One of the world’s greatest economic minds, Scottish professor Ronnie MacDonald has developed a radical new set of ideas to rescue society from mass unemployment and industrial collapse amid pandemic. Neil Mackay reports

PROFESSOR Ronnie MacDonald is a mild-mannered sort of chap – quietly spoken, effortlessly polite, almost avuncular in a gently charming fashion. He carries his erudition lightly and without any arrogance or grandstanding.

You would expect one of the world’s leading economic minds to be a pillar of the status quo – MacDonald is, after all, professor of macroeconomics and international finance at Glasgow University, and he has consulted for the International Monetary Fund, the European Commission, and the European Central Bank.

But MacDonald is here to tear up the status quo, not protect it. Over lockdown he’s crafted a frankly revolutionary plan, which he believes is the only way to save society and the economy from the catastrophe of coronavirus.

With coronavirus already laying waste to huge swathes of the Scottish and British economies, and the devastation set to get worse as furlough ends and winter deaths mount, MacDonald is today publishing a paradigm-shifting paper through the think tank Policy Scotland entitled “This time it has to be different”.

It calls on our governments to adopt a radical new approach to the economy, which would see a huge spending programme along the lines of President Franklin D Roosevelt’s New Deal in the 1930s, a rebooting of the Beveridge Report which established the British Welfare State, the creation of a new social contract between the state and the people, a move away from “shareholder capitalism” to a fairer financial system, and a complete overhaul of banking so it works for ordinary people, not just the financial market.

One of MacDonald’s main messages is that we need to get away from “rent-seeking” in our economy – where those in big finance simply sit back and wait for profits to accrue to them, rather than creating wealth which is shared throughout society.

As a measure of how serious the situation is, we should remember that MacDonald is no natural radical. He has consistently irritated the Yes movement in Scotland by pointing out what he sees as the economic holes in the case for independence, particularly surrounding the issue of currency.

How we got here

It’s not capitalism that’s wrong, MacDonald feels, but the way we conduct capitalism. The UK model of “financial capitalism” had already “created many inequalities” before the pandemic. “If you look back on previous shocks to economies like the UK, which are dependent on this model of financial capitalism, there was an opportunity to think about a different way of doing things which doesn’t have consumption as the main driver of the economy,” he says. After the financial crash of 2008, the necessary changes weren’t made – in fact, austerity and the rise of the gig economy and zero-hours contracts made inequalities worse. “This time,” says MacDonald, “it has to be different.”

From the 1980s, the UK shifted from being a economy with a manufacturing base to one focused on the financial sector. “In and of itself that’s no bad thing,” he says, “but the way the financial sector developed, it became about value extraction rather than creating new wealth.” In other words, profits went to those running the financial world and their shareholders, rather than to employees and society as a whole. The rich got richer and the poor got poorer. The trickle-down economics of Reagan and Thatcher were a mirage.

“The pandemic has really opened up these inequalities,” MacDonald says. The current crisis should be a wake-up call to “finally address the economic model of shareholder and financial capitalism”, which he believes is “now at a dead end”.

MacDonald wants to replace “shareholder capitalism” with “stakeholder capitalism” which “recognises that wealth creation is a collective process”. Rather than simply focusing on shareholders, stakeholder capitalism gives employees a say and a role in financial decisions, as well as the wider community. In the stakeholder capitalist model workers can say “we’re not just interested in pumping up the share price – that’s not the only activity we should be engaged in”.


MacDonald believes we’re possibly heading towards a figure of around 16 per cent unemployment – which would see some five million people on the dole, long term. “Everything suggests we’re going to see mass unemployment,” he says.

Amid the pandemic, the UK Government, MacDonald says, has indicated that “it is no longer prepared to support the ‘old normal’ economy. The direction of travel is towards the ‘new normal’, where so-called zombie companies no longer have a future and their employees must move to where the new normal jobs are going to be”.

However, he says “such a strategy is all well and good if the jobs being lost … can quickly be absorbed into the new normal. But with a skills mismatch comparable to the 1980s recession this seems unlikely, since many of the jobs that will be lost are in the gig economy, hospitality and high street retail sectors, where the skill sets of those in these sectors are unlikely to match skills in the sectors that are likely to grow”.

So millions are destined for the scrapheap.

