You cannot go far in the town of Dunfermline without stumbling across the
power of positive thinking, 19th-century style. Andrew Carnegie, the
industrialist and philanthropist, was born in a one-room cottage here but
died the richest man in the world. He built the Fife town’s library and
swimming baths and gifted it a public park, though his legacy reached well
beyond his home town.
Carnegie, over time, has been transformed into a saintly figure who stayed
true to his roots despite emigrating to America where he made his money in
steel, railways and the stock market. I doubt, however, he’d have rescued
the stricken Dunfermline Building Society were he alive today. He was too
ruthless a businessman to burn his money on sentiment. He’d certainly have
opposed a government rescue, being an apostle of the free market,
laissez-faire philosophy. Then again, these principles might have been
suspended were he offered the sweetener Alistair Darling gave the Nationwide
last week — you take the savings and tax-payers will take the toxic debts.
Carnegie knew a good deal.
If Scotland cannot rely on Carnegie’s billions to get them out of the current
mess, we could use a bucketful of his optimism. We thought we knew how
venal, greedy and reckless our financial institutions had become. The
correct level of public scepticism had been reached. Then came the
Dunfermline debacle.
This building society was supposed to be a place where grannies felt safe and
a cash ISA counted as excitement. It was a mutual, for goodness sake. Who
remembers the arguments against demutualisation when Standard Life wanted to
float on the stock market? I actually believed the line about mutuality
putting the customers before the shareholder, as did the thousands of people
who chose to keep their money in the Dunfermline for that reason.
You don’t need to be a conspiracy theorist to suspect political considerations
lay behind the decision to end the independence of our largest building
society. A government bail-out would have cost about £60m, but the Treasury
will give the Nationwide the equivalent of £1.6 billion to force the deal
through. Somehow, the sums don’t add up. But we’re used to that these days.
The financier Jim Spowart, a Fife man, approached the government mid-March
with a rescue deal backed by another mutual, Scottish Friendly Assurance.
Officials refused to see him until the day the Nationwide plan was
announced. This Treasury procrastination was a replay of those failed
attempts by Scottish businessmen to stop the sale of HBOS to Lloyds TSB.
Alternatives offered by Spowart, as well as Sir Peter Burt and Sir George
Mathewson, formerly of the Bank of Scotland and RBS, were treated with
disdain in Whitehall. Perhaps there were sound financial reasons for pulling
on the blinkers — that bank needed emergency treatment and fast. But are we
really to believe that Gordon Brown, the arch political schemer and a man
with Scotland still in his soul, was not just a wee bit motivated by a
desire to give the nationalists a bloody nose?
The argument that an independent Scotland could not have survived this crisis
is well rehearsed and recent opinion polls suggest it has some resonance
with the public. However, if Scotland had been independent last year when
RBS and HBOS were first rescued, how long might we have enjoyed that status?
Long enough to build up the substantial cushion of an oil fund to guard
against such a crisis? Long enough to loosen the grip of the City of London?
Let’s not forget that the two big Scottish banks, in recent years, mainly
strutted their stuff in the square mile around E1. Have any small,
independent countries collapsed as a result of the crisis? No. Are folk in
Ireland and Iceland a bit glum? Probably. More glum than us in Britain?
Honestly? The International Monetary Fund has predicted that the UK will be
hit harder by the crash than any other western economy and will take longer
to recover. We have entered an age of global solutions as well as global
problems. The IMF was beefed up at last week’s G20 summit in London and now
holds the world’s cheque book. Small countries will not surrender their
sovereignty to larger neighbours to survive.
That ludicrous scenario is the logical endpoint of arguments suggesting an
independent Scotland would disappear into the Atlantic as a result of the
banking crisis. We will not see Iceland throw its lot back in with Denmark
or Dublin close down the Dail. Countries in crisis go to the IMF, or seek
funds in the Gulf and China. Britain may also have to join the queue, though
it will need a larger bunnet when it goes cap in hand.
There are reasons to be cheerful. Scotland has survived many an economic
tsunami. We remained standing when heavy industry was wiped out in the last
century. Then came the devastation of Silicon Glen. In the 1990s and
noughties multinational electronics firms relocated their assembly plants to
places where labour was cheaper. It’s extraordinary to think that, not so
long ago, 35% of Europe’s personal computers were made here. Yet Scotland
survived the glen’s destruction.
Financial services replaced the silicon chip as Scotland’s sexy new sector.
Now that’s looking saggy, what comes next? A report last week by the
Institute of Mechanical Engineers suggested manufacturing. The Institute’s
idea of manufacturing is very different from the screwdriver production
lines passed off as “hi-tech” during the electronics boom. It recommends
innovation, high level research, design and servicing. Skilled maintenance
by engineers accounts for a large part of high-end manufacturing today. The
new Royal Navy Queen Elizabeth Class aircraft carriers will cost £4 billion
to build in Glasgow, but their total “life cycle cost” is likely to be about
£18 billion.
The institute, like the Scotttish government, wants us to focus on new sectors
like marine energy and an experimental “carbon capture” plant that will
safely store the emissions from a coal-fired power station. They want more
businesses spun out of our university departments. Recessions can offer
opportunities to entrepreneurs. Google thrived during the dotcom bust.
Slumps can mean more talented people are released by big companies, often
with redundancy packages. Now the internet makes it easier to market the
product.
The challenge is finding the money. This is the real crisis Scotland faces.
How can we restructure without capital? In an interview with The Times
yesterday, Burt suggested we create new banks and that this would be a
relatively simple affair. Unthinkable? Who would have thought, a year ago,
that the state would own RBS?
History is on Burt’s side. In the 18th century, Scotland was a pioneer in
banking services, inventing the overdraft, rather ominously. But the
dominance of the Bank of Scotland and the Royal Bank in Edinburgh meant
businesses elsewhere struggled to raise capital. So entrepreneurs set up
their own. Wealthy tobacco traders in Glasgow established the Ship Bank, for
example, with a magnificent square rigger on its notes. Whole industries
solved their own credit crisis by opening banks — The British Linen Company
eventually had branches all over Scotland.
There’s no rule that says only banks with global reach are effective. Recent
events suggest the opposite, so perhaps it’s time to think local. When those
small banks were mushrooming in Georgian and Victorian eras, Scots were the
world’s self starters. In the past few decades, our business birth rate has
been poor. Even in the good years, entrepreneurs complained they struggled
to get venture capital.
Burt suggests his new banks could get backing from business leaders like Tom
Hunter, Brian Soutar and Jim McColl. They are Carnegie’s successors after
all. With his drive and self-belief, any of us could turn the country
around.
joan.mcalpine@sunday-times.co.uk
