ࡱ> q` bjbjqPqP .::&8lD<I2"&I(I(I(I(I(I(I$JhAMLIy/y/y/LIaI666y/p&I6y/&I66JEhF gtQ/ E&IwI0IEM0M FFMF #P6'tW+"LILI3Iy/y/y/y/<d<  Chapter 9 SNP Economic Strategy: Neo Liberalism with a Heart Jim Cuthbert and Margaret Cuthbert Introduction This chapter offers an analysis of SNP economic policy under devolution, with particular emphasis on its performance in the period during which the party has been in office. The task facing the SNP, working towards independence through a process of incremental constitutional change, is not an easy one. In effect, what they face is a triple challenge: first, to persuade the electorate of their competence in exercising those powers which have already been devolved. Second, and at the same time, to persuade the electorate that there are fundamental flaws and constraints with the devolved settlement so that the electorate is motivated to back further constitutional change. Meeting this challenge involves demonstrating clear economic success but constrained success: look how well we have done but we could have done even better. And the third challenge is to articulate a convincing strategic vision of what an independent country would look like, and how it could sustain economic success. This triple challenge is clearly far greater than that which faces a unionist party. In order to achieve independence, it is not enough for the SNP to establish itself as being at least as capable as Labour in managing the Scottish economy, and for it to do reasonably well in the polls. In assessing the SNPs performance, therefore, the relevant approach is not so much a question of judging the SNP against the performance of the other parties in Scottish politics, but against the sterner discipline of its own independence goals. What we will be doing in this chapter is to examine how the SNPs economic strategy, and how its implementation of that strategy, have measured up to the triple challenge. Their task, of course, has been made much more difficult by the onset of global recession. While there have undoubtedly been some specific successes, our overall assessment is sobering: namely, that the SNP government is underperforming to a greater or less extent on each leg of the challenge. Ultimately, we will argue, a major reason for this underperformance is that the SNP have espoused a flawed economic model. They are not alone in this: as we will see, the SNPs economic strategy is a variant of the neo-liberal Washington consensus, which has dominated the economic strategy of all major UK parties, and more widely has landed the world economy in such deep trouble. More generally, neo-liberalism has been defined as a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework categorised by strong private property rights, free markets, and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. (Harvey 2005: 2). We will categorise the SNPs variant of the policy as neo-liberalism with a heart. That the SNP are merely following a consensus model provides no excuse: a party which wants to achieve fundamental change cannot afford to be just a follower, but must be well ahead of the pack in the clarity of its analysis. But first, to set the SNP economic policy in context, it is useful to summarise in bullet points the following well documented points about the Scottish economy: Scotland has a large service sector, a large public sector, and a diminishing manufacturing sector. Its major trading partner is the rest of the UK. For at least the last 40 years, it has had a relatively low rate of growth in GDP compared to the UK as a whole and to many other EU comparator countries. Scotland has a static and ageing population: and has suffered from a chronic drain of its qualified young. There has been a long history of regional aid initiatives, many of which failed to take lasting root. There is a low rate of business research and development, compared with the UK as a whole, and even more so with other advanced economies. There are relatively few head offices in Scotland: and there is a relatively low proportion of workers in higher level occupations. The SNP Governments Economic Strategy: Pursuing the Arc of Prosperity. Our starting point is an analysis of the economic strategy published by the new SNP government after it took power in the Scottish Parliament in 2007: (Scottish Government 2007). The first, and in many ways the key, question to be asked about any economic strategy is is there an underlying vision? It is very clear from a reading of the SNP economic strategy that there is a vision. The economy is at the very centre of all other priorities: Sustainable economic growth is the one central purpose to which all else in government is directed and contributes.: (page v). This economic growth is to be delivered in a regime which is basically low tax, and has a light regulatory touch: there should be a competitive tax regime which incentivises business growth and attracts mobile factors of production, (page viii), and there is a need to address the streamlining of regulation, reducing unnecessary burdens on business: (page 35). There is a clear feeling that government action risks interfering with the efficient operation of the market: Without addressing significant market failures or legitimate equity concerns, government action risks crowding out private sector activity or creating new sources of inefficiency or inequity.: (page 4). Globalisation