George Kerevan

George Kerevan

Scottish Capitalism is Failing on its Own Terms

Reading Time: 8 minutes

Digging into the latest data, socialist economist George Kerevan finds there is a serious crisis of investment and productivity in the Scottish economy. Behind this, a failure in the most fundamental capitalist drive – capital accumulation.

This article looks at recent trends in capital accumulation in Scotland using official data provided in support of the SNP government’s National Economic Strategy, published in March 2022. We identify a massive shortfall in domestic capital accumulation compared to competitor nations – and hence in productivity growth and profit levels.

This is not just a searing indictment of SNP economic policy. It strongly suggests that an independent capitalist Scotland would not – and could not – perform economically any better than at present if it remains wedded to the present neoliberal, globalist model. On the contrary, independence under the SNP would increase pressures on the state to intervene on behalf of capital to raise the level of exploitation of labour – regardless of the initial political pretensions of the SNP leadership.


In the Marxist critique of capitalism, the central dynamic of the system is identified as capital accumulation. The inherent irrationality of capitalism – in the sense that the system serves profit before human ends, to the point of destroying the ecosphere – is located in its relentless drive to accumulate capital for its own sake. Understanding the process of capital accumulation (crudely, capital investment and its realisation as profit) is therefore a key tool in examining any particular economy, including Scotland. In this article, we look at the recent data on domestic Scottish capital accumulation.

One proxy for the rate of capital accumulation is Gross Fixed Capital Formation, or GFCF. This measures the annual net increase in fixed capital (in money terns) in a given economy. GDCF covers net annual spending on improvements in land, on plant and machinery (including IT), on transport and communications infrastructure, and on property. Loss of fixed assets is deducted. GFCF is often measured as a percentage of national output, or GDP.

There is room to argue that conventional measurements of GFCF don’t quite reflect capital accumulation in the Marxist sense. However, it is a convenient proxy for identifying trends and for making rough comparisons between competitor economies.

Capital Accumulation in Scotland

The official evidence accompanying the new Scottish government National Economic Strategy makes for uncomfortable reading from the perspective of the SNP. Begin with private business investment – total GFCF also includes state spending.

We discover that as a percentage of GDP, Scottish business investment is actually the lowest among the 34-member OECD group of Western industrial capitalist economies, baring only Greece!

The Scottish business investment ratio is lower not just than the usual high investing suspects but worse than Poland, Mexico, Portugal and Chile. The situation does not much change when we add in state investment. The latest figures show Scotland’s GFCF ratio to GDP was 15.8 percpent in 2020 compared to the OECD average of 23 percent.

And matters are getting worse. Private business investment in Scotland as a percentage of GDP fell in the two years prior to the Covid outbreak. A parallel study by the CBI shows the Scottish business investment ratio was running well below its long-term average in 2020 – before the pandemic took hold. This evidence indicates a massive regression in capital accumulation under the SNP. This has serious repercussions for the economy and standards of living.

According to the Scottish Government’s own evidence paper accompanying the new national economic strategy: “Scotland’s real terms productivity has been almost stagnant since 2008-09”. The paper tries to mitigate this by suggesting the situation has been much the same elsewhere. This assertion is questionable. While it is true that pro-austerity policies hindered investment and productivity recovery across the entire Western industrial world, the UK (and Scotland) have a particularly bad record following the 2008 banking crisis. Between 2009 and 2019, growth in output per hour worked (a standard productivity measure) in the UK was the second lowest among the G7 nations. It is acknowledged that Scottish productivity performance is worse than for the whole UK.

Scotland’s failure in capital accumulation – the central dynamic of any functioning capitalist economy – is hindering investment in new technology and so limiting productivity growth. Without the continual lowering of costs resulting from the addition of new technology and resulting productivity gains, profits are squeezed, and market share is lost. Conclusion: the Scottish capitalist economy is in serious crisis. This is happening under the SNP’s watch. There is little to suggest in the SNP’s economic planning that anything will change after independence.