During Covid, we have had some hope that the digital world will save jobs, through homeworking and online employment like e-health. However, we’ve yet to really consider the rise of “Globotics” – a mix of globalisation and robotics. Here, MacDonald warns, we would see a combination of machine learning, and digital jobs outsourced overseas, cause devastation to the UK employment market. So, for example, advances in computer translation mean that jobs which should be sheltered from pandemic unemployment – like e-health consultancy – could be carried out by cheaper workers overseas.

“Enterprises, particularly in manufacturing that find it difficult to ensure social distancing, could decide to replace people with robots in order to survive and those that already use robots may use them more intensively,” MacDonald adds.

Jobs which will be difficult to replace will be those which require “creative and social/emotional intelligence, those that require the great advantages that human beings have over machines in terms of social intelligence, and skills involving sharing, caring, understanding, creating, empathising, innovating and managing people”.

The pandemic is also hitting Scotland harder than the rest of the UK because our economy is so heavily dependent on oil which is experiencing a profound slump, and due to our reliance on tourism and hospitality. The Government needs to create “a more diversified economy” and look to “the green revolution” to create jobs.

It is also critical that we deal with unemployment, rising poverty and inequality if we wish to avoid extremism and social unrest. The future, says MacDonald, looks “scary” – it’s a “tinderbox”, a “toxic mix”. There’s a lot of talk by politicians and not enough action. “We’ve got to be acting now,” he says.

Beveridge Report

MacDonald believes saving the future may lie in rebooting the past. The Beveridge Report – which waged war on “Want, Disease, Ignorance, Squalor and Idleness” – “has to be recast”.

As an example of fighting “Disease”, MacDonald cites the care industry. “To be pandemic-robust we will need an expansion of those working in the care-home sector, and they will need better training which should lead to care-home workers being paid properly in their roles, especially given the heightened value that society now places on this work,” he says. That may require around 18,000 additional and better paid staff.

In terms of fighting “Squalor”, MacDonald looks to the housing sector. “The need for affordable housing is as relevant today as in Beveridge’s time with the skewed market that exists between old and young, the wealthy and the poor. An ambitious housing strategy combined with associated infrastructure spending could both address this and tackle a significant component of mass unemployment and an important part of the UK’s inequality gap.”

When it comes to “Ignorance” we need training to reskill workers for new employment post-pandemic – like green jobs and digital jobs. Such tactics will help tackle “Want” and “Idleness” – poverty and unemployment.

“I went back to look at Beveridge, as although we have this wonderful National Health Service and we’ve got unemployment benefits – are they sufficient now? And what I’m saying is ‘no they aren’t’. We have to go back and reboot Beveridge to come up with some radical solutions – and it’s radical solutions which we need, it’s not about just patching things over as we did after the last financial crisis, it’s about really thinking out of the box.”

21st-century new deal

MacDonald says we also need to look to FDR’s New Deal which was created to tackle the Great Depression. He cites the Works Administration Programme, which employed more than 8.5 million people “tasked with infrastructure improvements, including building bridges, roads, public buildings, public parks and airports”. There were also “community-based jobs such as care for the elderly, nursery schools, school lunch programmes” and “support for the creative arts in … art, music, theatre and writers’ projects”.

The Civilian Conservation Corps employed around three million people over nine years in work involving the land – a perfect fit with today’s increasingly green political agenda.

“It is not difficult to imagine a truly radical plan of action for unemployment in the UK that cherry picks the best components of … the new deal to deal with mass unemployment,” MacDonald says. He accepts that some may see his suggestions as “socialist” but insists his model is one of “stakeholder capitalism” where there’s a “proper balance between the public and private sectors”.

Banking reform

THE financial system is not serving ordinary people or ordinary businesses well. According to MacDonald, we need a new form of banking. The “asset managers” who have driven “the financial revolution” are “effectively rent-seekers working largely for the benefit of managers and shareholders with ordinary customers often only getting mediocre returns”.

Small and medium-sized companies, we should remember, account for 99% of businesses and more than half of all jobs.

In another return to the past, MacDonald says we need to look back to the Industrial and Commercial Finance Corporation (ICFC) which was set up in Britain in 1945 to help small business which were being failed by banks “unwilling to provide long-term capital”.