is seen as an opportunity, not a threat: the Irish experience demonstrates how the opportunity of globalisation can be realised by delivering accelerated rates of growth through developing, attracting, and retaining mobile capital and labour. : (page 6). To achieve success in this globalised environment, the strategy foresees that it will be necessary to focus on particular sectors and businesses: there should be a particular focus on a number of key sectors with high growth potential and the capacity to boost productivity, (page 29), and there should also be focused enterprise support to increase the number of highly successful, competitive businesses.: (page viii). Scotlands human capital is seen as a key resource: Scotland has real strength in the most vital factor for modern economies the human capital offered by our greatest asset Scotlands people, (page vii): and an important priority will be to align training and education, at all levels, to the needs of the economy: to ensure the supply of education and skills is responsive to, and aligned with, actions to boost demand.: (page 35). Another important enabler is the governments role in providing infrastructure, particularly transport: Enhancing Scotlands transport services and infrastructure are key to supporting business and employment opportunities.: (page 30). Even within the limited powers available under devolution, the strategy envisages that much could be done to boost Scotlands competitiveness and economic growth: Scotland can rediscover much more of a competitive edge. It can become an attractive and more tax friendly business environment, with efficient transport and communications as well as a skilled and able workforce.: (page v). According to the strategy, the upshot would be that Scotland would move into a self-sustaining cycle of high economic growth: this will drive up economic growth and economic growth will, in turn, create a virtuous cycle with multiple positive effects: more opportunities for high quality employment: more successful new companies: and more of our brightest and best working in, and returning to Scotland.: (page v). Overall, the strategy envisages the economies of other small Northern European countries as providing both a guide and a model the Arc of Prosperity: the strategy draws on the lessons and approaches of the successful small independent economies of Norway, Finland, Iceland, Ireland, and Denmark hereafter referred to as the Arc of Prosperity countries which are similar to Scotland in scale and geographically close.: (page 2). Ireland is seen as a particular exemplar: Today we have everything it takes to be a Celtic Lion economy, matching, and then overtaking, the Irish Tiger.: (page v). So here we have a vision which distrusts the role of government: favours a low tax, low regulation, business friendly approach, and sees opportunities in globalisation, and free movement of capital and labour. Do we recognise this? Absolutely: it is an expression of the neo-liberal or Washington consensus. After being driven forward by Margaret Thatcher and Ronald Reagan, neo-liberalism became a new orthodoxy, which came to dominate the economic policies of the Anglo-Saxon world over the next twenty years. Even though it is normally regarded as a right wing political philosophy, it was enthusiastically embraced across most of the political spectrum in the UK particularly by New Labour. So in adopting an economic vision with a strong neo-liberal flavour, the SNP are certainly not being radical at least in the context of pre-credit crunch Britain. While we have categorised the SNP economic vision as a version of neo-liberalism, it is important to note that it is not the kind of red in tooth and claw neo-liberalism sometimes encountered elsewhere. This can be seen very clearly in relation to privatisation, and the size of the public sector. The SNP strategy makes no proposals for further privatisation of public services: even though Scottish Water, or certain areas of health provision would be natural targets for an outright neo-liberal agenda. On the other hand, the SNP strategy does not envisage radical rolling back of current privatisation: for example, in relation to PFI, what is proposed is a modification, the Scottish Futures Trust, which would still leave the assets in the private sector. And the SNP strategy draws something of a veil over what it sees as the appropriate size of the public sector, and the appropriate level of public expenditure: the SNP would make the case for Scotland to have fuller, and eventually full, responsibility for tax raising and public spending, utilising this to make Scotland the lowest taxed part of the UK.: (page 29). The likely implication of this philosophy is that there would be downward pressure on the size of the public sector in the long term but the strategy does not quite bring itself to say so. Another important aspect of the strategy is the emphasis which it places on equity. In a sense, the strategy sees an almost symbiotic relationship between economic growth and improvements in equity. On the one hand, economic growth creates the resources which are required to reduce poverty: on the other hand, increasing equity, particularly improving access to education and training, is key to raising economic participation, which in turn is seen as fundamental in improving economic growth. Increased participation and