Scotland's for sale - cheap

Scotland risks losing its economic autonomy as firms are increasingly being sold to foreign buyers

Old Scottish stock exchange closed in 1973

Looking across the wasteland of the Scottish economy you could be forgiven for thinking that the country had shut up shop: CalMac is broken, Ferguson Marine’s a money pit, the North Sea is going south and the less said about the Deposit Return Scheme the better. Prestwick, BiFab, A9, NHS - it’s all going tits up.

So it might come as a surprise to learn that some sectors of the Scottish economy, mainly where the Scottish Government isn’t involved, are going rather well. Foreign Direct Investment into Scotland, FDI, is looking pretty healthy. According to business consultants EY Scotland is attracting more cash than any region apart from London - largely because of Scotland’s expertise in finance, aerospace and digital technology.   Glasgow is a European leader in building space satellites. Not many people know that. Pharma giant Merck has just announced a big expansion in Glasgow and Stirling for drug testing, and no, that’s nothing to do with Scotland’s record drug death problem.

However, there is another side to the story of inward investment. Scotland is also a great place for foreign investors to pick up bargains right now.  Indeed,  it rather looks as if the Scottish economy is being stripped bare by private equity firms, vulture capitalists and foreign corporations.

Not long ago Scotland had a billion pound media company, a host of global financial institutions, indigenous energy companies and food and drinks manufacturers. Royal Bank of Scotland once had a balance sheet almost as large as UK GDP. It is now called NatWest and run from London. Bank of Scotland became Halifax in 2001 and is now part of Lloyds.  Famous Scottish names like General Accident, Scottish Widows, TSB have all gone the same way. Ironically, this is what the Unionist Better Together campaign warned would happen if Scotland voted Yes in the 2014 independence referendum. We voted No, but the departure of big finance seems to have happened anyway.

Now you may say Scotland is well rid of these delinquent banks that did so much damage during the financial crash. But the loss of big company HQs, their staffing and financial decision-making, diminishes the local economy. And it’s not just the banks.  Other big Scottish names that have gone abroad include Scottish Power, Scottish and Newcastle, Stagecoach and Aggreko. And what has been called the “slow death” of Scottish incorporated companies has been speeding up. 

Hi! Stagecoach its jetzt ein Deutscher Gesellschaft

The Scottish construction giant Miller Homes was bought last year by the American fund management company Apollo for $1.2 bn. In the same year, energy consultants Wood Mackenzie went to the US private equity firm Veritas for around $3.1 billion. The Aberdeen-based Wood Group, which employs 35,000 world-wide, is right now in the gunsights of foreign capital.  Scotland still produces some promising start ups, like Skyscanner and the Peebles-based Blackcircles, but they too are being snapped up almost before they are launched on the stock market - in those cases by Chinese and French companies respectively.

Scotland is being bought lock, stock and beer barrel by overseas firms, asset managers and sovereign wealth funds.  But you rarely hear news or discussion about this corporate raid. The default position of most of the Scottish media, and most of the political classes, is that business is boring - when it isn’t actually doing evil. Humza Yousaf, the self-styled First Activist, has had remarkably little to say about either positive side of foreign investment or downside: the loss of corporate autonomy. It seems not to be on his radar - which, if you think about it,  is odd for a Scottish nationalist.

You might’ve thought the SNP would be crying foul at Scotland being turned into a bargain basement for foreign capitalists. But like his predecessor, Nicola Sturgeon, Humza Yousaf has little real interest in business or how it works.  The Scottish Government seems content to run a distributionist state largely based on UK subsidies through the Barnett Formula.  These subventions do not depend on the performance of the Scottish economy, which is expected to look after itself. Which I suppose it is,  after a fashion: by handing over control of the commanding heights to organisations with little knowledge of or interest in Scotland, except perhaps in its golf courses.

Now you might still ask: why does this matter?  So what if CEO’s and managers don’t live and work here?  If they’re still employing Scottish workers what’s the problem? Does it really matter if Bank of Scotland is now a London bank? Or that Brian Soutar’s bus company is owned by the German DWS Infrastructure?  You might even say it is a good thing that they’re NOT run by Scots given how badly some companies have been managed here in the past like, er, RBS. However, FDI itself generates relatively few jobs - 8,000 or so last year according to the Scottish Government - and the accompanying fire sale of Scottish businesses does matter in all sorts of ways beyond employment figures. It should at least be an issue for public debate. For, what we are seeing is arguably the greatest transformation in the Scottish economy since the collapse of heavy industry half a century ago. The Scottish economy has lost its national identity.

The departure of Scotland’s financial institutions means other countries benefit from their collective expertise and more importantly their taxes, both corporate and personal.  60% of Scottish tax revenue comes from higher rate income tax payers - about 16% of employees. The fewer of them you have, the less you get to spend on welfare for the 40% who pay no tax at all.

And it’s not just about tax. The departure of tens of thousand of well paid jobs has a knock on effect throughout the economy as their purchasing power is lost. With foreign ownership, Scotland ceases to figure in investment decisions which are increasing taken in remote boardrooms hundreds or increasingly thousands of miles away. Politicians and the media have little influence in New York, Delaware or Frankfurt.  Civil servants lose touch because the people who matter are no longer located here, sending their kids to the same schools, joining the same clubs, running the same charities.  At its worst, Scotland can end up a repository of cheap and disposable labour.

But perhaps the worst impact of foreign ownership is cultural. Scotland has never been a colony, but you can begin to see aspects of a colonial mentality emerging here.  Foreign ownership tends to lead to extraction of value being prioritised over domestic investment. Politicians no longer expect to have any influence over business decisions because they are taken increasingly abroad. Politics itself becomes alienated from the economy which is seen as inherently foreign.  This has perverse effects.   We’ve seen how politicians and civil servants have waded into disasters like Ferguson Marine, BiFab, and Sanjeev Gupta’s Lochaber Aluminium plant, only to make things worse because they don’t seem to understand any longer how markets and investment works. Policies are made on the basis of moral posturing rather than economic reality.

The SNP says it wants to close down the North Sea in order to import oil and gas from abroad at vastly greater cost - not least to the environment since shipping gas increases the carbon footprint. They’re not doing anything like this in Norway, where powerful indigenous companies like Equinor have ensured that the Norwegian government continues to explore and drill, even in the Arctic. The Norwegians realised in the early days of the North Sea oil boom that it was essential to have domestic companies in with the bricks, or rather the rigs.

Now, of course no country can do without foreign direct investment.  Ireland made a huge success of attracting internet behemoths like Google, Amazon and Apple by slashing corporation tax. They have received nothing but praise for it. We live in a global economy dominated by multinational companies and this country can’t just close its doors and become a siege economy. Scotland is seen as an attractive place to work.  The environment is a big draw, we have a lot of skilled workers and several world class universities that make much of their income from foreign students. 

But someone needs to think strategically about where Scotland is going. This famously entrepreneurial country, which used to dominate the world’s heavy engineering and built some of the world’s largest finance houses is now a happy hunting ground for anyone who’s looking for a bargain and has a yard or two to spare. That’s not a good state for a serious country.