Business Finance - Viewpoint - Full order books may be deceptive

Bob Reynolds welcomes Scottish sales forecasts but offers a wee nip of caution.

At first glance forecasts for the likely progress of the Scottish economy look attractive. A local survey published in early November showed that order books are full and that new business is coming in at a faster rate than at any time since the 1990s.

This promising trend is a response to the improvement in the US economy, currently estimated to be growing at around 3.25% a year. Many American multinationals - especially ICT and pharmaceutical companies - have based European manufacturing operations in Silicon Glen.

For the strategy directors of multinational businesses Scotland offered many attractions: an articulate, cheap and available workforce, a more pro-European outlook than in England and financial incentives which compare with the best concessions on the mainland.

But, however welcome this latest survey - commissioned by the Royal Bank of Scotland - it fails to deal with the long-term trend which is that Scotland's economy has grown only by 14.5% since 1995 whereas Great Britain's as a whole has increased by 23%.

The Scottish ethos is profoundly different from that of England. Manufacturing forms a larger part of the economy and manufacturing has taken a disproportionately big hit during the recent downturn. Agriculture has also suffered heavily - some Scottish farmers survive only through EU grants.

Scotland's economy is not nearly as diverse as the rest of the UK and so hits in two key areas will undermine the nation's growth potential.

Scots abandoning Scotland

The Economist recently pointed to the trend of Scotland's brightest to seek lucrative adventure in the wider world. Great trading and banking institutions around the world owe their longevity to shrewd company building by Scottish progenitors. The British Indian civil service was run by Scots whose reputation, financial dexterity and probity were admired and envied across the world.

But in recent years - even in times of prosperity - the Scots have abandoned Scotland and - traditionally - left enterprise at home to the less nimble, the less energetic and the less skilful.

The resurgence of home rule with the Scottish parliament has encouraged some of the diaspora to return to build a new, more vibrant Scotland in Europe. But yet a third of 17-25 year olds want to leave Scotland to seek their fortune elsewhere according to MORI.

Those stay-at-homes seeking comfortable livings head instead for the deep pile public sector. Per head of the population, Scotland spends consistently more on the public sector than any other part of the UK.

The UK as a whole spends around 38% of GDP on government and its associated agencies whereas in Scotland this figure is closer to 47%. Some 27% of all jobs in Scotland are in the public sector - 3% higher than for the UK overall.

The public sector bureaucracy has a stranglehold on Scottish society which is axiomatically damping on Scottish business. The rampant inflation of costs in the Scottish parliament is a good example of how the public sector operates in Scotland.

The only problem with this is the fact that the decision to commission the new parliament was done by the UK's Scottish prime minister (Tony Blair) and sanctioned by the UK's Scottish chancellor (Gordon Brown) and paid for by the English taxpayer.

To emerge as the vibrant light of the North which is so obviously a contemporary Scottish goal, the nation should strip out the layers of atrophied civic bureaucracy and offer greater incentive for a diversified economy to grow.

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