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One more bluff from the so-called whisky industry

The so-called whisky industry is calling our bluff once again. If only we had the courage to stand up to their distorted PR and demand that Scotland benefit from its own assets.

Once again, the wise creatures who run the world on our behalf are gambling on us not having any real understanding of money and how it works. When we ask questions about whether they are actually helpful or useful the wise creatures try to scare us away by making intimidating noises. They don’t want to debate the issue, they just want us to go away and stop having the temerity to ‘meddle in their business’.

And once again it’s the ‘whisky’ industry. Why the inverted commas? Because calling the drinks industry a ‘whisky’ industry is like calling Tesco the tin foil industry – yes they sell it, but its hardly the bulk of their business. I’m sure I’ve made this point before but the Scotch Whisky association is a trade body which pretends to represent the interests of most of Scotland’s whisky distillers but is in reality dominated by a tiny number of global brands. If you look at the Association’s website you’ll find a wide range of members. But you will find it much harder to find who owns those ‘members’. So yes Diagio is there in all its corporate finery but you don’t see InterBev, Pernod Ricard, Louis Vuitton Moët Hennessy, Suntory, Vijay Mallya or a host of other multinationals that ACTUALLY own Scotland’s whisky (I haven’t had time to check if all of these companies had brands which are members of the Association or not but you get the idea). Of the 100-plus distilleries in Scotland, only 20 are in independent hands and much, much less than that by volume of production.

OK, step one – the Scotch Whisky Association is dominated by multinational, multi-product drink manufactures. It meets the interests of Diagio and not Johnnie Walker, Buchanan’s, Cardhu, J&B, Bell’s, Black & White, White Horse, Logan, Caol Ila, Vat 69, Oban, Talisker, Lagavulin, Glen Ord, Glenkinchie, Dalwhinnie, Cragganmore, Clynelish, Singleton, Haig, Royal Lochnagar, Glen Elgin or Knockando (all owned by Diagio).  And when it comes to money, it’s not whisky that makes Diagio rich; it is cheap vodka (especially Smirnoff). Vodka is months from starting distilling to on-the-shelves where whisky takes more like decade. If there is a decision to make and it will either benefit whisky production or benefit vodka production, Diagio will not come out to bat for whisky. Indeed, insiders say this is the story of the last couple of decades of the Scottish whisky industry. The Scotch Whisky Association opposes minimum pricing because it will hit its members’ vodka sales, not their whisky sales.

But we get all that benefit from the industry being here, right? But wait; who is ‘we’? Donald Blair takes the numbers apart here. The actual economic value of whisky to Scotland is £400m. To get that high you need to take our share of the tax, the value of all materials sourced from Scotland and the wages of everyone employed. That’s insignificant in terms of national economy. Even at the UK level the benefit of whisky is much smaller than people think – yes, it claims £4bn GVA, but this is yet one more meaningless number (more in a second). Ask the hard questions – describe where the benefit is on the ground, not in the theoretical spreadsheets. Apart from some commercial rates no tax income other than on the jobs, very little value in the supply chain (mainly just grains) and those much-trumpeted jobs. There are 10,000 jobs in the Scottish economy directly related to whisky (ignore the ‘reliant on’ – job multiplier figures are a con because it doesn’t matter what you do those jobs tend to end up being there anyway). But let’s be clear – three out of five of those are bottling, warehousing and admin and only ten per cent are in distilleries. These are not great jobs.

But we can’t afford to take any chances because the industry is doing so well? Nonsense. In the last 30 year Scotch whisky sales have grown ten per cent (and actually declined by seven per cent in the last five years). In the last ten years Irish whisky production has increased 260 per cent. Scotland’s whisky industry is all PR and pose and very little hard evidence of being much good. These companies treat whisky as a sort-of high-class loss-leader; nice for the brochures, much prettier to look at than photos of underage drinkers lying incapacitated in the street intoxicated on cheep vodka, a better bet to front sponsorship of high-class sporting events and so on. But an actually thriving industry? Not according to the evidence.

