The pandemic has shone a light on many of the deep inequalities created by the decisions that have been taken about how we design our economy. Miriam Brett, Director of Research and Advocacy at Common Wealth, here outlines some of the steps that can be taken in Scotland to build a more equitable, sustainable, and democratic economic system. This article was first published in the latest edition of the Scottish Anti Poverty Review, which can be read here.
While the virus itself may not discriminate, our economy does, and the impact of Covid-19 has fallen disproportionately on those already structurally disadvantaged by our economic system. The inequality crisis continues to scar our communities. Prior to the public health emergency and the economic fallout that followed, the UK had undergone a decade of austerity, which caused a decade of lost wages for workers, stagnating living standards, low rates of investment, soaring levels of hunger, and rising child poverty. Public policy must ensure that the distributional impacts of this crisis alleviate the gross inequities in wealth and power in our society.
The climate crisis changes everything and – despite the immediate threat to life from Covid-19 – remains the single biggest danger facing our future. Inherently linked to the inequality crisis, the causes and distributional impacts of the climate crisis are unevenly felt.
And, while government intervention remains vital, much of the sorely needed state support has flowed to rentiers – those who do not profit from productive work but instead profit from ownership of resources – meaning that intervention has, in many instances, insulated and shielded the wealth of the already wealthy. An IPPR report estimates that up to 45 per cent of the net cost of the furlough scheme will be spent on rent and debt repayments.
As we begin to reconstruct our economy, a return to ‘normal’ cannot and should not be considered an option. Instead, just as the current paradigm centres on a particular form of economic model, a new consensus must lay the foundations for a more equitable, sustainable, and democratic system based on a pluralistic landscape of common and democratic ownership. A new report by Common Wealth, co-authored by myself and Scottish economist Laurie Macfarlane, sets out steps to achieve this.
A Green and Just Recovery
As unemployment sharply increases and the furlough scheme is wound down, a central pillar of our recovery must be that of job creation. But equally important to the need for job retention and creation is the quality of those jobs. To secure a sustainable future, Scotland needs a raft of well-paid, secure, sustainable employment opportunities.
The Scottish Government’s Advisory Group on Economic Recovery recommended the introduction of a ‘Scottish Job Guarantee’ that would offer “secure employment, for a period of at least 2 years, to 16-25 year olds, paid at the Living Wage”, with public money being used to subsidise jobs predominantly in the private sector. Yet the ability of firms to create new jobs, even if subsidised, is limited as demand remains depressed, and it runs the risk of firms paying off regular full-time workers and replacing them with subsidised workers to cut costs and boost profits. Instead, we could create a Job Guarantee designed to provide well-paid employment opportunities in the public sector to anyone who needs it.
A Green New Deal offers a crucial framework: joining climate justice and social justice together in a public-directed programme of rapid decarbonisation that builds the foundations for a post-carbon future of shared prosperity. To achieve this, a Green New Deal must stretch to every aspect of our economy to break from a model of unsustainable forms of production and consumption by enhancing cycling infrastructure; the phasing out of non-essential car travel in our cities and investing in the caring economy; reforming our tax system to support a just transition and the redistribution of wealth, though, for example, a Frequent Flyer Levy; and the building and retrofitting sustainable, affordable homes for all.
While the Scottish Parliament does not have the power to phase out oil and gas extraction, it can and should pressure the UK Government to redirect subsidies for oil and gas extraction, including tax breaks. As Friends of the Earth Scotland note, given the right policies, clean industries could create more than three jobs for every North Sea oil job at risk. Moreover, assessing how green and just Scotland’s recovery is will need measures of progress that prioritise these goals – not GDP, which is blind to distribution and counts as a positive destruction of the natural environment.
Community Wealth Building
The concentrated ownership of wealth and power that is designed into our economy strips workers and communities of the wealth they create in common, which is often extracted by shareholders and excessive executive pay, hollowing out local economies. This matters, as the highest earning fifth of households in Scotland account for 42 percent of all income, whereas the lowest earning fifth account for just 7 percent, and wealth inequality is even more acute.
