowing free. Harnessing energy.

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