How can this be so? We all know whisky is kicking-ass internationally – every government minister says it over and over. Well, I’ve been looking at the background to this and I can’t find anything from the Scottish Government or Scottish Enterprise which does not use as its source data the Scotch Whisky Association. That’s right – the complete merger of PR and reality in government. We have an industry in Scotland that is trumpeted above all others but has grown much, much slower than comparators and delivers damn all economic benefit to Scotland. Why is it in our interests to play serf to these absentee landlords?

Because what I’m going to here call ‘public economics’ is mainly ideology, PR and myth passing as fact. I call this public economics because businesses don’t run themselves on the basis they sell themselves in public; when the whisky industry toasts its year-on-year ‘success’ it manages not to take proper account of inflation. You think they do that with their internal accounting? GDP means very little in terms of national wealth. GVA is worse in some ways (slightly better in others) but still measures theory and not reality. So if a company makes a million pounds in profit, GDP/GVA marks that as a million pounds of economic benefit to Scotland. If the owner of the company takes all one million pounds, shreds it and feeds it to his pigs, it is STILL marked as a million pounds of benefit to Scotland. And if there were bottling industry figures (don’t think there’s a Bottlers’ Association but I may be wrong) they would be claiming and posting measures of ‘economic benefit’ which are exactly the same pound coins being claimed by the whisky industry.

Let me describe the reality of the Scottish whisky industry. Imagine I’m a German landowner and I happen to be in Scotland when I notice the tip of a giant diamond sticking out of a farmer’s field. I buy the field for twice its usual value. This I will call ‘investment’ – the plebs won’t know the difference. Then I’ll pay 20 local lads to dig out ‘my’ diamond. Now I’m a jobs creator. The person who rents them their houses will now become ‘a supplier in the Scottish economy directly reliant on diamond mining’. Also the grocers, the pub, the chip shop – anywhere my 20 labourers spend their money. I now have my 10-foot diamond out the ground and in the back of a trailer. I drive this trailer straight to Rosyth and get on the ferry. I estimate my diamond is worth a billion pounds, so that’s now a billion pound export I have achieved. I drive straight home to Germany, sell it and buy a Japanese football team, never again setting foot in Scotland. My ‘value’ to the Scottish economy will now creep up to about one-point-something billion pounds. Someone will say I should be taxed more. I will then pay a PR and lobbying company to attack them with the sort of all-out bile only people with big PR budgets can. I might call the person ludicrous and anti-growth. If they’re lucky. I will then claim the wages of the PR and lobbying company (‘knock-on’ jobs created) and add it to my grand total.

An economist who actually understands economics (John Kay) has been wrestling with this issue. Yesterday he suggested a £1 per bottle tax on whisky. He’s been monstered by Diagio. Sorry, the Scotch Whisky Association which has basically warned Scotland collectively not to do anything stupid. But how stupid does it need to be? My rough calculation is that if a £1 tax per bottle of whisky cut whisky sales by two thirds (i.e. reduced sales to a third of their current level) Scotland would still be better off. We could decimate the industry and still be better off. In fact, I think I might be inclined to put the tax up to £10 a bottle. There are various products that are location-specific and whisky is one of them. The SWA can’t do what the banks do and threaten to leave, so they make vague threats about reducing their pitiful levels of ‘investment’. We could just drive the owners out of the country, put a preservation order on the distilleries themselves and nationalise the lot. To break even Scotland would only need to make about £400 million of profit out of them. Really, it would be quite hard to go wrong.

The point here is not that we don’t want private enterprise. It’s that we have to stop believing the clearly fallacious claims of any private enterprise with a PR budget. Whisky is perhaps the single most stunning example of economic failure to Scotland. An industry wholly built on our national assets which exports £4bn pounds and from which we get no more than £400m of benefit? It is time to be honest about whisky. Culturally, whisky is of enormous importance to Scotland. Economically it just isn’t. If you’re going to hold someone to ransom you ought at least to have something you have that they need. It’s hard to see what that is in the case of whisky.

Robin McAlpine