George Kerevan

George Kerevan

Recovery Report: Blueprint for a New Scottish Capitalism

Reading Time: 6 minutes

The independent Advisory Group established by the Scottish Government to advise on Scotland’s economic recovery has published its report. Socialist economist George Kerevan examines what it says about elite Scottish thinking on the future of capitalism.

It is the elephant that gave birth to a mouse. Well, maybe a bit bigger than a mouse, but not much. I refer to the report commissioned by the SNP Government on how to restart the battered Scottish economy after Covid-19, which was published on Monday 22 June.

The panel that drew up the report is headed by ex-Tesco Bank boss Benny Higgins – who signs off his preface with an arrogant “Benny”. Higgins left Tesco under a cloud having spent £18,000 on taxis during an eight-month period, as well as failing to protect customers against a cyber-attack. He is now chair of Buccleuch Estates, Scotland biggest feudal land owner. Higgins is also a member of the SNP’s Infrastructure Commission and architect of the new Scottish National Investment Bank. He is the SNP Government’s most senior economic advisor and interlocutor with the business community, and this suggests that Nicola Sturgeon’s administration is bending over backwards to accommodate Scotland’s bourgeois and land-owning classes.

The 74 page report (plus 40 page statistical appendix) is written in the conventional civil service blancmange. Most of the analysis and economic data is second-hand, especially the material on the likely economic impact of the lockdown. We already know the UK is headed for the worst GDP decline among the OECD countries and that Scotland – heavy on sectors most likely to suffer, such as hospitality and tourism, is going to see the worst output decline since the Thirties. The point is what to do about it.

The thrust of the report is that the SNP Government has to look longer term and use any reboot strategy to increase capital investment and labour productivity. Seen from this correct perspective, the report is actually quite sophisticated – certainly more sophisticated than likely critics are going to give it credit for. Shorn of its verbosity and tedious jargon, Benny’s report has grasped that Covid-19, coming on top of Trump’s trade wars and Brexit, has transformed the conditions under which British capitalism and its supine Scottish appendage have to work. To get out of the deep hole in which Scottish capitalism finds itself requires a helping hand from the state. Benny’s report is an early vision of how this is to be achieved.

Buried deep in the appendix is the key point: In 2016, public and private investment in Scotland was a miserly 17% of GDP – the fifth lowest of the EU countries and ranking an appalling 118th in the world. In Europe only Greece, Cyprus, Portugal and Lithuania invest less, while globally all other major advanced economies invest significantly more. In other words, the mechanism for capital accumulation in Scotland is broken.

Higgins represents a wing of Scotland’s declining bourgeois class who recognise they are trapped inside a City-dominated UK dedicated to extracting value from the rest of the world, rather than investing in domestic manufacturing. Covid-19 has now brought matters to a head. Unless something is done pretty damned quick, Scotland’s economic decline will become irreversible.

The key proposal in the report comes on page 34. Higgins notes that the devolved Scottish Government’s “borrowing limits are extremely low in relation to the overall budget, limiting further any deviation from the UK’s budget stance. In a time when governments are providing unprecedented levels of support to their citizens, Scotland’s capital borrowing is less than 0.3% of GDP”.

How to resolve this dilemma so the SNP Government can raise investment levels? Higgins wants the UK Government to lift the cap on Holyrood’s ability to borrow. Plus, he wants the new Scottish National Investment Bank (SNIB) to issue bonds in its own right as soon as possible, to raise extra cash to lend on to Scottish business. The report notes that the SNP Government is already committed to boosting annual investment in infrastructure by 1% of 2017 Scottish GDP by 2025-26. That represents circa £1.5bn per annum, which in the light of the Covid-19 crisis is peanuts. Higgins clearly wants a lot more state capital.

