IN ANY discussion of our national priorities, we are constantly told: “It’s the economy, stupid.” But is this really true?
Despite this incessant admonition, there is no real sense of a change in focus here in Scotland. Constitutional politics, not the economy, has dominated policy attention since 2007. And when it is not about tearing up the constitutional infrastructure, it’s an obsession with income inequality and the maintenance of welfare spending. Might it be that our main problem lies elsewhere, that’s it’s not the economy, but our attitudes, stupid?
Central to economic concerns at present, as we seek to extend and deepen the recovery of recent months, is the need to improve productivity. This is key to selling more of our goods and services abroad. As HSBC economist John Zhu pointed out in an analysis of our problematic export performance earlier this month, domestic productivity growth is the main driver of long-term economic growth.
But our productivity growth has been very weak in the current recovery. This, he says, is the real source of the UK’s loss of international “competitiveness”. This weakness has now persisted for more than half a decade “and looks increasingly like a structural problem”.
Bank of England Governor Mark Carney warned this week that we have an extremely disappointing productivity record. Productivity growth, he declared, has been “anaemic and, remarkably, the UK is no more productive than it was back in 2005”.
So why does this problem persist? Edward Hadas, economics editor of Breakingviews in a column for Thomson Reuters earlier this month, delivered a fiery explanation.
He noted the advantages we enjoy of flexible markets, a global language and, on paper at least, an educated and well-qualified workforce. But unemployment persists. There is still a yawning trade deficit, a welfare-fuelled budget deficit and billowing public debt.
He believes that our economic weakness is primarily attributable to social attitudes and “a self-satisfied and out-of-touch ruling class” that has looked out for its own interests and squandered opportunities. “Too much of the British political establishment sees the UK as a country with a distinct and superior political and economic vision,” he wrote. “Too many intellectual resources have been spent offering smug lectures to an empty global classroom.”
Many would concur with this. There has also been evidence in recent years that, despite greater numbers of young people in further education, there is an attitude problem among many that encourages employers to opt for migrant labour over domestic job applicants.
Monument Securities economist Stephen Lewis shares this critique, picking up on the famous remark of former Tesco boss Sir Terry Leahy that he would not employ British youngsters on stacking shelves. “That”, says Lewis, “was a serious indictment of the British education system. Teachers have, indeed, been among the most zealous exponents of the creed of self-gratification which has rendered so much of the nation’s youth unemployable… For the majority of the 44 per cent of the cohort who will enter university this year what lies ahead must be a life of debt and despair, with no moral compass and, at best, transient pleasures. It must be recognised that a nihilistic ideology captured the teacher training colleges and that any effective reform must begin there.”
Harsh words, and a far cry from the management consultancy focus on input-output metrics and performance measurement which characterise much of their approach. What of the bigger problem of lack of incentive to work? The critique will chime with those who feel that our welfare system has much to answer for. Politicians have created a vote-generating welfare leviathan way beyond the temporary helping hand envisaged by its founders in the immediate post-war era.
A recent television series sought to compare welfare today with the provision in 1949. While the programme was facile in some respects, the system of the late 1940s, for all its judgmental admonition, was seen to be more constructive and helpful in getting people off benefits and into work than the plethora of arrangements available today, battling against a system that makes it pay to stay state dependent.
Reform of sorts is under way, but this will only slow the rate at which the welfare bill continues its inexorable rise. Any radical change here looks unlikely. This leaves us having to deal with an economy struggling against such attitudinal odds. Ahead of the Scottish Government’s unveiling of its legislative programme for the current year, CBI Scotland is urging MSPs to test all new policies for their impact on the economy. Director Iain McMillan says they need “to channel their collective energies into aiding the recovery and ensuring the delivery of policies that help”. Familiar suggestions include a moratorium on new or additional business rates levies and a Procurement Reform Bill to encourage the contracting-out of a far wider range of public services. But both face headwinds.
Given the more positive economic news in recent months it may be tempting to think everything is going swimmingly and that McMillan should retire with a cup of Horlicks. But as Tony Mackay points out in his latest monthly report, August has been a rather disappointing month for Scotland’s economy. There has been a lengthy list of job losses (actual and pending) including Buckie Shipyard, MK Leslie at Shetland and Inverness and Anderson Precision Gearing at Motherwell, with total jobs attrition put at more than 330. The rise in the official unemployment total, the first since February, was particularly disappointing.
It is a reminder, if any is needed, that this recovery is at an early stage, that it is the feeblest in recent times and that it is still vulnerable to setback. What we need is not so much a productivity improvement as a miracle for this upturn to gain traction.