Sandy Baird, John Foster and Richard Leonard show that Scotland’s economy has seen a remarkably rapid shift towards external ownership over the past decade. What are the implications?
Just ten years ago firms described in Scottish government statistics as ‘based in Scotland’ were dominant among manufacturing firms employing over 250 people. Such Scottish companies produced 60 per cent of the combined turnover. By 2005 this share had shrunk to 40 per cent.By 2010 it was down to a little over 30 per cent. And in terms of development and strategy it is these larger firms that are critical because they dominate access to export markets and contribute the great bulk of Scotland’s business research and development.
This fall in Scottish ownership has been accompanied by an equally sharp fall in manufacturing employment itself. While there is no necessary connection between the two, loss of employment also underlines the need for a re-examination of policy. Another decade at the same rate of decline will see manufacturing employment fall below critical mass in most sectors.
Turning to ownership and control in all the bigger Scottish registered companies, in services as well as manufacturing, it is clear that here also there has been a major shift. In 2004 the Royal Bank of Scotland’s ‘Wealth Creation in Scotland’ examined the value added contributed by the top 100 Scottish registered firms and suggested that these ‘Scottish’ companies contributed 56 per cent of the Scottish total. At the time the accuracy of these figures was queried by Brian Ashcroft.A further examination of share ownership revealed that most of the companies were in fact either subsidiaries of non-Scottish companies or largely controlled by investment banks and fund managers based outside Scotland. Those entirely owned from within Scotland – either by individuals, trusts or local authorities – contributed less than five per cent of value added (see previous graph). Subsidiaries of external holding companies contributed 28 per cent (18 per cent overseas and 10 per cent British). The remaining firms contributing over 65 per cent of value added and were all controlled by relatively small groups of external financial institutions and fund managers (15 per cent exclusively UK and over 50 per cent jointly by UK and overseas, mainly US).
Taking the same group of Scottish registered companies in 2010 we find the subsidiaries of external holding companies now contributing over 75 per cent of value added.Obviously, part of the explanation is provided by the takeover of the two banking giants, the Royal Bank and the Bank of Scotland. But it is only part. A long list of companies from the RBS’s Top 100 in 2004 were subject to external takeover over the following six years. The most vulnerable were those that had previously been in the ‘external investor’ category. Many had now been sold on to realise ‘shareholder value’.
The scale of the change is also underlined by a longer-term comparison.In the 1970s John Scott and Michael Hughes examined patterns of ownership across the twentieth century and found a surprising degree of continuity up to the 1970s. Still at that date Scottish owners and financial institutions remained largely dominant. Using the same categories of share ownership and taking the 62 biggest Scottish registered non-financial companies, a major shift is apparent by 2004. Just under half of the biggest Scottish-registered companies were now externally-owned subsidiaries (26 out of 62). There had also been a big fall in the categories of ownership characterised by personal or family trust control from 42 to 16 (exclusive majority, shared majority and exclusive minority). Taking the same 62 firms in 2010 this pattern of change had intensified. Five companies had been dissolved (all of them previously subsidiaries of external companies) and nine more had become subsidiaries. This category now made up more than half of the remaining 57 of the biggest Scottish-registered companies – with another quarter made up of companies in the category of ‘dominance by large institutional investors’ which we have already noted is particularly vulnerable to external takeover.
To some extent the rapidity of these changes in ownership fits a wider international pattern. The banking crisis and world recession have intensified global trends to concentration and monopoly as the biggest firms seek to consolidate market share in the face of uncertain recovery. Takeover rather than internal investment is now the preferred path.But Scotland also occupies a particularly exposed position. Company ownership exists within the highly financialised Anglo-US sphere of stock-exchange share trading – in contrast to the longer-term bank and local government model of investment in France and particularly Germany. Yet at the same time Scottish firms have to compete within an EU market that is increasingly dominated by technologically much stronger firms from Germany and France which benefit from such regionally locked patterns of ownership and investment. And the Scottish financial nexus that Scott and Hughes documented for the 1970s, and which previously gave some strategic protection to Scottish industry, has now very largely gone.
Scottish registered non-financial firms taken-over since 2004
- Scottish Power
- Scottish and Newcastle
- British Energy Group
- Christian Salvesen
- Grampian Country Foods
- Motherwell Bridge
- Paladin Resources
- Glasgow, Edinburgh and Aberdeen Airports
Scottish registered financial companies taken-over since 2004
- HBoS and subsid
- RBoS and subsid
- Walter Scott & Partners
- Abbey National Scotland
- Abbey National Asset Managers
- Artemis Unit Trust Managers
- ISIS Asset Management
- Kwikfit Insurance
This is why these statistics on ownership have significant policy implications.Both major parties in Scotland have operated within the strictly neo-liberal assumptions of British and EU industrial policy. Unchanged, it is difficult to see how this will result in anything other than a continued haemorrhage of industrial capacity – possibly at an even faster rate. The implications for Scotland’s long-term economic viability are therefore serious and challenging. The private sector, still backed by the major parties as the key engine of economic recovery, appears highly unlikely to restore strategic and locally-anchored growth. Conversely, some form of public ownership, whether state, cooperative or community-based, would seem the only way of achieving development that is locally embedded and secured. This is the policy challenge – one that would seem to make it essential to overcome the external policy prohibitions on public ownership and support whether at EU or WTO level.