Scotland doesn’t benefit from British economic 'strength'

But the SNP’s lack of radicalism makes it difficult for the Yes campaign to capitalise.

Against expectations, the Chancellor’s visit to Glasgow last week was a success. Speaking to a gathering of Scottish business leaders, and armed with a hefty new Treasury report, George Osborne set-out a detailed critique of SNP plans for Scotland to retain the pound after independence, a key feature of the nationalists’ 2014 prospectus. But framing his specific warnings about the pitfalls of a "Eurozone-style" monetary union was a broader attack on the economics of separation: the size and scale of the UK’s economy shields Scots from the "rapids of globalisation" – leave it and Scotland could be exposed to ameltdown of Irish, Greek or Cypriot proportions. This is a powerful line, repeated with brutal efficiency by unionist campaigners. The problem, however, is that it simply doesn’t stack up. In fact, Scotland’s vulnerability to global economic shocks is amplified by its continued membership of the UK.

Two recent reports – The Mismanagement of Britain by the Jimmy Reid Foundation and The British Growth Crisis by the Sheffield Political Economy Research Institute (SPERI) - shatter the notion of British economic strength. The former, written by Scottish economist Jim Cuthbert, out-lines the long-term decline in the competitiveness of the UK economy. Cuthbert argues that the growing deficit in the UK’s trade in general goods and services from the 1970s onwards was disguised first, in the ‘80s, by high North Sea oil tax receipts and then, during the ‘90s, by revenues from an increasingly dominant financial services sector. The underlying deficit became more pronounced as successive Westminster governments, Conservative and Labour, allowed Britain’s manufacturing base to erode. Ultimately, this made the British economy over-reliant on a handful of large financial institutions operating at the heart of the international financial system.

In The British Growth Crisis, Professor Colin Hay explains how Britain, as one of a group of deregulated economies including the United States and Ireland, felt the effects of the 2008 crash earlier and more powerfully than other Western states with smaller and less globally integrated banking sectors. As the crisis developed, spreading out from its Anglo-American epicentre, international trade went into free-fall. This tightened the squeeze on British manufacturing, which by now was in no condition to prop-up the UK’s public finances as they grappled with recession. The subsequent loss of taxable economic activity, as well as the huge cost of the bank bail-outs, sent the economy into a prolonged slump and precipitated an explosion of British debt.

Coupled with Osborne’s austerity strategy, the structural imbalances in the British economic model described by Cuthbert and Hay account for the severity of Britain’s downturn (the worst since the 1930s) and the weakness of its recovery (the slowest on record). While growth is beginning to return to France, Germany and even the US, the UK remains more or less stagnant. None of this happened by accident. It was the result of decisions taken by two or three generations of British political leaders which viewed state intervention in the market as a barrier to prosperity. The consequences for Scotland, which has one of the worst social records in the developed world, have been profound. Scots might be entitled to feel doubly aggrieved given the origins of the current crisis lie, to some extent at least, in the liberalising policies of the Thatcher governments they repeatedly rejected. That Scotland’s oil wealth was used to fund the implementation of a number of those policies only adds insult to Scottish injury.

Yet, despite the efforts of the pro-independence left, the threat to Scotland’s economic security posed by British financial instability does not feature as heavily in the constitutional debate as it might. This is because the SNP, for both political and ideological reasons, accepts much of the neo-liberal settlement which has dominated British public life for more than three decades. The clearest illustration of this can be found in the party’s support for the current UK-wide system of financial regulation (described by SNP finance secretary John Swinney as a "solid framework") to remain untouched following the break-up of the Union – a position which reflects the closeness of Alex Salmond to Scottish finance capitalism over recent years. The SNP’s controversial commitment to cut corporation tax provides further evidence of its free-market tendencies.

The political significance of the nationalists’ economic conservatism was laid bare last week, widely (and correctly) perceived as a particularly bad one for the Yes campaign. The economic case for independence should be among the SNP’s strongest cards: the British laissez-faire experiment has proved a spectacular failure, leaving ordinary Scots facinga futureof falling living standards and deteriorating working conditions. Moreover, what remains of the Scottish welfare state - protected from the most radical of New Labour’s reforms by devolution – has come under sustained assault by an unpopular Tory-led government determined to turn a crisis of neo-liberalism into one of social democracy. But, in its current state, the SNP can’t make any of this work to its advantage.It may require some awkward policy U-turns and a degree of ideological repositioning, but Salmond has to start explaining just how serious a hazard the UK represents to Scotland’s economic health.

Scotland's First Minister Alex Salmond gestures during a press conference in St Andrews House in Edinburgh. Photograph: Getty Images.

James Maxwell is a Scottish political journalist. He is based between Scotland and London.

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Arsène Wenger: how can an intelligent manager preside over such a hollowed-out team?

The Arsenal manager faces a frustrating legacy.

