IN our last article we began to discuss the decisive role the state plays in shaping the economy and the sort of society we live in. It is able to do this through its power to spend in its own currency and its powers of taxation and “borrowing”.

The question is, therefore, what should the new independent Scottish state be like and what do we want it to do?

A new written Scottish Constitution will set out the foundations for a Scottish state. The common themes which unite the Scottish independence movement, building a “fairer and more equal society” and the pursuit of “wellbeing”, imply that Scotland should have a democratic constitution which puts the wellbeing of our people at its heart.

This requires the incorporation of fundamental rights of all citizens and a framework for full public accountability of all public institutions. All Scottish citizens should have unequivocal rights to food, energy, clean air and water, housing, health, education, work, a pension and other human rights as enshrined in the European Convention on Human Rights.

The role of the state is to ensure these rights are fulfilled through its powers of spending, taxation and borrowing.

All money in an economy originates in government spending to enable the provision of all the infrastructure, goods and services we need. The state employs a large section of the nation’s workforce to provide, for example, health, education, housing and infrastructure such as roads and power transmission. It does not print money to pay for this. Money is created in the process of spending itself.

Public-sector employees receive their income by a transfer of a credit from the government, via the central bank, into their own bank account. The credit is recorded digitally on computers. This credit is matched by a debit on the government’s own account at the central bank. At some later point in time this debit will be reduced when the government recovers some of what it has spent in the form of taxation.

The money created by government spending then circulates through the economy, resulting in a multiplier effect. Governments rarely recover more in tax than they have spent and the difference between government spending and tax revenues is known as the “deficit”. The government’s “deficit” is mirrored by a private-sector surplus. The private sector consists of individuals, households, businesses and financial institutions. This is why government deficits are generally a good thing.

However, the key issue to consider in the pursuit of a “fairer and more equal society” and “wellbeing” is the distribution of this private-sector surplus. We currently suffer from social inequality because this surplus is not fairly distributed. Most of the surplus is in the hands of the wealthy, large corporations and financial institutions. A majority of citizens have little or no savings and rely on debt to manage their day-to-day finances. The Scottish state must address this.

To do so, it needs to reshape the way money circulates in the economy. Dealing with the imbalance of power between “labour” and “capital” is critical to delivering wellbeing.

Taxation has a role to play here. Believe in Scotland is proposing a reform of corporation tax which provides reductions in liability for corporation tax if certain conditions are met. The SBFG supports this principle of conditionality for tax relief. Businesses could be exempted from corporation tax if they are mutual organisations, such as worker co-operatives, and also if they are obtaining equity finance through direct investment partnerships with a National Pension and Investment Fund. In such a partnership the NPIF would benefit from an agreed share of the profits and, therefore, there is a strong case to exempt such a partnership from corporation tax.

Discounts on corporation tax could also be obtained by companies which have embraced employee participation by way of employee representation on the board, trade union recognition and collective bargaining and by profit sharing with employees.

The SBFG has previously proposed that employee participation in corporate governance should form part of a new coda of company law in Scotland and a corporation tax regime of this type would re-inforce those principles of “stakeholder capitalism”.

The establishment of a Job Guarantee (JG) will provide a “wage floor” which employers cannot ignore if they want to recruit people to work for them, as well as guarantee continued employment for those who wish to work during economic recessions.

The JG, with a minimum wage set at a level consistent with the delivery of wellbeing, will also have an important role to play in the redistribution of private-sector surpluses, eliminating poverty and creating capacity for more citizens to build up savings.

This will enable citizens to manage their finances more effectively and build up resilience to sudden financial shocks which occur from time to time.