Opinion

We have to stop the fire-sale of Scotland’s economic assets

by | 2 May 2024

The consensus in Scottish politics is that inward investment is good for us, but the consensus is wrong. We need to take a different approach to economic development.

First published by The Herald

There is a belief so consensual in Scottish politics that it has barely been questioned since the start of devolution – that Scotland’s economic prosperity relies on inward investment. No administration since devolution hasn’t been seduced by the idea, and yet no-one actually measured whether it was true.

That’s what Common Weal’s new report did (covered in the Herald on Sunday), and the picture looks quite different to the orthodox view. I won’t go over all the economics, but basically if over any given year you measure the increase in total wealth held in Scotland and then you subtract how much wealth was generated in Scotland in the same year, the resultant number tells you how much wealth you ‘leaked’.

The findings for Scotland are grim. If you graph us you discover that in wealth creation we cluster with highly-developed European economies, but for wealth retention we cluster at the bottom with a group of West African nations.

There is no developed country in the world that leaks wealth like we do (other than a handful of tax havens and a microstate). Put simply, no other developed country has tolerated so much of its wealth being exported.

It’s not that foreign direct investment can’t be beneficial for your economy, but it has to be genuinely additional, it mustn’t crowd out your own economy, it must be a long-term commitment and it needs to integrate its business operations into the domestic economy (for example by using domestic supply chains).

All we in Scotland are doing is changing who owns business activity and who owns assets. Selling all your energy resources for peanuts to foreign oil companies looks like inward investment but is actually the opposite. It is wealth exporting.

You may find this counterintuitive, but that is largely because you’ve been fed pro-inward investment propaganda for years. All those press releases about the jobs created never count the jobs destroyed or the impact of the profits which are not reinvested in the economy.

We have to stop the fire-sale of Scotland’s economic assets. We have been actively pushing Scottish businesses to sell their IP to foreign corporations in the belief that the corporations will be nice to us and base businesses here. They haven’t.

Worse, we are selling assets which were already being effectively exploited. Our whisky, our airpots, almost all of our energy system, our salmon, our biggest companies, almost the entirety of our large retail sector – all have largely been sold to foreign businesses or foreign businesses have consolidated their control. That isn’t creating new economic activity, it is simply reallocating who gets to take Scotland’s profits.

We can continue to try to support European levels of public services with West African levels of wealth retention, or we can give ourselves a shake and ask what it is that has caused Scotland to export more than a quarter of a trillion pounds of our own national wealth in the last 20 years

It is time for a reset. We have a pitiful scarcity of big Scottish businesses still in Scottish ownership and an even greater scarcity of major Scottish-owned exporting companies. Nor do we have anything like enough medium-sized enterprises which are growing to be big. If we don’t reverse this situation we’ll be running up a down escalator forever.

So what is the alternative? The first step is to shake our economic development agencies out of their complacent slumber. Stop fetishising big global companies and start backing Scottish businesses instead. Why on earth are they throwing generous grants at Amazon but neglecting support for domestically-owned companies?

Bribing corporations is easy; supporting Scottish businesses over the long term to help them develop is hard work. It is more hard work and less time in the departure lounge that we need from Scottish Enterprise.

In fact everything we do in government should be taking a ‘Scottish business first’ approach. If you are building houses, give the contract to a Scottish business which sources its building materials supply chain in Scotland. If you’re buying food for Scottish schools, buy from Scottish suppliers. If you can support a domestic business, always do it.

We need to rethink our approach to capital investment. We have a (woefully underperforming) National Investment Bank which could capitalise properly with a couple of minor legal changes. It could then provide direct capital investment for Scottish businesses without the need to lose ownership.

We have enormous energy resources and there is nothing stopping us from exploiting those resources domestically. After 40 years of oil wealth being extracted from Scotland, do we really want to commit ourselves to 100 years of our renewable energy wealth being taken from us as well?

Over the next decade or two we’re going to be making a series of major investments to try and decarbonise our economy. This is custom-designed opportunity to grow a domestic industry base and to do it rapidly. 

For example, 80 per cent of our construction materials are both imported and high-carbon. We can replace them with domestically-manufactured, low-carbon alternatives, and that could create an entirely new, modern, innovative exporting business sector.

And we need to find ways to overcome the risk-hurdle for medium-sized businesses that are trying to scale up, for example by connecting similar companies so they can co-invest in shared plant and machinery or linking them to universities to help reduce R&D costs.

These are only some examples of what an alternative approach could look like. The term for this kind of deep engagement in transforming an economy is an industrial strategy. Scotland is in dire need of a competent industrial strategy.

This isn’t nationalist, it isn’t parochial and it isn’t radical. In fact almost all the developed economies already take significant steps to protect their own industry sectors and most are stepping up those levels of protection right now. It is Scotland that is out of step, and the data shows that very clearly.

So we can continue to try to support European levels of public services with West African levels of wealth retention, or we can give ourselves a shake and ask what it is that has caused Scotland to export more than a quarter of a trillion pounds of our own national wealth in the last 20 years, £50,000 per Scottish citizen. Inward investment has asset-stripped Scotland. It is time to think again.

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