Scottish Enterprise: History

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Scottish Enterprise History

Scottish Enterprise (SE) which was invented in 1988 by Bill Hughes, at the time a CBI boss, advisor to the Thatcher government, Scottish Tory Party treasurer, Scottish Business in the Community and director of Grampian Holdings.

SE is the parent body of 14 Local Enterprise Companies (LECs).

When Hughes proposed the SE system, he bypassed the then Secretary of State for Scotland, Malcolm Rifkind, going straight to Mrs. Thatcher. (Reid, 1997) This unusual tactic was adopted because after the disastrous fall in the Scottish Tory vote in the '87 elections, the Scottish Office was blamed for resisting the new economic culture through the Scottish Development Agency (SDA). Unable to conceive that her policies alienated the Scottish electorate, Thatcher was already mulling over plans to scapegoat and abolish the SDA when Hughes opportunistically knocked on her door. We cannot fully reconstruct their conversation, but perhaps Hughes promised to set things to rights by transforming the SDA (created in 1975 by Willie Ross) from a child of Wilsonian Corporatism, into a vehicle for promoting Thatcherism. Perhaps too, he would have said something about the deal being squeezed past the Treasury via the promise of selling off, what could be sold of the SDA's property portfolio (they managed to raise £100m before the slump set in), and privatising anything else the SDA had a share in. Something made Thatcher's eyes light up and two years later the project was launched at the Dunblane Hydro. It has hardly met with a word of praise since.

Its initial hierarchy was established as follows: at the head of SE Sir David Nickson of the Clydesdale Bank, General Accident, Hambros Bank and Scottish & Newcastle Breweries. This choice alone represented a sizeable percentage of Scottish Capital and was further enlarged with the two leaders of the main LECs in Glasgow and Edinburgh: Lord McFarlane and Sir Charles Annand Fraser respectively. Having the more obvious connections to Nickson, McFarlane is the director of some fifty or so companies, the main ones being The Clydesdale Bank, General Accident, The American Trust, Clansman, Edinburgh Fund Managers and United Distillers/Guiness plc. We should note here that Bill Hughes was managing director of MSJ Securities (a subsiduary of Guiness). McFarlane's other companies concentrate on the construction and fitting out of offices from their painting right down to the packaging the furniture comes in, its transportation, and adhesive labels, the lot basically : if you work in an office, go the bank then go for a drink, McFarlane's interests are well served. Politically we can locate him on the Authoritarian Right, he funds British United Industrialists (a somewhat secretive channel for funding right-wing political projects), and in those days the Conservative Party, General Accident alone donated around £50,000 a year.

In the light of this it is clear that McFarlane would readily be attracted by a steering role in an organisation devoted to manipulating the political climate of Glasgow and Scotland towards the growing neo-liberalism, and that he would have identified this agenda as one which would in due course enhance his own empire. McFarlane also seemed to have been highly aware of the opportunity the creation of the Glasgow LEC offered in openly manipulating the Labour controlled District Council.

Sir Charles Annand Fraser's interests were similar to McFarlane's, and they were similarly financially enhanced through the hype of 'local enterprise'. He is the director of about sixty companies including Scottish Television, Scottish Widows, Stakis plc and United Biscuits. Fraser's main activities are inextricably linked to Edinburgh tourism, with Stakis and United Biscuits, and are augmented with other interests concerning property development and "Heritage" projects; further interests being offshore tax-exempted trusts (British Assets Trust, Fidelity, Investors Capital Trust etc.) dealing mostly in cash deposits in various currencies. These are all very large companies if not monopolising their fields, certainly dominating them, Scottish Widows then made profits of £1,000m and was the second biggest Company in Scotland. So here we have two rich, highly important and influential men, who would feel insulted if we did not describe them as motivated solely by personal gain and the pursuit of wealth, at the head of the Glasgow Development Agency (GDA) and Lothian and Edinburgh Enterprise Ltd. (LEEL). The question is why? The other question — which is still being asked — is where did all the money go?

The communal slush fund?

