Realist, not conformist analysis of the latest financial, business and political news

The Economic Mistake With The Scottish Payment Initiation System

The Senior Lecturer points us toward another economically flawed idea. That Scotland should have its own, government owned, electronic payments system.

The basic idea of a state owned payments system, well, why not? The idea of a new payments system, well, why not? Nothing like market competition to find out what works after all. It’s the justification though which is flawed here.

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Currently in the same way that retailers are
subject to interchange fees for the card
payments they take there is a similar economic
case for the Scottish Government to create a
state-owned not-for-profit Scottish Payment
Initiation Service to reduce the amount of fees
it pays to financial services companies and
increase the tax take. Even if the investment in
the payment initiation service did not result in
huge savings for the Scottish Government the
fact that the payment initiation was taking place
in Scotland rather than being done by a foreign
technology company who took their profits
abroad would mean the investment would create
Scottish-based jobs which in turn would increase
the tax take for the Scottish government.[/perfectpullquote]

It’s that confusion about profits being taken abroad and investment. Let’s say that the foreigners don’t get to take their profits abroad because they’ve not made the investment. OK. That means that the foreigners haven’t made the investment, doesn’t it? It means that Scots have to dig deep to fund the investment of the new scheme.

Which, given the fact that we are in a world of scarce resources, means that Scots cannot invest in something else, thereby they’re poorer by the lack of that other investment.

No, this isn’t solved by Modern Monetary Theory for this isn’t about the money used to pay for the investment. Just printing more money doesn’t make programmers etc more available. It is that skilled labour which is the scarce resource, it’s the skilled labour’s diversion into this scheme rather than something else which is the investment.

No, we cannot say that fintech programmers are not a scarce resource. Have you seen what they get paid?

Scots don’t pay profits to foreigners? Fine, that means Scots must finance the investment themselves. It’s not obvious that, given economies of scale in such programming, this makes Scots richer.

But then, you know, the Senior Lecturer likes the idea so we know it’s wrong. We just have to identify how it is wrong.

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