We should note that what business investment there is in manufacturing in Scotland is boosted significantly by foreign capital – a fact the SNP government often uses to disguise the poor overall business investment record. Since its election in 2007, the SNP government has focused huge resources and effort to facilitate this influx of foreign inward investment. This has resulted in a better productivity record in manufacturing proper, though it is hardly spectacular. But when we look at domestically provided investment in Scotland – largely focused on construction, non-manufacturing production (e.g. agriculture and mining), and services – the situation is dire. Productivity in the service sector actually fell in the decade and a half after 2004 despite the introduction of computers and mobile phone technology. This suggests massive underinvestment and the substitution of labour for capital in indigenous companies.

What went wrong with Scottish Capitalism?

What has brought about this state of underinvestment? The size of the economy is hardly the problem. Ireland tops the OECD for the ratio of private business investment to GDP, with a rate more than twice that of Scotland. From the Marxist perspective, capitalists are forced by the logic of the market to compete and invest. Why are they not doing so in Scotland?

Historically, there have always been dramatic shifts in the composition of the ruling capitalist bloc in Scotland, as a result of shifting patterns of competitive and political advantage. During the 19th century and first half of the 20th century, the dominant landed interests in Scotland extended their activities into coal mining and brewing. They also created an alliance with banking capital, providing credit for commercial activities. This group became politically hegemonic after the agrarian Scottish Tories formed an alliance with the anti-Irish Home Rule wing of the Liberals. This aristocrat-led bloc always relied on the British state as bulwark against the local working class and peasantry, and so forsook the possibility of creating its own Scottish state. When agriculture, mining and brewing declined in the mid 20th century, with the eclipse of the British Empire and its protected export markets, this conservative ruling bloc opted to extract its capital and retreated into a rentier existence. De-industrialisation followed in the 1970s.

However, these don’t explain more recent developments. We might find an explanation for the contemporary weakness of Scottish capitalism in the impact of Thatcherism. The historic mission of the Thatcher government was to privatise and deregulate, effectively withdrawing the state from its tutelage of the British economy, itself a post-war response to the global decline of British capitalism after World War II. Thatcherite privatisation and deregulation created the space for a new group of capitalists to emerge in the UK – including in Scotland.

In the 1990s, a new wave of Scottish private industrial companies emerged allied to an expanded banking sector (itself feeding off Thatcherite deregulation of financial services). These included the privatised Scottish Power and Scottish Hydro (later SSE), both created out of the old state energy utilities in Scotland. For a time, Scottish Power was Scotland’s biggest private company. There was also a nascent media conglomerate that developed out of Scottish Television, which acquired other TV and newspaper interests as the Conservative government removed ownership barriers. In 1995, the still locally owned and headquartered Scottish & Newcastle beer producer took over rival Courage to become the UK’s leading brewer. On the banking front, RBS began its global outreach, successfully absorbing the NatWest group at the end of the Nineties.

For a time, it looked as if this reorganisation of private Scottish business would lay the foundations for a genuine revival of modern capitalism in Scotland. The movement was led by a new generation of savvy businessmen with strong political connections – a cronyism that could conceivably have created a basis for accelerated capital accumulation north of the border. In the early 1990s, RBS was chaired by George Younger, arguably Thatcher’s closest political ally at Westminster during his period as a cabinet minister. Then there was the new boss at STV, Gus Macdonald, a former Trotskyist and later a Labour cabinet minister under Tony Blair. Another key figure was Alick Rankin, who in 1988 used his influence inside the Tory Party to block a hostile Australian take-over of Scottish & Newcastle (which he ran). Rankin then did the obvious thing: expanded S&N globally in order preclude other predatory threats.

Failure to Launch

His example influenced other Scottish companies. For instance, Scottish Power acquired the US PacifiCorp and RBS bought Citizens, an East Coast American bank. The stage was set for Scottish capital to integrate itself globally into the new neoliberal world order.

