In response to a comment on our post concerning the economic state Scotland would find itself in should this country leave the Union, a comparison was made with Luxembourg, which indeed has a population less than that of Edinburgh, and thus a much lower tax base than ours.
But, it must be pointed out that Luxembourg has established industries in steel, banking, telecommunications, and agriculture.. It also enjoys a great deal of foreign investment, with the US investing more capital in that country than any other save Canada..
The iron and steel industry, located along the French border, is the most important single sector of the economy. Steel accounts for 29% of all exports (excluding services), 1.8% of GDP, 22% of industrial employment, and 3.9% of the work force.The restructuring of the industry and increasing government ownership in Arbed (31%) began as early as 1974. As a result of timely modernization of facilities, cutbacks in production and employment, government assumption of portions of Arbed's debt, and recent cyclical recovery of the international demand for steel, the company is again profitable. Its productivity is among the highest in the world. U.S. markets account for about 6% of Arbed's output. The company specializes in production of large architectural steel beams and specialized value-added products. There has been, however, a relative decline in the steel sector, offset by Luxembourg's emergence as a financial center.
In 2001, through the merger with Aceralia and Usinor, Arbed became Arcelor and now forms one of the largest steelproducer in the world.
Banking is especially important to Luxembourg's economy. The country is a tax haven and so attracts capital fleeing from other countries so they can reduce the costs. At the end of March 2006, there were 155 banks in Luxembourg, with 23,000 employees. Political stability, good communications, easy access to other European centres, skilled multilingual staff, and a tradition of banking secrecy have all contributed to the growth of the financial sector. Germany accounts for the largest-single grouping of banks, with Scandinavian, Japanese, and major U.S. banks also heavily represented. Total assets exceeded €792.4 billion at the end of 2005. More than 9,000 holding companies are established in Luxembourg. The European Investment Bank—the financial institution of the European Union—is also located there.
As for the economic future of Scotland itself, Scotland could become a poorer country than Greece or Portugal within the next 50 years, according to economists.
The Centre for Economics and Business Research said the country needs more entrepreneurs and tax incentives to encourage companies and investment.
The experts also said there should be greater deregulation, allowing businesses to flourish without the burden of red tape.
In their report, Douglas McWilliams and Richard Greenwood said Scotland had failed to fully enjoy the benefits of the consumer boom in other parts of the UK.
The "global technologies slowdown" has also had a negative impact on Scotland's 'Silicon Glen'.
However, the economists stressed that weak economic performance is not a recent problem.
They said: "Scottish growth since 1995 has averaged only 1.9% compared with 2.7% for the UK as a whole.
"Scottish manufactured exports are running at a lower level than four years ago while the number of people living in Scotland has been falling since 1995. "
"If present rates of growth are projected ahead, Scotland within 50 years will be a poorer country than Greece or Portugal and not a long way ahead of Poland or Turkey."
The economists said Scotland suffers from a "lack of entrepreneurship culture" and they urged Scottish banks to offer more support to business start-ups.
They called for a "tartan tax" reduction of three pence which would mean less public spending but would encourage a more efficient economy and a reduction in red tape.
While the report said there would be no quick fix, it stressed that the suggested measures would start to "turn the economy round".
With these facts, and projections in mind, it would appear that Scotland would have an exceedingly hard time in setting up legislation which would induce foreign investment, simply because tax breaks would be a difficult incentive to offer..
Luxembourg has an economy that is well established, and trade and financial agreements which are longstanding.
Scotland would be starting from scratch.