Sport is obviously not all about winning, but it is about justified hope. That ­distinction has provided, until recently, a serious defence of Arsène Wenger’s Act II – the losing part. Arsenal haven’t won anything big for 13 years. But they have been close enough (and this is a personal view) to sustain the experience of investing emotionally in the story. Hope turning to disappointment is fine. It’s when the hope goes, that’s the problem.

Defeat takes many forms. In both 2010 and 2011, Arsenal lost over two legs to Barcelona in the Champions League. Yet these were rich and rewarding sporting experiences. In the two London fixtures of those ties, Arsenal drew 2-2 and won 2-1 against the most dazzling team in the world. Those nights reinvigorated my pride in sport. The Emirates Stadium had the best show in town. Defeat, when it arrived in Barcelona, was softened by gratitude. We’d been entertained, more than entertained.

Arsenal’s 5-1 surrender to Bayern Munich on 15 February was very different. In this capitulation by instalments, the fascination was macabre rather than dramatic. Having long given up on discerning signs of life, we began the post-mortem mid-match. As we pored over the entrails, the curiosity lay in the extent of the malady that had brought down the body. The same question, over and over: how could such an intelligent, deep-thinking manager preside over a hollowed-out team? How could failings so obvious to outsiders, the absence of steel and resilience, evade the judgement of the boss?

There is a saying in rugby union that forwards (the hard men) determine who wins, and the backs (the glamour boys) decide by how much. Here is a footballing equivalent: midfielders define matches, attacking players adorn them and defenders get the blame. Yet Arsenal’s players as good as vacated the midfield. It is hard to judge how well Bayern’s playmakers performed because they were operating in a vacuum; it looked like a morale-boosting training-ground drill, free from the annoying presence of opponents.

I have always been suspicious of the ­default English critique which posits that mentally fragile teams can be turned around by licensed on-field violence – a good kicking, basically. Sporting “character” takes many forms; physical assertiveness is only one dimension.

Still, it remains baffling, Wenger’s blind spot. He indulges artistry, especially the mercurial Mesut Özil, beyond the point where it serves the player. Yet he won’t protect the magicians by surrounding them with effective but down-to-earth talents. It has become a diet of collapsing soufflés.

What held back Wenger from buying the linchpin midfielder he has lacked for many years? Money is only part of the explanation. All added up, Arsenal do spend: their collective wage bill is the fourth-highest in the League. But Wenger has always been reluctant to lavish cash on a single star player, let alone a steely one. Rather two nice players than one great one.

The power of habit has become debilitating. Like a wealthy but conservative shopper who keeps going back to the same clothes shop, Wenger habituates the same strata of the transfer market. When he can’t get what he needs, he’s happy to come back home with something he’s already got, ­usually an elegant midfielder, tidy passer, gets bounced in big games, prone to going missing. Another button-down blue shirt for a drawer that is well stuffed.

It is almost universally accepted that, as a business, Arsenal are England’s leading club. Where their rivals rely on bailouts from oligarchs or highly leveraged debt, Arsenal took tough choices early and now appear financially secure – helped by their manager’s ability to engineer qualification for the Champions League every season while avoiding excessive transfer costs. Does that count for anything?

After the financial crisis, I had a revealing conversation with the owner of a private bank that had sailed through the turmoil. Being cautious and Swiss, he explained, he had always kept more capital reserves than the norm. As a result, the bank had made less money in boom years. “If I’d been a normal chief executive, I’d have been fired by the board,” he said. Instead, when the economic winds turned, he was much better placed than more bullish rivals. As a competitive strategy, his winning hand was only laid bare by the arrival of harder times.

In football, however, the crash never came. We all wrote that football’s insane spending couldn’t go on but the pace has only quickened. Even the Premier League’s bosses confessed to being surprised by the last extravagant round of television deals – the cash that eventually flows into the hands of managers and then the pockets of players and their agents.

By refusing to splash out on the players he needed, whatever the cost, Wenger was hedged for a downturn that never arrived.

What an irony it would be if football’s bust comes after he has departed. Imagine the scenario. The oligarchs move on, finding fresh ways of achieving fame, respectability and the protection achieved by entering the English establishment. The clubs loaded with debt are forced to cut their spending. Arsenal, benefiting from their solid business model, sail into an outright lead, mopping up star talent and trophies all round.

It’s often said that Wenger – early to invest in data analytics and worldwide scouts; a pioneer of player fitness and lifestyle – was overtaken by imitators. There is a second dimension to the question of time and circumstance. He helped to create and build Arsenal’s off-field robustness, even though football’s crazy economics haven’t yet proved its underlying value.

If the wind turns, Arsène Wenger may face a frustrating legacy: yesterday’s man and yet twice ahead of his time. 

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 24 February 2017 issue of the New Statesman, The world after Brexit