Socialism is Scotland's enemy – not Brexit

Socialism is Scotland's enemy – not Brexit

by Eben Wilson
article from Tuesday 11, April, 2017

WHAT ARE WE to make of the reports that Scotland’s growth rate went negative at the end of last year and we could be heading for a technical recession if this is repeated into 2017?

The UK does not normally show de-coupling like this. Scotland has tended to have slower growth when private investment lags, but in consumer spending we tend to dance to the same tune, served by UK and global corporates who keep revenue trends roughly parallel through pricing and promotions in their marketing channels.  Scottish wages are often slightly lower but track those of England.

I am not one to take great heed of any statistical forecast that offers decimal point values as meaningful; for me macroeconomics is a false religion among cognoscenti who have interests in serving their corporate masters.  However, one of the great advances over the past twenty years has been to understand the value of comparative statistics across borders, especially if they use the same collection techniques within comparable populations. These numbers do that.

If a trend emerges of de-coupling, and this persists, that is serious for Scotland. It would be difficult to reverse and of course trends are cumulative.

Anecdotally, I have heard a few worrying stories; I know of one company that six weeks ago was due to set up as a Scottish company but was advised by its accountant to set up in England. That same accountant had been approached by four others in the previous week asking about setting up registered entities in Carlisle. I have been approached in England twice in the past few weeks by people exasperated by the antics of the Scottish Government. That has not happened to me in many a year; these people knew nothing of the ferment of Scottish politics, but the tone and intent of the SNP has leaked out and there is a change of manner in return.

This is unlikely to be a major trend, but it tells its own story. Economies are sometimes called “spontaneous extended orders”; that means they emerge through a set of nested relationships of mixed formality; and in fact mostly informal supply clusters of companies, workers and techniques held together by little more than purchase orders and invoices. The spontaneity comes from innovations that create new supply and new purchasing patterns; and it is that spontaneity which creates economic growth through newness.  Growers of potatoes, or sellers of bread or makers of kilts and shortbread do not see huge change in their markets; but LED light manufacturers, carbon fibre component makers and sellers of smart phones do.

Now, as the economist Ronald Coase tells us, there are costs to doing business across all facets of operations. These costs are both internal to the workflow and external from the marketplace and they can dramatically affect the structure of companies. Crucially too, these costs are often transparent to the business but not to outsiders; there is a lot of tacit knowledge inside informal supply clusters.  Business relishes its liberty to adjust and must do so frequently.

Today, growing businesses in technology operate in a global market; components are traded all over the world, techniques are developed globally and many tools disseminated on-line.  The knowledge economy in action (as opposed to the one promoted by Scotland’s quangocracy) supports a vast infrastructure of skills and parts sharing, supported in turn by a global logistics industry. Again, the relationship between a manufacturer in Irvine and a supplier in Osaka can be as informal as a log-in on a website and a credit card.

In such a world, spontaneity of new effort very easily loses its loyalty to a sense of place. What matters to a company is that its internal costs stay low, and central to that are the mechanisms of supply and sales.  Politicians should never forget that company owners have horizons far longer than the electoral cycle; in smaller companies the ecology of the firm always includes future trading certainty, future generations of the family, and always too – what alternative business activity might be turned to if today’s trading operations go wrong.

Politicians ignore this fluidity of the informal supply clusters at their peril. Something successful company owners learn early is that they have to act fast when things begin to go wrong.  Leftist politicians, with their fetish that a love for money drives wealthy or industrious people, will always be left in a cloud of closed factory dust should circumstances dictate to small business that it is time to move on. 

I see a great danger for Scotland in the present circumstance of a state of neverendum with a government that has not only set up both the perception and expectation that it wants more of our money to design tomorrow, but has begun to act on that through its control of Land and Buildings Transaction Tax, business rates supplements and, now, Income Tax. Debate in Holyrood and public is all about how they can tax and spend yet more.  The policy trend is clear for all to see.

The problem is that this particular cluster of politicians literally cannot choose any other policy route.  They have hung their future electoral existence on the idea that they can offer manna from heaven; but have absolutely no idea what money tree these resources will come from.  That’s extremely dangerous; our policy makers are trapped in a false promise.  I think many of them know this; but will string their voters along and blame someone else for gathering economic failure.  Those who will be hurt are the vulnerable and poor; there is no economic growth on offer through this route.

If in the recent economic de-coupling we are seeing a change across supply chains, invisible to outsiders, as small businesses in Scotland adjust to their perceptions of the future this bodes ill.  Despite the cries of anguish from some Scottish politicians and commentators, this is nothing to do with Brexit. The vast majority of the ninety-nine per cent of Scottish companies classed as small do not trade outside the UK, while EU influence on Scotland’s tomorrows is related far more to rates of subsidy than rates of trading revenue. Scotland’s few major companies trade globally; a grown-up and costly business affected by wider global factors, although local headwinds will make them put new investment elsewhere.

The supply chain Scotland’s businesses are interested in is the market of sixty million people in the rest of the UK, with the billions across the world offering a bonus.  If there is a perception emerging that extending reach into those markets is becoming more difficult, investment will drop off very quickly and move elsewhere.

The root cause of all this is state socialism. For any empirical economist this is not an opinion, but an observational truth, backed by the evidence of decades from 1970’s Britain to today’s Venezuela, with the route out of socialist disaster exemplified by central Europe’s ex COMECON countries.   Everywhere and always the impossible dream of socialism collapses in a sea of very ordinary common sense decisions by ordinary people.  The spontaneity of growth evaporates as individuals refuse to act like herded animals and act like human beings; protecting their own families, retaining the security of their wealth and hunkering down to do not very much and laugh at the authorities who think they can control them.

Every MSP in Holyrood should be given a copy of the IMF report (https://www.imf.org/external/pubs/ft/reo/2014/eur/eng/pdf/erei_sr_102414.pdf) about how these ex-communist nations escaped Soviet economic tyranny.  It was painful. There’s a line in there which they need to heed: “Courageous politicians and reformers stepped forward and took on the challenge of designing reforms”.

It is becoming common opinion that the present SNP government has done almost nothing in this parliament except promote its own righteousness; if it continues like this the de-coupling of the trend in growth between Scotland and elsewhere will inevitably become even stronger. Reversing that will also be painful.

 

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