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Profit Extraction

Overview —

How foreign ownership drains Scotland’s wealth

Credits—

Craig Dalzell

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The Scottish Government has, as a conscious political choice, made an effort to maximise ‘foreign direct investment’ or ‘inwards investment’ as a tool for growing the Scottish economy. However, years and decades of rounds of these kinds of investments have exposed Scotland to the worst aspects of the globalised economy. Large amounts of public money is funnelled towards companies in the form of subsidies or tax breaks only to see those companies pack up and leave the moment the subsidies end or someone else gives them a ‘better’ deal. Even the ‘success’ stories of the Scottish economy, such as our agricultural and energy exports, are largely owned by multinational companies based outwith Scotland who extract profits from those investments.

This paper examines data published by the Scottish Government on Scotland’s Gross Domestic Product (GDP) and Gross National Income (GNI) which lays out the extend to which the profits from foreign-owned companies in Scotland are extracted outwith Scotland, how it is done and where the profits go.

For the first time, this paper also compares the level of net economic flow (inwards or outwards) to other countries to find that Scotland is one of only a few countries with our level of economic development that sees such high levels of profit extraction.

KEY POINTS

― Scotland is one of the most foreign-owned countries in the world and one of only a handful of such countries that is both rich and developed but is not a micro-state or an outright tax haven.

― Comparing Scotland’s GDP (Gross Domestic Product) and its GNI (Gross National Income) found that in 2021, £36.5 billion was extracted from Scotland – largely in the form of profits and dividends to foreign companies and shareholders – while only £26.4 billion flowed into Scotland – largely as foreign investment income. A net outwards flow of £10.1 billion.

― Of this outwards “economic flow”, £3.9 billion was extracted to elsewhere in the UK whereas £6.2 billion was extracted to elsewhere in the world.

― This is equivalent to 5.59% of GDP which is greater than the average of any World Bank income group, including the world’s least developed and most heavily indebted nations.

― Scotland has experienced a net outflow of wealth in every year since records began in 1998 – totalling around £277.4 billion between 1998 and 2021. Of this, £134.7 billion was extracted to the rest of the UK and £142.7 billion was extracted to the rest of the world.

― In 2021 only five polities in the World Bank GNI database were both richer than Scotland in terms of GNI/capita and had a higher net rate of outwards economic flow. San Marino, Singapore, Ireland, Luxembourg and The Cayman Islands.

― The Scottish Government’s intensive support of “Foreign Direct Investment” aims to create a net flows of investment towards Scotland, but these investments will, if they are successful, result in greater flows of profit extraction in years to come.

― Over-reliance on foreign capital has and will lead to capture of Scotland’s democracy as politicians will be pressured to appease investors who have already demonstrated the ability to move investments elsewhere if demands are not met regarding tax breaks, erosion of workers rights, capture of environmental standards or any other legislation that may reduce rates of profit extraction.

― While the latest publication of GNI figures is welcome, the gap between 2017 and 2023 as well as the two year lag time for the latest data is an issue that should be addressed as a matter of urgency. The Scottish Government should commit to publishing GNI figures at least annually, and preferably as frequently as and alongside GDP figures.

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