A guest post from Glasgow Labour activist Aidan Skinner:

The recent Inverclyde by-election was fought, a bit bizarrely, on jobs for Inverclyde. Labour on creating them and getting the SNP to reinstate the regeneration funding that they cut a few months ago, the SNP on stopping the Labour council from (allegedly) making people compulsorily redundant. But what nobody was talking about was what they actually meant by “jobs”.

One of the biggest employers in Inverclyde is the new T-Mobile customer contact center there. I drove past it in a car full of Young Labour booming AC/DC. It’s a modern glass and steel box, like you can see in redevelopment areas all over Scotland. Inside, people answer phones. That’s very similar to the Amazon contact centre that the Scottish Government gave £1.8m to at the end of July.

But are they the sort of jobs we should be building an economy around? They aren’t particularly rooted in their location. There’s little in the way of capital investment required: mostly desks, computers and phones. The building itself is invariably leased and probably has cleaning and maintenance outsourced. The workforce tends to have a high level of turnover anyway, so there’s relatively low overheads in training up a new cohort in another country offering cheaper wages. Inevitably the same reasons that they moved here, large pools of reasonably skilled unemployed people willing to accept low wages and high stress, will lead to them moving elsewhere. If the parent company does that, or folds, there isn’t any possibility of a management buy-out or a rescue to keep the facility going. It doesn’t produce anything of intrinsic value itself.

And really, even if they stay, is that what we want for the future of Scotland? A place for firms to put barns of folk earning a little over half the median wage, with no real connection to the rest of the Scottish economy beyond their wages? Probably not, for some pretty fundamental economic reasons.

In standard economics, economies are modelled using the circular flow of income. The basic idea is that people earn wages from firms (Y), and use that income to buy goods made by those firms (O). Leakages occur from people saving their income (taking it out of circulation temporarily, represented by S), buying imported goods (taking it out of circulation permanently, M) and government taxes (T). Additional inputs to an economy come in the form of investment (this is always, for reasons too dull to go into here, the same level as savings, I), exports (money from people from outside the economy buying goods, X) and government spending (ultimately funded by taxation, but possibly temporarily by borrowing, G). In the long run, these sets of inputs and leakages must either balance out (S + T + M = I + X + G) or the economy must grow or shrink.

Because of the savings-investment identity they tend to balance out automatically. Government spending is funded by taxation, so they must also balance over the long term (or you turn into Greece). But exports are driven by international demand for our goods, which isn’t related to our demand for goods from elsewhere. There’s not automatic balance for those, and it’s difficult for Government to control either while maintaining any semblance of free trade.

The FDI flows from, say, Amazon are properly recognised as export flows – we’re basically directly exporting our individual labour to a multinational company. Which is all well and good but a company that’s based in Scotland and exports it’s products, such as say Wolfson, would contribute a lot more. Along with the export flow for any goods or services produced, it would also generate investment (the I part) and consume goods and services from other parts of the Scottish economy. Those companies would, in turn, consume goods and services from other companies. It’s that increase in consumption that fuels economic growth. The profits that the company generates would stay in Scotland and contribute to the government tax base.

But beside all that, there’s another important difference in those export flows. In the FDI case, that unit can only grow if the parent company grows. Any improvements in efficiency can only be realised by reducing the number of people required to do that job. If the wider company is successful and more customers require support then there may be an increase in headcount but that is entirely outwith the control of anybody working there. Putting it simply: if the people working there are successful, they risk doing themselves out of their jobs. It’s that sort of perverse incentive, combined with the foot loose nature of the work and the lack of connection to the wider Scottish economy which makes me scratch my head in bafflement at the millions of pounds that the government pours into subsidising these facilities. Instead, we should focusing what government support is available on supporting Scottish businesses, who will provide a bigger, longer term return.

It’s a bit like building an economy around Greggs and nail bars. That’s not working out so well for the Borders – why do we want to do that for Scotland? (And at least the nail bars tend to be owned by someone who lives in the community)