Coalition’s slash-and-burn tactics will only drag Scotland down

Earlier this year, it was widely forecast the Scottish economy would remain in a very depressed state, with little evidence the private sector would be able to stimulate a sustained economic recovery.

These latest figures are welcome as short-term indicators of success, but the gloomy outlook has not gone away, with demand set to fall as the Scottish block grant is subject to further cuts.

The Scottish Government has demonstrated to the whole of the UK the clear benefits of maintaining levels of investment and public expenditure in a recession, but, as Scotland is to be hit harder than anywhere else in the UK by the cuts, the recent relative successes will be difficult to protect. Are there alternatives?

At last week’s XXIst Economic Forum in Poland, the “Nordic Model” came under particular scrutiny from the 2,500 delegates of leading commentators, politicians and practitioners. Yet again, the small nations of northern Europe gained most of the top spots in the global competitiveness index. How do they do it? Instead of cutting benefits and public expenditure, each country has rejected the austerity package adopted here.

They protected their welfare states, kept their high taxes – especially on the rich, and so have grown their economies, continued to be competitive and innovative, and produced surpluses in public finances.

But following the Nordic Model requires a number of fundamental conditions to be met: a social contract between state, employers and trade unions which promotes trust, efficiency and transparency in institutions, a strong welfare state, stability and security for all is key. Rather than stifling enterprise and innovation, all the global league tables shout loudly that this model works.

As the IMF and others have argued, the coalition’s slash-and-burn “Plan A” does not offer recovery but further decline.

The Scottish Government has been adopting some of the essentials, but if it wants to join the arc of prosperity and sustainability, it should look to the model as a whole. Ireland tried to cherry-pick some aspects and have low corporation taxes. This cannot work in the long term and our current successes will disappear also.

l Professor Mike Danson is a specialist in regional economics at the University of the West of Scotland.