Is there a Scottish economic model?

Nicola Sturgeon is keen to emphasis a distinctive Scottish model – yet the SNP’s style and rhetoric differ from the substance and reality of Scotland’s economy

Ewan GibbsLast November Professor Tony Payne introduced Scotland’s First Minister, Nicola Sturgeon, before she delivered SPERI’s Annual Lecture, by highlighting how the vision for Scotland she set out in the 2015 general election represented a critique of ‘neoliberalism’.   In her speech Sturgeon suggested that the Scottish government she leads is pursuing distinct economic policies from those that prevail across the UK.  She emphasised the values of inclusivity and social partnership as providing the foundations for a successful and durable economic structure.  This post outlines Sturgeon’s view of an emergent Scottish model grounded in policy practices and values differentiated from those pursued across the UK, before critically assessing the extent to which it actually reflects the reality of Scotland’s economy.

Much of Sturgeon’s speech outlined her arguments in favour of the Scottish government being consulted over Brexit and a ‘distinctive approach’ towards Scotland’s future engagement with the EU and the Single Market.  However, Sturgeon’s arguments extended beyond the immediate subject of Brexit negotiations and outlined a more general set of principles which shape her, and the Scottish government’s, approach to economic policy.  She was especially keen to profile herself as a defender of ‘free trade’, and stated that the fundamental challenge facing supporters of the EU and globalization was ‘how we guarantee that an open economy commands widespread support, instead of breeding popular resentment.’  Her principal answer to this is government policy which spreads the gains of globalization.  Citing Christine Lagarde, Managing Director of the IMF, the First Minister argued inclusive economic policies were ‘a matter of basic morality’ and ‘basic economic efficiency’.  On both points Sturgeon was eager to signal that her approach differs from the Conservative government at Westminster both on the grounds of her opposition to austerity and openness to the benefits of international cooperation and migration.

Sturgeon’s arguments in her SPERI lecture are reflective of the intellectual foundations of modern Scottish nationalism identified by Ben Jackson.  This especially relates to conjoining an understanding of Scottish independence as ‘an instrumental device for the realisation of a more egalitarian society’, with a perspective on international politics centred on the ‘post-sovereign state’.  Sturgeon’s strong assertion of support for ‘independence in Europe’ is anchored by a juxtaposing of ‘existential’ support for historical claims to nationhood against a reading of ‘utilitarian’ nationalism based on pragmatically recognising that Scottish autonomy is necessary to achieve ‘social justice’.  Independence is argued for on the grounds that it is necessary to provide the Scottish government powers needed to further pursue its aims and develop a distinct socio-economic model.  Sturgeon was keen to implicate that a strong economy was a vital foundation of fairness and equality.  Her overall appraisal of the Scottish economy was optimistic and in particular she noted that ‘Scotland consistently outperforms every part of the UK except London when it comes to attracting inward investment.’  In this sense Sturgeon’s SPERI lecture mirrored the more detailed picture presented in her speech to the World Bank in 2015 which outlined the success of the Scottish government’s partnership building approach towards economic policy.  In fostering workforce, business and government links Sturgeon cited (West) German ‘Rhine capitalism’ as a model to be followed by constructing long-term social partnerships based on mutually held interests.

Within Sturgeon’s positive appraisal of Scotland’s economy there are both internal contradictions, and conflicts with the reality of Scotland’s current economic structure.  The vision of Rhine capitalism held up by the First Minister is fundamentally predicated on a ‘Variety of Capitalism’ which incorporates stable firm ownership, and industries served by patient capital from a financial sector that includes significant regional institutions operating on a not-for-profit basis.  Within the Scottish context, left-wing nationalist arguments were stimulated by a suspicion of the growing significance of multinational corporations in the industrial economy and within the North Sea.  In effect this analysis noted the increasing unlikelihood of a Rhine capitalism option within an economy where indigenous firms and embedded economic actors were declining over the second half of the twentieth century.  This was most evident in John Firn’s diagnosis of a ‘branch plant’ economy, bereft of entrepreneurial function and dependent on direction from foreign board rooms, in the influential Red Paper on Scotland.  These sentiments were forcefully rearticulated in Stephen Maxwell’s 1981 publication The Case for Left-Wing Nationalism in Scotland. Maxwell’s pamphlet was highly influential within the SNP’s ’79 Group’, the current from which Alex Salmond hails and which inspired Sturgeon’s outlook.  Sturgeon’s very different stance on this question to some extent simply reflects the reality of Scotland as a small and open economy that is increasingly owned and controlled externally.  However, it could also be argued Sturgeon’s rhetoric also makes a virtue out of necessity.  Her perspective can rather be located in the post-devolution narrative of a successful entrepreneurial Scotland which was visible under the New Labour-led Scottish Executive’s vision of a Smart, Successful Scotland, and has continued under the SNP.

Recent research has powerfully indicated that Scotland’s economy shares common trajectories with the rest of the UK (outside of London).  Scotland and the North of England have experienced parallel trends in declining financial sectors since 2008 and limited growth in manufacturing, which in a Scottish case included a concerning concentration in low value-added sectors. Scott Lavery argues that ‘it is more instructive to view Scotland as embedded within the UK’s dysfunctional finance-led growth model’, than pursuing a distinct, devolved, alternative.  Lavery concludes this was the result of UK macro-economic priorities.  However, given the retained dependence on the financial sector it seems unlikely that Scotland would be able to square elements of the zero-sum game that a transition to a Rhine Capitalism model requires, and which Sturgeon expressly rules out.

SPERI’s research findings that the Scottish financial sector was trapped in a spiral of lower productivity than the UK as a whole to some extent accords with the findings of CRESC’s 2014 study.  This concluded that Scotland was a ‘territorially divided nation’ with disproportionate regional economic inequalities to the rest of the UK.  It found that 14.2 per cent of the Scottish population reside within areas in the bottom 10 per cent of UK regional gross value-added per capita, but that conversely, nearly 30 per cent live in areas within the top 10 per cent.  The latter group were in Scotland’s largest three cities, Glasgow, Edinburgh and Aberdeen, pointing to elements of success in finance and oil in the latter two, but more broadly the creative and high-end service sector competitiveness Sturgeon referred to in her SPERI lecture.

These findings question the extent to which a distinct Scottish model exists. CRESC more specifically critiqued the assumptions of Scottish government policy, especially a vision for an independent nation based around unstable oil revenues and financial services.  Paul Sutton has recently emphasised that dependency on these sectors is inhibiting economic development and locking Scotland into a growth trajectory which trails behind the UK as a whole. Aspersions have also been cast on the extent of a distinct Scottish policy approach.  In 2014 McGuiness et al revised earlier, more optimistic, conclusions, noting the ‘coexistence of ideological divergence’, alongside ‘growing convergence in actual existing practice’ with the UK coalition government.  These conclusions specifically related to urban regeneration policies at the heart of Scotland’s major areas of economic success, its large cities.

The existence of significant ideological differentiation and its active construction within the Scottish polity should not be dismissed.  It is a major factor in stimulating the SNP’s self-image and perceived differences in understandings of social justice and what a strong economy would look like.  But observers and actors, both internal and external, should also maintain their critical faculties in the search for an alternative to neoliberalism.  Whilst elements of a distinct Scottish approach may exist in style, especially at government level, in terms of economic substance it is harder to trace a separate model diverging from cross-UK trends.