The recent Scotonomics conference debated a different kind of economy where money, energy and industry are at the service of the people, report Maggie Chapman and Peter McColl.
We are at a rare point of unity on the left. Everyone realises that we are at a critical economic juncture. As we write, the Trump tariff war is just starting. By the time you are reading this we will, no doubt, be several tens of news cycles into that. Another thing that we can agree on is that the lack of new economic thinking has led to the point where a US President can indulge in something so clearly against the interests of his backers (and everyone else). Of course, tariffs are not inherently bad — more on that later. But we, on the left, have had to be shown that there is an appetite for radical change by others, and that is not a situation we should ever have been in.
The Scotonomics conference in Dundee was a showcase of economic thinking and a useful way to prefigure the sorts of discussions we will need to have if the independence campaign starts again, or even simply to reimagine Scotland’s economy now. The assumption that these sorts of heterodox ideas will not be well received at Westminster should not prevent us from talking about economic theory and policy, even if we do remain part of what should now be known as perpetual austerity Britain.
Scotonomics is an organisation that emerged from one strand of new economic thinking called Modern Monetary Theory (MMT). MMT is an approach to economics that focuses on money supply as a key driver of the economy. In neoliberal economics, money supply is seen as merely a function of broader economic forces. But it is clear that the concept of money has played too small a role in our economic thinking. While we do not subscribe to MMT itself, we do think that money is a more important element of economic activity than others do. We will describe our position later in this piece.
It is to the organisers’ credit that this conference, while showcasing MMT, featured contributors from across the gamut of progressive economic thought. Where we think we need to change our economic thinking is on the dominance of the market as a way of deciding value. In particular and in general crises, the market has shown itself completely incapable of deciding on the most important priorities. There are enormous human costs of the crises we are about to describe. These costs relate to our priorities, but it is important to realise that the market has failed even on its own terms.
During Covid, the market failed comprehensively to address the needs of either people or the economy. The countries that did best during Covid in purely economic terms were those where government asserted itself and had sharp, early lockdowns, halting the spread of the virus. In those countries where the economy was the priority, slow lockdowns allowed the spread of the virus and meant longer and more economically damaging lockdowns. The market response to climate breakdown has also been entirely counterproductive.
The climate crisis is an existential threat to the economy itself. Yet the market’s main approach to the climate crisis is to fund denial, lies and conspiracies so that action is delayed. Once again this exacerbates the economic damage caused by climate change.
A Money Supply to Serve the Many
We need to socialise the economy, including the money supply, to bring it under democratic control and to make sure that it is not allowed to facilitate crises that spiral and deepen causing deep harm to people, most importantly, but also to the economy itself. Much of this thinking was on display from Clara Mattei, Brett Christophers, Danny Dorling and Natalie Bennett, the four standout speakers.
While the Scottish economy is largely a subset of the UK economy, Danny Dorling pointed out that devolution can make a difference. Child poverty is now more prevalent in Surrey than it is in Scotland as a result of the Scottish Child Payment. The key powers, though, remain at Westminster and, with Labour going back to the dark days of austerity to chase ‘fiscal rules’ of their own devising, even the Scottish model of social security will come under pressure in the coming years.
Brett Christophers’ work on asset managers is very important. Increasingly, companies like Blackrock and Blackstone are using money invested in pension funds to drive down standards in public services while increasing profit margins. The plight of the privatised water companies in England is a good precautionary example. Thames Water was bought by the Australian asset manager Macquarie, which proceeded to load it with debt and take money as dividends, all while running down the business. The amount taken in dividend (around £7bn) is half Thames’ debt of £14bn. All this while they skimped on maintenance so that raw sewage is being discharged into river and sea. These and other examples of private asset managers show the failure of markets.
Our money is being used to provide poor-quality services, driving inequality and accelerating the climate crisis. We need to democratise the money supply just as we need to democratise the economy. One of the key insights of MMT is that private banks create money when they approve loans, contrary to the popular belief that they are loaning out savers’ deposits. We need to take that capacity and socialise it. As many of the speakers highlighted, we were able to create billions, if not trillions of pounds and dollars to bail out the banks. Yet when we need the money to provide houses for people to live in, or the much-needed energy transition to low-carbon energy, the money is not available. This is an important insight.
Could Tariffs Be a Useful Tool?
Where we disagree with MMT proponents is that we see democratising money as part of a broader democratisation of the economy. On its own it is not enough, and may be counterproductive. The vast sums created to bail out the banks have had a major deleterious effect on society and the economy. The money issued in the bailouts was attracted to the sorts of assets that tend to be limited in their supply. The old investment maxim “buy land, they’re not making it any more” is instructive here.
Because land and buildings tend to be limited in their supply, they attracted much of the newly created money. The outcome has been a bubble in house prices that is at the heart of the housing emergency we now see in many of our cities. In an economic crisis caused by overheated house prices, those very house prices went up rather than coming down. This in turn increases the value of the wealth held by those in a position to buy land and property. For this reason, the democratic control of money creation needs to be subordinate to the economic strategy that we are pursuing, rather than being an answer in itself.
Brett Christophers’ work on the energy transition is especially important here. The reason we are not seeing a more rapid transition to low-carbon energy is that the return on investment on renewables is substantially lower than that available on fossil fuels. The invasion of Ukraine provides an interesting case study here. By cutting access to Russian gas, European economies entered a downturn caused by overreliance on fossil fuels. Yet the preferred policy approach to this crisis of both Labour and Conservative governments at Westminster is to attempt to backtrack on the energy transition. They are doing this because of the centrality of fossil fuel companies to the economy, and their inability to get as high a return on renewables as they do on oil and gas.
This means that it increasingly looks like any green energy transition needs to be financed by the government directly. This is no bad thing. Unlike money poured into property, the investment in wind and solar will drive down energy prices, so will be deflationary. This offsets the increased volume of money with lower costs across the economy.
Several of the conference contributors cited Mariana Mazzucato, whose work gives us a strong guide to the required approach. By identifying key sectors for investment, we can create an economy able to meet challenges like the energy transition, the housing emergency, and the coming pandemic. In this context tariffs that price-in the carbon content of goods may be an important tool, and in responding to Trump’s deeply ill-considered tariffs we must avoid a kneejerk reaction that rules this approach out.
But the conference did not discuss economics in a bubble. Clara Mattei’s powerful contribution set the context for the conference. She pointed out that we are watching a genocide in Gaza, and that this fact must be foundational in our analysis of the world. The decision by a Labour chancellor a week later to remove funding from social security and to reallocate it to the arms industry demonstrated how profound Clara’s critique was. The decision to impoverish those at home so the UK can arm Israel speaks to the immorality at the heart of our economic order.
We should discuss how this economy can work, and we should be grateful to Scotonomics for starting the conversation and gathering such a stimulating lineup of speakers. There is a significant majority for radical reform of our economy to put people first. Ever since the prevailing order broke in the crisis of 2008, a new economic logic has been needed. While money creation is a part of that new logic, it is not in itself enough. It must be part of a wider move to a socially and democratically driven industrial strategy and, beyond that, to a wider approach to rebuilding our social fabric.
Maggie Chapman is Scottish Green MSP for North-East Scotland, rector of the University of Dundee, and co-convenor of the Scottish Left Review.
Peter McColl is a writer and thinker originally from Belfast. He was Rector of Edinburgh University and currently works on public consultation, responsible debate and industrial strategy