In the first of a new, investigative series, socialist economist George Kerevan exposes the true economic cost of Scotland’s increasing dependence on foreign investment.
The recent auction by the SNP-Green coalition government (via the so-called Crown Estates) of the nation’s offshore wind capacity to foreign energy companies has provoked a storm of dissent in nationalist and labour movement circles. And for good reason.
This fire sale of the nation’s offshore assets (for a mere £700m) effectively hands over control of Scotland’s green energy revolution to foreign hands. Essentially the Scottish Government has sold options to develop 17 massive new windfarm developments. But some of the preferred bidders clearly have no intention of developing their zones and were merely buying up cheap options to block competitors gaining access to wind sources. Other successful bidders have strong links with foreign turbine manufacturers, so hopes of local Scottish jobs in the construction phase are being grossly exaggerated. Besides, the planning process is likely to take five or more years, so don’t expect any energy production in these new fields for a decade or more.
Beyond these basic considerations lies a deeper worry. The whole economic policy of the SNP since 2007 has been to rely on inward investment at the expense of local reindustrialisation. The obvious downside is that foreign investors only come to Scotland to access our natural resources. As a result, Scotland’s economy has been reorientated – deliberately – from high-value, high-wage manufacturing towards a neo-colonial model. A model based on extracting local resources for the world market – gas, oil, agricultural produce, fish – and now wind energy. This is not only unsustainable, it restricts growth to the diktat of foreign investors.
Kate Forbes – the SNP’s Finance and Economy supremo – defended the auctioning off of Scotland’s wind resources on the grounds Holyrood lacks the investment capital to create a state-owned energy sector like Norway’s (a canard echoed by Ross Greer, the Green MSP). However, the glaring fact about relying on inward investment (aka foreign control) is that any ensuing profits are drained from the Scottish economy. This, in turn, hinders further investment and consumption and actually shrinks the tax base. It is short-termism gone mad.
Calculating Scotland’s Loss From Foreign Ownership
GDP measures all the economic activity within a country’s borders. But that doesn’t mean that the money earned through this activity remains within the country. Foreign-owned companies move any profits earned from operations in Scotland to shareholders abroad. Economists use a measure called Gross National Income (GNI) to express the net income left after deducting repatriated profits (or adding income from abroad).
It is possible to make some calculations as to the net loss to the Scottish economy from foreign ownership. The most recent GNI data available from the Scottish government is for 2017. (See Experimental Statistics Development Paper, December 2018) That is rather ancient but on the other hand the disruption to the economy from Covid probably means the 2017 figures are closer to long-term trend. Note: This data is subject to a high degree of uncertainty, but has the merit of also calculating the net loss of income to the rest of the UK (rUK) as well as to foreign countries.
In 2017, the gross outflow of profits and incomes from Scotland to non-Scottish jurisdictions was £34bn. That represents roughly a fifth of then annual domestic income. That’s right: one pound in every five of output produced in Scotland by Scottish workers in a typical year goes to rUK and abroad. That is the real measure of Scotland’s current economic exploitation.
Of course, we need to add back income earned from Scottish investments and employment abroad. The Scottish government statisticians reckon this comes to around £25bn in 2017. As ScotGov admits, a lot of this is pure guess work. As it is, this data shows a relatively low gross income from share portfolios which is in line with Scotland’s small population. But the statisticians have added guesstimated “earnings on other investments” of circa £10bn. This “residual” figure for Scotland is actually bigger than the total income for “other investments” given for rUK and the world combined. Something not right here.
The “other investments” appear to be property income from insurance policies or from collective pension fund investments – calculated for Scotland using a population share of the UK total. This seems a very crude calculation. Note: this is not pension payments themselves, but a notional share of the property income generated by the primary investment funds. But surely all the property income streams from these investments stays under the control of the City-based fund managers, after any Scottish independence. They are always free to re-invest as they see fit. In other words, whatever the pension stream, strategic control stays in the City of London. This is hardly Scotland “earning” income from rUK in any meaningful sense.
My view is that a more reasonable estimate of gross Scottish investment income from rUK and abroad would be much less than £20bn, rather than the official £25bn. Even then, the bulk of the investment income coming to Scotland goes to a desperately narrow group of people and is likely to be reinvested abroad. So the actual contribution to domestic consumption and living standards is small. Which means that for practical purposes the loss of one pound in five of actual annual income generated in Scotland (as a result of foreign control of the economy) is a huge drag on Scottish economic growth – because it reduces sharply the money available for spending on local investment and on local goods.
What We Could Fund
Even on questionable official data, the reduction in local investment and consumption resulting from foreign outflows is still around 7% of total GDP (local output). Add up that annual haemorrhaging of income to foreign owners over the lifetime of SNP governments since 2007 and you come up with roughly a year’s worth of GDP given away. Incidentally, that’s more than enough to pay any (daft) notional budget deficit invented by the Unionists to suggest an indy Scotland could not pay its fiscal way.
But I’m more interested on what one could do with a year’s worth of total GDP in terms of new investment. That would cover (as near as dammit) the cost of de-carbonising Scotland and creating a sustainable, circular economy – as costed in the Common Weal think tank’s “our Common Home” plan. It would certainly underwrite the creation of a public Scottish National Energy company and associated new low-carbon technologies.
Just a pity the SNP government sold off the family silver.