It was a warm start, courteous, and, if I might say so, typically smarmy opening from Bailey. But beyond the pleasantries, his speech revealed something more troubling.

Despite all the very obvious economic problems the UK and Scotland face, Bailey retains an almost complacent faith in markets, a touching belief in technology as salvation and a complete absence of any recognition that government must lead investment, not simply hope for it.

He did, in other words, and without realising it (I am sure), provide a resumé of all the reasons why Scotland should be governed by and from London.

History as theatre

BAILEY, ever the historian (because that is what his PhD was in), reminded his audience that the Bank of England was, in a sense, a Scottish invention.

It was dreamed up by William Paterson of Dumfriesshire, though it was an Englishman, John Holland, who founded the Bank of Scotland.

Bailey clearly enjoyed the irony, but he used it to serve a purpose: he framed the Bank of England as a British institution, and not an English one, despite its name, and used that pretext to underline the idea that Scotland’s fortunes are interwoven with those of the UK.

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Presumably, he thought this was a little history lesson in the service of political unity. Perhaps it never occurred to him that he was actually using the language of the colonialist, coming to demand obsequious obedience to the institution bearing the name of another country.

That said, the real business of the speech was to do a little economic storytelling, and this is where the cracks began to show.

Investment, productivity and the faith in markets

BAILEY’S central claim was all too familiar. He suggested investment drives productivity, and productivity drives growth, and that is what we all need for our salvation.

He was, of course, preaching the mantra of orthodox economics that is now so well-worn it now passes for common sense. Doing so, he painted a picture of Scotland’s economy as a place of innovation and opportunity. He talked about space technology in Glasgow, and renewables in Orkney, as well as quantum computing and medical research that could transform the world.

All that might be exciting to a man whose lifetime of work at the Bank of England has largely removed him from the realities of life, but all it really confirmed was that he is very detached from the everyday concerns of most Scots.

What matters, according to Bailey, is “general purpose technology”. This term apparently embraces innovations such as steam, electricity, and the internet, all of which lift productivity across the whole economy.

The next such breakthrough, he suggested, might come from AI, robotics, or biotechnology. His message was that we might be standing on the brink of a new era but it will take time and so we must be patient and keep faith in innovation.

The pension fund question

THEN came the pivot point. Bailey endorsed the view Rachel Reeves’s proposals presented in her Mansion House speech in July, when she sought to encourage pension funds to invest more of their existing assets in what he called the real economy.

“Not only do [those proposals] make good business sense for pension funds,” he said, “they will demonstrate a level of commitment to growth in the economy and to the British public.”

That sounds comforting. But let’s be clear about what it really means.

Bailey was not suggesting new public investment. He was not arguing for the Government to spend directly on infrastructure, housing, or green transition projects, all of which we know we need. Nor was he talking about creating high-skilled jobs, which are also essential.

He was simply saying pension funds, which are, in effect, vast private institutions managing other people’s deferred wages, should move some of their money invested in shares around the world into the shares of UK companies.

In short, he was calling for investment by pension funds in shares, but not in jobs, or in anything that might result in new real economic activity.

What he was proposing might please the City and Edinburgh financial elite but it will do little for the real economy. Shuffling share portfolios from one place to another is not the same as creating new productive capacity. It changes who owns the assets, not what assets exist, and yet Bailey seems to think this is what really matters. He is sadly mistaken.

(Image: Newsquest)

What he didn’t say

AT the same time, Bailey was also evasive. He did not mention that the Bank of England’s own high interest rates have made borrowing for productive investment prohibitively expensive. He did not acknowledge that his policies of paying interest to commercial banks on funds effectively donated to them by the Treasury during the 2008 global financial crisis, and more recent Covid crisis, have transferred billions from the public purse to banks and bondholders.

He did not talk about the impact of interest rates set too high by the Bank on households, whether they have mortgages or rent.

He did not address the fact that public investment has collapsed, or that private investment has been weak for more than a decade, precisely because of government austerity, uncertainty and lack of strategy.

And he certainly did not note that the Government itself – uniquely among UK economic actors – can create the money needed to invest in the future, if it chooses to do so.

Scotland’s opportunity – and its constraint

SCOTLAND, as Bailey acknowledged, has extraordinary potential in renewable energy, research, and innovation. But to unlock it requires long-term, risk-taking investment, which is precisely the kind that markets rarely provide.

That means public leadership is required. The Government must decide that a transition to clean energy, to good jobs, and to a sustainable economy is worth funding. It means having the courage to spend first, tax later, and accept that public money is the foundation of private prosperity.

Bailey’s speech avoided that truth because it lies outside his economic theology. In his world, the state “sets the framework,” the market provides the magic, and patience will do the rest, except that they do not.

But patience is not a strategy. Scotland has been patient for decades while productivity, wages and living standards have stagnated. What it does not need now is yet another hymn to the virtues of waiting, but a plan to invest in our collective future.

That plan must start with the recognition that it is the Government, and not pension funds, that holds the real power to create money and direct it towards the public good.

Until the Bank of England and the Treasury accept that reality, Scotland will continue to be offered fine words about innovation and optimism, and little or no real investment to make them happen.

Better still, Scotland needs its own treasury and national bank to lead that process for it.