But there are more than just two men running the Scottish Financial Mafia, the LECs as an adjunct to the process of profiteering seems to be acting as a communal slush fund for a fair cross section of Scottish capitalism. If we were to examine the other directors of even one each of McFarlane and Fraser's main companies we would see that they are connected to almost the entire spectrum of the non-parliamentary right who control finance, investment and industry in Scotland. To identify just the Banking interests alone: McFarlane and SE boss Sir David Nickson as we have already seen represent The Clydesdale Bank and General Accident. General Accident's other directors include the directors of the Royal Bank of Scotland, the TSB and the Ottoman Bank so we have four banks there, (five if we count Nickson's directorship of Hambros which is a Merchant bank). One of Sir Charles Annand Fraser's Company, Scottish Widows, contains directors of the Clydesdale Bank, The Royal Bank of Scotland, The Bank of Scotland and Merchant Bank Kleinwort Benson, together with directors of the main Scottish Investment Trusts, Murray Johnstone, Jardine Fleming and Baille Gifford.

Undoubtedly it was these connections — and you will appreciate we have just skimmed the surface — which would further recommend them for the job of heading a LEC. Such alliances are not unusual: we would find similar groups of supposedly competing banks always in existence, to a greater or lesser extent, if we examined any of the top Clearing Banks, Merchant Banks, Insurance Companies or Investment Trusts.

It should also be pointed out that the official function of an LEC is defined as that of encouraging enterprise by providing business with financial or other forms of "strategic leadership and tactical support" including the encouragement of investment and training. It has never been openly advanced in their own publicity material that they have, a now somewhat anachronistic, "Thatcherite" mission, nor what that might entail. Their involvement in local politics is usually defined, if at all, in terms of unsubstantiated boasts or buzzwords such as "job creation" and "inward investment". Each of the LECs have a budget of upwards of £55m pounds, while the total SE expenditure was put at £449m pounds in the early years. While the overall initial popular perception of this was that the money is given to deserving cases, SE have made it clear that they do not think their role is to "bail out bankrupt companies". [1] They were however hell-bent on spending money on themselves.

Now let us focus on the Glasgow LEC, the Glasgow Development Agency (GDA). McFarlane departed his post handing it over to Forbes McPherson (the director of the TSB, Glasgow Cultural Enterprises, Hill Samuel Bank (a Merchant bank subsidiary of the TSB), The Scottish Metropolitan Property Co. and Scottish Mutual Assurance). Under his leadership the GDA has funded several "new operations", the main ones, indeed the only ones, include aiding Abbey National Life in occupying the building that BP vacated when they removed their operation elsewhere (to be awarded £260,357 by Forth Valley Enterprise, whose directors include Edward Ferguson of BP Chemicals). The GDA has also funded "second round investments", passing funds to Direct Line Insurance (a subsidiary of the Royal Bank of Scotland), Provincial Insurance, British Airways, Barclays Stockbrokers, The Norwich Union and the Army Personnel Centre, most of which as we shall see are old friends to Bill Hughes. The GDA's 1992/93 Accounts and Report gives us an interesting insight into how they arrived at these decisions :

"Other location marketing activities include... participation in complementary events such as the Scottish Financial Enterprise dinner in London."

Some readers may have made the observation that for a business to relocate in Glasgow it will most likely have closed its operation somewhere else, obviously resulting in staff dismissals, and such is the case with the examples cited above: the Army Pay Centre for example relocating from Ashton-under-Lyne with all the workers being sacked. If we examine the pattern of funding we would see that the financial institutions received funds on the pretext of training. This too is somewhat misleading given that virtually all of the large financial institutions have been heavily fined by their regulatory bodies for failing to properly train their staff and engaging in professional misconduct (thus precipitating the massive private pensions swindle); including of course Abbey National Life and the Norwich Union (who suspended their entire pensions sales staff as part of their retraining).

So here we have an insight into the cynical process of how the GDA works, which could be roughly characterised as follows:

(1) You go to a free lunch in London with a group of people who are stockbrokers, bankers and insurance men.
(2) You make deals.
(3) You give them lots of money.
(4) They sack a lot of their workforce.