enhanced quality of employment across our cities, towns and rural areas will enhance our performance and deliver a more inclusive Scotland.: (page 37). This is still very much a neo-liberal perspective: economic growth and equity are seen to re-enforce each other, basically through the operation of the market. But this vision of increasing equity linked to economic growth contrasts strongly with the opposing reality in which neo-liberal policies normally produce increasing inequality. It is because of its optimistic view that we have characterised the SNP vision as neo-liberalism with a heart. One final point which is important to note about the strategy is that it sets out clear targets. For example, by 2011, the target is to raise the Scottish rate of GDP growth to the UK level: and by 2017, to match the GDP growth rate of the small independent EU countries: (page 11). These are not conditional targets they are targets which the SNP set for itself, without any caveats about, for example, the need for further powers. It is worth remarking on how much the SNPs economic vision itself has changed within the last ten years. To see this, it is only necessary to go back to the SNPs 1999 Manifesto for the first Scottish elections after devolution: (SNP 1999). At that time, the key element in the SNP strategy was to position the SNP as pro-public expenditure and pro-public services: and to portray Labour as the party of low tax and lower investment in public services. As the Manifesto said, New Labour has taken on Tory principles. Tax cuts, rather than public services, are New Labours priority, and Scots have said that they are prepared to invest in public services, if given the choice. The SNP is now giving that choice. This stance was entirely consistent with the SNPs vision for a post-independence economic strategy, as spelled out in its earlier paper, Towards a Better Scotland, which had a traditional left wing and strong public sector emphasis, rather than giving weight to business friendly policies although the latter were by no means excluded (SNP 1995). The change towards emphasis on clearly pro-business policies was largely the result of the SNP defeat in the 1999 election. The SNP leadership realised that it was regarded by sections of the business community as being anti-business. It set about to develop a much more business orientated strategy and to sell this to the business community. The leg work in developing the new approach, and selling it both to the business community and to the party, (which may not have been naturally receptive to these ideas), was largely undertaken by Jim Mather. The effects on business opinion were marked. In the 1999 election campaign, in a much publicised open letter, 100 prominent businessmen had come out in support of Labour: by 2003, only 17 of these signatories still endorsed Labours economic policies. The SNP in Office Before considering what the SNP has actually delivered in power, it is important to set the context for what it can, and cannot, deliver. There are, of course, the obvious constraints, in terms of those economic powers reserved to Westminster like the power to borrow, the fiscal power to set major strategic tax rates such as corporation tax, much of research and innovation policy, employment policy, and control over the structure and level of social security benefits. These last two are crucial levers for influencing economic participation rates. Another major power which the Scottish government does not possess is control over interest rates and, the other side of the same coin, the ability to make strategic exchange rate decisions: it was, for example, fortunate decisions on exchange rate policy which played a large part in propelling Ireland into its ten year golden decade starting in the 1990s. A further constraint which in a de facto sense has inhibited the SNP government has been its failure to control an absolute majority of seats in the Scottish Parliament. This problem has lumbered the government with some important policies which it might well have wished to see the back of, (e.g., the Edinburgh tram): as well as blocking some other policies which would have had potentially important economic, as well as social, effects (like the local income tax). Finally, it rapidly became clear that the SNP government would be operating in an environment of public expenditure constraints, and perhaps even real public expenditure cuts quite unlike the rapid public expenditure growth experienced throughout most of the Brown boom years. Against this background, what has the SNP government actually done, to deliver on its economic strategy and vision? Among some of the most important actions taken by the SNP government in its first two years of office are the following: It set up a Council of Economic Advisers and a National Economic Forum. It has delivered on a bonus scheme to reduce or remove rates bills for around 150,000 small business properties in Scotland. It has successfully negotiated a council tax freeze for (at present) two of the targeted three years. While not directly a tax on business, council tax has important economic effects, because it is part of the context within which wage negotiations take place: and also because it directly forms part of the cost structure of the large number of small home based small businesses. It has started the simplification of regulation and