A devolution reboot: making Scotland a magnet for talent and growth

IN THE EARLY DAYS OF THE SCOTTISH PARLIAMENT, Wendy Alexander, then a leading light in Scottish Labour (she was enterprise minister and went on to lead the party), sponsored an interesting thought exercise.

Six leading economists from around the world were asked to assess how to boost the Scottish economy in the new era of devolution. Perhaps most interesting was Edward Glaeser, a Harvard economist who specialises in the economies of cities: what makes them productive, what problems they have and how to solve them.

His short paper, Four Challenges for Scotland’s Cities, chimed not just because its ideas fitted very well with the powers that had recently been devolved in Scotland. He also pointed out something that, to me at least, was an original insight. I don’t think it was fully appreciated at the time in public discourse in Scotland or the wider UK. In fact, I think it still isn’t.

Clearly, in a mature economy like Scotland’s there’s not much point trying to compete through low-cost manufacturing as we did in the past. The Chinese and others will always undercut us.

Scotland’s uniquely fortunate circumstances mean that, far from driving people away with tax, we could be pulling them in with an attractive tax regime

Instead, we have to attract businesses that rely on human rather than physical capital. Such businesses – banks, management consultancies, legal firms, product designers, marketing companies – will invest in places where they can find skilled labour. And well-educated, skilled workers seek out nice places to live in.

So Glaeser’s point is that, while the traditional economic policy tools of tax, monetary policy, trade and regulation are important, it’s also vital to create and attract a skilled workforce through excellent schools and good ‘amenities’ – a beautiful environment, good-quality and affordable housing, good transport links, low crime and so on. If you want Scotland to be wealthy, wealthy people should want to live in Scotland.

But this agenda is not just aimed at middle-class professionals. It is the poorest in our society who are most affected by low educational outcomes, crime, miserable housing, grotty public spaces and a lack of jobs.

The remedies advocated by Glaeser at the outset of devolution are still just as apt today. Indeed, I would argue they are more relevant than ever because the internet and growing tendencies to work remotely have allowed skilled service-sector workers even more choice about where to live. If we want them to choose Scotland, we need to use the powers of the Scottish Parliament to attract them and help tackle our deep-seated social problems at the same time.

Just as at the turn of the century, today we see a big shift in the political scene, with many voters turning away from the established parties and looking for something new. Not least, votes for nationalist parties are down, so there is some hope that Scottish politics can turn away from the sterile and divisive debate on the constitution if a more positive agenda is on offer.

So, in the run-up to the election, I’m going to offer five policy areas where we can tackle poverty and encourage growth. A kind of devolution re-boot, inspired broadly by Edward Glaeser’s original paper all those years ago (but in no way claiming to speak for him).

First of all has to come pupil attainment. The great disaster of devolution – and the SNP’s shame – is the calamitous decline in Scottish school outcomes. Education is not just central to producing and attracting skilled labour and the business it fuels, but also to curing Scotland’s social ills. Others will write in more detail on schools in these pages, but I want to focus specifically on how education can be a tool to boost growth and tackle poverty.

Next comes planning. Scotland is a sparsely populated, naturally beautiful country, but somehow we can’t build enough houses, and the ones we do build are too often expensive and ugly. This is not conducive to investment, nor does it help the poorest find good-quality homes.

Third, I’m going to talk about a sense of place. Edward Glaeser talks about the importance of tackling crime. Skilled professionals and investors shun places where they feel under threat. Most importantly, crime blights the lives of the least fortunate, who cannot escape it. This goes beyond effective policing to ensuring our streets, town centres and public spaces are clean and are imbued with a sense of order.

Glaeser’s insight was that we have to offer an increasingly mobile workforce the makings of a good quality of life. But he also stressed that we must not drive them away with excessive taxation. That’s exactly what the SNP has been doing by hiking income tax over and above other parts of the UK. So my fourth task is to look at the public finances. Scotland’s uniquely fortunate circumstances mean that, far from driving people away with tax, we could be pulling them in with an attractive tax regime while leaving public services better funded than elsewhere.

Finally, I’m going to tackle a subject that was not on Glaeser’s radar back in the early 2000s. To stick with my ‘p’ policy theme, I’ll call it population. The mass movement of people globally and the big changes in populations at home have caused consternation among the electorate. It is the single greatest reason behind the rise of Reform UK in Scotland as well as elsewhere.

As so often in the devolution era, the Scottish Government approach has been marked by complacency, incompetence and even snobbery, with the poorest most directly affected by multiculturalism, just as they are by failures in housing, education and crime. It’s time for a different approach.