Scotland should remember the words of Adam Smith and beware the dead hand of economic populism Dr Alison Smith – The Scotsman

And Caledonian MacBrayne, which needs the ferries to service island communities, is not Ferguson Marines only unhappy customer. Richard Keisner, of CMI Offshore, recently accused the shipyard of extremely low productivity and quality control. A barge his company had ordered will now be completed elsewhere.

Yet despite the huge amounts of taxpayers money at stake in Ferguson Marine, Scotlands opposition politicians have done little more than raise a concerned eyebrow. They cant afford to get a reputation for poor work, opined Scottish Conservative transport spokesman Graham Simpson.

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No-one dares to ask the obvious question: should the Scottish Government be propping up a failing shipbuilder at all?

Margaret Thatchers ghost haunts any discussion of Scottish shipbuildings future. The story goes that Scotland was a great shipbuilding nation until Thatcher came along and heartlessly ruined everything. A whole generation of nationalist politicians, including Nicola Sturgeon, were drawn into politics by this foundational belief.

Yet Scottish shipbuilding had struggled since the 1960s. Despite Scotlands shipbuilding heritage, other countries could build modern ships for lower prices. Orders for Scottish ships fell. Fewer orders meant reduced economies of scale, further damaging efficiency and competitiveness.

With shipyards already running at a loss, there was no money to invest in new technologies or otherwise improve efficiency. Scottish shipbuilding has been caught in this downward spiral for at least half a century.

Thatchers biggest mistake was relying on the creative destruction of the free market. There was no creativity, just destruction.

Could things have been different with a proper plan to support the transition from traditional industries to future ones? We will never know. There was no plan, and 40 years later we are still dealing with the social and political consequences.

That is why no-one wants to be the first to admit that Ferguson Marine is probably beyond saving, especially not the Tories.

But it is time for a cold, hard assessment of the facts. The best-case scenario is that the Scottish Government pays Ferguson Marine 240 million for two ferries and Ferguson Marine miraculously transforms itself into a viable business. The Scottish Government will have paid 160 million to save just over 300 jobs. By a crude calculation, that works out at over 500,000 per job.

Even if this works, the opportunity cost must not be underestimated. That money could have gone a long way invested in other pressing priorities like (re)training, education, research and development, seed capital for innovative businesses, and infrastructure. All of these are badly needed if Scotland is to have a future as a dynamic and internationally competitive economy.

And the harsh reality is that Ferguson Marines future prospects look poor. Are we prepared to let it become a sink without a plug for taxpayers money? It is time for an honest, robust debate about that.

We associate economic populism with far-flung countries in Latin America, but Scotland risks falling into the same trap.

Economic populism has three main hallmarks. First, money is spent on immediate political and social priorities, while investment in long-term economic priorities (education, training and infrastructure) that increase overall prosperity is neglected.

Second, there is a lack of accountability, along with the dismantling of economic and political restraints on government. Third, international trade is seen as a threat rather than an opportunity.

All three are clearly visible in the Ferguson Marine case, and that should be a cause for alarm.

There must be a full public inquiry into the Scottish Governments handling of the case. It is shocking for documents to conveniently go missing from the Scottish Governments files. Accountability matters.

On the bigger questions of Scotlands economic strategy, opposition parties must dare to draw on another heritage: Scotlands leading role in the economic Enlightenment.

Scotland is a small, high-income country in one of the worlds richest regions. Large, middle-income countries like Turkey, with much lower wages and economies of scale, will continue to outcompete Scotland in shipbuilding. Instead of throwing good money after bad, Scotland can better play to its modern strengths.

Historically, Scotland had an excellent education system, but results have fallen behind the OECD average. Fixing this should be the Scottish Governments top priority. Pushing up educational standards will not be easy: it will require sustained commitment and investment over decades. However, this is key to tackling Scotlands pervasive inequality and preparing the Scottish economy for the future.

Scotland still has world-class universities. In theory, these should be pillars of prosperity for a small, high-income country with wealthy neighbours. For any country in this position, the most promising economic strategy is to create innovative, niche products and export them. By this logic, Scotland should be looking for gaps in the market to fill, rather than attempting to compete in traditional heavy industries dominated by middle-income countries.

If the Scottish Government has 160 million to spend creating jobs, this is where the focus should be.

An open-eyed assessment of Scotlands infrastructure, and whether it supports its economic goals, is also needed. Scotland has fallen shamefully behind in digital connectivity, especially in rural areas. Crude demands of the private sector for example, that international companies supplying offshore windmills deliver community benefits may also fail for a lack of suitable infrastructure.

Scotland does not currently have a harbour deep enough to accommodate modern floating windmills, which is why they are assembled in Rotterdam and towed into place.

These are complex challenges to which economic populism has no answers. As Adam Smith, the father of modern economics and a native son of Kirkcaldy, said: The facts must be real, otherwise they will not assist us in our future conduct, by pointing out the means to avoid or produce an event.

These words should serve as a lodestar for those hoping to guide Scotland to a prosperous future.

Dr Alison Smith is an author and political analyst at Political Developments

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Scotland should remember the words of Adam Smith and beware the dead hand of economic populism Dr Alison Smith - The Scotsman