Digby Jones - prophet or prat?

THE fuss engendered by Ross Finnie’s famous rebuke to Digby Jones, first revealed in Scotland on Sunday last week, only served to let the CBI director general off the hook as far as his economic thinking is concerned.

Led by our Digby, the Confederation of British Industry, the Engineering Employers’ Federation and the British Chambers of Commerce all oppose the idea of devolution for the English regions. The government is expected to include a bill in the next Queen’s Speech that would provide for referendums on elected assemblies in the eight English regions outside London where ministers judge there is support.

In particular, Digby Jones is against plans to transfer control of the English regional development agencies (RDAs) - set up three years ago on the Scottish Enterprise model - from the Department of Trade and Industry to the forthcoming elected assemblies. According to Jones: "Regional development needs dynamism and a knock-down-doors mentality, but local authority bureaucracy is not best suited to deliver it. We know from experience that the DTI does understand the business agenda and we don’t believe there is a convincing case for any changes."

Cue Mr Jones in Scotland, where he was suitably unimpressed by the Scottish Executive’s management of the economy, the better to bolster his case in England. According to Jones: "What they’re doing in Scotland is putting up tax; they’re not engaging with the business community and not providing an environment for the overseas investor." Warming to his theme, Jones also lambasted the Scots in general for being anti-English.

Since Jones has yet to publish any dossier proving that anti-English attitudes in Scotland deter investment, let’s see if we can find evidence of our own. The latest data comes from the Ernst & Young European Investment Monitor, published last month. This breaks down foreign inward investment by UK region. Of course, that does not include domestic capital flows between the regions, but it’s a good surrogate for measuring the responsiveness of individual regions to attracting other folk’s cash.

The report covers financial year 2001-2002. The top performers at attracting inward investment projects were the South-East (first), Scotland (second) and the West Midlands (third). Everybody else is way behind. So, even in a difficult year, given the bursting of the technology bubble, Scotland was second only to the South-East, with its huge political and economic clout, in pulling in the investing punters.

OK, let’s take a stab at English cross-Border investments. Here we have to be anecdotal, given the lack of numbers. But there were some significant English investments in Scotland in recent months.

There was the purchase of the academic and stationery side of James Thin by the Oxford-based Blackwell Group, including 12 stores. Smart footwork by the corporate law group at Scots solicitors MacRoberts ensured the period from James Thin going into administration on January 23 this year to its acquisition by Blackwell was just 10 weeks from start to finish.

Another recent deal was the multi-million pound purchase by Bury St Edmunds-based brewer, Greene King plc, of the Scottish pub chain Dalgety Taverns. And if that’s too small beer for Mr Jones, let’s talk big money - the Bank of Scotland’s recent merger with Halifax to form HBOS.

Which is not to say the Scots don’t have a chip on their shoulders. But Jones is wrong to attribute the business cultural problem in Scotland to anti-Englishness. Where there is anti-English sentiment, it is the Scots blaming somebody else for self-inflicted wounds. As far as the economy is concerned, that self-inflicted wound is the meltdown of the indigenous business class after the First World War, when the Scots suddenly decided capitalism - which they had invented - was a bad thing. Instead, the old family firms cut back on innovation and demanded government protection and subsidy. Which is why I am always suspicious of CBI directors-general banging the drum about centralisation. It is usually a synonym for demanding more government ‘help’.

Digby Jones did refer to this in passing when he mentioned the "special challenge" of Scotland’s perennially low rate of business start-up. This he blamed in part on high business rates in Scotland, which means that taxes paid north of the Border are 9% higher than those in England.

It is true is that Scotland has a lamentable track record when it comes to business start-ups. But it had a lamentable record under extreme centralised government from Dover House in the 1950s and 1960s. It had a lamentable record under the SDA in the 1970s and 1980s. It has a lamentable record under the devolved Scottish Executive. Scotland’s business start-up rate has been poor forever - the second worst region in the EU for six of the past 20 years and third worst in all other years.

But the inability of Scotland’s middle class to be entrepreneurial has nothing to do with devolution, though the Executive is a convenient Aunt Sally on whom to pass the blame. And while I think our high business rates are indeed a burden - I know, because I pay them - for most companies the difference with England is marginal and certainly not enough to explain our poor start-up performance.

The truth is the bulk of the Scottish middle classes have gotten used to being teachers, lawyers, accountants and civil servants. They have a nice life and are content to let the state take care of things. This is where we come to the core of Digby Jones’s vision. He feels happy with the DTI and big government because, in his heart of hearts, he also wants to cosy up to the state. That is his animus with English regional assemblies and the Scottish Executive. We have been here before.

In the 1970s, there existed an interesting subsidy wheeze called the Regional Employment Premium (REP). Under this scheme, the government taxed service companies for every worker they employed, and gave money to manufacturing companies in Scotland. When the scheme was scrapped in 1977, the CBI lobbied hard to keep it, saying mass unemployment would ensue. Instead, we got our hugely successful financial services industry. Lesson: what the CBI sometimes thinks the government should be doing is blithering nonsense.

Jones did have one correct economic prescription for Scotland. To make the Executive more accountable, he suggested forcing it to spend only what it can raise locally. He argued: "Anything that would lead to a Scottish Executive saying, ‘I’m spending your money, not money that someone else has given me’ would lead to more responsibility." Very true. Unfortunately, it is the antithesis of the position of CBI Scotland, and an embarrassed Digby Jones had to recant.

Yet there is a simpler way of making devolution business-friendly. The real problem with Holyrood is the dire lack of MSPs with business experience. Once again, the culprits are the middle class themselves. In other countries - France and Spain in particular - many regional parliaments are dominated by the business class and used specifically as platforms for building local competitiveness. Witness Catalonia or Bavaria.

So here is my challenge to the director-general of the CBI. Instead of campaigning to block devolution in England, so you can keep your cosy one-to-one chats with Patricia Hewitt at the DTI, why not use your well-known diplomatic skills in another fashion? Stand for election as head of the Business Party in one of the new regional assemblies.