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Recovery: That sink-throwing feeling

With an economic crisis as big as this, it’s tempting to think that the response has to involve the hurling of a kitchen sink. The economic recovery group commissioned by the Scottish government hasn’t disappointed in its deployment of culinary equipment.

One problem, though: while it speaks of the need to prioritise, it takes such a broad sweep that priorities seem to be overwhelmed. It demands not only immense new financial resources, based on powers that Holyrood does not (yet?) have, but also a commodity that is often taken for granted – the bandwidth or headspace in government to make it happen.

Another problem is that there’s an expectation that this crisis is an opportunity for some radical re-thinking of how things are done and run. It’s a time to cure lots of other ills across the economy: modernising, digitising, re-skilling, unblocking, greening, tackling low productivity.

The commissioners, round the virtual table with Benny Higgins, included some serious professorial firepower. They injected into the report some interesting, no doubt worthwhile, but also potentially disruptive thinking, at a time when it may be wise to limit disruption to what’s manageable.
With respect to regions

Enough of problems. Where do the opportunities lie here? Perhaps in crisis as catalyst to push further and faster with digital telecoms, or apprenticeships, to fix Scotland’s architectural heritage.

But more likely, they lie in the loosening of an old order, to allow a breaking down of barriers, to see new ways of solving problems and to forge new relationships.

Seeing anew, for instance, the report encourages its reader to look again at the assets necessary to get the best out of the Scottish economy and society. Human, community, business and natural – they remind us that an asset is not merely a financial instrument and that Scotland has a rich balance across these four “pillars”.

The long-running depletion of powers from the regions of Scotland would be reversed if the Higgins’ committee gets its way. It sees a need to tailor responses to regional and sectoral needs.

“Scotland is not a big economy, but it is an economy of many parts, and geographical and sectorial differences need to be recognised, respected and championed,” says the report.

With a party in power that is both Scottish and national by name, this is a challenge.
Press reset

On forging new relationships, the stand-out one in this report is between business and government. It’s not as good as it should be.

A blog by the Fraser of Allander Institute last week said something similar, reflecting the view of business: “We have picked up some unease amongst many in the business community – and the businesses we speak to on a regular basis – about, not so much the pace of the easing of restrictions, but the government’s wider approach to the economy and its understanding of business priorities.”

The Higgins Report follows a similar path: “Although the picture is variable, the feedback, for some sectors and some parts of the business community is that relationships and dialogue need to be improved. And it is striking that there is no single strategic forum that brings together the leadership of the Scottish government and the leadership of Scottish business.

“At a time when government will of necessity hold much greater stakes in Scottish businesses big and small, and when the future path is so uncertain, we think that there is a pressing need for a reset.”

That looks like a rebuke to government. It is. Appearing alongside Benny Higgins, Nicola Sturgeon conceded that at least the perception has to be addressed.
Take a stake

But it is at least as much a colossal challenge to business. In some sectors, business is seen as having a strong, mature relationship with the Scottish government, such as finance, renewable energy and farming.

But the approach of others is seen as too much the supplicant and lobbyist, seeking funds or to influence regulation. The Higgins Report is telling business to step up and be government’s partner. The headspace or bandwidth of both are required.

The private sector has never needed the support of the public sector as much as it does now and taking on more responsibility for the recovery seems to be at least part of the price.

To survive and retain employment is not enough: the jobs guarantee for young people will require business buy-in, as will the focus on investment and the objective of narrowing inequalities.

Part of that dialogue will be about government stepping in to take stakes in troubled firms: possibly large, while probably many of them will be small. The Higgins Report was to have recommended an agency to handle those shareholdings professionally.

On reflection, the creation of a new institution now looks too cumbersome and slow. The professional financial experts will have to be hired in-house instead.

Nowhere is the challenge to business clearer than the banks. Benny Higgins knows them from the inside. He talks of the problem of “universal forbearance” currently expected of banks in their handling of business and private customers.

In other words, they’ve been told not to withdraw funds and collapse them, but to keep them solvent and alive.

For some companies, and probably many, that’s not sustainable. The recession will shed a lot of corporate red ink and jobs will be lost.

But these advisers are telling government to “convene” a dialogue with banks and firms, working together to keep strategically important companies from collapse. A Zoom call to RBS at Gogarburn and Bank of Scotland on Edinburgh’s Mound is cheaper than taking a government stake.

That is a different type of relationship for banks than the conventional lending role. They are being told they should put financially distressed but viable firms into “incubators” to get them through the crisis.

If government is sitting round the table with banks, deciding which firms and sectors are to be saved, that’s a lot of market power for ministers.

It removes the arm’s length by which they routinely respond that awkward decisions are “commercial”. The power to say which firms and sectors survive the crisis is also a power to decide which firms and sectors will not.
Source: BBC

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