Act now or face a decade of decline, warns economist

AS SCOTLAND wakes up to a new decade, one of its foremost economic experts has warned the country is facing ten years of decline unless urgent action is taken to repair its battered economy.

• Prof David Bell: An increasing supply of labour will cut costs around the world, which would be 'bad news for Scotland'

Writing for The Scotsman, Professor David Bell of Stirling University, who advises the Scottish Parliament's finance committee, says the decade just past "was anything but nice" for Scotland, with its

13 per cent growth rate almost half that of the previous ten years and well below the UK's rate of 17 per cent.

But he says the decade to come will be even gloomier, unless Scotland can overcome at least six major challenges.

First among these is coping with the increased cost of risk after the financial crisis, which means borrowing will be more expensive for individuals and businesses, and credit may be much harder to come by.

More controversially, he lays down a challenge to Holyrood and Westminster to rebalance the Scottish economy, which he says is over-reliant on the public sector.

This has helped protect employment in the short term but means that Scotland could be stymied in the recovery. A similar warning was made by the Centre for Public Policy for Regions last year, when it questioned where innovation in the Scottish economy would come from.

The concern has also been raised by business groups, who have criticised the Nationalist Scottish Government's "anti-private sector" position.

However, CBI Scotland director Iain McMillan said this was not just an SNP problem but instead reflected the general nature of Scottish politics. "That is why we have seen lower growth in Scotland over the whole of the last decade, including when the Labour/Liberal Democrat Scottish Executive was in power," he said.

"What we need is a recognition that the private sector is not bad and it needs to be encouraged."

He agreed with Prof Bell that India and China would be the economic powerhouses of the future. "As long as free trade continues, this could actually be good news for Scotland and the UK as a whole, as long as we grasp the opportunities," he said. "An expanding economy will also mean expanding demand and more consumers to sell our goods and services to."

Prof Bell warns an increasing supply of labour will cut costs around the world, which he describes as "bad news for Scotland" with its well-paid workforce.

He also argues uncertainty created by the climate change agenda and the increasing use of the internet will prove problematic.

In a general election year, his comments have sparked fierce debate over the future direction of Scotland and the UK.

Labour argues Prof Bell has supported their policies for more training and investment in people to get through the downturn.

A party spokesman said: "The SNP's anti-business rhetoric and the uncertainty they are creating with their plans for an independence referendum will not help Scotland get through the recession. The SNP government's decision to cancel projects like the Glasgow airport rail link and instead concentrate on the SNP's own vanity projects is not the right way forward for Scotland."

With the SNP government still clinging to the faint hope that an independence referendum may be pushed through this year, a spokesman argued that Scotland would only be able to fulfil its economic potential by freeing itself of rule from London.

A Scottish Government spokesman said: "Scotland has healthier employment, unemployment and overall economic activity rates than the rest of the UK – and recent ONS (Office for National Statistics] figures show Scotland outgrew the UK as a whole in 2007-08, the first year of this administration.

"Recent IMF statistics show Ireland, Iceland, Norway, Sweden and Denmark are all tipped to have higher GDP per head than the UK in every year from now until 2014. It is exactly because we must match the performance of these neighbouring countries that Scotland needs the economic and financial powers that full fiscal autonomy and independence can bring."

The Scottish Tories' finance spokesman Derek Brownlee said: "Scotland needs to be more competitive globally to ensure the job opportunities of the future are created and to ensure we can protect our public services. Continuing as we have, spending beyond our means and running up more and more debt for future generations is the road to ruin. This is a wake-up call for government in Edinburgh and London."

• David Bell: Goodbye Noughties, hello Teenies: Six key issues Scotland Inc must address in a decade of both supreme uncertainty and opportunity

HOW WE'VE FARED: ECONOMIC GROWTH IN SCOTLAND AND UK

70s

In the 1970s, after the discovery of oil in the North Sea, the rush for "black gold" saw Aberdeen see off rivalry from Dundee to become one of the world's energy capitals.

The discovery, and the billions of pounds that poured into the economy and the Treasury, transformed Scottish politics and changed the debate on independence.

The Nationalists have argued ever since that oil could have turned Scotland into a wealthy nation rather than being reliant on London handouts.

Meanwhile, the traditional industries such as shipbuilding and coal mining were under strain from industrial disputes and loss of orders. Increasingly, they were becoming reliant on government aid, which would prove fatal for many jobs in the next decade.

80s

The 1980s was the decade of Thatcherism, which saw Scotland undergo one of its most dramatic cultural and economic changes since the industrial revolution.

The great industries that once underpinned Scotland – shipbuilding, coal mining and steel – collapsed as their government support ended.

The failed coal miners' strike of the early 1980s symbolised the futility of trying to stop the changes that were going ahead.

In its place, the financial sector began its expansion and the oil and gas industry boomed.

The consequences would eventually lead to Margaret Thatcher's Conservatives being damned "as the anti-Scotland party" – a tag it is still trying to lose.

90s

THE economy was beginning to rebuild from the radical changes of the 1980s. Leading the new industries was Silicon Glen – not a place as such, but representative of Scotland's leading role in global electronics.

Under the leadership of men such as Sir George Mathewson at RBS, the Scottish banking sector was beginning its rise to become a world power, with the start of the expansionist programme.

However, for much of the decade, unemployment was still very high, especially in the West of Scotland and places where the old industries had been strong.

With people looking ahead to oil production peaking, renewable energy appeared on the agenda, but the quest to make Scotland the Saudi Arabia of wind and tide power is yet to be realised.

00s

The Noughties in Scotland will be known as the decade of Fred the Shred.

For most of the decade, Edinburgh was near the top of the world as its two biggest banks – Royal Bank of Scotland and Halifax Bank of Scotland – enjoyed unparalleled success. RBS, in particular, became one of the globe's biggest financial powers, and its chief executive, Sir Fred Goodwin, was lauded internationally.

But his expansionist policy and risk-taking became symbolic of the causes of the global collapse in the financial sector.

Both RBS and HBOS had to be bailed out by the government and HBOS was taken over by Lloyds. And with Silicon Glen already in retreat, Scotland woke up to its over-reliance on the financial sector.