planning. Scottish Enterprise has been reorganised. Its strategy is now driven by the governments policy of achieving economic growth and is primarily focused on companies with high growth potential. Of its business 80% is now concentrated in the key sectors of energy, financial and business services, food and drink, life sciences, and tourism and creative industries. Local regeneration and services to small businesses and start-ups have been passed to local authorities: a new organisation Skills Development Scotland has taken over responsibility for careers and skills advice and training. A Scottish Futures Trust has been set up in an attempt to reform the private finance initiative (PFI). A public sector contracts portal has been established with the aim of making easier for small and medium sized firms to bid for public sector work. There have been initiatives on the transport front including the abolition of tolls on the Forth and Tay bridges, the trial reduction of ferry fares to certain islands, the commitment to press forward with a new Forth crossing and the announcement of a transport infrastructure strategy. It has given approval for the development of significant onshore wind capacity, approving the worlds largest wave energy project, and launching the Saltire prize, with the first challenge focusing on developments in wave power technology. The Scottish Skills Strategy was launched in 2007, and subsequently amended following initial criticism by parliament. The strategys aim is to make skills training relevant to the needs of the Scottish economy: to this end, there has been extensive consultation with employers, skills councils, and the STUC. Individual learning accounts have been refocused and can now be used for workplace learning. It has set up a Future Thinking Taskforce, to map out the future direction of the university sector. In tourism, a major effort has been put in to the Homecoming 2009 initiative. This was inherited from the previous administration, but has been very actively pursued by the SNP government. As regards the current economic crisis, the Scottish government announced in October 2008 a number of tactical steps to counteract the effects on Scotland. These include a six point recovery programme concentrating on reshaping spending plans, attempting to ensure that all government activity supports economic development, maximising the benefits of Homecoming 2009, taking action on fuel poverty and energy efficiency, and a range of advice and support measures for individuals and businesses (see Scottish Government 2009). Assessing What has Happened So how should we regard the success or otherwise of the SNPs strategy in action? Our appraisal is structured round the following questions: Has the administration tried to do what it said it was going to do? Have the administrations actions been successful or ineffective? Are there other actions which should have been taken, but which have not been? And how valid, in any event, is the underlying vision? It is clear that the SNP in power have indeed tried to do what they had planned. As shown above, action has been taken, or started, in each of the main priority areas identified in their strategy. Credit is therefore due: the SNP government does do, or at least tries to do, what it says on the can. On the question of how effective their actions have been, the position is mixed. On the credit side, there are some definite successes, and evidence of progress. The Federation of Small Businesses in Scotland has hailed the new small business bonus scheme and credited it with preventing many bankruptcies. The Council tax freeze has been delivered: there is a potential downside however, in that the reduction in the ring fencing of expenditure which was part of the price of negotiating this deal makes it more difficult for central government to ensure its priorities are carried out. There has been progress, albeit relatively slow, in simplifying planning procedures: with a marked increase in the proportion of planning appeals processed within twelve weeks. The action on skills and training has been generally welcomed, and has received the endorsement of the General Secretary of the STUC: Overall the guiding principles of the Skills Strategy are very worthy and relevant, and are broadly aligned to the work of the STUC and Scottish Union Learning. (STUC 2008). There remain STUC concerns, however, that many small employers will fail to introduce relevant training in the workplace, and to make best use of skills, without further government intervention. As regards the economic recovery programme for the current crisis, the SNP government already claim tangible successes. The most significant of these is probably the bringing forward in Budget 2009-10 of some 293 million of capital spending: this covers, for example, schools, roads, colleges, universities and infrastructure capital projects. In particular, 120 million of this is for the affordable housing investment programme. On the debit side there are a number of issues as regards effectiveness. Consider, for example, the case of the Futures Trust in many ways, one of the SNPs flagship policies. Progress has been, by almost universal consent, disappointingly slow: as of Spring 2009, almost two years after the SNP took power, it appears that no projects have yet had contracts signed. In any event, the new initiative itself appears