Greetings from Albania

I'm referring of course to the words of Simon Heffer in a recent piece in the Telegraph in which he describes Scotland as:

a bad-weather theme park, or the Albania of Western Europe

Well, weather's a matter of taste but I note that the annual rainfall here in Edinburgh is very similar to that in London and if all that global warming talk turns out to be correct (probably it won't) I'll be happily enjoying some nice bottles of Cotes de Forth. But Albania?

What Heffer's on about is Scotland's claimed status as an economic basket case that can only survive on English handouts.

It so happens that I've just finished reading Living with Leviathan by David B Smith, and very interesting it is. Most of the book concerns the excessive size of the UK state and why that size is extremely harmful. But what interested me most was Chapter 5 - Does Britain have Regional Justice in Tax and Spend? Mr Smith thinks not.

(Nationalist readers will be amused by this statement:

Another quirk in the ONS data is that there is an ‘extra-regio' component of GVA (gross value added), which reflects activities such as North Sea energy production that cannot be allocated to specific regions,

I think that what Mr Smith really means is "cannot be allocated" without causing Gordon Brown's head to explode. But what I'm about to discuss assumes that Scotland is not credited with any of the oil revenue.)

Mr Smith finds that the Scottish GVA per capita comes in at 96.2 against a UK index of 100. That puts us economically below London, the Southeast and the East of England, but above the other eight UK regions. Not too bad, I'd say. Smith then does something rather clever. He adjusts the regional per capita output figures to take account of the differing costs of living. Scotland's "real" GVA per capita now comes out at 101.8 against the UK's 100. So we produce a bit less than the UK average but it goes further.

The big difference is in government spending. Per capita, Scotland's is the fourth highest of the twelve regions. It seems quite clear that our English friends are fully justified in complaining about Scottish expenditure (and the West Lothian Question of course) but the level of state spending doesn't mean that Scotland is akin to Albania, merely that our statist and vote-seeking politicians have been skilled at extracting dosh that we don't actually need!

Even more interestingly, Mr Smith writes about:

the more disturbing possibility that high levels of government spending are themselves responsible for many of the problems of the poorer regions of the UK – even if the public spending is not financed through taxation but by transfers from other parts of the country.

How could that be? The answer is that the same amount of dole money, incapacity benefit, old age pension, minimum wage and government salaries, etc. etc. goes much further in those parts of the UK that are "remote" from London. Hence, the attractions of finding a job in the stressful, competitive, globalising and wealth-creating private sector in, say, Scotland, are much less than they are in the high-cost Southeast. A government job that pays the same wage in Livingston as in Luton is a much better deal. So, quite apart from the fact that Scotland's better-funded NHS and education systems aren't performing any better than those down south, their financing actively harms the Scottish economy. We'd be better off without the "subsidy", especially as our output is already pretty average by UK standards. Higher in real terms actually, considering the cost of living differentials. Indeed, one could even argue that if some of our excessively large public sector workforce moved into the private sector, we'd produce considerably more than the UK average.

So, I conclude that there's no need to buy that Albanian phrase book just yet. It's perfectly possible for Scotland to be a net financial contributor to the UK even without including the oil. On the other hand, the rants of Mr Heffer, and yes, his followers in the English blogosphere, might just annoy Scots enough to go it alone.