The crux of the report is that this money will be provided to private investors by the SNIB. Higgins notes: “The consultation has revealed the significant interest and appetite for co-investment with the [SNIB]”. The report notes that the original plan was for the SNIB to develop on a limited basis before going to the financial markets to raise extra money by selling bonds (guaranteed by the Scottish taxpayer). But post Covid-19, Higgins argues “the crisis has made [issuing bonds] a more pressing priority, and it should be brought forward.”

There you have it: the recovery plan involves a major increase in capital investment funded by a public bank, with the money going to private companies involved in joint enterprises with the state. Who will do the investing by the state? Not ministers or MSPS. Higgins’ report advises the Scottish Government to “build its professional capability to manage ownership stakes in private businesses” by hiring business executives from the private sector. They should operate “independently” of ministers.

In other words, this is not nationalisation under workers’ democracy or indeed any kind of public direction of investment – it is the state supplying oodles of cheap capital to industry. Just in case any pesky socialist MSPs think Holyrood is running the show, the report argues the Scottish Government should establish “a top-level Council of Business Advisers to work alongside its Council of Economic Advisers in helping Ministers to map out Scotland’s future strategy in partnership.” The phrase “in partnership” is interesting. Democratic government must now be “in partnership” with Big Capital, not its master.

There are two other points in the report which represent new thinking. One is a modest willingness to contemplate a switch away from a neoliberal emphasis on free trade and encouraging foreign investment. This discussion is very tentative but suggests there are elements inside Scottish capital who are seeking a new, more self-reliant strategy. The report says: “A retreat into protectionism is not the way to secure our economic future. But greater care and attention to the balance between reliance on trade to provide essential products and what can be secured domestically is required…”

This might represent an emerging political division between sectors of capital who want to concentrate more on import-substitution and the domestic market. However, this would mean a massive switch in direction for the SNP Government which is committed to smoothing the path for foreign investment (particularly in finance and agribusiness). In fact, there is a good case for reducing Scottish dependence on foreign capital. However, doing this in order to facilitate the domination of a decadent, domestic capitalist class would hardly be a step forward. Import substitution requires the sort of state planning that the Higgins report rejects.

Finally, the report pulls a rabbit out of the hat by proposing the creation of a Scottish Jobs Guarantee which would “offer secure employment, for a period of at least 2 years, to 16-25 year-olds, paid at the Living Wage, with access to training, apprenticeships and the possibility of progression.” A job guarantee by the state could be a key demand in the recovery period – when unemployment could soar for most of the coming decade. However, the devil is in the detail.

Higgins wants the youth job guarantee to be underwritten by public subsidy: “There should be targeted funding support from the Scottish Government to set up the scheme, and to assist small and medium-sized businesses, as well as larger firms, to participate.” In other words, this is a ploy to reduce wage costs at taxpayer expense. Business gets cheap capital and cheap labour, courtesy of the Scottish Government. Higgins is also at pains to ensure the job guarantee scheme is “led by businesses working in partnership with local authorities and other agencies”. Any trade union involvement is conspicuous by its absence as is worker democracy.

For the record, the Higgins Report is not really a blueprint for Scottish independence, albeit under a new native bourgeois class. The Scottish bourgeoisie balks at the necessary sacrifices and confrontations required to build a new state – they always have and always will. Hence the tentative language of the Higgins report.

More likely Higgins and Co. are offering the SNP leadership an excuse quietly to abandon independence and seek a new devolution settlement with the Tory Government. Holyrood would get increased capital borrowing powers in return for calling off a second independence referendum. Result: the Scottish owning class can have its cake and eat it. There would be extra public investment and cheap labour without incurring the cost of building a new state or unleashing a confrontation with an anti-austerity working class.

The true burden of this new devolution settlement would fall on working people. There would be higher taxes to pay for increased state borrowing – any profits resulting from the investments would end up in private pockets. There might be (low paid) jobs, but again funded through higher taxes. This is an economic cure worse than the disease. Now might be a good time for socialists and trade unionists in the SNP to produce a progressive, democratic and collective response to the Covid-19 economic emergency.

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