Alf Young: Stats make a nonsense of SNP plans

Published on 20/10/2012 00:00

THE third industrial revolution does not have the productive power to ensure endless growth, says Alf Young

As far as I know, Edward Lear never wrote about it in his nonsense poems. Lear was too busy writing about the young lady from Bute and her silver-gilt flute, on which she played jigs for her uncle’s white pigs, and suchlike whimsey, to have time to compose a five-line ditty about the Scottish Government’s growth aspirations.

Ending what Alex Salmond now calls the “nonsense” of the political union with the rest of these islands aside, raising Scotland’s sustainable rate of growth has been, you may recall, the defining mission of the SNP in government at Holyrood since it first took minority control in May 2007.

From the start, I regarded that choice of a “core purpose” as nonsensical and said so frequently. After all, the home rule settlement of 1999 ensured that successive devolved governments in Scotland would have only limited control over what have come to be known, in Scottish political discourse, as the real levers of economic power.

Without access to the levers, how could any political party credibly deliver on higher growth? As the years since the banking crash have demonstrated, even those politicians with their hands currently on the controls are still all at sea, tangled in the seaweed of austerity, on that one.

Undaunted, Salmond and his colleagues proceeded to construct a whole architecture of performance measures against which their progress could be judged. I looked at them again this week, after the latest Scottish growth and jobless numbers appeared. Both were disappointing, in their own terms and when compared with the performance trend for the UK as a whole.

But on the Scotland performs section of the government’s website, the two headline arrows on growth were still pointing steadfastly upwards, signifying “performance improving”. The first has, as its purpose, “to raise the GDP growth rate to the UK level by 2011”. The other “to match the GDP growth rate of [a basket] of small independent EU countries by 2017”.

On the site’s own figures, on a rolling year-on-year basis, growth in the Scottish economy has been lagging that of the UK economy as a whole for 11 successive quarters now, ever since the final quarter of 2009. Quite how that equates to an improving performance is anyone’s guess. One might even call it nonsense.

And on the other comparison with that basket of smaller independent European Union states, including Ireland and Portugal, there’s been a growth gap in their favour for the last eight quarters, of a scale last seen in 2005-6. When set against that second arrow rampant in Scotland’s favour, more statistical nonsense.

There is another of the Scottish Government’s performance indicators that seems more shaped by reality. That’s on productivity, measured as GDP per hour worked. The government’s aim there is to rank in the top quartile against key trading partners by 2017. But that arrow is flatlining and we are currently languishing in the third quartile. Set against a US benchmark of 100, Scotland sits just below the UK as a whole at 77.8.

One of the great academic experts on productivity, Professor Robert Gordon of Northwestern University in the United States, has recently published a challenging paper on growth. It’s called Is US Economic Growth Over? Faltering Innovation Confronts The Six Headwinds. And its stark hypothesis is one I’d recommend to every western politician of whatever complexion still contemplating slick promises about how more growth there will be if you vote for me.

Gordon acknowledges that his analysis is firmly rooted in American experience and has no necessary implications for other countries. Read it, however, and the parallels are inescapable. For Gordon is challenging the prevailing orthodoxy in economics, ever since the work of Robert Solow in the 1950s, that, given technological progress and a growing workforce, growth could be regarded as “a continuous process that will persist forever”.

As Gordon points out, there was virtually no growth at all before 1750. Since then, the world has witness three industrial revolutions. The first, from 1750 to 1830, created the steam engine, cotton spinning and railroads. It took another 100 years for the full impact of these inventions to be felt.

The second revolution saw the invention of electricity, the internal combustion engine and running water with indoor plumbing. They all appeared between 1870 and 1900. So had the telephone, the phonograph and motion pictures. Then everything from air travel and television to a whole range of consumer appliances followed. Again it took 100 years for these fruits of this second revolution to have their full effect.

The third industrial revolution started with electronic main frame computing in the 1960s and flourished with the invention of the world wide web and mobile telephony in the 1990s. However, Gordon’s detailed analysis of the impact of each of the three industrial revolutions on growth shows that the one that produced the most sustained period of enhanced growth was the second.

In the United States, it delivered rapid productivity growth throughout the period from 1890 to 1972. Its silicon-based successor has only delivered a revival in growth between 1996 and 2004.

And, says Gordon, even if innovation were to continue in future at the rate experienced in the two decades up to 2007, the US faces six headwinds that will drag the ongoing growth rate down to half or less of the rate experienced between 1860 and 2007.

These headwinds are demography (women now fully absorbed into the workforce and baby boomers retiring and living longer); a plateau in educational attainment especially in US schools; rising income inequality; the impact of globalisation and the spread of information and communications technology; energy and climate change; and household and government indebtedness.

Gordon proposes a thought experiment to drive home his point. Given a stark choice, would you choose running water and an inside toilet and computing technology, but only up to 2002? Or would you choose Facebook and Twitter and all the electronic inventions yet to come but be denied access to running water and your inside toilet? People overwhelmingly choose the former.

So, on this radical analysis, the promise of renewed growth as far ahead as anyone can see – whether through stimulus programmes or through constitutional sovereignty or however – is no done deal for the United States. Nor is it any more certain for Europe or any other corner of the developed West. The third industrial revolution simply does not have the productive power to make it happen. Perhaps it’s time for more politicians to engage with such an uncomfortable possible future.

Dissembling won’t do, I suspect. It reminds me of another Edward Lear nonsense poem. About an old person from Gretna, who rushed down the crater of Etna. When they said: Is it hot? He replied “no it’s not”. That mendacious old person of Gretna.