Why does the Scottish Government seek responsibility when it doesn’t have the authority?

The Scottish Government released Scotland’s National Strategy for Economic Transformation earlier this year (1). On page four, Scotland’s Finance Minster outlines how Scotland’s economic transformation would take place during a “decisive decade”. Kate Forbes could not have put it any more succinctly. The next ten years may well define the whole century for Scotland’s economy and society. 

We considered some of the plus points in the National Strategy for Economic Transformation in detail in another post. 

In summary, the growth-focused strategy targets a Scottish economy that “significantly outperforms the last decade” in terms of GDP (1). That probably puts the target somewhere above the UK average of under 2% (2) for the last few years and close to the global average of around 3% per annum (3). Anything lower wouldn’t indeed be significant. 

UK GDP (2)

 

World GDP (3)

We always like to stress that the UK, minus the peculiarity of London, tracks much closer to Scotland’s economy and here is Scotland’s GDP performance over the last two decades. It is “significantly” lower than the UK (there is a corresponding uptick after 2020’s COVID dip not included in the graph).

Scotland’s GDP (4)

So this “significantly outperforms the last decade” statement should leave any reader in a cold sweat. You will not find any serious economists who would suggest that the Scottish economy is set to grow significantly more than it did in the last decade. The IMF forecasts 2.7% for global growth in 2023, with ‘the worst yet to come (5). GDP growth in the UK was 0.2% in the second quarter of 2022 (6). Things have certainly deteriorated since March when the report was released, however, the path for the global economy was clearly set by then. 

Following the trend above, you can see that the Scottish economy tracks at least 1% lower than UK growth, which is around 1% lower than average global growth. Even a target of 1% – 1.5% would seem a stretch. This figure is, in fact, “significantly lower” than the last decade. One thing is for sure; the Scottish Government is certainly not part of the “anti-growth coalition”. 

We understand the bind that the Scottish Government and every other Government have concerning growth. Who would vote for a party NOT promising “significant growth”? However, there is a particular Scottish aspect to this growth mentality: why promise growth when you do not have the authority over the things that may lead to that growth? 

The NSET states that this spectacular growth will be achieved “by concentrating on current successful industries and growing industries with potential.” (1) You can not fault the simplicity of the strategy. To state the obvious, this is what every other country on the planet does. 

We originally planned this post to be a long and in-depth analysis of the NSET. However, on reflection, there’s no need to delve deep into the report because the chances of Scotland’s economy transforming in a way designed and implemented by any Scottish government is close to zero (which is also the possible UK / Scottish growth rate for the next few years). 

The report identifies the following five areas the Scottish Government does not control. 

  1. The Scottish Government can not directly effect change in the labour market as long as employment law remains reserved 
  2. Without migration powers, the Scottish Government cannot design and implement an immigration system to address the demographic challenges.
  3. Any macro-economic powers
  4. Any energy policies
  5. And the majority of revenue-raising power

We could add to that list but suffice it to say the Scottish Government has laid out the significant constraints. 

So imagine you secured a new job running any business, let’s say a shop. Your task was to grow your sales. But a few things were standing in your way. You were not allowed to set or negotiate any of the contracts for your new staff. You could only employ the staff you currently have. You could not borrow any money to make any improvements to the shop. You simply had to accept the current costs and supply of power. And you couldn’t change any of the prices: either up or down. Would you take the job?

I imagine some of you would. But if you did, would you then burst into your living room or the cafe or pub and shout, “I am going to significantly improve the shops’ performance”. If you did, you would be crazy. 

Without the authority to be able to make any significant performance-related changes, would anyone take that on? The idea that the Scottish Government can have anything more than a peripheral impact on the direction of the Scottish economy (as outlined in the NSET) is fanciful. It can make significant improvements and changes to Scotland’s society and its environment but transforming the economy with so little control is out of reach.

NSET is an exercise in tweaking around the edges, plumping up the cushions, and giving the room a once-over with a brush. The Scottish Government shouldn’t have a strategy to try and do everything it can to improve Scotland’s economy; however, the report should, at the very least, highlight the small and unlikely impact of any Scottish Government on the growth of the Scottish economy given the current devolved settlement. It should be an exercise in setting limits as well as expectations.  

The report instead makes a lot of bold statements about the coming decade, including this one:

The transition to net zero is not just an environmental imperative but an economic opportunity – one where Scotland will become world-leading and secure first-mover advantage

Again, please take a step back. Has anyone at Holyrood been watching what has been going on in the UK for the last five years? Would anyone in their right mind say something like this when Westminster controls the vast majority of the powers that affect Scots every single day?

We need only look at the crumbling infrastructure across the UK, the continuing cost of living crisis, and the impact of the interest rate rises to make those statements look painfully childish in their optimism. The global pandemic, followed by a cost of living crisis, driven mainly by a significant increase in the wholesale price of gas used in the UK to price electricity, has highlighted the enormous external factors that can buffer Scotland’s economy. The Scottish Government acknowledges that the powers and resources needed to tackle the cost of living crisis rest with the UK Government (7). Still, on the other hand, it releases documents that put all the responsibility on itself. 

The Scottish economy is built on the brittle British state. If the Scottish Government are unwilling to admit that, what chance do we have of painting an economic future on a more fertile field?

References:

  1. Scottish Government: Available here: https://www.gov.scot/publications/scotlands-national-strategy-economic-transformation/
  2. Office for national statistics. available here: https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/ihyp/pn2
  3. Macro trends: available here: https://www.macrotrends.net/countries/WLD/world/gdp-growth-rate
  4. Statista. Available here: https://www.statista.com/statistics/350717/gdp-growth-scotland/
  5. CNBC news. Available here: https://www.cnbc.com/2022/10/11/imf-cuts-global-growth-forecast-for-2023-warns-worst-is-yet-to-come.html
  6. Office for national statistics. available here: https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/quarterlynationalaccounts/apriltojune2022
  7. The Herald: available here: https://www.heraldscotland.com/politics/20662242.nicola-sturgeon-host-energy-price-crisis-summit-tackle-cost-of-living-crisis/