THERE’S A LOT to learn from the Growth Commission Report, but not about growth.
Rather, its importance is to illustrate how to dig a hole and then fall into it; it’s a textbook example of how a failing consensus can thrive in political economy using its own contradictions as fertiliser.
I had hoped that as an independent commission this was a chance to challenge current assumptions; to use evidence to take on the failure that its remit focussed on. Sadly no, it’s the same old mischief.
Others on this site and elsewhere have excoriated the report’s “conclusions” and I will not add to that tidal wave. The important question for Scotland is why such a report is all that Scotland’s body politic and its erudite advisers can produce. Let’s try to answer that.
Central planning rules
A useful benchmark to detect central planning in public policy documents is to count the number of times the word “strategy” is used. This report uses it 373 times in 354 pages. That’s a very high score in my experience. In addition, it also proposes five new commissions and sixteen policy reviews.
This is therefore a central planning document; it’s built on the social democratic consensus seeking a managed economy. The words “liberal”, “liberalism” or “liberty” do not appear even once, nor does “localism”.
This bustling eagerness to manage the world is based on particular foundational assumptions. State-centric demand management good, monetarism bad, internationalism (sic) good, Brexit bad; control and inclusivity good, low tax or reduced regulation bad; with references cited to “prove” the case or reject alternatives. That an SNP commissioned report should take a left-leaning stance is to be expected but it belittles the purported independence of the commission. The text repeatedly proposes “cross-partisan” support (32 mentions) but its underlying presumption belies this.
I would put the blame for this firmly at the door of Scottish academia, this is really old hat social democratic conservatism based on false analysis and assumptions about economic history. A key insight to this world view is in paragraph A1.46 (pp68):
“The consensus for at least the two or three decades before the financial crisis was that monetary policy was key to macroeconomic demand management, with interest rate policies focussed on controlling inflation … [ ] fiscal policies have become more prominent as governments have sought to stimulate economic growth.”
These two assertions are simply wrong.
Monetarists specifically reject the idea that demand management can be mechanised by monetary policy and the only fiscal “policy” we have seen across the social democratic world is a gradual increase in the tax burden and collapsing growth rates. It follows these particular two falsehoods with:
“A more active role for government has been a feature of many successful economies and is now being debated in many larger advanced economies.”
The first assertion of this sentence is offered with no definition of this “role” or its “success” and is at the very least meretricious – you can find a counter view here for suggesting that economic/business freedom and economic growth are highly correlated.
And yes, new state interventions are always being debated in all nations, central planning and the fatal conceit that it can be successful is eternal, but economic liberals are standing firm on the evidence that previous interventions have always created bad outcomes. Predicting greater wealth of £4,100 per person through central planning istypical of this conceit.
And this is the real problem with the commission report; its advisers have suggested that the creation of Scotland PLC managed by a well-honed, enthusiastic and nicely egalitarian government can engineer its strap line ambition of “a strategy for inter-generational renaissance”.
The evidence is against them. Social democratic governments across the developed world have poor growth rates, as evidenced by Scotland relative to the UK. High tax rates destroy wealth creation; and the report indeed concedes the Scandinavian experience of cutting back on its wilder tax intrusions and choosing to cut tax rates and spending to retain growth.
The report also accepts that governments find it extremely difficult to constrain the growth of central spending and that a rule-based system is needed to provide control. It recognises the huge debts have been accrued, that there is poor investment growth, and that cash-poor public services struggle with centralised strategic plans blocking change. As we know, poor health outcomes, slow educational progress and a non-improvement in the conditions of the poor are the daily headaches of the SNP government.
Why on Earth then does the commission propose that we need more of this failed recipe, jumping into that very same hole?
It is a canard that Scotland’s poor performance is a result of the UK’s constitutional relationship with England – and particularly with London to blame – precisely the people whose incomes pay for Scotland’s deficits. It’s also more than a bit rich coming from a “government” that has been practising the same old hat policies, borrowed from Whitehall but used in a more dirigiste way, creating even worse deficit driven outcomes.
Growth is generated by people, not the state. The “small country” versus “big country” distinction is a macro-economic smokescreen beloved by central planners. By its own assumptions the Growth Commission report is flawed. In my next column later this week I shall suggest how Scotland could achieve growth – without directing it from Victoria Quay.