We need a different economic strategy, not more of a failing one

The Scottish economy shrunk last month and the only thing anyone seems to be able to agree on is that 'someone should do something'. There seem to be three main versions of this; 'Holyrood should do something', 'Westminster should do something' and 'they should work together and do something'.

There is quite a bit to untangle in this. Both current regimes took power something like a year ago. Both entered government on a platform of shifting the focus of government to being first and foremost about economic growth. Both have repeated this mantra often since.

Then if you look at what they have said they will do to prioritise economic growth you will find that they are saying much the same thing – make 'this place' the best place to invest for foreign capital, build infrastructure to kick-start the economy, remove barriers (such as regulation) from business and so on.

In fact other than the question of independence (which is much more rhetorical than live as an issue) and spats about who gets what, it is pretty difficult to identify where either government disagrees on the main thrust of an economic development strategy.

That makes the calls to ask them to do more of what they said they were already doing as their number one priority seem a bit odd. 'Please do more of what you say were already doing with your every waking hour' is clearly a strange-sounding solution to a problem that most of of those calling for something to be done haven't really specified. Do they believe ‘government ministers not doing stuff’ is why the economy contracted?

Or, in as far as they have specified what the problem and solution are, it has been said and done many times before. We've heard 'slash taxes and regulation and we'll be Singapore', but we've repeatedly lowered business taxes and deregulated the economy and we did indeed get an economic boom – for about six or seven years and that was 20 years ago and led to a massive global economic meltdown.

In all of this it is worth separating 'fiscal' and 'economic' strategies, because they often get confused. A fiscal strategy is about public budgeting – how much we spend, borrow and raise in taxes, and how we finance it all. The public sector is one of the biggest and most important parts of the economy and it is the one part that can be quickly altered through public policy.

This is why in classic Keynesian economics public sector spending is seen as such a key economic tool since it can be 'turned up' when the private economy is itself slowing down. But fiscal and economic strategies are not the same thing at all.

We have had a number of different fiscal strategies in the last few decades – from Blair's 'tax a speculative bubble' to Osborne's 'transfer the cost of the financial crisis to the public' to Truss's fantasy of a fiscal shock attack to Reeves's austerity-by-numbers. But throughout this time economic policy has remained basically unchanged.

Which brings us back to the three strands of thought on the need to 'do something' about the economy, which we can now see have much less to do with the economy and much more to do with constitutional preference. Nationalists mainly want to blame Westminster. Unionists split between those who want to blame Holyrood and those who want to blame the constitutional debate itself.

It is far from clear what any of them actually want done differently. And it is far from clear that any of this is likely to have much of a real effect on the economy. But there is a bigger issue; it is hard to feel confident that anyone much would notice if any of this worked anyway. Yes, lower tax take will affect public services, but does the average worker notice the difference between a tiny rise or tiny fall in the economy?

Are the problems with our economy not substantially more significant than tiny percentage change in our notional GDP figures? As Common Weal relentlessly points out, this economic contraction is dwarfed by the amount of wealth Scotland's incredibly leaky economy exports every year.

We can continue indefinitely with a debate that is limited to 'my preferred constitutional settlement' and 'this exactly but plus or minus 0.3 per cent'. The latter is what we've done for decades and the result has not been a better economy and it has resoundingly not been happier citizens.

It is not the size but the nature of our economy which is Scotland's primary problem, because it is the primary problem right across the western world. We are lodged deeply inside a single theory of economic management (supply side economics with business deregulation) and every time it fails people shout that we should do it more.

We need to take a value judgement about the economy because weighing it and frowning every month is't working. If we make a value judgement about this economy we will discover that (a) it no longe has the consent of citizens and (b) it will require an interventionist industrial strategy to change it.

Find out Common Weal's thinking on an industrial strategy here.