So, only 12% contribute to wealth creation in Scotland!

So the leader of the Tory party in Scotland, Ruth Davidson, has claimed that only 12% contribute to wealth creation in Scotland. For starters, I find this an odd thing to say since, as I’ve commented before, wealth creation is a tricky concept but 12% seems like a suspiciously low number. It then turned out that what she meant was 12% pay more tax than they receive in benefits. That also seemed a little odd, so I checked out some of the data and it seems like at least 34% pay more in tax than they receive in benefits (a few other newspaper articles also came up with a figure of 34%). All a little confusing.

I now think I know what she doing. She has excluded all public sector workers because they earn more from the public purse than they pay in tax (obviously) and included only private sector workers who pay more in tax than they recieve in benefits (presumably ignoring indirect taxation, which actually makes up about 17% of all tax revenues). It is possible that 12% is the correct figure, but it is a completely ludicrous assertion. It is amazing that the leader of a political party can make such a stupid claim.

What is being claimed is essentially that a teacher at a private school who earns the same and pays the same tax as a state school teacher generates wealth, while the state school teacher does not. It is claiming that the police, fire services, doctors, nurses (unless they work for a private healthcare company), council workers, politicians, university employees, and many others do not contribute to our economy. What an insulting and patently ludicrous claim. What it shows is that the leader of a major political party in Scotland does not even have a basic understanding of economics.

As I have claimed in the past, wealth creation is not the same as making a profit. A private company can make a profit, while a public service cannot. Both can, however, create wealth. The public sector provides the infrastructure so that the private sector can then sell their products and make their profits. It is, in fact, technically possible to create wealth in an economy that is totally public. The problem with such an economy would be that you would need to reward creativity and innovation and hence some people will earn enough to accumulate wealth. What do they do with this wealth? They can’t invest in the economy, because it is all public. They could lend to the government, but that wouldn’t reward risk taking. You need a private sector so that those with wealth can invest, take risks and provide choice for society (and be suitably rewarded).

You could also potentially have fully private economy. The problem I can see with this is that everything will be owned by individuals. Any economic growth therefore goes to these individuals who then accumulate more and more wealth. They could choose to pay high salaries to their employees so as to redistribute this wealth, but why would they do this? Also why would they choose to provide services that all could afford? In a sense a government can act to prevent, through taxation, too much wealth accumulating in too small a fraction of society. Furthermore, there are certainly some services (police, military, fire services, social services, etc) that should be provided publically, rather than privately.

I find it incredibly frustrating that a leader of a major political party either doesn’t understand basic economics or does but will make incredibly stupid statements so as to appeal to the base of their politcal party. In either case, I think Ruth Davidson is showing a great deal of ignorance.


3 thoughts on “So, only 12% contribute to wealth creation in Scotland!

  1. While proof reading this I realised that I’d referred to the Scottish Conservatives as a major political party in Scotland. I realised that this is about as ludicrous a statement as the statement made today, by their leader, that only 12% of Scottish households contribute to wealth creation.

    • Thanks for the comment, although it doesn’t really appear to make sense. Progressives are simply people who like to see progress, so quite why such people would hamper wealth creation is unclear. The comment also appears to mainly be a link to a set of pages about wealth creation. I haven’t read them in detail, but it does seem to be the normal rhetoric “government bad”, “private sector good” and the bit I read ends with wealth creation needs free-market capitalism. I would argue that the recent financial crisis suggests that one has to be careful about free-market capitalism as it can clearly be very good at destroying wealth. The document doesn’t seem like it has really attempted to address the subtleties of wealth creation in any particularly detailed way.

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