In considering aspects of the great global economic meltdown for various bits and pieces that I do I have found it useful to look back, to read Galbraith’s Crash of 1929 and other things about that period while marvelling at the similarities of the mistakes in the run up to the depression – and the mistakes that some seem to be repeating, to consider the securitisation frameworks adopted by some of the British and American banks, to consider the articles that described the securitisation framework as a financial alchemy where the could be no losers, to consider the uneconomic takeover of various foreign banks when all financial commentators were advising of the risks, and the occasionally hypocritical comments of politicians who bemoan the economic handling of countries and businesses they once enthusiastically praised.
Anyway, I was reading a speech by a prominent politician today. The speech was made in March 2008. After a bit praising the home audience it goes on to give a detailed consideration of the then economic position, a quick look at the flexbility and success of one or two international economies, and praises some big brand names that have bolstered their home economy. Here it is.
The economic outlook
Let us start by considering the current global economic outlook. And let us consider the challenges we must meet to deliver long-term success.
There is realisation that the credit crunch is hurting the real economy in America and in Europe as well.
But encouragingly we see that policymakers are taking concerted action, determined to protect jobs and maintain stability.
Central banks are providing liquidity and most are cutting rates in a coordinated way.
And the U.S. Congress has responded quickly with a major stimulus package, with rebates for families and tax cuts for businesses.
Financial shocks happen even if they seldom happen on this scale. But if effective action is taken and if the underlying problems of poor financial regulation and insecure lending practices are dealt with, the economy will prove resilient and the rebound from the downturn will be strong and vigorous.
Therefore I am optimistic about the medium term prospects for our economies. Because I believe that the prospects for a resumption of growth are strong.
Sometimes we should stand back from immediate difficulty and take a considered view. For one thing, we are coming off a long period of continuous growth. . We have to go back as far as 1991 in America to find a year of negative economic growth.
Those intervening years have brought continued expansion, while inflation and unemployment were kept firmly in check.
And while demand across the western world has grown steadily, we also have a new, growing and long-term source of impetus in the world economy – with China, India, Brazil and Indonesia injecting new demand and dynamism into the world economy.
And while that expansion will inevitably place great pressure on resource costs unlike for example the 1970s the world economy has a much greater ability to recycle balances from resource rich to resource poor countries.
So these are the reasons why I am positive about our long-term economic prospects.
And therefore wise investors will not be spooked by the latest ‘R’ word count or be battered into submission by the latest morning Op Ed columns.
Successful companies will keep the steady view and invest to make the best return over the medium term. Invest in the economies of the future, where the prospects are brightest.
My message to you today, it is my belief that across the whole of Europe, Scotland has the brightest prospects of all.
The favourable winds of globalisation
Let me explain why the future looks particularly bright for Scotland.
Because as a small, open and dynamic economy, the winds of globalisation are blowing strongly in our favour.
This is an argument that I expect will be familiar to many here at Harvard. And it is one that researchers here at the Center for European Studies will find borne out day after day in their work.
That among the big winners of globalisation are the small, dynamic trading nations of Europe – those countries with the skills and the flexibility to claim a major stake in the knowledge economy and the sectors of the future.
Let us look at a simple and objective measure of success: the United Nations Human Development Index. Among the top five nations in the world we see three of our European cousins – Ireland, Iceland and Norway. These countries are of course being affected by global forces just like their larger neighbours but all recent evidence suggests they will rebound quickest and strongest from current difficulties.
And these countries are not just cousins, they are neighbours. The distance from Scotland to either Ireland or Norway is less than that from Boston to New York.
Why is it that Scotland looks out on this Arc of Prosperity, to the west, to the east and to the north? Why are small European nations enjoying this outstanding economic and social success over the last generation? And for that matter, why is it that today there are two hundred nations in the world, when a century ago there were only fifty?
Here we can turn to Professor Tom Nairn, or for that matter Harvard’s own Professor Alberto Alesina, and others like them, who see the emergence of a ‘New Deal’ for small countries at the heart of globalisation.
During the first half of the last century and perhaps later, smaller nations faced two major disadvantages in the global system. One was guaranteeing their security. The other was gaining access to markets.
However, over time global markets have opened to countries large and small while the threats to international security do not come by and large from territorial acquisition but from international terrorism.
And in this environment, the disadvantages of smaller nations have disappeared, and they are now exercising their natural economic strengths. Flexibility. Speed of decision-making. And the ability to clearly define national interests in pursuit of a clear economic strategy.
Where this occurs within the framework of a European Union and single market place of 600 million people, it creates the ideal environment within which small nations can take the most of their comparative advantage.
It is against this back drop that the case for an independent Scotland has re-emerged – and it is case which I will make tomorrow at the University of Virginia – the homeland of Thomas Jefferson.
But back to the immediate question. What conclusion should American business draw from this new pattern of globalisation?
Well, one lesson is that when American companies consider where to invest abroad – particularly for a base to supply that 600 million strong European market – small countries provide the ideal platform to deliver big results. Because small, highly skilled nations are the future of Europe.
That’s why Dell Computers is the biggest exporter in Ireland and why Wyeth Pharmaceuticals has major operations in Scotland and Ireland.
And looking at our near neighbours, consider the remarkable success of indigenous companies that have become global, Nokia in Finland, Ericsson in Sweden, Maersk shipping in Denmark or for that matter the Royal Bank of Scotland.
