SLRG – Focussing on Equality, Shared Prosperity and a Fair Society

SLRG Review: ‘Resilience Economics: An Economic Model for Scotland’s Economy’

Common Weal has published Resilience Economics: An Economic Model for Scotland’s Economy.…/2020…/Resilience%20Economics_0.pdf

The authors present an overview of the current and historic problems Scotland has endured and a call for a better future using a wide range of economic ideas to build a Scotland that serves its people. It is a long document tracing the history of economic ideas and many of their flaws; but seeking to show how alternative ideas promise to help form a resilient Scotland.

Searching the document for specific proposed measures, there are none. A subsequent document is promised for these.

The attack on Neoliberalism is relentless, correct and fully argued, that cynical ideology being based, as the author mentions, “on a partial reading of Adam Smith”.

A gap in understanding is however demonstrated in the authors’ parallel and unqualified attack on the idea of the free market. That Smith revealed how the free market must be rendered benign by directing the economic rent to the community is not even discussed. The absence of any discussion of ‘Rent-seeking’, the poison lying hidden at the roots of each of the many Scottish problems listed, renders the paper deeply flawed.

Sad to say then, that despite an otherwise comprehensive discussion of many of the Scottish problems derived from 20th century economic thought, the notion that Neoclassical economics was devised with the single purpose of hiding rent extraction by a privileged minority, is not mentioned. Such a glaring oversight will, sadly, be cause for a huge sigh of relief from the free-riding, rent-seeking fraternity.

Here, SLRG’s Roger Sandilands, Emeritus Professor of Economics, Strathclyde University, reflects on the Common Weal document, ‘Resilience Economics: An Economic Model for Scotland’s Economy’:

“Apart from Adam Smith’s espousal of rent as a desirable, special, ‘peculiar’ “tax” to fund the government’s proper (though rightly limited) role in the economy and society, his other great motivation in writing The Wealth of Nations was to promote competition and eliminate artificial restraints on trade. He condemned monopoly, collusion, fraud and other unjustifiable barriers to entry into a business, whether as entrepreneur or employee.

The main message was not so much “laissez faire” in a passive sense, but rather in the active sense of (i) promoting competition by stamping out obstacles to free domestic and international trade and (ii) encouraging the mobility of labour and capital.

Producers have a vested interest in protecting their current market share. There was nothing wrong per se in trying to make a profit. Why else go into business? But the Common Weal document rails against profit as a filthy word, always associated with exploitation of workers and the environment.

This is just emotional class and ideological prejudice. Certainly it is the duty (as Adam Smith emphasised) of government to intervene to curb excess profiteering through unjustified restriction on the entry of other producers capable of offering goods and services at lower cost and price, and/or higher quality.

“Neoliberalism” is used in a very loose sense by Common Weal to caricature the mixed economy, with its elements of both private and public participation in the economy. To the extent there is a private sector seeking to maximise profit, the opponents of private profits dub the economy as immorally ‘neoliberal’, with the government accused of defending a free-for-all that harms the vulnerable and the environment.

But if we condemn all profit-seeking, even where profits are needed to compensate entrepreneurs and investors for the opportunity cost of their time and money, business disappears unless the government steps in to run it instead. Carried to excess, we should know where that leads.

Until and unless Common Weal distinguishes competitive profit-seeking from monopoly profits, and in particular until it recognises unconditional land ownership as the Mother of All Monopolies, theirs is an ill-informed agenda.

Replacing private with public enterprise across the board is not what Adam Smith espoused. Common Weal is effectively libelling Smith. He was adamant that it was the duty of government to protect the consumer not the producer. Smith’s Wealth of Nations was a tract against the prevailing philosophy of mercantilism. By focusing instead on consumers’ interests there would be much greater pressure on producers to follow consumers’ interests through increased efficiency, reduced costs and prices, and better quality, service and choice. This was enlightened, non-exploitative self-interest.

The Common Weal document appears to me to be too prejudiced against “consumerism”. Which of us does not aspire to a higher income? Why do we do that? In order to hoard money under the mattress or in a bank? Of course not. It’s to improve our own standard of living. And in the process (abstracting from consumption that significantly harms our health or the environment) we benefit our fellow citizens through the extension of the market, in directions which conform to our own freely expressed preferences and priorities. That means (as again Smith emphasised) more jobs, more income for others, more specialisation within and between firms, hence more innovation and a more dynamic economy.

However, all of this is contingent
(i) on the promotion of competition between firms and the geographical and occupational mobility of capital and workers; and
(ii) ensuring that the (increasing) rent of land is returned to society in general that has created those rents. They should be our primordial community value, upon which all other community values rest. Only thus can we create a more equitable and dynamic economy and society, thus truly creating a more sustainable and resilient common weal.”