Bill Jamieson: Council has its work cut out

Is this a star-studded list of economic brain boxes, brimful of ideas to lift Scotland out of the economic mire? Or a row of exhausted Keynesian volcanoes, barely worth a signpost on a heritage nature trail? The council has not met since December last year. Deliberations were suspended in the approach to the Holyrood election in May, and subsequent meetings have been held up while new members secured regulatory clearance.

So what should be top of the agenda next month? And how likely is the Council to come up with proposals that may have useful practical application to the problems we face in real world Scotland?

This council is awkwardly positioned between the requirement to lift itself above the immediate and pressing issues of the day, while not being so “blue sky” in its thinking as to be of no practical value. And it is at critical times like these where practical guidance is most keenly looked for.

There is likely to be little dispute over the top item on the agenda: the sharp increase in unemployment in Scotland and in particular youth unemployment. Our jobless total shot up in the August-October quarter to 229,000, a rise of 25,000, taking the rate up from 7.5 per cent to 8.5 per cent. Scotland’s unemployment rate is now higher than that for the UK as a whole (8.3 per cent).

Of particular concern was the rise in youth unemployment, up from 72,000 to 93,000 with the rate of unemployment for 18-24 year-olds climbing to 23.5 per cent – also higher than the UK rate.

The most “cheerful” economic forecast is that from Bank of Scotland which is still predicting GDP growth here next year of 1.25 per cent. Ernst & Young has cut its forecast to just 0.6 per cent. Moreover, there is a strong probability that the final quarter of this year and the first quarter of 2012 will see negative growth, fulfilling the statistical definition of recession – two successive quarters of contraction.

There are other related issues to be sure – skills development, inward investment and measures to encourage hiring by small and medium sized firms. And doubtless much will be made of the administration’s capital spending programmes – with recent public pronouncements talking of “up to” (oh, those slippery words) £60 billion out to 2030.

Setting aside the searching questions raised in the critique from the Centre for Public Policy for Regions last week as to where the £60bn might come from, what is urgently required is policy guidance on what can be done in the medium term to accelerate investment and encourage firms to take on staff against a most difficult economic backdrop.

How is the administration’s wish-list best prioritised? What, if anything, can a devolved administration do to promote greater lending by banks to business? To what extent is planning regulation still a barrier to investment and development? Where are the information gaps and can they be filled by the administration’s own economic and statistical teams?

These questions may not be at the pinnace of big picture economic policy thinking. But this is where the epicentre of concern is to be found. Economics as a branch of long-range (and not-so-long) prediction fell from grace with the global banking smash. Guidance nearer to the point of action is urgently required.

How qualified is the new Council of Economic Advisers to come up with such advice? There are some well kent faces – Professor Andrew Hughes Hallett, former consultant to the World Bank, IMF and the European Commission and champion of ‘Max Dev’. No professor has ever squeezed more words onto a PowerPoint presentation. There is James Mirrlees, Professor Emeritus at Cambridge and Professor-At-Large at the Chinese University of Hong Kong; Professor Frances Ruane, Director of Ireland’s Economic and Social Research Institute; Lady Susan Rice, MD of Lloyds Banking Group Scotland, and Professor Anne Glover, an expert in molecular and cell biology. Professor Louise Richardson is a political scientist. Jim McColl, chairman and chief executive of Clyde Blowers and an avowed nationalist, is one of a few on the Council who have hands-on experience of running a business.

And then there is Professor Joseph Stiglitz, Nobel prize winner and former adviser to the Clinton administration. It is the Stiglitz appointment – announced, re-announced and then announced again in case you missed it – that has sought to sprinkle some glitz and glamour on the Council. He has written excellent books on the financial crash but his economic prescriptions may be considered something of an acquired taste – adored by Keynesians but alarming to those who feel America’s $14 trillion debt mountain may be more than enough Keynes for now.

Finally, this eclectic ensemble is chaired by Crawford Beveridge, former head of Scottish Enterprise and whose 2010 Independent Budget Review remains one of the most outstanding submissions ever to the Scottish administration. Its unsparing analysis of the costs of universal benefits and where economies might be made was politely received. A copy may even still be found in St Andrew’s House, though the key to the padlock has long been missing.

The Council lacks for nothing in academic expertise. But with honourable exceptions it is light on people with real business experience – and it is ideas to encourage private business formation and expansion that Scotland now desperately needs. Calls for more borrowing powers and more government spending have already been well made, as if we were not already Keynes-ed out. It is a low rate of business formation and growing small business into big ones that need to be addressed. Big government and its insatiable thirst for more is less part of the solution than the heart of Scotland’s problem. We need less Keynes, more Schumpeter.

It may have been helpful to have a young entrepreneur on the Council and someone with experience of the interface between local councils and the private sector. The parliament’s economy committee has done useful work in identifying problems here. It lacks guidance and solutions. It is in these areas where the Council can make a valuable contribution. On the plus side, the Council has top expertise on which to draw in areas such as life sciences and building trade links with China and Asia Pacific. One thing’s for sure: it has its work cut out.