George Kerevan: What should a Council of Economic Advisers look like?

The columnist George Kerevan has contacted Scottish Futures with an expanded version of his Scotsman column, which speculates on the SNP's proposal for a Council of Economic Advisors (CEA). The full piece is in extended post below.

In passing, we'd agree with Kerevan that the CEA should add academics as well as professional economists and business people to its mix - and have its own, Executive-funded research staff. In the spirit of Wendy Alexander's recent colloquium of international economists around Scotland as a case study, we also think there should be a role for consultant input from economists (and political economists) throughout the world. (We vote for Yochai Benkler, and his digital updating of the Wealth of Nations, the Wealth of Networks).

Comments from the community more than welcome.

George Kerevan: What should a Council of Economics Advisors look like?

Tuesday, 8 May, 2007

WITH the election of the SNP as largest party, one idea that is likely to see the light of day is the creation of a Council of Economic Advisors (CEA).

The original CEA was established by the feisty US president, Harry Truman, in 1946 at a time when many commentators feared the re-emergence of mass unemployment. The council was established under an Act of Congress to provide the president of the day with objective analysis and advice on economic policy.

Here we come to the first issue regarding a Scottish version of the CEA. The Truman model (which remains in force today) consists of three economists, usually of the highest professional reputation. They are nominated by the sitting president, but appointed with the advice and consent of Congress. This ensures they are (1) reasonably non-political; (2) independent of the executive; and (3) listened to by Congress.

The SNP's model is slightly different. According to the party's economic manifesto, First Minister Alex Salmond "will convene a Council of Economic Advisors made up of Scotland's top business people at home and abroad to give accurate, independent advice on how to make Scotland the best place to do business in Europe".

There is certainly a case for having more than three members on a Scottish CEA and for having the membership include more than academic economists. This would enable the CEA to draw on a wide base of experience and give the new body instant credibility. However, a CEA made up only of "top business people at home and abroad" would run the risk of being a talking shop.

It follows that a meaningful CEA needs to have political clout, not replicate the existing Scottish Council for Development and Industry (SCDI), which does good work from the sidelines but is frequently
ignored by the politicians.

The solution is for any new CEA to be small - no more than nine members, on a par with the Bank of  England monetary policy committee. It should consist of a majority of professional economists, some academic and some from the private sector. That way it will be in a position to offer serious technical advice, not just personal opinion.

Nominations should come from the Executive, but some mechanism has to be found for the Scottish Parliament to be associated with approving membership; otherwise the CEA risks being seen as a political creature of whoever forms the Scottish government. One solution would be for nominees to appear for questioning before the Parliament's enterprise committee.

For the CEA to be more than a talking shop, it also needs its own independent research facilities. In the United States, the CEA has a staff of ten economists, generally senior academics on leave from their
universities. They are assisted by an additional ten junior staff economists, typically PhD students. I'm not suggesting we replicate this in total, but a Scottish CEA can only give independent advice if it has
its own small research staff - funded by the Executive.

There remains the issue of how the CEA will fit in with other public agencies, such as Scottish Enterprise, and business representatives such as the SCDI and the Federation of Small Business. The answer has to lie in the remit given to the CEA, which has to be as precise as possible. References to making Scotland "the best place to do business in Europe" are too vague.

The American CEA publishes an annual Economic Report every February which stands as an independent audit of economic policy. If Salmond is in a position to set up his CEA, he must have the courage to let it do the same. The CEA in America also reviews the activities of federal government agencies to see if they are supporting national economic policy - we need the same.

Finally, the US version acts as a long-range policy think tank. There are several long-term policy questions that require research in Scotland. The first has to be explaining why Scotland suffers from such
poor productivity compared with the UK (which is bad itself) and other comparable western economies. Commentators have batted this question around for long enough - the time has come for a detailed analysis followed by impartial policy prescriptions.