In place of an extractive model, Community Wealth Building can set out a bottom-up approach; one that builds collaborative, inclusive, and locally controlled economies. To do this, a Community Wealth Building Act can support an economic strategy that transfers financial and physical assets to local communities and redirects wealth, control and benefits to local economies, built on the following pillars: Pluralist models of business ownership, making financial power work for local places, fair employment and just labour markets, progressive procurement of goods and services, and socially just use of land and property.
In Scotland, we have already seen a comprehensive strategy in North Ayrshire for Community Wealth Building. The challenge is now to facilitate a broader locally-led rollout to drive this agenda forward.
Banking for the Public Good
The establishment of the Scottish National Investment Bank (SNIB) is a considerable achievement. In order to meet its potential, it must be structured and governed effectively. As it stands, the SNIB is governed in a way that is commonplace in the private sector but relatively unusual in the public sphere. Shifting this to expand the voices involved in the Bank’s strategy could involve that the composition of its Board is reviewed to include at least one Minister, one trade union representative, one local authority representative and two representatives from civil society – and that the number of Board members from the private sector is capped at one-third.
Further, as businesses are struggling amid this level of economic uncertainty, a new holding company arm of the SNIB could be established and tasked with purchasing equity stakes in distressed but otherwise viable Scottish businesses that meet defined criteria, helping them to stay solvent throughout the crisis.
Tenant Protection and Social Housing
In recent years the Scottish Parliament has made significant progress towards enhancing security of tenure in the private rented sector. However, rents in Scotland remain high and continue to increase faster than many households can afford, constraining living standards. Almost half of tenants (45%) in the private rented sector have seen a drop in their incomes since March 2020 and of those, seven in 10 (71%) have cut back on spending, and nearly six in 10 (58%) have had to borrow or use up savings.
To tackle this, the Scottish Government can introduce an immediate rent freeze to ensure that tenants will not face rent increases during a time of profound uncertainty and hardship, as well as a system of rent controls to commence after the rent freeze period ends. This can be complimented with an increase in social house building to secure homes for all and create jobs.
Securing Democratic Public Ownership
Over the last four decades, privatisation has been a prominent component of the UK’s unequal and extractive economic model. By 2009, 132 of the world’s 500 most valuable corporations were privatised former state enterprises, but seldom did countries go as far as the UK, which remains – alongside the US – an outlier when compared to many other wealthy economies. Between 1980 and 1996, Britain was responsible for 40 per cent of the total value of all assets privatised across the OECD.
Because of the nature of the devolved settlement, elements of our economic framework are, to a certain extent, predisposed by our place in the UK, hammered home by the recent sale of the Green Investment Bank and the Royal Mail. Important steps have been taken in Scotland to break from this model. For example, the decision to abolish the Right to Buy marked a milestone, with privatising the public housing stock having been a key pillar of Thatcherism and with 494,580 council and housing association homes sold under Right to Buy in Scotland between 1979-80 and 2014-15.
But there remains a need to harness this by shifting our understanding of this approach, from a patchwork of decent individual policies and towards a strategy to integrate democratic public ownership at the heart of a comprehensive, planned transition to a new economy with wellbeing at its core. The need for this has been highlighted by the current crisis, particularly in areas like the care sector and transport.
Land reform has been one of the crowning achievements of the Scottish Parliament. However, land reform should not be viewed as a one-off event but rather an ongoing process. The creation of a democratically accountable ‘Scottish Land Development Agency’ with the power to purchase, develop and sell land can help ensure that this key resource is being managed strategically in the public interest.
Furthermore, while Community Right to Buy continues to be an important mechanism for diversifying landownership in Scotland, high land prices remain a barrier. Introducing an upper limit on the total amount of land in Scotland that can be held by a private landowner or beneficial interest; strengthening Community Right to Buy powers to enable communities to acquire land at below market values; and granting local authorities the legal power to issue Compulsory Sale Orders can help tackle this, while the creation of a new Common Good (Scotland) Act can provide a statutory framework to modernise Scotland’s unique system of Common Good property.
As we battle with the immense upheaval and uncertainty of the current environment, now is a time for bold thinking and action, to fundamentally shift how our economy operates and in whose interests, and lay the foundations for a more equitable, sustainable, and democratic system based on a pluralistic landscape of common and democratic ownership
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