In the Scotsman today George Kerevan responds to the assertion yesterday by the Prime Minister, David Cameron, that Scotland is richer for being part of the UK. Kerevan's article focuses on two issues Scotland's growth rate in the UK union and the rationale for and procedures to create a sovereign wealth fund (SWF) using oil revenues. I plan to return to the SWF and oil revenues issue in another post. In this post I want to examine Kerevan's analysis of Scotland's growth in the UK union.
Kerevan focuses on the period 1976 to 2006 where UK GDP growth averaged 2.3% per annum, whereas Scottish GDP growth averaged 1.8% per annum. Why 1976 to 2006? He suggests that 2006 is just before the downturn and that seems to be his reason for terminating in that year. But he offers no reason for starting in 1976. The reason is that starting earlier doesn't help his argument.
The available data series for Scottish GDP comparable with UK GDP data begins in 1963 not 1976. So what is the position when we start the analysis from that year? The chart below provides the information
Over the period 1963 to 2009, UK growth is still more rapid than Scottish growth but the difference is much smaller: 2.2% per annum for the UK and 2% for Scotland. So, over the period for which we have data, Scottish growth was less than a tenth lower not a fifth lower as in Kerevan's partial selection of the data. (It's true I need to redo the numbers to include 2010 and I will do that for a later post but it won't make much difference with Scottish growth of 1.2% and UK growth of 1.5% in that year.)
The UK economy growing at an average 2.2% per annum would have doubled its income in roughly 33 years, that is by 1996. The Scottish economy growing at 2% per annum would have doubled its income three years later by 1999.
Is that 3 year gap sufficient reason for breaking the union?
In posing that rhetorical question, I am implicitly conceding that Scotland's slightly slower rate of GDP growth was the result of Scotland's membership of the UK union, when there is no solid evidence and argument either way. Scotland may have grown more slowly as an independent state, that might be the appropriate counterfactual. On the other hand, Scotland might have grown more quickly. Nobody will ever know for certain.
I plan to look at Scotland's growth potential in and out of the union, within the context of growth models in a later post - see this post in David Comerford's new blog for a start on this. But Kerevan's argument's laying the blame for Scotland's minimally slower growth at the door of the union are weak to be polite.
Scotland's stronger growth than the UK in the 1960s was the result of three factors: UK regional policy which led Scotland to attract much inward investment; the rapid growth of banking and financial services and the development of North Sea oil. But rather than recognise the economic success of that period, Kerevan bemoans the outcome as one that created branch plant economy and discouraged local enterprise.
In fact he has it completely the wrong way round here. Scotland's need for inward investment was because of a previous failure of local enterprise, the limitations caused by the small size of the Scottish market and its peripheral geographical position. See the discussion in my chapter in this book which discusses Scotland's failure in the 1930s to generate and attract the 'new' consumer-based industries and services such as motor vehicles, electrical engineering, chemicals, cycles, and furniture and upholstery.
The Scottish economy has weaknesses which have and do affect its competitiveness. More technically despite comparable labour productivity and wages it appears that total factor productivity is on average lower here than, say, in the South East of England. But to say this is the fault of the UK union is mere assertion without evidence. In the academic work on Scotland's low business birth rate, low R&D and low innovation rate it is factors such as weakness in entrepreneurship, high levels of social housing, weak management skills, slow population growth, low investment, small numbers of SMEs, a poorly developed innovation system and so on, that appear to matter not Scotland's constitutional position.
But, there again, evidence is not something that George Kerevan will allow to ruin a good argument.