Capital investment needed for credible chance at independence

The SNP’s Growth Commission was launched in September 2016 in the aftermath of the Brexit referendum. The prevailing view in the party was that the shock referendum result, allied to the fact that Scotland had voted overwhelmingly to stay, had reopened the question of Scottish independence. Many of those who had voted ‘No’ to independence in 2014 – particularly in the business community – were clearly reconsidering their opposition to a Scottish state, especially if it remained inside the EU.

When the Commission was announced, I immediately contacted Andrew Wilson (its head) to offer help. He flew to London to meet myself, Ian Blackford and Roger Mullin. Roger, like myself, was still an MP but also had been appointed to the Growth Commission as its liaison with the SNP group at Westminster. Andrew explained that the primary task of the Commission – given the imminent likelihood of a second referendum – was to provide a fresh and robust set of economic arguments supporting independence. In particular, we had to replace the notion of a sterling union with the rest of Britain – a position which was seen as having been a major reason we lost the 2014 referendum. As I remember, it was taken for granted that the Commission was there to justify a switch to a separate Scottish currency and a break with sterling. In addition, with the collapse in global oil prices, it was necessary to provide a credible plan to deal with the likely budget deficit Scotland would inherit post-independence. The latter clearly focused on boosting Scottish economic growth to something like the historic norm for small, industrial European nations; say 3.5%.

The problem was that Wilson thought the timescale the Commission had to work in was incredibly tight: early 2017 was mentioned as a target for getting the currency question resolved. As it transpired, the Commission’s work was interrupted by Theresa May’s decision to call a General Election, in the vain hope she could crush Labour. Instead, the Tories lost their overall majority. The SNP lost over 20 seats, though it remained the largest Scottish party at Westminster.

However, the real impact of the election was Nicola Sturgeon’s decision to put a second indyref on hold till after the Brexit negotiations were completed i.e. until 2019 at the very earliest. With this new (and vague) political timetable, the Growth Commission changed tack. Instead of relying on the SNP Westminster group as the key research team, Wilson brought in external consultants. Much of the final report was written by Wilson himself.

The result, all 354 pages, was published in May 2018. Surprisingly (given earlier discussions), the report proposes that an independent Scotland keep sterling unilaterally for at least a decade. While this is technically feasible, it seems to me to leave the SNP back where it started in 2014, with interest rates, mortgage rates, and the external exchange rate determined by the Bank of England. As a result, Scottish productivity and growth rates would be tied to England’s unless – and this is key – we were to try to reduce wage costs directly through a combination of austerity and liberal market labour ‘reforms’. The latter would be rejected by the SNP rank and file and – to give Andrew Wilson his due – the Growth Commission report explicitly rejects austerity.

However, saddled with keeping sterling, the Growth report has to resort to a deus ex machina for boosting growth: namely, significant population growth (half a million plus?) driven by immigration. Formally, population growth will boost GDP. However, in an era when around a million existing Scottish jobs are threatened by developments in Artificial Intelligence, I am sceptical that relying wholesale on immigration as a growth driver is either economically or politically sensible (though Scotland should and must be open to new immigrants).

So how do we boost growth and productivity? Productivity (as embodied in new technology) and growth are a function of capital investment. British and Scottish capital investments are among the lowest in the OECD industrial countries. In the 20-year period 1997-2017, British fixed capital investment as a percentage of GDP averaged a pathetic 16.7%. This compares with Switzerland (24.1%), Ireland (23.7%), Austria (23.5%), Sweden (22.4%), Finland (22.3%), and Norway (22.1%). Scotland will not reach the average growth of other small nations unless it boosts capital investment significantly.

Poor British and Scottish capital investment is a function of a private banking system wedded to speculation in existing property portfolios and which has looted around £50bn in assets from foreclosing on viable small businesses since 2008. Fortunately, the Scottish Government has launched an initiative that could fill the void: the state-owned Scottish National Investment Bank. Yet the SNIB gets a casual mention in the Growth Report. However, assuming a Scottish central bank and a Scottish currency, the SNIB could be capitalised to provide a massive boost to domestic investment.

The Growth Commission is not the austerity charter some on the left believe it to be. However, in trying to be all things to all people, the Commission has failed to offer a decisive plan for rebuilding a Scottish economy deflated by years of genuine Tory cuts and a City banking system that is nothing more than a giant casino. To win over working class voters to ‘Yes’, we need to offer revolutionary economic change. That starts with creating a Scottish currency and socially-responsible banking system.

George Kerevan is the former SNP MP for East Lothian. His new book with Chris Bambery is ‘How Catalonia Took on the Corrupt Spanish State and the Legacy of Franco’ published by Luath.