Inside politics: Extravagant claim for Scotland’s wealth doesn’t add up

SCOTLAND would be the sixth richest country in the OECD after independence, so says the SNP. As billboard messages go, it does the business.

But, with scrutiny growing on the proposals for independence, and a small army of economists beavering away across the country helping to crunch the numbers, the claim is now raising more questions.

It is derived from figures compiled by the OECD. It produces a table which ranks nations by their gross domestic product (GDP) per head. Top is Luxembourg, at over $86,000.

Britain languishes down in 16th place, at a comparatively puny $35,512. At the start of the year, the SNP worked out where Scotland would rank. With its geographic share of north sea oil, its own GDP came in at $41,348, just below the Netherlands. This is right up there in sixth place – a leap of ten places.

But what does this actually mean? The table would suggest that, by going up from $35,512 GDP to $41,348 GDP, each Scottish resident after independence would find themselves just under $6,000 better off. Except this isn’t the case, because “GDP per capita” is not a measure of personal income. Consequently, when The Scotsman asked both Finance Secretary John Swinney and YesScotland Chief Executive Blair Jenkins in recent months whether Scots would be $6,000 better off after independence, both declined to say so.

The reason is (as they well know) that GDP is not an indicator of wealth, but of the cumulated cash sum generated by the economy. And, in Scotland, that figure includes billions of pounds of oil cash which, no sooner than it enters the Scottish economy, heads off to foreign shores in the form of profits made by multi-national giants like BP and Shell.

In these pages last week, economist John McLaren described the “6th richest country” claim to be a “red herring”. It is like having a million pounds come into your back account, have £950,000 then go out of it, and then claiming you are a millionaire. Technically it might be true, but your wallet will tell you otherwise.

Of course, as Mr Swinney notes, there is a financial benefit to that cash flow, not least some of the jobs that comes from the oil industry’s deep pockets. It is, he said, “a measure of the financial health of the country”. But in a country like Scotland, which sees so much of its GDP flow abroad, it does not give voters a good idea of its wealth compared with other countries.

A more accurate measure is required – not gross domestic product, but gross national product (GNP) – which counts the sum of all the products and services produced in a year by a country’s residents. Government economists have recently agreed that they should now try to work up this figure.

As with Ireland – another open economy whose own GDP per capita ranks much lower than GNP per capita - Scotland may find its own ranking lowered once this sum is produced. But at least it will give Scots a better figure to stand by, rather than statistics given a spin and polish to help a political cause.