Within barely a decade or so this dream evaporated. Scottish Power and S&N were bought by foreign interests (Spanish and Dutch, respectively) and reduced to nameplates. The Scottish Television Group was dismembered, and its newspaper interests again acquired by foreign owners (American). SSE ownership is now registered in Switzerland. The Anglo-Scottish Ferranti group – which put Scotland at the forefront of defence technology (aircraft “head-up” displays in particular) went bankrupt and its Scottish assets acquired ultimately by an Italian company. The two big indigenously owned banks, RBS and Bank of Scotland, are now minor adjuncts of big City of London groups. RBS long discarded Citizens and other important global assets in the company’s fire sale that followed the 2008 financial crisis. Rarely has a bourgeois ruling class been so comprehensively humiliated. What went wrong?

There are a variety of possible contenders. There were some spectacularly bad managerial decisions (RBS, Ferranti, Scottish Power) but no capitalist concern is free of those. There was perhaps a lack of sufficient capital in order to play successfully at the risky global table – but not any less than in other small European economies. For a time, RBS turned itself into the world’s biggest bank. That could have been the basis for funding a globally competitive Scottish business empire, though the dizzying ascent of RBS may have been too late to fund a reinvigorated industrial sector. On the other hand, the questionable take-over of Scottish Power by Iberdrola was loan funded by over-extended Spanish banks and the debt repaid from the utility’s cash flow. Such cowboy financing was surely open to Scottish Power to have done the same in reverse.


This raises the question of the role of the state – or the lack of one in the case of Scotland. The new Scottish bourgeoisie that arose in the Thatcher period were conscious British Unionists. The present author knows Macdonald and knew Rankin and Younger. I can attest to their visceral defence of the unity of the British state. However, it is arguable that for a reinvigorated Scottish capitalism to have succeeded in the post-Thatcher era would have required a close collaboration between a compliant, complicit local state apparatus and local capital. This could have facilitated protection from foreign take-over, even looser bank regulation, and a more liberal company tax regime.

It can be argued that such support was provided by Mrs Thatcher but only up to a point. In fact, Thatcher favoured a smaller, less interventionist state and this led to the spectacular break with Michael Heseltine, who was champion in Cabinet of the industrial wing of British capitalism. Thatcher, it will be recalled, favoured buying US military helicopters while Heseltine wanted to develop a joint British-French-Italian project, leading to the latter’s damaging resignation. Overall, Thatcher’s privatisation and deregulation was less about laying the foundation for a new industrial renaissance and more about creating a Del Boy economy of spivs, traders and speculators – with the privatised family silver quickly sold off to foreign interests. Scotland was absorbed into this new economy with the resulting collapse of domestic capital accumulation.

To reinvigorate Scottish industrial capitalism in the 1990s and afterwards would have demanded (effectively) a new accumulation regime tailored to local needs. But that in turn would have required state intervention that was impossible without a separate Scottish state. Arguably, it also would have required being outside the EU in order to escape European sanctions against public support for industry. And it would certainly have needed a more ruthless upping of the rate of exploitation of labour, possibly best accomplished by a serious devaluation of any new Scottish currency. The latter course would have been the key to the successful integration of Scottish manufacturing into the neoliberal, global economy of the early Millennium. But all this necessitated an independent Scotland which was opposed by the new Scottish industrial bourgeoisie.

In the absence of a viable project for renewing domestic Scottish capitalism, inertia set in. Scottish industry fell into the ownership of either foreign capital or was integrated into the supply chains of English companies. Indigenous Scottish capital formation declined precipitously. Any real employment increases were concentrated in low-wage, low-productivity service industries. After 2007, the SNP came to power at Holyrood but did little or nothing to alter this state of affairs. Instead, the “nationalist” administration became the handmaiden of foreign capital, from Donald Trump to the big US investment banks. Under Nicola Sturgeon in particular, the SNP did everything in its power to facilitate the further penetration of international capital into Scotland. Thus, with devolution in 1999, a mini state structure emerged that reinforced rather than reversed the collapse in domestic capital formation.

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