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Jim Cuthbert Margaret Cuthbert November 2007 In 2001, the American academic Arthur Herman published a book whose US title embodied the straightforward and modest claim - “How the Scots Invented the Modern World.” The thesis of this book was that it was Scotland, and particularly the Scottish Enlightenment, which had invented the social structures and institutions which define Western society as we know it today. One key element of modern capitalism whose intellectual antecedents are often attributed to the Scots is neo-liberalism. In this article we will examine how the current implementation of neo-liberalism in fact poses a threat to Scotland’s progress towards independence: but conversely, how we in Scotland have a real opportunity, by taking the lead in the reform of neo-liberalism, to take a significant step forward. But first of all, what is neo-liberalism? To paraphrase Wikipedia, the term is used to describe a group of economic and political theories that portray government control of the economy as inefficient, corrupt, or otherwise undesirable. It is associated with a raft of policies including privatisation, limited regulation, and free movement of capital. In its current manifestation neo-liberalism grew out of the theories of the Chicago school of economics, which were enthusiastically implemented by Reagan and Thatcher. And its Scottish roots? Well, as Wikipedia says, “arguments that stress the economic benefits of unfettered markets first began to appear with Adam Smith’s Wealth of Nations and David Hume’s writings on commerce”. In fact, to blame Smith and Hume, whose writings were misrepresented by Thatcherism, is a travesty: but the mud has stuck to their names. In the UK, neo-liberal policies have been pursued aggressively by successive governments over the past twenty or so years. To give some examples, consider the privatisation of the utilities and the rail system: the introduction and development of the private finance initiative: the policy of selling individual council houses, then followed by large scale transfers of whole tranches of the remaining public housing stock: the various attempts which have been made to introduce market forces and other forms of quasi privatisation in the health service: and the loosening of regulatory controls on banks and financial institutions. Less well known, but also extremely significant, has been the introduction of current cost accounting in government: this has been done in such a way as to favour private sector, rather than public sector, provision and ownership of large scale infrastructure assets. While neo-liberalism is usually regarded as being associated with a right wing political philosophy, the remarkable thing in the UK is how it has been championed by both of the main political parties. Far from Gordon Brown reining back on the neo-liberal policies introduced by the Conservatives, as Chancellor he took these policies on board and enthusiastically developed them. So what is the problem with all this? We argue that there is an underlying UK problem, and also some very specific implications for Scotland. The underlying problem is that there is an increasing body of evidence that neo-liberalism, as applied in the UK, tilts the balance too far in favour of the private sector provider - so that the consumer, and the taxpayer, get an outstandingly poor deal. For example, as we noted in a recent article in the Scots Independent, PFI schemes can be hugely profitable for the operating consortia: in fact, recent evidence emerging under Freedom of Information indicates that PFI can well be described as “one hospital for the price of two”. Studies of productivity in the NHS indicate that the various moves towards a market centred approach have not delivered hoped for productivity increases. In the case of privatised utilities, the method used by the regulators in setting price caps means that consumers are charged too much for capital investment - leading to over-charging and windfall profits. Note that while the water industry in Scotland is still publicly owned, the same pricing method is also employed here: and that, because of the resulting over-charging, there is a real danger that water in Scotland will be privatised at some stage. But why should neo-liberalism pose particular problems for Scotland? One reason is the Barnett formula. Because of Barnett, Scotland gets a smaller increase in its budget each public expenditure planning round than is received by corresponding Whitehall departments: if Whitehall gets 4%, the Scottish Government will get approximately 3%, and so on. When public expenditure settlements are tight, (as in the current settlement, and as is likely to be the case for the foreseeable future), then the excess cost burden, and the future cost commitments, implicit in neo-liberal policies like PFI, make the budgetary problems faced by the Scottish Government relatively much more difficult than for Whitehall. But neo-liberal policies also pose a problem for Scotland’s future. It is a truism to say that a newly independent Scotland would be striving to maximise its competitiveness in world markets: and to manage its public finances prudently. But if, for example, we continue to be burdened with the neo-liberal pricing policy for water, which is in operation at present, (or even worse, if water is privatised), then we will not benefit from the comparative advantage in water prices which should be an important stimulus to the competitiveness of Scotland’s industry. Similarly, if Scotland is left with a thirty or forty year legacy of paying off expensive assets acquired on a “one for the price of two” basis under PFI, this will make the budgetary position of an emerging independent Scotland very difficult indeed. The challenge for Scotland is to develop better alternatives to these damaging neo-liberal policies. This is a difficult challenge, not least because some of the key variables lie within the control of Westminster rather than Holyrood: in particular, the rules of government accounting, which have driven so much of the neo-liberal agenda, fall into this category. Another danger is that any move to reform neo-liberalism tends automatically to be seen as arising from a far left political perspective, and therefore tends to be dismissed. This is unfortunate: as we have seen, neo-liberalism now covers a broad political spectrum, so there is no reason why a broad spectrum critique of neo-liberalism should not be developed too. In favour of change, however, Scotland does have some significant powers. For example, responsibility for PFI in Scotland is a devolved matter, as is regulation of the water industry. So there is much that could be done by the Scottish Government: and who better to develop a broad spectrum response to the failures of neo-liberalism than the SNP, which is in itself a party embracing both the Right and the Left. If Scotland does succeed in developing better alternatives to the current unsatisfactory neo-liberal policies, then the rewards will be substantial. We will remedy a situation which is, as we have seen, an obstacle on the road to independence. We will provide a model to help those third world countries who are themselves suffering from the aggressive implementation of neo-liberal policies. We will demonstrate, to ourselves and others, that we can take a positive lead in reforming policies which, even at the UK level, are increasingly recognised as not working. And given that Gordon Brown, and Labour, are now thoroughly identified with neo-liberalism, exposing the failures of neo-liberalism will strike a blow at Labour hegemony in the UK: a hegemony which is probably the greatest obstacle of all to our progress to independence. PAGE 1 8З"И"О"П"Р"С"Т"Ц"§іѓіюіѓ0JmH0J j0JU5 9FXfgкл~ы ь rsя№€§ўСТђѓЯаnoЗ"ќљљљїєєєєєєєєєєєєєєєєєєєєєєє$$$9FXfgкл~ы ь rsя№€§ўСТђѓЯаnoЗ"Т"У"Ц"§§З"Т"У"Ф"Х"Ц"јієєё$&`„ќџ„#0PАƒ. 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