SPEECH BY THE SECRETARY OF STATE FOR SCOTLAND
THE RT HON JIM MURPHY MP
SCDI ANNUAL FORUM
FAIRMONT HOTEL, ST ANDREWS
19 MARCH 2009
Many thanks Shonaig for your kind introduction and good evening ladies and gentlemen.
It was interesting to read that the SCDI was founded in 1931 ¿ a rare positive in a genuinely troubled year. This organisation has seen difficult times before, conceived in the depth of depression.
A minority Labour Government welded to fiscal orthodoxy fell in 1931. It was replaced by a National Government which had no new answers and a zealous desire to cut spending on meagre welfare benefits.
One of my first events as SofS was to address the SCDI in Glasgow ¿ the theme there was one of connectivity. Earlier today I hosted a Broadcasting seminar and it¿s apparent that the theme of connectivity is one that remains constant
After 1945, the SCDI played a leading role in attracting overseas manufacturing investment to Scotland.
In 1960 it organised the first of over 350 overseas trade missions.
The destination was Moscow, illustrating the organisation¿s commitment to drum up business for Scotland in the toughest circumstances. That same year Soviet Premier, Nikita Khrushchev¿s bad temper extended to removing a shoe at a United Nations debate and banging it on the desk. Still it must have been some consolation to the Philippine diplomat, the target of his anger, that he didn¿t actually throw the shoe. How times have changed¿.
The Scottish economy has been transformed since that first mission went behind the Iron Curtain. It is no longer rooted in manufacturing and heavy industry but is more diverse and more sustainable. It has endured the turmoil of the 1970s and the soulless rationalisation of the 1980s.
But now after an era of 16 years of economic growth across the UK, we are facing an unprecedented global economic downturn.
Two things are clear. Firstly, this is the first international recession induced by a global financial crisis. Economies have contracted worldwide and output has dropped significantly.
And secondly, which is a trueism, we in the UK cannot solve the problems ourselves. No one country can. Even President Obama¿s $800 billion stimulus for the American economy comes with that health warning. While the crisis started in the US it cannot be solved by the US alone.
It is also now clear just how close to collapse sections of the international banking came last autumn. Banks with centuries of history came within moments of collapse. Enormous international flows of unregulated capital nearly sunk the global financial system. The toxic by-products of unrestrained and downright reckless investments bubbled to the surface.
As the market faced meltdown, the Government acted in the public interest. Savings and pensions were protected, a run on the banks was averted. In a context that doing nothing was not an option I want to be clear to you all that while the state is clearly taking on a greater role in the economy, it is not in the interventionist guise of the 1970s. Despite this colossal market failure, I still believe that we need markets when possible, government only when necessary.
It was necessary to invest £37 billion recapitalisation of the banks and £325 billion in the Asset Protection Scheme which will help to re-establish financial stability. This is not simply a loan to get the banks through a rough patch. It is about trying to engender confidence in financial markets. The reprofiling of expenditure is a Keynesian investment
The Chancellor¿s PBR fiscal stimulus benefits the Scottish economy by £2 billion into the pockets and purses of Scots.
Tough fiscal decisions will be needed to bring public borrowing back into balance. Many families and businesses in Scotland are looking to make savings. Government needs to do the same. The forthcoming Budget of April 22 is a time to rebalance the microeconomic situation of the UK
From 2010, £5 billion efficiencies will be made annually from total UK spending of over £600 billion. But we continue to hear claims from the Scottish Government that they can¿t find these savings. I simply don¿t agree.
Over the next three years they will have over £100 billion. More than any Scottish Government before it.
The Scottish Government already has double the amount of money Donald Dewar had nine years ago when he was First Minister. They will also receive an additional billion from the UK Government in each of the next two years.
We all have to tighten our belts. There will be no opt-outs for the UK or Scottish governments.
And it is important there is cooperation not just in the UK but also internationally.
We have looked closely at previous recessions and we are learning from the errors of the past. The danger is that global leaders learn the wrong lessons of history.
Throughout the 1930s countries hit by the depression turned inwards to regressive protectionism and global capital markets collapsed. Economic nationalism then and economic nationalism now will get us nowhere. This was the wrong policy then and would be now.
As Lord Mandelson said earlier this week ¿Open trade has driven the rising levels of global prosperity that have defined the two decades leading up to the credit crunch.¿
At the same time, the Prime Minister is active on the world stage, preparing for the London G20 summit meeting in early April.
