Growth and the Scottish Economy: Kerevan versus Ashcroft

By George Kerevan - Is Scotland richer for being part of the United Kingdom?

Over the 30-year period from 1976 to 2006 (i.e. from the first North Sea oil production till just before the credit crunch) the average rate of growth in the UK was 2.3 per cent but only 1.8 per cent in Scotland.

That means growth north of the border was one fifth less than the UK for a whole generation.

In fact, the relative underperformance of Scotland grew worse in recent years. Between 1998 and 2006, the UK economy grew at 2.7 per cent while the Scottish economy grew at only 2 per cent, a gap of 35 per cent.

How did other small European economies perform over the same period?

The answer is much better.

Percentage Average Annual Growth Rates 1977 – 2007

Ireland                 5.4

Iceland                3.4

Norway               3.1   

Finland               2.9

Austria                2.4

Sweden               2.3

Scotland             1.9

_____________________________________________

Source: OECD

One explanation for this poor performance is that Scotland lacks the macroeconomic tools to promote growth.

In his (excellent) blog, “Scottish Economy Watch”, Professor Brian Ashcroft of the Fraser of Allander Institute criticises an article I had written in The Scotsman which argues this point.  

Professor Ashcroft - for whom I have the highest regard - begins by querying my selection of the period 1976-2006, implying I was “partial” (his word) in deliberately choosing a time span that favoured my argument.

My approach was to take the nearest 30-year period (i.e. a generation) before the present global crisis, and see how Scottish growth compared to that of the UK. I chose 1976 as a starting point because it actually favours the argument that Scotland benefits economically from being in the UK, and I wanted to be fair.

The year 1976 is when North Sea oil came on stream – in other words, when Scotland had just had a major boost from industrial investment and was leaving behind the old heavy industries. Also, the Scottish Development Agency (forerunner of Scottish Enterprise) opened for business in 1976, promoting the turn to high technology manufacturing.

My point to Brian is that if the Scottish economy could not perform better inside the Union in these benign circumstances, then how can it be said we are “better together”? But as we have seen, Scotland’s economic performance over the following 30 years was poor compared with the UK average and by international standards.

But Professor Ashcroft is not finished. In his February blog he argues that if you look at the Scottish economy over a longer period – from 1963 – then the performance looks better. He says: “Over the period 1963 to 2009, UK growth is still more rapid than Scottish growth but the difference is much smaller: 2.2 per cent per annum for the UK and 2 per cent 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.”

The fact that Professor Ashcroft has to go back nearly fifty years in order to find a block of time he can add on to my data, to make Scotland’s underperformance look less bad, shows how weak is his case.

If the gap between Scottish and UK performance was narrowing over time, I could see the point. But Brian’s best period (1963-1970) is at the very start of his analysis - before oil, before the internet, and before devolution! I fear it is Professor Ashcroft who is being partial with the data.

Why does Professor Ashcroft start in 1963? He is honest enough to say it is because that is when the official data for Scottish GDP starts. In other words, it has nothing to do with economics or history. However, there are unofficial (but reputable) academic studies that construct Scottish GDP from before 1963, which Professor Ashcroft ignores. From these we can learn a lot.

Brian is keen to squeeze in the period 1963-1970 because of the impact of North Sea oil investment, which (as is well-known) makes Scottish growth outstrip the UK for a brief time. But because he uses a time period determined by the official data, he actually misses what is really happening.

The real impact of North Sea investment on GDP growth was later, circa 1967 to 1971. That investment came because the oil was where it was. It would have happened whether Scotland was part of the UK or not. It lacks credibility for Ashcroft to add this investment and claim it as a benefit of the Union.

For the record, the sudden spurt in Scottish growth (over UK growth) in the late 1960s is also due to a jump in local authority capital spending, particularly on houses and roads. This was the result of Harold Wilson’s Government at Westminster starting to worry about the rise of the SNP – witness Winnie Ewing’s unexpected by-election victory at Hamilton in 1967. So you could say this infrastructure investment was due to the UK, but equally you could put it down to Winnie.

But if we go back further into the 1950s, UK growth is average above Scotland’s – the post-war norm. Scotland’s share of UK national income falls most years between 1951 and 1960, from 91.8 per cent to only 87.5 per cent (see Begg, Lythe and Sorley, “Expenditure in Scotland 1961-1971”). In fact, the 1950s sees a massive collapse of Scotland’s economic position inside the UK, with the decline of shipbuilding and the start of massive outward migration from Scotland. 

But that does not fit Professor Ashcroft’s agenda.