The Pork Barrel

The decision to award £250,000 to Direct Line Insurance (again taken from the GDA training budget) did not pass without comment by the Labour Party who called for an enquiry into the matter. By the reactionary nature of the enquiry they demanded, it could be easily argued that they either completely fail to understand the reality of the function of the GDA or are unwilling to concede their own role in it. Their posture of outrage seems solely fuelled by the fact that Direct Line gained a high public profile as one of the fastest growing companies in the UK, with one of the highest paid directors, Peter Wood, who received a yearly salary of £6m. The Labour Party are happy with SE as a whole, and they have to be, because their argument that Directline should fund themselves rather than dip into pork barrel, while being morally inspiring in an abstract way, directly intertwines with the ancient process of Labour Party patronage, as we shall see below. One could also say the same concerning the fuss made over the fact that a great deal of the LECs, all of them it would seem, have been awarding funds to companies owned by members of the LECs. Direct Line is not run by anyone on the GDA, it is though run by someone on Dumfries and Galloway Enterprise: its chairman, Sir Michael Herries (also of Scottish Widows and one of Sir Charles Fraser's Investment Companies).

Although the GDA claim [2] that "no directors or connected persons had a material interest in any contract [issued by the GDA]" they add the paradoxical rejoinder that "this does not mean, however, that there were no financial contracts involving companies with directoral links". Sadly they declined to provide any further information, but what they are most likely concealing is the fact that Scottish Mutual Assurance, Forbes McPherson's company, is a subsidiary of the Abbey National, who as referred to above are supposedly slipping quietly into the old BP offices aided by GDA funds and good wishes. Coincidentally BP Chemicals had to hand over most of the £260,357 when it was fined a total of £230,000 for burning one worker to death and seriously burning three others in February 1992. So there we have another use for enterprise cash: if you kill your workers your local LEC will cover your legal fees.

Research into the merry-go-round of funding concerning LEC's director's companies receiving LEC funds would require a bigger picture of this process to show the inter-relationships between LECs funding other LEC directors companies.

The Fraud Squad

But none of this would come as any surprise to our founding father, Bill Hughes. He has gone on record as viewing the situation thus :

"You're always going to get the joker, always that one case every year or two where the Fraud Squad is called in. That's unavoidable in any walk of life today... If we are going to have top-quality people serving on LEC boards I would be surprised if they weren't trying to help their own businesses. Gosh they're giving up their time for nothing and that's good news".

That kind of talk cuts both ways of course: as was mentioned above Hughes runs a company called Grampian Holdings which is engaged in such diverse activities as transport bulk tippers, plant hire equipment, sporting goods and pharmaceuticals, its institutional shareholders are Murray Johnstone: 4.08%, Scottish Widows: 4.89%, Barclays Bank: 4.3%, Standard Life: 3.48%, Scottish Amicable: 3.52%, National Westminster Bank: 3.09%, Abbey Life: (a subsidiary of Abbey National) 3.27% and Scottish Mutual Insurance: 3.55%, the bulk of whom we have already encountered above as the recipients of GDA funding.

Another director of Grampian Holdings is Professor Donald Mackay who took over from Sir David Nickson as the overall head of Scottish Enterprise. Professor Mackay (an advisor to six Secretaries of State for Scotland, and whose other Company Pieda has been receiving SE money from the start) has his work cut out for him, with an investigation by the EC Commission's Co-ordination of Fraud Prevention Unit [3], the result of an adverse audit of SE accounts in relation to their disposal of European Social Fund Money (money designed to help the poor), resulting in the Commons Select Committee on Scottish Affairs enquiry into the operation of all the Enterprise agencies.

The Commons enquiry did not touch upon the GDA's secret allocation of £500,000 to another of the UK's fastest growing companies, Peel Holdings. This is something of a farcical tale of Peel Holdings claiming that it had negotiated a contractual claim on a plot of land in Cambuslang Glasgow (which is highly polluted) during the old days of the SDA. They made their claim known when the GDA paradoxically offered the same land to a very peculiar company called Superstadia (run by a man facing racketeering charges in the USA). The money was given to Peel so they would give up their "rights" to the land; but because of the secrecy of the transaction the nature of these were never fully established. Peel itself is based in Manchester and run by a millionaire property speculator, some local Councillors and individuals from the local Manchester Development/Enterprise companies. It still works with SE in developing the Clyde. [4]

On a similar theme, and unfortunately for our righteously indignant Labour Party, the enquiry could also touch on one of their more sensitive points, namely an old SDA loan to a property company run by some Monklands District Councillors which was unaccountably written off. The Labour Party calls for investigation into quangos reached points of transcendental absurdity with ousted Glasgow City Council Leader Jean McFadden going into print railing on about their lack of accountability, without disclosing that she herself is on the board of the GDA, as was her predecessor Pat Lally, and as was STUC "supremo" Campbell Christie .

