Scotland Doomed by Comic Economics

The Centre for Economics and Business Research has taken one of its occasional sideswipes at Scotland, and concluded that we're all doomed to decline. And faster than previously thought.

"Ten years ago, I said that Scotland was on the way to becoming a Third World economy in 50 years," writes founder and chief executive Douglas McWilliams. "It now looks as though this will happen by 2030".

He was on Good Morning Scotland today, claiming that his analysis is that of an economist who has to be careful how he uses figures, rather than those dastardly politicians, who merely spin things.

But I can't think of any politician who would venture forth with this quality of analysis, and expect to survive long in the job.

Growth gap

So let's take a look at what Prof McWilliams has to say. No longer is he comparing Scotland with North Korea and Cuba, after the CEBR claimed in 2009 that Scotland was on course to have state spending at 67% of GDP, the third highest in the world.

This time, in an analysis stretching to less than 500 words of picture postcard based on "my annual visit to the family home in East Lothian", McWilliams is comparing Scotland's economic growth rates with those of Spain, Greece, Portugal, Korea, Poland and Turkey.

So we're keeping better company than two years ago. All have faster growth rates than Scotland and, he points out, between 2000 and 2010, the gap was closing.

The rest of this assessment is dedicated to a wildly inaccurate recollection of the Holyrood building fiasco, linking it to the Edinburgh trams fiasco, praise for Scotland as a tourist destination, infuriation at the Edinburgh traffic during the Festival, and a dislike of his view being spoiled by wind farms.

We're all doomed

So... where do you start?

Well, an economist of Prof McWilliam's calibre ought to have noticed that reference to "Third World" countries was so last century.

Secondly, the idea that Spain, Greece, Portugal, Korea, Poland and Turkey have "Third World economies" is intended to provoke reaction in Scotland, but is merely offensive to those other countries.

They've been closing the gap by their success, not because of Scotland's failure - growing by becoming developed economies (though some of them growing also by borrowing far too much, which is another story altogether, which is slowing their growth paths).

Perhaps CEBR might like to take a look a the state of Korea's telecoms infrastructure, for instance. Not "Third World", but world-leading.

And perhaps it hasn't noticed that the closing of the gap in economic development and in GDP is hardly unique to Scotland.

Convergence is what you get from European integration, globalisation and rapidly expanding world trade, which a free market think tank might be expected both to notice and to welcome.

These London-based economists, incredibly, seem not to have spotted that the past decade has seen the rapid rise of China and India, with growth paths very much more impressive than developed nations.

That growth gap has been widened by recession hitting Europe and the US hardest, so with an imaginative and liberal use of graphs and forward projections, you can conclude that our entire continent and the world's biggest economy are all doomed. So why single out Scotland?

Trams fiasco

Indeed, if you take a look at the past ten years, you can argue that the distinguishing characteristic of the Scottish economy is how closely it has followed the growth path of the UK as a whole, through the boom years and the downturn.

Measured over ten and over five years, the Office of National Statistics tells us the average growth in gross value added per head (close to GDP, and allowing for England's faster population growth), has put Scotland ahead of the other three nations in the UK.

And its unemployment and employment statistics have not fared too badly by UK standards, whereas the CEBR analysis chooses to use only GDP as a proxy for living standards.

Now, you could argue that it's a pretty unambitious benchmark to compare yourself with the UK as a whole. But it's odd that CEBR isn't equally disparaging about the UK becoming a "Third World" economy, simply because foreign countries are growing at a faster rate.

Then, there's Scottish mismanagement of major infrastructure projects, from parliament building to trams. All too true. Sadly, embarrassingly so.

But is this a uniquely Scottish failing? Perhaps Prof McWilliams should take a look at the Ministry of Defence procurement budget.

Near where I'm writing, it's paying for the construction of two vast aircraft carriers, with costs up in four years from £3.6bn to £6.2bn and probably still rising. They're of dubious military value, and the UK Government is saving money by delaying the in-service date of one by six years, while mothballing the other.

So if Scots are high up the league table for incompetence in managing major projects, they've got tough competition.

In the most serious bit of this short and deliberately provocative polemic, the CEBR boss observes "Scotland's economic problem remains lack of entrepreneurship and over-government".

There's not much dispute on the first of these. On those annual visits to East Lothian, it might have been noticed that this has been recognised as a long-running problem, with which Scotland continues to struggle.

It's slightly alarming, therefore, to find one of the Scottish government's responses to the CEBR is to cite figures that suggest Scotland's business birthrate has fallen less fast through the early part of the downturn than the UK as a whole. This doesn't seem an issue on which to reassure itself with selective figures that go against long-term trends.

"Over-government"? Well, it may be that Scotland's public sector is too big compared with its private sector - partly as a result of that lack of business growth. The CEBR is not the only one to be making that argument.

But it's not necessarily the case. Scandanavia seems to have big state sectors with vibrant private sectors.

There are important lessons to be learned from outsiders looking at deep-seated problems with the Scottish economy. Scots can be insular, but on a good day, they take the national bard's advice to see themselves as others see them.

Sometimes too much so. For various reasons, the view from London can often be seen as particularly important or valid, which is why this CEBR report has made front page news.

But let's not treat this analysis too seriously. As Prof McWilliams struggled through the Edinburgh Festival crowds last week, his analysis might have been best suited to the comedy end of the Fringe programme.