As I’ve pointed out regularly, arguably the biggest single political failure of the last two decades in Scotland is the failure to turn our immense renewable energy resources into real social gain. Just as with oil, the wind is making a few rich and a small number comfortable with little other than symbolic scraps of gains spilling over into wider society.
This was reinforced yet again in a Herald analysis last week. Because again and again we return to this issue (which was already pertinent back when Jack McConnell was First Minister) but again and again the outcome is the same – vague promises, tokenistic action, no change. How do we break this cycle?
At the heart of the problem is that there is a distinct lack of proper understanding of why this keeps happening, why we keep failing to generate a genuine, thriving green economy. To understand it properly we need to go back in time a bit.
For much of the 20th century and certainly during the peak of our industrial strength, the ownership of Scotland’s industries might well have been entirely inequitable (barons and lords were in control), but it was domestically owned.
This industrial history is too complex to do justice to here but with the combination of the decline in shipbuilding in the long post-war period and the nationalisation of steel and coal over the same period, Scotland lost a lot of direct control of its economy. The various economic crises in the 1970s made this a lot worse and then came Thatcher.
She hated manufacturing industry because it was widely unionised and she hated public ownership. By devastating steel and coal and more or less acting to hasten the decline of heavy manufacture, the Thatcher revolution reorientated the entire economy around financial services in the City of London (and a bit in Edinburgh).
What happens with the banking part of this you all know, but what happened to industrial Scotland tends to be remembered as decline rather than change. That’s a mistake, because Scotland did not immediately give up on manufacturing. Instead it took a punt on ‘Silicon Glen’ and a shift into the sphere of hi-tech manufacturing.
Scotland’s inward investment relationship is one of massive inequality – we beg them, but we don’t give them any reason to need us
That is a very big change in two important ways. The first is that Silicon Glen does not do supply chains, it is purely an assembly economy. The second is that more or less none of it is domestically owned. This is the rise of ‘inward investment’, an idea now so baked in to Scottish economic thinking it is seldom even discussed other than ‘more equals good’.
The pattern since is depressing. Timex to ChungWa, Michelin to Amazon, we are just a workforce for hire. We control nothing, own nothing, are treated like a piggy bank and gain much less than we believe we do. We generously bribe these businesses to come here, but they leave at the drop of a hat.
ChungWa ought to have been the end of it. The eye-watering public money given to bring that company to Scotland (I’m struggling to find links) was met with the company pulling out 18 months after the factory was built. From memory the cost was in the order of hundreds of thousands of pounds of public money paid for each job over the 18 months. It was a disaster.
But the most recent instance goes all the way back to… January this year. Amazon (the world’s second-richest corporation) had been given £2 million of public money (why?) to open a warehouse it just closed. And perhaps it is best just to gloss over all things Gupta, all things Tata Steel.
The point is that none of this sticks, none of it lasts, none of it makes any long term difference. Scotland’s inward investment relationship is one of massive inequality – we beg them, but we don’t give them any reason to need us. We bribe them to come, but what they build is inessential to them so they don’t build a wider economy around it and neither does anyone else.
Back to green jobs. Why does any of this matter? Because ownership creates jobs. Jobs do not follow where profit is derived, jobs follow where things are built, decisions are made, skills and resources lie, where the supply chains are. This is what creates long-term economic gain.
It is well measured. What you want to look for if you want to understand whether investment is likely to produce gains for the nation or only gains for the investor is to look at where they undertake activities like research and development, place headquarters, concentrate their manufacturing such that supply chains develop.
But onwards Scottish Enterprise (and the Scottish Government) ploughs with their ‘everything is for sale’ approach to Scotland. We allow our assets to be bought (our wind energy is almost all foreign-owned now), we allow our infrastructure to be bought (our city centres are owned by foreign equity giants), we allow our businesses to be bought over and over and over.
We believe that we can create benefit in Scotland by selling all our assets and then negotiating for some benefit from our generosity. It fails pretty well every time. And then afterwards, every time, the politicians tell us they’re going to do precisely the same thing again – but get it right this time.
McConnell promised it. Salmond promised it. Sturgeon promised it. Now Yousaf is promising it. This time, this time, our negotiators will be sharper and we really, really will get them to give us jobs. Common Weal has been trying to show how their latest attempt is every bit as weak as their previous attempt. Failure is round the corner again.
We’re the poor sorry chump in a global equity capital confidence trick that is stripping the nation
Ownership brings headquarters brings decision-making brings research and development brings manufacturing brings supply chains brings a coherent ecosystem brings longevity brings economic transformation brings jobs brings tax revenue. Right now the decimated Scottish industrial base needs an industrial strategy to make that happen. What we are getting instead is one more trip round the inward investment merry-go-round.
So what does this all amount to? I don’t want to reveal too much because Common Weal is soon going to publish a paper showing the result. It involves taking Gross National Income (GNI, roughly how much wealthier Scotland got in a year, how much more money is in all its business, public sector and personal bank accounts) for a year and subtracting GDP (notionally how much extra wealth all Scottish economic activity created).
That shows you how much of your wealth is ‘leaking’. If your GNI is smaller than your GDP then someone somewhere is taking wealth out of Scotland. If your GNI is bigger than your GDP then Scotland is making a net gain at someone else’s expense.
The data is only available for one year (2019) because the Scottish Government produced a GNI figure for the first time and seems not to have liked the result because it didn’t do it again. You can see why – the net outflow of wealth that year was £9 billion or roughly five per cent of GDP. For every £20 of wealth our economic activity created, someone took £1 out of the country.
How does this compare? That is best seen visually and graphs will be presented in the paper when published. But basically Scotland’s wealth profile places us with modern advanced EU economies but our wealth-leakage profile places us in a cluster of mainly West African economies.
There is of course good inward investment (the cable manufacturing plant announced this week seems sound enough to me). There will be some examples of businesses genuinely wanting to bring economic activity to Scotland which otherwise wouldn’t have existed, or where they are co-investing with domestic investors, or where they are coming because they are part of a wider economic cluster which will bind them to the country (for example by being part of a long-term supply chain). But mostly we’re being asset-stripped.
It is probably the case that Scotland is now one of (if not the) most foreign-owned economies in Europe. We’re turning into a charity case where we can’t exploit our own assets so we flog them and beg the new owner for scraps. Our screaming desperation is now smelled across the globe – that is at least part of what it means when the Scottish Government celebrates Scotland being one of the most ‘successful’ countries for inward investment.
We must come to learn the difference between ‘equity investment’ (them buying you) and ‘loan investment’ (you borrowing so you can own it yourself). The Scottish Government should be breaking its back to properly capitalise (and substantially reform) the Scottish National Investment Bank for that precise reason. That creates the liquidity but not the capacity or the demand. From where we stand that needs an industrial strategy.
It is going to take vision and drive to reverse this problem, but instead it seems that policy-makers don’t even understand the problem. It is this simple; if a country doesn’t own its own economy it is in trouble, and if it doesn’t own its own productive national assets it is in serious trouble.
So why don’t we have green jobs? Because we’re selling the leverage we have to create them on the cheap. We’re the poor sorry chump in a global equity capital confidence trick that is stripping the nation. Worse, we’re the poor chump who doesn’t even realise it is the poor chump.