The economic future of an independent Scotland

The possibilities for the economy of Scottish, following independence, have been widely debated. At the start of the referendum debate, Scotland was characterised as a ‘subsidy junky’ that required rUK funding in order to pay for its health, education and social services. This has been shown to be not the case, for example in the Wee Blue Book published by Wings over Scotland.

It seems clear that there are different currency options, each of which has pros and cons. There continues to be a lot of argument over whether there will be a currency union between Scotland and the rUK. It seems clear that we will not know, until the day comes when a proper grown-up negotiation occurs between the two governments, whether a deal can be reached around a currency union between Scotland and rUK. What is also clear is that there are dozens of small countries that have managed to arrive at currency arrangements that are appropriate to their circumstances and needs – why should Scotland be any different?

If we accept that a currency solution will be achieved, and that the tax take of Scotland is broadly sufficient to cover current outgoings, then where does that leave us? What might the future look like?

I am not an economist. I am not sure that economists are the best people to ask, when it comes to thinking about the economic future of Scotland, because that future will be shaped by choices that are not economic, but reflect values and a capacity for innovation and creativity.

I believe, and hope, that in a future Scotland, money and economic decision making will be harnessed to the task of building a better society. In other words, the key indicator of the ‘wealth of the nation’ should not be Gross Domestic Product (GDP – the amount of money churning around the system), but instead is the extent to which people are able to live productive, meaningful and enjoyable lives.

From that starting point, here is what I anticipate will happen:

1. It will take a couple of years post-independence for things to settle down. Some businesses will leave Scotland and others will come in. It will take time before the different economic policy direction of an independent Scottish government starts to have a positive effect.
2. In terms of things that people want, that have international marketable value, Scotland is in an extremely strong position. We have food, land, water, energy, knowledge, manufacturing and tourism. We have a cohesive set of cultural values, which means that we are capable of long-term planning, and are unlikely to do anything that is ideologically-driven and self-destructive. What all this means is that we have the basis for a strong and prosperous economic future. Of, it is up to us to make the most of these resources.
3. If you look at that list (food, land….) then the benefit of independence is that we are able to figure out, year on year, how to do a little bit better in each of these areas. This seems a realistic aim, if there is a government in Edinburgh that is able to focus solely on this task and has a wide enough range of powers to make a difference. In one of the televised debates, a member of the audience famously asked ‘why are we not better together already?’ Anyone who is closely involved in any key area of the Scottish economy knows full well that we are not operating at capacity – we can do better.
4. There is consensus across all the main political parties in Scotland that we should create a society that is fairer and more equal. Within the referendum, the concept of equality has been discussed as though it means ‘spending more money on benefits’. This is a major misunderstanding. Equality is an economic powerhouse. Equality means that the gap between richer and poorer is less. Essentially, poorer people spend their income in the everyday economy, because there is no surplus that they can save. By contrast, rich people have big surpluses, which are siphoned out of the everyday economy into offshore accounts and the like. Also, a society that is committed to equality does not allow tax avoidance on the part of rich individuals, families and companies – everyone pays their share. This is an economic driver because it allows tax rates to be kept competitive, and creates money that the government can invest in infrastructure. Equality saves money, by preventing people from developing mental health problems caused by despair and invidious comparison, and long-term illnesses caused by unhealthy lifestyles associated with poor living environments. Equality contributes to a population of people who are confident enough to engage successfully in wealth-creating enterprises.
5. An independent Scotland will stop wasting money. We will stop wasting money on military hardware and adventures. All is needed is to be willing to take our place as a middle-of-the-road EU/NATO country, with no pretentions to being a major world power. We will stop wasting money on privatised schemes for running schools, hospitals and welfare services – all the channels through which public money gets diverted into profit for multinational companies. This is not about losing defence industry jobs at Faslane and elsewhere. These jobs come from tax receipts. The same money could make many more jobs, that create better futures, if spent in a different way.
6. More talented people living and working in Scotland means new ideas, new enterprises, healthy competition. Why will this happen? Young people still leave Scotland, to get jobs elsewhere. Young people from around the world, who attend Scottish universities, currently find it very hard to stay on after they have completed their degrees. If even a small proportion of these people choose to, or are allowed to, remain in an independent Scotland, there are potential economic benefits. These are the kind of people who build new industries. The scare story that there would be a ‘brain drain’ of talent out of Scottish universities, following independence, needs to be seen in context. The highest level of academic talent operates somewhat like the international market in footballers and football managers. The major universities in Europe, North America and Asia are willing to invest large sums in attracting star researchers. So, there will always be stories about professors who left Scotland because they were promised better lab facilities in Oxford, or MIT, and so on. It is important to realise that there are also plenty of examples of academic talent moving into Scotland. What is important is the university infrastructure that supports good work, and is attractive to those who can do good work. The leading Scottish universities are serious players in the international premier league. The current Scottish government seems well aware of the significance of the university sector to the Scottish economy and society. It is very hard to imagine any future Scottish government that would do anything to undermine this asset.
7. It has been argued that the ‘volatility’ of oil revenues would be a significant problem for the economy of an independent Scotland, because tax receipts from this source could go up and down from one year to the next. I suggest that a few moments of reflection will show that this issue has been hugely exaggerated. Fluctuations in oil revenues are dealt with by planning and by creating an oil fund. You add to the oil fund in good times, and draw it down when revenue is low. This seems like a fairly straightforward thing to do. It is not that long ago that Gordon Brown, as Chancellor, was introducing ‘windfall taxes’ on banks, insurance companies and oil companies. In effect, that was the equivalent of an oil fund, but not implemented in a rational, agreed manner. Another thing about ‘volatility’ is that every revenue stream ever invented is both cyclical (ups and downs over long periods) as well as being prone to unpredictable short-term variations. For example, ice cream manufacturers need to plan for the weather because if it rains all summer they are at risk of going broke. In recent history, the most volatile revenue stream has consisted of tax receipts from the banking industry. I can remember the time, before the crash, when the Royal Bank of Scotland was making unimaginable levels of profit (by the way – what happened to that money…?) and building a corporate campus and palace at Gogarburn, just outside Edinburgh. Just a short time later, massive public funds needed to be poured into the bank, to keep it viable. That’s what I call volatility.

That’s enough for one blog post. There is a lot more that could be said about the everyday life economy of an independent Scotland. Maybe another day.

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