The end of the century has seen the re-establishment of a Parliament and Executive to oversee a (slightly extended) set of devolved government functions in Scotland. Expectations have been raised, but can the changes make a difference to the performance of the Scottish economy and the well-being of Scottish citizens? Can it help to ameliorate the negative effects of the Great Capitalist Restoration? This paper considers the possible economic significance of political devolution to Scotland within the United Kingdom.

In the process, we provide a little background on some of the interactions among economic and political factors that conditioned the establishment of the devolved Parliament and Executive, and we consider important features of the economic context within which it has to operate. Whether or not devolution can have an impact on economic outcomes in the twenty-first century depends to a great extent on the competence of any devolved government to influence economic affairs. This derives to some extent from constitutional powers but is significantly determined by key elements of the political economic nature and context of this small peripheral economy. Here two factors are seen as important for the predicament of the devolved Scottish state: "fiscal crisis" and "globalization."

Economic Crisis and New Right Responses

Twenty-five years ago, James O'Connor argued that "... although the state has socialized more and more capital costs, the social surplus (including profits) continues to be appropriated privately. ... The socialization of costs and the private appropriation of profits creates a fiscal crisis, or 'structural gap,' between state expenditures and state revenues" [O'Connor 1973, 9]. This remains a lucid, compelling account of a key element of the predicament of the modem state and its influence has reached beyond the boundaries of Marxist traditions of inquiry. [1]

When Fiscal Crisis was written, the Keynesian consensus that had been the conventional wisdom since 1945 cracked in the struggle to formulate solutions to the global economic crisis of that time. Among the alternatives Friedmanite monetarism provided succour to those--in both the United States and the United Kingdom--unwilling to contemplate the kind of solutions O'Connor was advocating. Now, after more than two decades of New Right political hegemony, one might expect to see a markedly changed economic and social landscape from that preceding the Thatcher-Reagan ascendancy. The New Right coalition arose in response to the perceived inadequacies of: "the commitment to demand-stimulus, the liberal international order, and the capital-labor accord" [Reich 1994, 36]. As presciently forecast in 1952 by John Kenneth Galbraith [1993, 190-4], the commitment to demand stimulus brought with it inflationary danger. The "liberal international order" effectively collapsed with the Bretton-Woods regime in 1971, while the capital-labor accord ceased to function. These related developments preceded the assumption of power by governments espousing a New Right ideology. The state-led economic restructuring that followed in the United Kingdom involved the accelerated decline or closure of traditional heavy industries, including steel, coal, shipbuilding, and much indigenous manufacturing. The power of organized labor was restricted and then actively combatted, as exemplified most graphically in the year-long miners' strike of 1984-85. Deregulation of finance, beginning with the abolition of exchange controls in 1979, heralded the era of increased global capital movements and a wholescale restructuring of the British financial sector. Privatization, first conceived almost by accident, led to massive transfers of state assets, significantly underpriced, to the private sector. And while indigenous firms were allowed to go bankrupt with impunity (unless they were banks, as with Johnson Matthey in 1984), foreign multinationals were we lcomed as the saviors of the British economy. …