Quest for growth has left poor behind

‘THIS government believes that when the facts change, the policy must also change.” So said John Swinney, Cabinet secretary for finance, employment and sustainable growth, when he sought MSPs’ endorsement for the now-majority SNP government’s refreshed economic strategy on Wednesday.

When the original strategy was launched in 2007, it had as its central purpose the delivery of faster sustainable economic growth for Scotland, first by matching UK rates of growth by 2011, then by equalling the growth rates of small independent European Union economies by 2017.

Through the attainment of such higher growth, Scotland wouldn’t just stimulate economic participation and population growth and increase productivity and competitiveness, it would reduce inequality and deliver greater social cohesion to boot. For Alex Salmond and Mr Swinney, GDP wasn’t simply about tracking boring old gross domestic product indices – it represented their kind of government’s distilled purpose. The very essence of what they are about. Their way, in their own words, of “creating a more successful country, with opportunities for all of Scotland to flourish”.

However, since 2007, GDP growth has been in rather short supply across much of the developed world. After the global banking crash and the credit crunch that followed, recession took hold in many western economies. Steady year-on-year growth and the rising prosperity that came from it was replaced by the great contraction. That painful squeeze, and its impact on the living standards of millions, is still with us today. It could be with us for years to come.

The pressures are certainly intensifying again. This week alone, fears of a Greek sovereign debt default have been rising. Some leading French banks have had their credit ratings downgraded. And a rogue trader in London has been arrested, having cost his employers, the Swiss bank UBS, around £1.3 billion. Five central banks, including the Bank of England, have been forced to pump more liquidity into the system as IMF boss Christine Lagarde talks openly of a growing risk that major economies could “slip back again” rather than “move forward”.

As I noted earlier, growth – whether sustainable or not – is in rather short supply right now. And Scotland certainly isn’t bucking that troubling reality. On the latest comparable evidence (for the first quarter of 2011) the total output of the Scottish economy is still 3.6 per cent below where it was way back in 2007, while the equivalent UK squeeze still represents a 2.7 per cent contraction. All this despite what Scottish ministers never tire of reminding us was a shallower and shorter recession here than in the UK as a whole.

As the Scottish Government’s own Scotland Performs website makes clear, that 2007 ambition to match UK growth by this year remains well short of sustained delivery. On an annualised basis, the figures for the first quarter of 2011 show a shortfall of 0.7 percentage points, still in the UK’s favour. That’s the same gap that was there in the final quarter of 2010. And the larger gap with GDP in small independent European Union economies like Austria, Denmark and Sweden has grown a little wider still.

So were the words with which we started – that Mr Swinney take on the oft-quoted response by John Maynard Keynes during the Great Depression: “When the facts change, I change my mind. What do you do, sir?” – a signal that the SNP government has radically recrafted its own economic strategy in the light of the great contraction we must all now endure?

Not a bit of it. Mr Swinney’s remarks were a jibe at UK Chancellor George Osborne, who has had to admit that the continued weakness of the recovery in the US and across Europe means existing UK growth forecasts are no longer realistic. The only policy Mr Swinney wants changed is for Osborne to swap his commitment to fiscal austerity and replace it with “a plan to protect the recovery”. Despite the cataclysmic events in the global economy in recent times, Scotland’s government sees no need change his own collective mind on the role higher GDP growth must play as the core ingredient in creating a better Scotland. Judging by the contributions to Wednesday debate, the other main parties at Holyrood share that same closed mindset.

It was left to more than 30 organisations from across civic Scotland, led by Friends of the Earth, Oxfam and the WWF, but also including the Church of Scotland, the STUC and the Carnegie UK Trust, to openly question this central political thesis – that pursuing ever higher GDP growth is the measure that really matters when judging whether a society is flourishing or not. But their chances of persuading the SNP government to think again about retaining higher growth as the principal purpose of policy must be virtually zero. As far as I can see, Mr Swinney and his colleagues consulted virtually no-one outside their own ranks about the refreshed economic strategy launched this week.

Their own Council of Economic Advisers hasn’t met for a year. So it couldn’t have been involved. There’s been no national conversation about what matters most in life although, as those civic organisations point out, the evidence from elsewhere is that lots of things matter more to people than income and wealth, the metrics of the GDP mindset.

Scotland’s finance secretary did ditch one part of his original strategy this week: the target to match UK growth rates by 2011 is no more. He even managed, despite the contrary evidence on his own website, to persuade some MSPs and commentators that it was going because that target had already been met. It hasn’t been.

Nor is there any evidence that the Scottish Government’s declared central purpose – securing faster GDP growth since 2007 – has led to any noticeable advances in what it calls greater solidarity and cohesion – increasing the overall income and proportion of income earned by the poorest in Scotland or narrowing the gap, in employment terms, between Scotland’s best and worst performing regions.

Again the data on its own website, while hardly adequate to the task, is thoroughly unconvincing. Between 1999 and 2009, total real disposable income across Scotland grew steadily year-on-year, up by nearly 29 per cent over that period. But the share of that swelling total received by the poorest 30 per cent of Scottish households barely moved at all, sitting at between 13 per cent and 14 per cent. Latterly, we are told, their share “has been slowly falling”.

So much for solidarity. Our poorest are still being cast adrift in a more unequal society. What about cohesion in terms of employment levels across regions? Again, the vision isn’t matched by delivery. Back in 2007, the difference in employment rates between the three best and the three worst performing local authority areas in Scotland was 15.5 percentage points. In 2008 it fell to 13.7 percentage points before surging up again to 18.9 percentage points in 2009. Last year it was still stuck at 18.7.

If we are stuck with broadly the same strategy for the next five years as we had over the previous four can we at least have an annual independent audit of what, if anything, it is actually delivering to the flourishing of Scotland?