It’s Scotland’s Economy - Or Is It?
This article first appeared in our In Common newsletter in The National.
Deliberate Government policy has resulted in Scotland’s economy being outsourced to foreign-owned companies to the point that we scarcely have a home-grown economy left any more. In a world of threats to global trade, this is a major problem.
Image Credit: Unsplash
News this week that the Wood Group – an oil engineering firm probably best known to readers of this column for its pronouncements on the projected lifespan of the Scottish oil sector being inversely correlated with how high support for independence was that week – is likely to be sold to a Dubai-based firm at a cut down price compared to an offer made last year, as news emerged of issues with the firms accounts and governance.
The story of large (and not so large) Scottish companies being bought out is not a new one. Scotland’s “prestige” export products of oil, whisky and salmon are all highly foreign owned. It’s not unusual for a “top ten whiskies” list to contain maybe one company that is still in Scottish hands and there have been powerful documentaries recently showing scandals in the salmon farming sector with Norwegian companies basically using Scotland as a maritime wild west to escape environmental and animal welfare regulations they’d be bound by back home.
Other examples such as the acquisition of Wolfson Microelectronics by American company Cirrus Logic in 2014 arguably stifled rather than promoted the expansion of the Scottish electronics sector – something that we may come to regret in years to come as the Trump Trade War reveals the vulnerabilities countries are exposed to for not protecting their domestic manufacturing.
Common Weal’s policy paper Profit Extraction, published last year, looked at the scale of this problem by examining data on Scotland’s GDP (Gross Domestic Product – the value of everything produced in Scotland in a year) and Gross National Income (which modifies GDP to account for the money transferred in and out of Scotland such as via profits or remittances).
In every year since records began at the start of devolution, Scotland has seen more money leave via foreign companies extracting profits from their Scottish subsidiaries than was imported into Scotland via, for example, Scottish companies selling exported products or owning companies abroad. The actual scale of that extraction is stark – Around £10 billion in the latest data year alone and more than a quarter of a trillion pounds across the whole devolution era. A little less than half of this profit extraction goes down south to the rest of the UK but a majority of it goes outwith the UK entirely to the rest of the world.
In terms of the scale of this profit extraction as a proportion of our economy, it places Scotland as one of the most extracted economies on the planet. In general, poorer countries have net profit extraction and richer countries see net profit imports. If Scotland met the “average” of countries of about our wealth per capita, we’d be one of those net importing countries. Instead, our level of profit extraction as a proportion of our wealth is one of the highest in world and exceeds the average of the poorest and most debt-burdened countries in the world. Only five countries were found to be both richer per person than Scotland AND have higher levels of profit extraction and most of those were global tax havens like Ireland and Luxembourg or were trading ports like Singapore.
The reaction to this from the Scottish Government has been to double down. The only investment you ever hear them being vocal about is “foreign direct investment” or “inwards investment”, enjoying their annual jolly to New York Tartan Week to “attract investment” and even to the point of the Scottish National Investment Bank (which was supposed to be a measure against this practice) giving money to an American hedge fund to effectively privatise Scotland’s natural environment (see my article in this newsletter from June last year on the “Market Framework for Natural Capital”).
The consequences of selling off our economy to everyone except Scotland goes beyond the money (though what would Scotland have looked like if a quarter of a trillion pounds had stayed here being spent and re-invested instead of being extracted and leaving forever?) but it’s corrosive to our democracy too. Large multinational companies capable of buying their way into a country’s economy are also mobile enough to leave. This is why the threat of leaving unless given tax breaks, subsidies or other favours is so effective (see Grangemouth, Amazon, any of oil multinationals).
This means that governments are convinced by, coerced by or outright collaborate with these companies to make decisions that we, the voting public, would oppose. It’s also why these companies spend so much time and money lobbying the government – not out of a sense of political endeavour but simply as an investment that will yield future profits (see our story in The National in September 2023 reporting on the loopholes that allow organisations to lobby the Government without having to register that they’ve done so, loopholes such as only lobbying via phone calls or by sending unpaid interns to do the actual lobbying instead of paid staff members).
Trump is almost certainly about to give protectionism a bad name but Scotland has gone far too far in the opposite direction by seemingly supporting everyone extracting profits from Scotland except for companies and people based here. As I said, bodies like the SNIB were supposed to be a counter to this trend, particularly in supporting foundational economic sectors like homes, energy and small businesses. I would like to see the Scottish Government pay more attention to where investment is coming from when it shops around for it. If inwards investment also means outwards profit extraction then instead of just asking how much the Scottish economy will grow due to a particularly investment, maybe they should also be asking who will benefit from that growth too?
