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The Entrepreneurial Exchange

Mackenzie's Spending Rant: Does Data Back Him Or Sack Him?

Nov 26 2007

PROFESSOR BRIAN ASHCROFT'S ECONOMICS

Brian Ashcroft

 

"SCOTLAND believes not in entrepreneurialism, like in London and the South East...The reality is that the Scots enjoy spending it; they do not enjoy creating it, which is the opposite of down in the South."

I bet Kelvin MacKenzie's words on BBC's Question Time stuck in your craw as much as they did in mine.

Many Scottish commentators were quick to dismiss the comments. But others, such as Ivor Tiefenbrun and Andrew Neil, seemed to suggest that MacKenzie had a point.

Is this simply anti-Scottish nonsense from a noted Scotophobe? Or, when the apparent prejudice is stripped away, was he offering us a reality check?

MacKenzie's outbursts are rarely supported by anything as mundane as evidence, yet his allegations are in principle testable with the appropriate data. It is arguable what evidence is 'appropriate' to prove the point, but data on Scots' spending and saving propensities, entrepreneurial performance and attitudes to spending and entrepreneurship are all available.

Do the Scots spend more than their southern neighbours? Although there is an absence of official data, the rate of savings from income in the average Scottish household appears to be higher than in the UK.

Research by Experian Business Strategies in 2002 found that Scotland actually had a lower level of household indebtedness than the UK overall. In addition, official data on growth of the retail sector suggest it has grown more slowly in Scotland than the UK over the past decade.

No evidence here, then, that Scots enjoy spending more than their UK or southern England counterparts.

And what of Scotland's entrepreneurial performance?

In July the City and Guilds Vocational Rich List of Britain's leading self-made millionaires revealed almost a quarter come from Scotland, much higher than Scotland's UK population share of just over eight per cent.

However, a closer inspection of this list reveals that the statistic refers to Scottish-born entrepreneurs, several of whom - such as Billy Connolly, Sir Alex Ferguson and Gordon Ramsay - made their money largely outside Scotland.

When we turn to entrepreneurial performance, the picture is less favourable. Scotland has for many years failed to punch its weight in the creation of new firms.

Between 1994 and 2005 new VAT registrations - a proxy for business formation - averaged 28 per ten thousand adult residents. This placed Scotland third bottom amongst the 12 'regions' of the UK - only Wales at 27 and the North East at 21 performed worse than Scotland.

In contrast, the South East of England generated an average of 44 starts, while London registered 60 per ten thousand adult residents. But the South East is the better comparator, since the resident population of London is relatively low due to commuting.

By 2006, the stock of VAT registered businesses in Scotland stood at 310 per ten thousand resident adults, the lowest of all the UK 'regions'. That figure amounts to 81 per cent of the UK level and only 70 per cent of the South East company stock.

So does this evidence make it game set and match to Kelvin MacKenzie?

Mercifully, no. Three points are relevant here: entrepreneurship amounts to more than new firm formation; weaker new firm formation may not reflect negative attitudes to wealth creation; attitudes change.

John Anderson, chief executive of the Entrepreneurial Exchange, observed that MacKenzie's vision of Scotland was "stuck in the past". There could be no better and no fairer judgement on MacKenzie's Question Time rant.

Brian Ashcroft is a Professor of economics and policy director of the Fraser of Allander Institute, University of Strathclyde.

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