Peter Jones: Can Scotland rise to the challenge?

Gordon Brown didn't argue for North Sea nationalisation, but he says investment is needed. Picture: Scott Louden

One of the few good things to come out of the present North Sea industry crisis is the lesson that investment is critical to securing its future. Cutting the amazingly high costs of labour is a part of what needs to be done, but only a part. Only investment in new equipment and technologies to increase productivity and to bring the remaining resource into production can secure another 40 years of substantial offshore activity.

This is not unique to the offshore oil and gas industry. It’s a lesson that applies almost all forms of economic activity, from running shops to building satellites.

Neither is it new. In fact it is a lesson which has been around since the industrial revolution and the agrarian revolution before that.

The point was made in typically forcible style by Gordon Brown last night. The understandable media focus on the section of his speech in Glasgow which has been wrongly interpreted as meaning that he wants to nationalise the offshore industry obscured, to me, the rather more important message about the way forward for the Scottish economy.

He reminded his audience that global forces and not government action or inaction are the over-riding reason why Scotland has lost about a million manufacturing jobs in the last few decades.

Wage costs that are much lower elsewhere in the world than in Scotland are why much of our heavy industry is defunct. The world needs coal, steel, and ships as much as it ever did, but it can get most of what it wants at a much lower cost from east Asia, mainly because of much lower pay.

Because this enriches countries which were previously much poorer than Britain, their economic growth soars whilst ours slows. Viewed from these islands, said Mr Brown, it looks like a pernicious paradox – “a perception of growing and unacceptable inequalities in the distribution of a world economy that was worth £20 trillion, then £40tn, then £60tn and now £80tn and which is heading for £120tn – doubling its wealth every decade and a half.

“This growth has occurred alongside the falling share of wages in national incomes almost everywhere, the low levels of pay earned by millions, the inadequate safety nets to protect people from poverty, the narrow tax bases to fund public services, millions struggled on the edges of poverty and a middle class that no longer feels secure. All this is reflected in advanced industrial economies like Scotland in the growth of food banks, payday lenders, fuel poverty and children falling behind.”

There is no magic bullet, no income redistribution wand, no transformative spell, which can be invoked to fix this. Yes, we can catch the wealthy tax evaders and avoiders and crack down on the profiteers, but such measures only soften the hard edges of the problem, they don’t fix it.

What we need are new industries using brains rather than brawn. Mr Brown pointed to plenty of opportunities that now exist in Scotland, much in university research into potentially highly commercial technologies to create these jobs.

Does this matter when unemployment statistics say that the recovery is creating plenty of jobs? As John Swinney, deputy first minister, said of the last month’s employment statistics: “Scotland is outperforming the UK on all three headline labour market indicators with employment continuing to increase and unemployment down. We have moved up two places in European youth unemployment rate comparisons. Today’s figures are hugely encouraging and demonstrate a robust, more inclusive and active Scottish workforce supporting our economy which in itself is going from strength to strength.”

Well, of course, more jobs is good news. People having jobs is better than people without jobs. But look a little deeper into the figures and it soon emerges that the news is not as good as Mr Swinney would like us to believe.

A penetrating analysis by Brian Ashcroft, emeritus professor of economics at Strathclyde University points out the comparison with what’s happening in the UK is highly misleading. Yes, Scotland’s unemployment rate at 5.4 per cent is better than the UK’s 5.7 per cent rate.

But, says Prof Ashcroft, the underlying figures do not fit the “strength to strength” description. The number of Scottish jobs is now 2.4 per cent above the number before the recession bit in 2009, but the number of jobs in the UK is 4 per cent higher than the pre-recession peak.

And Scottish employment is not only growing more slowly than UK employment, the growth is weaker too. Prof Ashcroft says that the total number of hours worked in Scotland is still 1 per cent below the pre-recession peak number of hours worked, but in the UK, hours worked are 3.6 per cent above the pre-recession peak.

And if you look at the type of jobs being created, Mr Swinney’s rosy picture turns even greyer. The number of full-time jobs is still 4.1 per cent lower than before the recession and the total number of employees is still 1.2 per cent lower. The growth has been in part-time employment (up 9.8 per cent on the press recession level), in self-employment (up 12.2 per cent), and temporary work (up 15.7 per cent).

This doesn’t speak of surging business confidence or business investment in Scotland. If that was the case, there would be many more full-time jobs and employees than there are. The surge in part-time and temporary work speaks instead of companies preferring to hire and lay off people as and when they need, rather than confidently expecting demand for their products and services to grow.

And it also tells of business investment, which has been at historically lower rates than even the UK’s relatively poor record, still being low, too low indeed to support the kind of newer high-potential industries with high-earning jobs that Mr Brown wants, as indeed does Mr Swinney and everyone else.

It is an enormous challenge, one which is frankly rather more important for the economic health of Scotland and future employment than tinkering about the constitution. By the time the nation’s politicians acquire the powers they are now bickering about, there might not be enough of an economy for those tools to be any use.