Care needed over intervention for its own sake
Is Holyrood buying a future or investing in failure?
First came Prestwick airport, bought for £1. Then Ferguson Shipbuilders, ushered into the hands of key nationalist supporter Jim McColl. Now a renewables firm that went bust last month has won the sympathy of the Holyrood government.
Is this a case of the government investing in failure, or simply helping where it can to retain intellectual property and, if possible, save jobs?
Prestwick is a basket case whose future seems to depend on some long-term, and rather imaginative, hope that it becomes a base for space travel.
Ferguson needed a fairy godmother and found two in the shape of one of Scotland’s richest men and a government keen to show it is on the side of the workers. No one is sure how much support the government provided, but there were political gains to be made.
There were no buyers for Pelamis Wave Power which was behind some leading edge technology, so its assets were acquired by Highlands and Islands Enterprise, the government’s economic development agency.
BBC economy editor Douglas Fraser asks if the SNP government is getting into “an emerging industrial strategy, in which failing Scottish businesses, which are seen as having strategic significance, can be expected to get a lifeline from the taxpayer.”
It’s a relevant question that points to an administration showing an interventionist leaning. The next questions to be asked are how far it will go and what would it baulk at supporting?
Some would argue that the government is merely doing what it is obliged to do: acting as a supporter of last resort to industry just as the UK Treasury bailed out the banks.
Of course, none of this is new. Governments of various hues have intervened to prop up ailing companies from British Leyland to British Airways. They continue to subsidise the rail companies, nuclear power and the renewable energy sector. Some make the transition into profit while others collapse, but the record of success is remarkably positive.
BL morphed through various identities before a vibrant UK car industry was built on the ashes of a ruinous past. British Airways turned itself around and emerged stronger, as did BT and Rolls-Royce engines, all once owned by the state. Royal Mail is the latest to be making the most of a move into private hands.
Holyrood’s challenge is to emulate these processes and help failed enterprises succeed and make a profit. This is where it has to select its targets with particular care. Fraser states that it seems to be offering a safety net to those with a “strategic significance”. This is debateable.
Prestwick is an airport looking for a purpose. If it closed there would be no loss to aviation services in Scotland. They would be picked up by others. As for the space venture, who knows if it will happen? And something that doesn’t exist cannot be regarded as strategic.
Ferguson builds ferries, so provides skilled jobs. But ferry building is not strategic. Scotland could, and does, buy them from other countries. It may not be desirable to do this, but Scotland also buys cars and we don’t build them either.
Pelamis was in the business of trying to turn wave power into energy. It employed high level skills and developed similarly high level technology. But investors – including the Scottish government – have shied away from it. The Green Investment Bank, based in Edinburgh, will not look at it because it is pre-revenue and too high risk.
The conclusion, therefore, is that Holyrood’s actions in salvaging these projects amount to a “catch-all” policy, providing a safety net for anyone who falls off the profitability pole, whether strategic or just a failure.
This is not right. In a dynamic and competitive economy companies fail and must be allowed to fail when they no longer function properly or they lose their purpose. Keeping them alive in the hope that something good might come of them takes us nowhere.