In the second in a new Conter series analysing the modern Scottish economy, socialist economist George Kerevan looks at the implications of the SNP’s promotion of so-called freeports.
The decision of the SNP-Green coalition at Holyrood to capitulate to the Johnson administration in London – by accepting the creation of two freeports in Scotland, the advance guard of Tory post-Brexit deregulation – represents a crushing political retreat by Nicola Sturgeon and the liberal wing of the Scottish Establishment. This is a defeat for the SNP left and the Greens that cannot be sanitised by references to bogus decarbonisation rules for freeports, that only apply in 2045.
Like the recent decision by the Sturgeon government to hock Scotland’s remaining offshore wind energy sites to foreign energy multinationals for a pittance, embracing the Tory model of freeports represents a further shift by the SNP leadership towards openly accepting free market neoliberalism – a policy first enshrined in the party’s notorious Growth Commission Report published in 2018. The fact that leading Green MSPs have criticised the decision to accept freeports merely exposes how impotent they. Green votes now sustain the Sturgeon government in office as the standard bearer of deregulation.
But there is more politically to craven acceptance of freeports by the SNP leadership, in the face of determined opposition by the party’s official Trade Union Group. Conter has argued for some time that the devolution settlement of 1997 can no longer be viewed by the left as a progressive bulwark against pro-capitalist policies imposed on Scotland by London governments, either Tory or Labour.
The dialectic of history is ruthless. The devolved Holyrood parliament has now become a machine to manage the transformation of the Scottish economy into a neoliberal paradigm – one increasingly dominated in every sector by foreign capital. As we noted in the first article in this series, it’s the SNP government of the past 15 years which has gone furthest in using its devolved economic powers to facilitate increased foreign control of the domestic economy. Now, after a sham battle with Westminster, the Sturgeon administration will oversee two neoliberal economic enclaves where foreign capital can enjoy lower taxes, reduced regulation and public subsidy.
How freeports work
But what impact will freeports actually have on the Scottish economy? The logic of freeports lies in the name. At root, a freeport is an extra-judicial enclave that stands outside a state’s customs area. This allows raw materials to be imported without tariffs, then processed and used to manufacture industrial goods – all free of taxation. These finished goods are then exported abroad (the usual destination) or sold internally. Either way, tariffs and taxes only apply after production. This affords the manufacturers a huge advantage in lowering the working capital needed in the actual production.
It is obvious that this scenario favours large-scale materials processing and large-scale manufacturing for a global market. It is no surprise then that China – the global exemplar of freeports – originally sanctioned only half a dozen free trade zones linked to port hubs. Each has grown into a huge manufacturing and trading complex. Recently, China has sanctioned more freeports/free trade zones, but each is focused on a specific industrial sector that the Chinese Communist administration wants to dominate internationally.
However, when we look at the UK and Scottish model of freeports, no such strategic economic vision is obvious. Last year, the UK Treasury sanctioned eight freeports in England, covering Teesside (starting this November), the Thames Estuary in Essex (December), Felixstowe and Harwich, Hull, East Midlands Airport, Liverpool, Plymouth and Southampton-Solent. That effectively blankets the whole of England. To these will now be added two in Scotland (presumable one on either coast), one in Wales (the Welsh government is still holding out) and one in Northern Ireland.
A moment’s reflection suggests this wide distribution is political rather than economic. There are far too many UK freeports for each to attract major foreign investment in materials processing or manufacturing. Perhaps the Thames site (with its proximity to London) might prove a magnet eventually but the creation of so many small freeports, each too deficient in space and infrastructure to be internationally competitive, spells irrelevance. China has poured billions into associated infrastructure investment to make its freeports/economic zones work. The UK Treasury is offering a few hundred million for the whole shebang. In other words, this whole project is not serious.
So why bother? I think the likely answer is that parvenu finance capitalists like Jacob Rees-Mogg, Rishi Sunak and John Redwood are simply too detached from the realities of global manufacturing to properly understand what is required to make a freeport strategy work. It requires vast capital investment (underwritten by the state) and a huge labour force that is low paid (relative to productivity) and docile – in China the workers are ex-peasants from the rural interior, who are barred from forming unions or engaging in protests.
It is also probably the case that both the Tories and the SNP leadership are more in love with the political symbolism of free ports than the hard grind of making an industrial strategy work. An SNP leadership that really believed there was going to be a successful independence referendum next year would hardly have committed to the Conservative version of freeports. Instead, the SNP pretends you can have neoliberal freeports simultaneously with an ethical economic strategy focused on decarbonisation. This is greenmail with a vengeance.
Who will freeports affect? The likely answer is small and medium sized companies (SMEs) in the domestic economy. The tax breaks and deregulation may well attract existing SMEs to the freeports, as they seek advantages in an increasingly hard, inflationary climate. Indeed, a close look at the details of the freeport tax incentives suggests they are targeted at British SMEs rather than global manufacturing. In which case, the potential for freeports to end up merely moving jobs around geographically rather than any net job creation is significantly increased. In which case, Scotland could well bleed jobs to English freeports favoured by the Johnson government.
The final outcome depends on where the Scottish freeports ae located. There is a case (in bourgeois economic terms) to create a freeport that can act as a base for building wind turbines for the North Sea – a market Scotland has missed to date thanks to the ineptitude of the SNP administration. Indeed, many of the existing North Sea wind turbines and major components come from freeports in China and the Gulf.
However, the creation of a major new turbine manufacturing hub would require urgent and massive capital spending on the part of ScotGov. Finding the cash (this side of independence) would require a major reordering of SNP priorities. It would also involve the SNP government having an actual economic strategy with specific priorities. To date, that has not appeared.
The biggest casualty in the freeports affair has been SNP industry minister Ivan McKee. McKee is one of the few SNP ministers who claims to be a socialist. However, he was summarily removed from the freeport negotiations between Holyrood and Westminster, probably because he stood in the way of accepting the proposals on Tory terms. His boss, Finance Secretary Kate Forbes, took over from McKee and instantly surrendered to the Treasury. Her retreat was covered by the face-saving device of slapping a meaningless “green” label on the project, throwing in a few extra pennies from the Treasury, and pretending Holyrood would be consulted on everything. And Tory pigs might fly.
The humiliation of Ivan McKee should have seen his resignation. Instead, he has accepted being a hostage to neoliberal policies. The Greens should have quit the coalition with the SNP. Instead, they are still propping up an administration that has sold off Scottish wind power to the big oil companies. Thus is the new liberal Establishment in Scotland given a left cover.