Turning back to Forbes McPherson, the reader will recall that he is a member of a company called Glasgow Cultural Enterprises (GCE). This was set up in 1990 during the "Year of Culture " to profit from and administrate (including the spending of a £1m Council subsidy) the recently built Royal Concert Hall, (a similar deal being struck with the other main Glasgow concert venue, the SECC). Similar to the GDA, GCE was made up of a alliance of Labour Councillors and top Businessmen and demonstrated the willingness (some would say complicity) of the Labour Council to embrace the privatisation of its amenities indicative of the transfer of power integral to the GDA's right-wing agenda. The celebrations of a new Glasgow in 1990 directly coincided with the launch of the GDA, which from its onset completely took over the Council's budget and responsibilities regarding the "redevelopment" of the City, largely on the pretext that they would encourage "culture and tourism". In regard to their Thatcherite crusade (inasmuch as that word merely mystifies the unaccountable power of finance capital and the City of London) the notion of cultural redevelopment provides the GDA with an all encompassing scope for tinkering with local democracy.

Pies in the Fingers

Another significant member of GCE is (the then recently knighted) Sir Ray Johnstone whose directorships include Scottish Amicable, Murray Johnstone Investment Trust, and Scottish Financial Enterprise (SFE). The reader will also recall that it is SFE which advises the GDA at those London dinners. A partial breakdown of some of the other directors of Scottish Amicable at that time, including their other directorships would include:

Dr. William Brown: GMTV, Pauline Hyde & Associates, Radio Clyde, The Scottish Arts Council, STV [Brown is an ex-director of the GDA]; Roy Nicolson: Cathedral Investments, Eurosalas Properties, Forth Valley Enterprise, J. Rothschilds Assurance; Maurice Paterson: Lautro Ltd. [The regulatory body for Insurance Companies]; Thomas Johnston: Bank of Scotland, Science Projects (Scotland); Ronald Miller: Dawson International, Christian Salvesen, Securities Trust of Scotland; Peter Jamieson: Robert Fleming Holdings, Jardine Fleming Group (Bermuda), Kleinwort Overseas Investment Trust; Bernard Solomans: Allied Provincial, Edinburgh Fund Managers Investment Trust, The London Stock Exchange, Scottish Financial Enterprise.

Through Ray Johnstone we can see an intimate picture of the relationship between SFE, GCE, and the LECs not to mention Cultural funding bodies, the media and a range of Investment Trusts and Financial Institutions.

One other, now ex-director of SFE is Angus Grossart whose companies Noble Grossart (Scotland's first merchant Bank), Alexander & Alexander, American Trust, Scottish Investment Trust, Scottish Television, The Royal Bank of Scotland, Edinburgh Fund Managers, Hewden Stuart and Murray International Holdings; make Grossart one of the most influential men in Scotland : Alexander & Alexander is the world's second biggest insurance broker, and back then (more or less) aimed to take over the running of the Glasgow Royal Infirmary Trust, imposing ludicrous conditions on the ancillary staff who started a strike in protest.

And here we have the crux of the matter: you have a conflict of interest, because it is they who make their money through people making private provision for theses things, through private pensions, health care insurance and so forth, add to that the unaccountability of a quango and we can see the LECs as a key instrument in this somwhwat opaque use of 'public' money. We can connect Angus up with Norman McFarlane through The American Trust which they both run (interestingly along with Aims of Industry member Lord Goold); they also jointly run Edinburgh Fund Managers, its parent company. These two companies run the mineworkers Pension scheme and the British Coal staff pension scheme, investing it in American securities. Edinburgh Fund Managers also manage the investment portfolio of The Smaller Companies International Trust, which they foolishly invested in a company called International Signal & Control (IS&C), which some readers may know became part of the BCCI/Iran-Contra saga: it was an arms company which merged with Ferranti and then collapsed, leaving a £1bn hole in Ferranti's accounts (causing its collapse) and sending IS&C's far-right chairman into an American jail (the other directors who were Washington power brokers seem to have escaped). [5] [6]

