London calling (the shots)

Instead of actively protecting Scotland, she says the UK economy has become overwhelmingly geared to helping London, meaning Scotland and other UK regions suffer from being denied the specific, local policies they need.

She describes a vicious circle in which London sucks in people and investment and holds back growth elsewhere, which in turn makes London more attractive, feeding the problem. Rather than a warm, fraternal embrace, she portrays the Union's offer to Scotland as more like the grip of a drowning man.

Cuthbert and her husband, Jim, are both former Government economists, and their work is regularly cited by all political parties.

Published today, her paper, entitled The UK Economy: a strong and secure UK?, is part of the Reid Foundation's Common Weal project.

An attempt to inject some vision into the sterile back-and-forth of the independence debate, this project argues that a Yes vote would let Scotland escape the downward spiral of the UK's low-wage, low-skill economic model and adopt the best practices of the Nordic countries to improve society, business, equality and the welfare state.

Cuthbert says her conclusions are a direct challenge to the Better Together campaign's repeated assertion that Scotland would naturally be better off staying in the UK.

While Alex Salmond and the SNP can agree with much of Cuthbert's assessment, her paper also presents the party with a problem, as she concludes that the UK economy is such a bad fit, an independent Scotland should abandon the pound and use its own currency.

The First Minister's policy is for Scotland to stay with sterling as part of a UK-wide monetary union, an argument based on the UK being an "optimum currency area".

But Cuthbert says the UK fails a key test for an optimum currency area: that monetary policy – meaning interest rates and money supply – should have a similar effect across the whole area.

This condition is "grossly violated" for the UK, she says, partly because the overheated London housing market reacts differently to that in other parts of the UK, and influences policy-makers' decisions on interest rates.

Among the key points of Cuthbert's report are that Scottish gross domestic product (GDP) has underperformed relative to the UK and similar EU countries for the past 50 years.

Since 1963, UK GDP has on average grown by 2.5% a year, but by 2% in Scotland: if Scotland's growth had kept pace with the UK, its economy would be 25% larger today. The key factor is London, where GDP has been growing at twice the rate of that in Scotland and most other UK regions in recent years, leading to a huge gulf in regional prosperity, with welfare benefits inefficiently offsetting some of the differences in household income.

In France's most prosperous region, GDP per head is twice that of its least prosperous.

But London GDP per head is 4.7 times the level found in struggling Wales and the valleys.

UK industrial production is also struggling relative to other Western countries, Cuthbert says, falling by 1.2% from 1990 to 2011, while it grew by 32.7% in Germany, 50% in the US, 100% in Austria and 361% in Ireland.

Cuthbert also identifies bad management of the pound, weak exports, excess borrowing, and a laissez-faire approach to takeovers which sees home companies consumed by foreign ones.

"Overall, the UK cannot be seen as a successful economic entity keeping up with its competitor countries," she writes.

While some might think of industrial decline as a given in advanced economies, she says the data shows the UK has been "almost alone" in experiencing a sharp decline, adding: "Skill levels and higher education in Scotland do offer a labour resource and potential which is world class, but much of this potential has permanently moved south or emigrated: the long-term benefit to the Scottish economy has therefore been weakened."

She said: "This shows how dysfunctional the UK economy has been and that it has not operated as an optimal currency area.

"Second, it shows that the UK and Scotland have not been performing well, and that the economy has been steered in a wrong direction. And third, it shows the failures of the neo-liberal model successive UK governments have followed since 1980."

Mike Danson, professor of enterprise at Heriot-Watt University and another proponent of the Common Weal, said the resilience of Germany and the Nordic countries to the recession was "in stark contrast to the hollowed-out industries of the UK where the promotion and protection of business, finance and consumerism have imbalanced the economy to the detriment of the regions outwith London and the southeast".

He said: "A strong manufacturing sector of medium-sized, independently-owned enterprises is the basis for a sound and sustainable economy. A proactive industrial policy where workers are active participants in innovation and management lies at the heart of successful economies. With no current appetite to learn these lessons among Westminster parties, Scotland needs to pursue its own course to resilience."

A Better Together spokesman said: "Being a part of the United Kingdom is good for Scottish jobs, mortgages and pensions. We sell more goods to the rest of the UK than we do to all the other countries of the world combined. Tens of thousands of people in Scotland earn a living working for UK companies.

"The nationalists may want to turn our biggest economic market into our biggest economic competitor. However, the overwhelming majority of Scots think that this simply makes no sense."

In a separate contribution to the independence debate last week, Margaret and Jim Cuthbert warned that Alex Salmond's vision for Scotland within a sterling zone fell "far short of any meaningful concept of independence".

Signing up to the pound would give the UK so much sway over Scotland's tax and spending limits that it would amount to little more than a "token version" of independence, they argued, a claim fiercely rejected by the SNP.