Losing control

The flip side of Scotland's success in attracting inward investment and, I might add, having many of its companies acquired by outsiders, is that the degree of external ownership and control is quite high. The latest data from the Scottish government for employment and turnover by sector are shown in the following charts:

Note: No turnover data for Finance & insurance.

It is clear that what economists call the "tradable" sectors - selling goods and services on international basis - tend to have greater rest of UK and overseas control than so-called non-tradable sectors. So, manufacturing, which is mainly tradable, has by turnover around 70% non-Scottish ownership and control: 10% rest of UK, 60% plus foreign owned. This can be compared to accommodation and food services where the position is almost exactly reversed with 30% non-Scottish ownership and control: roughly 18% rest of UK and 12% foreign owned.

Moreover, it appears that external ownership and control of Scottish industry continues to grow. For example, in 1998 manufacturing employment in Scotland was 22% foreign owned and controlled, by 2011 this had risen to 31%. The share of manufacturing turnover that is foreign controlled also rose during this period from 41% to 62%.

Does any of this matter?

One argument in favour is that the growth in external control is one of the routes through which the benefits of globalisation and an integrated economy are spread. On this view we gain access to new technologies and products that would not otherwise be used or produced in Scotland, at least in the here and now. We are all better off. And that is not counting the jobs that come with inward 'greenfield' investments, even if some jobs can be lost through the rationalisation that often occurs after a takeover of a Scottish firm by an external acquirer.

The arguments against are several. Key functions such as R&D, marketing, investment planning, may be lost following takeover. Trading links may also be broken to local business services such as advertising agencies, accountants, law firms, IT specialists, as the acquirer switches to their own non-Scottish supplier. The growth of local business services, a key ingredient in modern growth, could well be damaged. The loss or absence of headquarters (HQ) functions is a key issue. Lacking the full range of company functions many skilled individuals will be forced to migrate from Scotland in order to move up the promotion ladder. Key skills are lost as a result. The pool of human capital available to the Scottish economy is thus diminished.

So, it is difficult to do a full accounting of the costs and benefits and come to a definitive conclusion. But the view of many economists who research in this area is that a 'branch-plant' economy may not be healthy in the long-term. The retention and attraction of HQ functions should be a plus point for a modern dynamic economy and so policy should seek to encourage the process and perhaps limit their loss.

If economic independence is diminishing in an increasingly globalised economy does this have implications for political independence?

Michael Kelly in today's Scotsman cites Richard Leonard of the GMB trades union as suggesting that the growth of the external ownership and control of Scottish industry is another argument against Scotland seeking political independence. The point being that

political independence will not alter the fact that strategic political, economic and corporate decisions will still be taken in London.

This is undoubtedly correct and underlines the fact that the 'independence' of sovereign states in the modern age is heavily qualified. It offers little or no remedy for some of the costs of globalisation. But as an argument against Scottish political independence it is a non-sequitur, because the process is happening the world over whether region or sovereign state. Indeed, it is not improbable that Scottish independence would help to attract some HQ functions. Companies need to lobby governments on tax, regulation and expenditure policies and so their HQ operations might be expected to expand here, or at least the outflow of key functions might be reduced.

So, this is one argument that proponents of the UK union should perhaps put back in their locker.

Comments

[Angus McLellan]

A helpful article, not least because "branch-plant economy" is a more neutral term than "colonial economy" which was the closest I'd got to finding a suitable label. Thanks.

[Amin]

Indeed the ribocun has been crossed, the more labour stick to their discredited too daft, too wee Scotland' keek the more irrelevant they become. There is still the need for an education campaign so that people don't vote no out of ignorance, because sadly so many still believe the oft told keek and are not aware of a differing view. Nothing wrong with allowing the electorate an informed choice., although I am aware this may not be in the interests of unionists.I would hope that a referendum on keeping the monarchy would come about in the lifetime of the first free Scottish parly.Also not meaning to leap too far ahead but many are involved with the SNP as the primary vehicle for independence that we so desperately need. Once that has been achieved, will that herald a movement to other parties who have more like-minded individuals or ethos, or perhaps even some kind of split?