It would be interesting to see when Edinburgh Fund Managers ditched their IS&C shares, this would reveal an insight into Grossart and McFarlane's far-right connections. The investment world is a tricky business and to get in on the bottom floor one must engage in what can only be termed espionage. The world of banking and high finance has long interpenetrated with that of the Secret Service and the sharing of intelligence forms the basis of how UK interests are protected and advanced.

The far-right connections seem to abound here, going back to Forbes McPherson, our GDA leader shares his seats on the board of the TSB and Hill Samuel with Sir Richard Lloyd of the Ditchley Foundation and various arms companies. The Ditchley Foundation is based at Ditchley Park and " is a conference centre... used for private VIP meetings guarded by Special Branch and MI5. It was used by the ISC [Institute for the study of Conflict] as a conference centre from 1972 onwards; the ISC Council minutes of 21/1/72 mention an ISC conference on Ireland that was held under conditions of extreme secrecy. Ditchley park is closely linked to the Bilderberg Group, 14 of whose members sit on the centre's board of Governors." Lloyd has been on the Council of management of the Ditchley Foundation since 1974, and he also sat in on the mid-seventies Wilson Committee's attempts to curb the unaccountable power of the financial world, so Forbes keeps some interesting company.

The question of whether the LECs are underwriting the expenses of the larger businesses and financial institutions is hardly open to debate. It is hard to see what the waste of time and money represented by the Commons tinkering enquiry into it achieved, a fine perhaps, some government funds returning to the Treasury, one or two resignations ? From this point here was a few resignations from within the LECs on the basis that some directors were not told what was actually going on.

Cleaning Up

The LECs are also supposedly responsible for clearing up polluted sites of, for example ex-steel mills such as Ravenscraig. This was (at times literally) something of a minefield in social, economic and political terms, particularly since the property and construction industries (the two biggest clients of the Banks and Insurance companies) were in such a slump. There are massive interests being protected here: in the US a new report estimates that the insurance Companies will have to reserve $260bn in additional funds to meet their exposure to environmental and asbestos claims over the next 15 years. {[ref|5}} And it is much the same throughout the UK, then made worse by the grave problems facing Lloyds (which acts as the clearing house through which every Insurance company works). So a document like the Contaminated Land Register, and the responsibility for clearing up the mess, of at times immortal toxins, strewn all over post-industrial Britain, has to be put into safe hands or better still in nobodies, hands in the Natwest's bomb proof bunker. The Natwest Bank became the owner of the Contaminated Land Register, which lists thousands of polluted sites throughout the UK. The Major Government did promise that this would be published and made public, but they reneged on this and now a company or individual has to pay the Natwest (after a suitable vetting no doubt) to find out what lies beneath the surface of a prospective development or an existing one.

The concept of Enterprise and Enterprise Zones are, on a wider scale, at the core of how the World Bank and the IMF function as the premier development agencies. Both draw on top executives from the main European and American Banks, and of course function as a wing of Western, mainly US, foreign policy; largely free from legislative, judicial constraints and popular influence, in the 90s they were increasingly the principal agents in forcing governments to "devalue their currency, privatise their industries, open their doors to foreign investment, freeze wages, raise food prices, slash social services and implement Bank-sanction population programmes." [7]

With a Government as intertwined with the financial Institutions as we had (and still have) in the UK, what was done in the name of development by the World Bank and the IMF was not restricted to the "Third World" but was modified into local variants for home application. Professor Donald MacKay, the new SE leader made his name as a consultant by winning a $1m Economic consultancy from the World Bank. Firmly in the neo-conservative monetarist camp, he believes that "the only way public spending can be cut in any meaningful way would be a through a major shake up of the social security system including a rethink about the principle of universal benefits". [8]

It was Bill Hughes' experimental contribution to this, in the form of the creation of SE, which would have really made Mrs. Thatcher's eyes light up. Back in '88 when she gave him the go-ahead Hughes must have felt like Yul Brenner in the Magnificent Seven, gathering up institutional investors in his own Company and his CBI chums and riding into town — the difference being that the Bandits terrorising the locals were indistinguishable from their new found protectors.