ill-conceived. The consultative document which was issued on the Futures Trust made it clear that capital assets provided under Futures Trust projects should be off the governments books in national accounting terms. This requirement is redundant: with the imminent introduction of new accounting standards, all PFI or Future Trust type projects are likely to be reclassified as being on the governments books. Further, to get a project off the books under the existing rules, the provision of the capital asset and the provision of ancillary services have to be bound up together in a single contract. This constraint means that projects which are designed to be off the books tend to be large projects the provision of a serviced asset, rather than separate contracts for the provision of the asset and of associated services. It was the sheer size of the projects involved which led to many of the problems with PFI: from the exclusion of local firms, who could not match the required scale, to the restriction of the market, which in many cases contributed to excessive costs. The unnecessary restrictions built into the Future Trust proposals means that these problems will persist. Another initiative which could have been more effective is the public procurement portal. There is first the question of whether this adds significant value: there is an already existing UK-wide public sector portal, which lists public sector tenders of value less than 100,000. The Scottish scheme does include larger projects: but these are, in any event, also listed in the official journal of the European Community. However, the main problem with the Scottish portal is that it has not been accompanied by any attempt to unbundle these contracts into smaller constituent parts: in the absence of unbundling, it is not clear how the benefits of the new portal can be maximised for many small Scottish firms. In the area of transport there has been widespread criticism that the overall strategy lacks coherence, and that the approach to the new Forth crossing has neither pressed forward rapidly enough, nor involved sufficiently radical reappraisal of the plans inherited from the previous administration. The handling of the Network Rail franchise renewal, without going out to tender, also raised widespread concern, and must pose questions over value for money. In higher education, although the Future Thinking Taskforce has made a number of recommendations, arguably these do not go far enough. In particular, the required intra-institution mechanisms have not been put in place which would allow issues such as course rationalisation and institute rationalisation to be pro-actively addressed. In addition, given the lack of top-up fees in Scotland, there is the danger of a chronic funding shortfall which has not been addressed, Our overall verdict, therefore, on the effectiveness with which the SNP government has delivered its specific policy initiatives is a mixed one. They deserve credit for actions in several areas, but they could try harder in others to achieve substantially greater impact. Let us now look at whether there are actions, not on the SNPs original agenda, which should have been tackled but have not been. First, doing the best for the Scottish economy means not just using the Scottish Budget in isolation but working effectively with the UK government. There is ample evidence that, like the previous administration, the SNP has not worked effectively with UK government departments responsible for reserved matters. Reserved matters cover much of trade, industry, employment, and competition, as well as social security, defence and foreign affairs, including Europe. Working with these departments to ensure that their efforts are indeed relevant to Scotland, and exposing them publicly when this is not the case, should be a high priority for any Scottish government, but especially one whose goal is independence. Secondly, there is the question of water charges in Scotland. There is a unique opportunity here. Scotland has a publicly owned water industry water is the only utility where the responsibility for regulation is devolved to Scotland and Scotland has in operation an inappropriate pricing model for water. The pricing model leads to a large amount of new capital formation in the water industry being funded direct from customer charges, breaching the normal principles of inter-generational equity. For example, in the strategic review of water charges for 2006-10 the amount of net new capital expenditure projected to be funded from customer charges was over 400 million. In effect, the pricing method used for setting water charges in Scotland sets prices at too high a level. As we have argued at greater length elsewhere (Cuthbert and Cuthbert 2007a), water charges in Scotland could be significantly reduced, in a fully sustainable way. This would have several advantages, including giving industry in Scotland a significant competitive edge, and preventing Scottish water becoming a cash cow and eventual privatisation target. Given that there are no apparent downsides to taking action in this area, the SNP governments failure to act appears incomprehensible. A third area where, in our view, the Scottish government has failed to take appropriate action relates to the European structural funds. Up until 2006, because of the rules associated with the operation of the Barnett formula, Scotland