Michael Fry: Equality will stunt Scots growth

THE Scottish Government’s bid to subject businesses of all sizes to its Business Pledge is laudably misguided, says Michael Fry

Shipbuilding was big when Scotland was an industrial giant but today SMEs are way ahead. Picture: Allan Milligan

The Scottish economy has been underperforming for at least half a century and in my experience there are a lot of people who, as they went to cast their votes like me (Yes on 18 September, SNP on 7 May), hoped that, whatever new constitutional deal emerges in the months ahead, it will, above all, promote a better economic performance.

Growth in the Scottish economy has usually been even worse than growth in the English economy, itself one of the western world’s laggards. Before the crash, Scotland averaged growth of 1.7 per cent a year, whereas the countries we profess most to admire, Denmark or Sweden, routinely notched up 3 per cent, and in good years more. That is why they have gone from being poorer nations than us at the end of the Second World War, to much richer nations now.

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It is not only with my vote that I try to do my tiny bit to make things a little better. I am myself, in almost the smallest way possible, a small business: working on my own account, I supply newspapers and publishers with copy which they turn into saleable products on mass markets. I also export, as some of my articles and books find outlets abroad.

Again on a minimal scale, I am an employer. I run a blog called Wealthy Nation Institute (WNI), which for its website and other matters relies on young folk who are far more computer-literate than an old fogey like me. I find them intelligent, enthusiastic, eager to fulfil my commissions yet ever ready with bright ideas of their own. They should have embarked on professional careers but, just out of university, they cannot get started in these hard times. For their freelance work I pay them half what I have paid some established consultants in the past and they are embarrassingly grateful. I really wish I could do more for them, though I have no choice except to operate within my own material constraints.

This personal stuff may sound trivial, yet it is absolutely typical of the Scottish economy. There are 350,000 enterprises in our private sector, and of these 98.3 per cent are small, defined as employing up to 49 workers. A little more than 1 per cent are medium-sized, employing 50 to 249 workers. A mere 0.7 per cent are bigger than that, though their employees make up 40 per cent of the entire labour force. Even so, there can be no doubt that the Scottish economy has in recent decades undergone a profound change. A hundred years ago this was a country of global leaders in heavy industry and a cradle of multinationals. Today all that has gone, and it is in the main a country of small and medium enterprises (SMEs).

But do not regret what has happened. The great companies that have vanished were ones whose industrial day was done. It is from the SMEs that our future will grow, as it grew from them in the past: all those Victorian tycoons selling locomotives and liners to the world started off as mechanics tinkering with things in backyards and workshops. In our own day the equivalent continues. The reason Dundee has become an international centre of computer games is basically through kids mucking about with this sort of stuff while waiting to get a proper job. In fact, it is precisely in such activity that the future of Scotland lies – and not, I think we can be sure, in depleting oilfields and banks bent only on bonuses.

All of which makes it the more peculiar that the Scottish government, with the Business Pledge it launched this week, should be trying to tie companies down with social undertakings that only the biggest can even contemplate, let alone afford. The superficially attractive, yet entirely untested, philosophy behind this is that Scotland, especially an independent or more independent Scotland, can have things both ways. We can achieve faster growth without compromising any of those egalitarian ideals which are such a laudable feature of our society.

On a macroeconomic level, my misgivings are awakened by the fact that the Scottish government, while offering 1,001 ideas about how to spend money in pursuit of its noble aims, offers very few ideas on how this money will be made. The extravagant commitments come first, and the finance for them is somehow supposed to drop docilely into place behind. Would it not be better to put the sequence the other way round?

On a microeconomic level I find myself contemplating the fate of the kids I get to know through WNI and its ramifications at their level of Scottish society, where all is still in flux as the achievements of the future start to form in obscurity. Some of these kids will be a great success in life, and some others will need to settle for less. That will be reflected in society, too. Growth does not take place in the abstract. Actual individuals or actual companies need to be the vehicles for that growth, not to say its beneficiaries in terms of reward – otherwise they will go off and bring about economic growth in the US or Australia rather than here. The rest, who have not done as much, will not get the same reward either.

My question to the Scottish government would be this: how can the normal and necessary processes of growth be subject at the same time to a requirement for equality? Growth is a great thing, indeed, an indispensable thing for an underperforming economy like ours, but there is a downside. In terms of goods and services it may produce more rather than less, but in terms of equality it produces less rather than more. We can start to think about correcting that some way down the line, when we are in a position to redistribute the wealth we will have meanwhile created through growth. But we cannot impose equality from the start, because we will then merely stifle the growth that we need to bring about the equality. I tend to conclude that the Scottish government, so far from presenting us with a novel ideal of growth with equality unknown to the rest of humanity, has simply cobbled these two concepts together without bothering to think whether or not they are compatible. Since it has ten ideas on equality for every one idea it has on growth, I suspect also that the aim of equality will in the end dominate. Then there will still be low growth, or no growth.

One of the reasons Scotland has suffered low growth or no growth is that it has never had government policy designed to produce anything else. The policy we live under is instead geared entirely to creating growth 400 miles away, at the moment mainly through inflation of house prices in the south-east of England. Now that in Scotland we do have a government which could make policies for growth, it will not. This is hardly, to say the least, a good argument for national independence.