During the 1950s and 1960s, the ICFC “became the largest provider of growth capital” for small companies. MacDonald points out that when the ICFC was privatised in the early 1990s its “demise … coincided with the transformation of the UK economy from manufacturing to financial capitalism and the rent-seeking and value-taking that coincided with that”.

MacDonald says a new ICFC “should be established as a rival for the main banks, not as a dependent offshoot, and certainly such a bank should be under public ownership with stakeholder governance.

This bank should be highly decentralised and its branches should be where the businesses are that they seek to serve”. The Scottish Investment Bank, which is due to launch in December, is too “centralised” to fulfil the role MacDonald envisions.

“The banking sector has really got diverted from the fundamental purpose banks should have in a modern economy and that is transforming deposits into longer-term loans which industry and companies can use to create jobs, create value,” he says. “We need stakeholder banks run for the benefit of society.”


For MacDonald, one of the biggest failures in the current financial system is the absence of trust, and social capital – healthy relationships between people in a well-functioning society.

Banking reform and reboots of the new deal and Beveridge Report would “build social capital and networks that would create trust among people in society – and we don’t have that at the moment, our social capital has been completely depreciated and depleted, and we need to rebuild that”.

In some ways, MacDonald says, we’re reaping the whirlwind of greed – although it’s not greed by everybody, just a small section of society. Nor is it the greedy who will pay the price, but the poor.

The state of the economy is a “very sad indictment” on the UK and other Anglo-Saxon countries. We could have “placed more emphasis on the communal aspects of society and done much better” economically, he says.

Brexit and Indy

How will the UK’s big constitutional issues play into the coming economic meltdown caused by pandemic?

“Brexit,” says MacDonald, “isn’t going to help and it’s very regrettable that we’re moving away from Europe and the standards and protections it offers.

“My worry is that in going it alone we’re seeking to maybe exacerbate some of the problems we’ve seen recently – if we’re moving to a Singaporean-type economy that would be very worrying indeed.”

On independence, MacDonald says: “If Scotland is offering a completely different narrative to what seems to be developing in the rest of the UK, that may prove very attractive to people and may reinforce the Yes message. I suppose on the other side, the pandemic has made clear that co-operation is very important, not just within the union of nations that we have here, but internationally, and so that may play against the perhaps more positive narrative.”


With interest rates “basically zero”, says MacDonald – and the Bank of England even talking about negative interest rates – the Government can borrow to fund recovery programmes. He said talk within the Conservative Party of “balanced budgets” at a time of pandemic was a cause for concern.

“It’s the old paradigm,” he said, “and it’s totally unnecessary in today’s world because of the ease of borrowing ... I would argue that international investors will be more worried about a return to austerity policies than they would be with an appropriate economic strategy which places value creation at its centre.”

We can’t “just muddle along”, he says, “and end up in a dead end”.

Hope or despair?

MacDonald is a sophisticated thinker and worries that politicians are most likely too short-sighted and too short-term in their own thinking to take the radical steps which he suggests are needed to save society from the worst economic depredations of the pandemic.

“At the moment, I’m not very hopeful,” he says. “I would like a clear statement that we recognise that this time it’s got to be different and we haven’t got that so far.

“If we stick to “the old paradigm” then we’re in trouble. Change is needed immediately and “it’s got to be radical, almost revolutionary”.

The 10 main talking points

Here are the key elements of MacDonald’s radical new plan, entitled "This time it has to be different", for a post-Covid economy in Britain and Scotland:

1 We need a new social contract

2 We risk a return to the kind of mass unemployment last seen in the 1980s

3 We need a training programme for workers to reskill for new jobs, in areas such as digital technology and green energy

4 We need a Keynesian spending programme to bolster the economy

5 We need to move away from a “debt-fuelled, consumption-based economy”

6 We need cuts to National Insurance to give business an incentive to retain and hire workers

7 We need to reimagine the Beveridge Report in order “to provide a programme that will spare the economy from mass unemployment and guide it on a path to a New Normal”

8 We need to reboot elements of FDR’s new deal as an economic “response to the pandemic”

9 We need to “move away from the shareholder capitalism model” based on “short-termism and value extraction” to a “stakeholder model based on value creation”

10 We need to reboot the banking sector so it helps industry and business create jobs