received significantly less funding in relation to the European structural fund than it had to pay out to the final recipients of structural fund grants. Essentially, Scotland had to fund a large part of structural fund spending in Scotland out of its own resources. The amounts involved were large the shortfall in Scottish funding amounted to almost 1 billion over the period 1995/06 to 2005/06 alone: (Cuthbert and Cuthbert 2007b). The Scottish government accepts that Scotland was short changed in this way, and has raised the issue several times with the Treasury to be met by a complete stonewall. No progress on this issue can be expected, as long as it continues to be addressed in closed discussions with the Treasury. It appears that the only lever the Scottish government has is to open the issue up, so as to arouse public debate. It is difficult to understand why they have not done this. Our final example is in relation to the current recession and credit crunch. Although, as we have already noted, the SNP government has taken a number of tactical steps to counter the effects of the recession, in a strategic sense they have been badly wrong footed. One of the main arguments put forward by Unionists has always been the supposed benefit to Scotland of sharing in the perceived strength of the UK economy. On the face of it, therefore, the SNP should have been able to capitalise in a political sense, as recent events have demonstrated the fundamental weakness of the City based economic model. In the event, as the polls indicate, support for the SNP was weakened, at least temporarily, by the onset of the credit crunch. The credit crunch enabled Scotland to be portrayed as too small to survive on its own in such troubled seas, with the economy being seen as too dependent on the discredited financial services sector: and with several of the arc of prosperity countries suffering badly in their own right. We would argue that the SNPs inability to take greater political advantage from the current situation reflects multiple failings on its part. There has been failure to see this crisis coming, even though it is clear, from the economic strategy papers produced by the SNP themselves in the early 2000s, that they were already well aware of the unstable pressure cooker nature of an economic model based on the City. There has been a failure to distance the SNP sufficiently from the banking sector even though they had been warned of the dangers. And there are basic problems of vision to which we return below. So there have indeed been serious failures of omission. But finally, what of the SNPs economic vision itself, as set out in the 2007 Economic Strategy? How valid is this vision? The first point to make is that, even if one were to accept the Washington consensus or something similar as the appropriate vision for Scotlands economy, nevertheless, the realisation of that vision set out in the SNPs economic strategy has not been adequately thought through. Take the question of the appropriate currency and exchange rate policy for an independent Scotland. These are not issues which are explicitly addressed in the 2007 strategy: the implication presumably being that, in line with the SNPs Scotland in Europe policy, membership of the eurozone would be the appropriate strategy for an independent Scotland. But if this is the position, then it still leaves huge questions unanswered: for example, would Scotland be in a viable position if it became a member of the eurozone while its largest market and probable closest competitor, namely the rest of the UK, remained outside? Particularly given the magnitude of the swings in the relative values of the and the euro which have been observed over the past ten years? Another issue on which, as we have already noted, the strategy is largely silent, is the question of the optimal size of the public sector. There is, however, an even bigger problem for the SNP economic vision namely that the Washington consensus itself is now widely recognised as having failed. Rather than spending time arguing this point ourselves, we need do no more than appeal to the words of Gordon Brown himself, the former high priest of neo-liberalism, who on 25th March told an audience of US bankers that the Washington Consensus was dead. Eight days previously, in an interview quoted on ITN, he said Laissez-faire has had its day. People on the centre left and the progressive agenda should be confident enough to say that the old idea that the markets were efficient and could work things out by themselves are gone. While the failure of the neo-liberal vision is damaging for the SNP, it is important to stress that this failure is by no mean fatal to the cause of independence. As Gordon Brown so frequently points out, the current economic crisis is global. A good case could be made that a small and relatively resource rich country, like an independent Scotland would find it easier to adapt to a new economic order than the UK as a whole will particularly given the inertia of the large UK economy, its over-dependence on the City, and the extent to which its economy was distorted by easy credit and the property boom. Nor are we arguing that the SNPs response to the failure of the neoliberal model should be that it should set about saving the whole world, by crafting a completely new world economic order. Gordon Browns attempt to do just this is being