Further Reading

Much writing and analysis has been undertaken on SE, which has followed its unsteady past. Below is a summary of a range of sources which contain contextual and historical observations.

This presents two reports from the right-wing think tank. The first asserts that Hughes' ideas stemmed from the example of the US approach to tackling poverty.

"Rather than wait on Federal action that only produced more bureaucrats and the next round of riots, senior business executives across America’s urban wastelands were taking matters into their own hands.' (Kerevan & Don, 2003:4)

The aim here was to help the poor "In the black ghettos of Los Angeles and Boston, with their burned out houses and shuttered supermarkets". Hughes' initial aim for SE "was to eliminate Scottish unemployment." (Hansard 1992, Debates for 18 Nov.) The question of why public money was used is ducked by the notion that with SE, Hughes thought: "in due course, the public money would be phased out and replaced with private sponsorship." That is hard to believe in the era of PFI, and harder to believe since it actuality shows no signs of manifestation and evidence to the contrary is in abundance.

It also states that Crawford Beveridge, the first chief executive of the new SE, was influenced by the ideas of the American business guru, Michael Porter:

"who preached that national global competitiveness was boosted by having dense clusters of supporting companies specialising in particular markets... With a skilled, cheap and English-speaking workforce to hand one that was also easy to fire, thanks to Mrs Thatcher - Beveridge soon tapped into the 1990s high tech boom." (Kerevan & Don, 2003:7)


This states that Hughes bypassed the SDA without consultation and gained direct access to Downing Street and was subsequently invited to a meeting at Chequers. There, he met the Secretary of State for Employment, then Norman Fowler:

"who had already been influenced by the Director of Employment and Training Policy in Massachusetts, who was proselytising for the concept of Private Industry Councils (PICs). These PICs allowed the business community to take an active role in spending training funds of the US Federal Government. Business could play a role in enterprise stimulation, which included the design of training schemes and even extended to influence over school curricula. These PICs were moderately successful in cities like Atlanta, New York and Boston." (Reid, 1997:13)

This then, with its mention that 'training funds' came, not from the business community, but from the US Federal Government, would then contrast sharply with the Policy institute's version of events — and possibly consign to the realm of fiction any 'phasing out' of the dripping roast of public funds. The report also adds that Hughes was: "Borrowing much from the Massachusetts ‘growth coalition’ idea," adding, somewhat conspiratorially, that "hardly anyone was explicitly involved" in the formation of this grandiose democratic project to aid the poor via 'trickle-down' economics.


"The original plan was for competing consortia of local business people to bid for the right to run the LEC in each area. Each franchise would come up for renewal every few years. Business would take the lead in economic development. The state would not try to second guess its judgements. Apart from one early abortive attempt to contest the Glasgow LEC franchise, it never happened."

It also noted that by 1999, Bill Hughes, was calling for his creation to be scrapped and replaced with a series of local venturing companies, investing real risk capital in growing new Scottish companies. "Scottish Enterprise needs to be shaken not stirred, " Hughes is quoted as saying, along with "It's the structures that are the problem, not the people."


This report points out in specific relation to SE, that Quangos were:

"“readily associated with Conservative control of a country that had not endorsed Conservative policies” and that it was perceived “the Conservatives were appointing their own supporters to the [quangos] committees.” ... SE was lampooned as “the Conservatives ‘Scottish solution to a Scottish problem’ … the brainchild of Glasgow businessman and leading Tory, Bill Hughes.” ..., “Quangos must thus be, almost by definition, a matter of concern for anyone committed to democratic accountability.”'(Sutherland, 2003:6)

Notes

  1. ^ The Glasgow Herald, May 1, 1993.
  2. ^ The Glasgow Herald, November 11, 1993.
  3. ^ The Glasgow Herald, 10 July, 93.
  4. ^ Lobster, no.26 p16.
  5. ^ The Financial Times, 13 April, 1994.
  6. ^ Covert Action, No 39, p28.
  7. ^ The Scotsman, January 12, 1993.