All these examples show us that the smaller economies of Europe are just as well equipped as the larger economies – if not better – to provide the skills, the incentives and the regulatory environment that big business needs to succeed.
Building the Celtic Lion economy
The economic evidence is clear. The people of Scotland, our industry and government collectively have an unprecedented chance to deliver lasting economic success.
There are two questions, then, that we must answer. First, do we have the right economic strategy? And second, what is the limit of our ambition?
When the Scottish Government published our economic strategy in November last year, we made clear the scale of our ambition. The immediate target we set was by 2011 – the end of the legislative term – to raise Scotland’s economic growth rate to match the UK average.
And the second target, much more ambitious, was by 2017, to raise growth further, to at least match the growth rate of those small independent nations around us – Ireland, Iceland, Norway, Finland and Denmark.
And the lesson we draw from our neighbours in Ireland – the Celtic Tiger economy – where annual growth has averaged more than 6% over the past two decades, is that with the right strategy, there are no limits to success in the modern global economy.
So Scotland must have the right strategy.
In its essence, the economic strategy of any nation tries to achieve two linked aims. To maximise the potential of its people – the stock of human capital – and to match it to the major sectors of comparative advantage.
This is the explicit aim of Scotland’s strategy, and it will be the basis of our success.
Let us consider human capital first. Because of Scotland’s world-class education system, this has always been a potential source of strength.
Today more than one quarter of the working age population has been to university, a third of those aged 18 to 30 hold a university degree and now a half of school leavers go into higher education.
Scotland’s workforce skills are excellent, by UK and by global standards. And our higher education research base is among the very best.
My government will not only protect the potential of our people. We are enhancing it, with new investment in our schools, colleges and universities – and with our historic move to restore free education at all levels in Scotland.
And we do this in pursuit of a principle that has great resonance in America: that each one of our people has the opportunity to make the most of his or her talents and abilities.
Our aim is not only to retain the best and brightest of our own people. We seek to attract talent from across the globe – from Europe, from the U.S. and elsewhere.
The US census says 9 million Americans are of Scots descent while others suggest as many as 27 million have a Scottish affinity. It is a fabulous compliment that so many Americans identify themselves with Scotland in this way. I hope many of them will find ways to work in, study or indeed visit the land of their forefathers.
So that is how Scotland will maximise its human capital. The other basic question is how will we use our potential in the global economy? What will be our sectors of comparative advantage?
Scotland’s economy is broad based with many strengths. So let me pick out some of the brightest prospects.
Take the life sciences – a growing sector and a sector of the future, founded on Scotland’s world class skills and a scientific base in the world’s top three – behind only Germany and Switzerland in terms of research impact.
Take our creative industries, which are 4% of the Scottish economy and growing strongly. In new media sectors, such as multimedia and games – and in traditional forms, literature, film and theatre – Scottish talent is thriving.
And of course we Scots are lucky enough to have the one of the best brands in the world – a global recognition and affection for our culture that money cannot buy.
Take financial services. With RBS and HBOS – two of the world’s biggest banks – Scotland has global leaders today, tomorrow and for the long-term.
And a growing number of American firms – not least JP Morgan, Morgan Stanley and State Street – are discovering that the Scottish financial sector can do anything you can do in London and can do it better and rather importantly in the current environment can do it at lower cost.
Take the energy sector, where we a major player. Aberdeen is the world’s second largest energy hub, behind only Houston. And I believe we can translate our expertise in oil and gas into the renewables sector to lead global development of marine energy and hopefully carbon capture technology.
Vice-President Al Gore has already praised Scotland for our courage and leadership on climate change. And on Wednesday, at the National Geographic headquarters in Washington D.C., I will outline the next steps in Scotland’s campaign to become the world’s leading centre for renewable energy.
And it is not just venture capital in the US that is attracted into renewables sector; the Royal Bank of Scotland is today the largest investor in renewables in the world.
And therefore, if I could paraphrase Horace Greeley the “most perfect Yankee this country has ever produced” it is not a question of go west young man, but go east young industry, go east to Scotland.
Across the board – with our people, our skills, our business environment and our new industries – Scotland is holding a strong hand.
That is why I am so confident in our economic future.
That is why just last month the Financial Times Group, in its FDI magazine, awarded Scotland the title of Europe’s place of the future – beating competition from 38 other nations and regions.
And that is why, if you invest in Scotland – on our people, on our ambition, on our future – you can only win.
The latest indicators are encouraging compared to elsewhere in the UK: employment rates are higher, the mortgage market remains more buoyant, business optimism more resilient and consumer spending, at 7.1% growing at almost twice the rate.
Scotland is a nation on the move. We will accept nothing less than success.
Tomorrow, all across Scotland, businesses will receive a tax cut, with property tax reduced by 80% for 120,000 premises. This will lower fixed costs for Scotland’s small businesses and set them free to grow and compete.
This new tax cut is powerful symbol of my government’s profound commitment to enterprise.
It is one of our first steps, and there will be many more. Scottish industry demands it. The people of Scotland demand it.
There is a new ambition for our country, and for our economy, which we cannot ignore.
Scotland will become a Celtic Lion. We will build an economy that is the envy of Europe.
That is my aim. That is my ambition.
And, on behalf of all the people of Scotland, this is our welcome – to the American people and to American business – to share in this future.
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