Finance at the expense of democracy and development

John Foster unearths some disturbing characteristics of the SNP Growth Commission Report.

The SNP’s Growth Commission Report (GCR) bears some similarities to the Westminster Government’s EU White Paper issued a few weeks later. Both accept neo-liberal, pro-market assumptions. Both seek, though in different ways, to maintain a relationship with the EU law that will perpetuate restriction on public sector intervention. Both, therefore, represent a challenge to the left.

If either is implemented, whether across a post-Brexit Britain or in an independent Scotland, they will block any advance towards the democratic control of the economy and ensure the decisions continue to be made in the interests of the very rich by a small cluster of investment syndicates, which is what pro-market, neo-liberalism really means.

However, neither the White Paper nor the GCR are anywhere near to being implementable policy and this is why it is so important that the left exposes the actual character of both documents and, still more important, develops alternatives that can mobilise popular support for genuinely democratic control.

Most left critiques of the GCR have correctly focused on its financial orthodoxy and its resulting commitment to governing within strict deficit limits. The proposed reduction in Scotland’s deficit from 7.7% to 3.1% would require cuts of at least £7bn over a five to ten year period – well beyond what has already been inflicted (paragraph 3.185). John McLaren’s analysis for Scottish Trends suggests still higher cuts as a result of the failure to factor in inflation: up to 15% for all areas outside the protected sectors of health, education and social care. Housing, transport and other council services would be decimated.

At the same time, the GCR commits itself to EU Single Market membership and hence to EU competition law. Any active industrial policy involving state aid or comprehensive public ownership would be precluded. However, there is a strange anomaly in the GCR. Deficit restrictions on public spending are not mandatory under Single Market rules (they are only so for EU/Euro members). Nor does the Single Market cover tax policy – where the GCR commits itself to maintaining Britain’s existing, very low levels of corporation tax and to other taxes rates that will be ‘sensitive to the behaviour of individuals and business’ (shorthand for maintaining minimal taxes for the rich: paragraph 3.172).

So what is the reason for these additional commitments – which in the case of tax can only worsen the proposed austerity cuts? The explanation would seem to be linked to another aspect of the report that has so far been given less attention. This is its proposal to make financial services a central, possibly the central, plank of a future Scottish economy. The financial sector is, the report claims, of ‘greater importance to Scotland’s economy than in any other economy’ and, it argues, Britain’s withdrawal from the EU would offer a clear opportunity for the ‘relocation of financial services’ from London to Edinburgh (A.657).

This is why the GCR calls for sterling to remain, meantime, Scotland’s currency, for Scotland to maintain a ‘close and respectful relationship’ to the Bank of England and British financial stability institutions and why the Report insists that Scotland should remain in the EU Single Market (paragraphs 3.120 and 3.203). This, it hopes, would make Edinburgh the prime destination for the international banks operating in the City of London which want to continue operations within the EU.

The need for the continued use of sterling and for ‘close and respectful’ relations with the Bank of England is because Scotland by itself would not be able to provide a financially secure base. The lead author, Andrew Wilson, knows this only too well. He was deputy chief economist at the RBS when it went bust.

The other side of this Faustian deal – grabbing finance at the expense of industrial redevelopment – would be very rough justice for Scotland’s productive economy and the workers within it. There would be no significant state intervention. Growth will depend on attracting big business investment from elsewhere. Hence, low corporation tax. Hence also a labour market regime that would make Scotland attractive to external investors: so the proposal for labour market ‘flexicurity’ on Danish lines.

And don’t be conned by the reference to Denmark. It’s not about the welfare state. The introduction of a ‘flexible’ labour market in Denmark over the past ten years has involved undermining what remained of welfare provision: weakening employment contracts, introducing compulsory workfare for the unemployed (you work for benefits after three months) and a retirement age that has already been extended to 69.

So the GCR offers a pretty dystopian future. But it is also one that mirrors Theresa May’s White Paper. This equally seeks to privilege the financial sector – making it more attractive to global speculators by excluding the City from EU Single Market regulations – while subordinating the rest of the economy to all the EU prohibitions on an active industrial policy.

This is what the left has to expose. Both documents are presented as offering sensible, cautious technocratic paths to an economically sustainable future. The reverse is the case. They demonstrate the power and dominance of big finance and its ideas in our society and the degree to which all state institutions, including the EU, express its interests. The immediate challenge is to win a countervailing mass understanding of the need for a pro-people alternative – one that can enable popular ownership to displace the existing regime. As Mariana Mazzucato argues in the Value of Everything, this finance-dominated state system destroys, rather creates, value and threatens the future of us all.

John Foster writes as joint secretary of ROSE -Radical Options for Scotland and Europe ( Its next AGM and conference is on Saturday, 3 November at 10 a.m. in the conference suite of Unite the Union, 145 West Regent Street, Glasgow G2 4RZ