increasingly seen as a doomed diversionary tactic. The appropriate response by the SNP is surely to develop a new economic vision, and a strategy, both of which are robust in the face of current economic uncertainties. It is not for us to prescribe what that strategy should be: but it would be very surprising if any emerging strategy did not embody the following key features: Much less reliance on the financial services sector as the dominant driver of the economy. Given the failure of the UKs regulatory mechanism for the financial sector, a strong push towards taking control of financial regulation in Scotland. Given the vital importance of Scotland rebuilding its industrial and exporting bases, an industrial strategy which has a broader sectoral base and is firmly focused on developing Scotlands comparative advantages into sustainable export industries. A continuing strategy of skills and training, which is not only firmly allied to Scotlands industrial strategy, but also has sufficient teeth to ensure widespread implementation. Maximum use of the considerable leverage the state possesses to nurture and support indigenous businesses. Even within the context of the rules on state aid, much more could be done. Conclusion We conclude by returning to the question posed at the beginning of this chapter. How well has the SNP in power responded to the triple challenge of establishing its economic competence, while highlighting the inherent weaknesses of the present constitutional setup and presenting a compelling economic vision for an eventually independent Scotland? Our conclusion is that the SNP has underperformed on each leg of this challenge. On the first part of this challenge, our verdict on its competence is could try harder while some things have been done well, on other issues there has been slow progress, and an insufficiently radical approach, and there are some inexplicable omissions as regards things it clearly should have done but has not attempted. As regards the second leg of the challenge, the SNP made the grave tactical blunder of setting explicit targets for what an SNP government could achieve. There were two things wrong with this. First of all, given the multiple constraints under devolution on the SNP in power, delivering on many of these specific targets is beyond their reach. Therefore setting these explicit targets creates huge hostages to fortune for the party. But worse than that, the act of setting a target involves taking responsibility for failure to deliver. It is very difficult, if the targets are not achieved, to then try to pin the blame on fundamental weaknesses in the constitutional settlement. By adopting a target driven strategy, therefore, the SNP largely surrendered its ability to succeed on the second leg of the challenge. And finally, the SNPs choice of long term economic vision has proved damaging. Adopting a version of the consensus neoliberal model may have seemed a fairly safe choice at the time even though the inherent flaws in that model were already showing clearly when the 2007 strategy was being written. In the event, the flaws in the neoliberal model have become more and more apparent, and the SNP has proved extremely slow in trying to distance itself from that model. The paradox is that Gordon Brown has moved faster and further from his light-touch regulation neoliberal model than the SNP has. The effect has been that what should have been a political opportunity for the SNP, namely the collapse of the previously dominant UK economic model, has in fact turned out to be a disadvantage. The third leg of the challenge has been comprehensively failed. The question that then arises is - why has the SNP not performed better? The answers to this question are inevitably complex. But if we were pressed for a single defining weakness, it would be that the approach adopted has been too consensual, and too apparently safe. A Party which is committed to an ultimate objective which is effectively revolutionary has to be more willing to challenge along the way to that objective to challenge the over-riding economic consensus, to challenge the status of the bankers, and square up to the power of existing vested interests like the Civil Service. A party which is not willing to challenge on issues like these is ultimately not going to succeed in bringing about fundamental change. References Cuthbert, J.R. and Cuthbert, M. (2007a), "Fundamental Flaws in the Current Cost Regulatory Capital Value Method of Utility Pricing", Fraser of Allander Institute Quarterly Economic Commentary, Vol 31, No.3. Cuthbert, J.R. and Cuthbert, M. (2007b), "How Scotland will be Disadvantaged in the Longer Term by Recent Changes in Government Accounting for European Structural Funds": Fraser of Allander Institute Quarterly Economic Commentary, Vol 31, No.4. Harvey, D. (2005), A Brief History of Neoliberalism, Oxford, Oxford University Press. Scottish Government (2007), The Government Economic Strategy, Edinburgh, Scottish Government. Scottish Government (2009), The Scottish Governments Response to the First Annual Report of the Council of Economic Advisers, Edinburgh, Scottish Government . SNP (1995), Towards a Better Scotland, Edinburgh, SNP. SNP (1999) Manifesto for the Scottish Parliament Elections, Edinburgh, SNP. STUC (2008) Statement on Skills Strategy, Glasgow, STUC.     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