The Prime Minister¿s Global Deal sets out the plan for getting the global economy back on track. We are proposing a package of internationally coordinated measures to restore stability and set a course for sustained and sustainable development.
The Global Deal calls for legislation to close the regulatory loopholes and the reform of the international finance sector. We want a new global early warning system and enhanced powers for the IMF for two reasons. Firstly, to prevent a repeat of the financial crisis and, secondly, to instil the stability and confidence necessary for sustained recovery for the future.
But the two major stories of the week have been the release of the latest Labour Market Statistics and the publication of Lord Turner¿s Review of Global Banking Regulation.
Scotland is doing better in relative terms but no politician should take comfort from this ¿ I believe it is cold and unfeeling.
The Reform of the Welfare State needs to happen. HMG are determined that the newly unemployed do not become long term unemployed and the previous mistakes of the past will not be repeated. The temptation is to back off however that would be wrong and would herald a drift into long term unemployment.
There are still 2.5million people claiming Incapacity Benefit despite our best efforts ¿ this gives people no aspiration. At the moment the average time spent on Incapacity Benefit is 9 years however HMG aims for a maximum of 2 years. We should not give up on people who claim IB and this is precisely why in 2012 the reforms will be fully implemented.
I acknowledge that this is a very difficult argument but it can effect every part of our lives and is an area where all politicians must work together.
This week has seen the publication of Lord Turner¿s Review of Global Banking Regulation.
I welcome the publication of the Review which the Chancellor commissioned in October.
There is an urgent to need to reform financial regulation both here in the UK and across the world.
As the Chancellor has said, this will play a significant part in informing the Government¿s white paper on the reform of the financial regulatory and supervisory system, which will be published in white paper form around the time of the Budget and after the G20.
The recession is affecting so many areas of life. It is changing politics as well.
Scots expect their politicians to work together in the downturn.
No-one should put politics before country. Scots will never forgive those who push their divisive agenda at a time of economic crisis.
So you will have your own view and I have mine. But at a time like this being part of the UK does give Scotland greater security.
Scotland is a member of two Unions ¿ the UK and the EU. They take most of our exports. We have top table seats on the UN Security Council and the G8.
I love Scotland too much to see it leave the UK. Being part of the world¿s fifth biggest economy is a major plus for us.
So despite the downturn it is important to say each and every day, not just to this audience but to the media as well, that Scotland still has plenty to promote.
North Sea Oil and Gas has been a centre of excellence for nearly all of my life. As the hunt for fresh oil and gas reserves reaches more inhospitable places, the acknowledged expertise of our companies should be in ever greater demand across the globe. And Scottish companies remain at the cutting edge of technological breakthroughs.
We¿ve also witnessed extreme volatility on the oil market. Our geology will provide us with oil and gas for some time to come.
And our geography allows us to exploit the expanding low carbon energy sector.
Our windswept coasts and moors and the tides around and between our islands, offer a vast new energy bonus and Scotland can reap an enormous benefit both by being an early adopter and leading the world.
We remain a world leader in financial services. Fund values have tumbled worldwide but corporate knowledge remains, notably in banking, insurance and fund management.
Edinburgh is the world¿s 9th biggest centre for fund management - a financial hub with a rich reservoir of talent.
Our financial institutions can weather the downturn and go on to compete for the range of products demanded by a growing global middle class. A middle class market that will almost treble from 430 million in 2000 to over 1 billion in the next two decades.
Tourism offers wonderful opportunities. Scotland itself is our unique product.
So it is with the objective of promoting Scotland¿s future prosperity that I am looking forward to leading SCDI¿s trade mission to China next week.
This is one of the largest ever trade missions to China and will help 32 Scottish companies and education organisations into potential new markets.
It is important to do all that we can to beat the downturn but we also need to keep one eye on the future and the way that we recover. The mission to China and Hong Kong is a great example of that and I¿m delighted to be involved.
Three decades of economic reforms and openness have seen China¿s re-emergence as a world power. The engine of the global economy with predicted growth of 8% even in 2009. I am convinced that Scotland¿s future lies in China, and in similar markets worldwide.
We must continue to exploit our undoubted strengths and again maximise the benefits of a global market.
Emerging from this recession will be far from easy.
But Scotland is strongest when we all stand together. We are in it together. We will only get out of it together. There is no greater priority. It is not a time for politics as normal in Scotland.
I look forward to working with the SCDI on this road to recovery and in the promotion of Scotland worldwide.