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This is not a blog which expresses instant opinions on current events. It rather uses incidents, books (old and new), links and papers as jumping-off points for some reflections about our social endeavours.
So old posts are as good as new! And lots of useful links!

Friday, May 23, 2014

"It's the Economy stupid!"

Should a country of 5 million souls which currently forms the northern part of an “imperial” nation split and go its own way? 
Not exactly, perhaps, the question on the referendum paper – but I’ve chosen this adjective and put it in inverted commas to give a sense of some of the ideological issues involved in the present debate which is currently raging in my homeland….     
Noone disputes that these 5 million people form a country (it has had its own legal, religious and educational systems for centuries) – nor that they have, in the past few decades, become deeply alienated from the British political system which has developed since the 1970s.  
The new Scottish Parliament which was formed in 1999 has significant devolved powers and more are coming its way. But that has not stopped the alienation from the neo-liberal ideology of the British system which has permeated even the Labour party since the 1990s

The question is whether Scotland should tear free from the remaining parts of the “Union” which was formed all of 300 years ago – namely the economic, welfare and defence parts. 

The consensus of opinion in Scotland seems to be that the last two should now also go. The presence on the river Clyde of the British nuclear submarine base is and always has been deeply unpopular (with ongoing public protests for the past 50 years); and the Scots never supported the Iraq war… I will elaborate this aspect in a future contribution.
And the last post indicated how unpopular the welfare cuts are in Scotland.

Basically that leaves the economic arguments….
The best of the “unionist” blogs – called Notes from North Britain - is written by the Professor of Public Law at the University of Glasgow. His latest contribution is a powerful argument -
Fully 70% of Scottish exports are sold to the rest of the UK. Just pause there for a moment: Scotland trades more with the rest of the UK than with the whole of the rest of the world put together. Scotland's trade with the rest of the UK is worth four times her trade with the EU.
In the last decade the value of Scottish trade with the rest of the UK has increased by 62% (whereas the value of Scottish trade with the EU has increased in the same period by a mere 1%). Given the eye-watering scale to which the Scottish economy depends on doing business with the rest of the UK, why would any sane person wish to erect an international frontier between Scotland and the rest of the UK? Why turn this trade from domestic to international, with all the added costs and disincentives that would apply?
A "border effect" would inhibit and diminish Scottish trade considerably. Compare, for example, the US and Canada where, despite commonalities of language, free trade agreements and the relative openness of the border, it remains the case that Canadian Provinces do twenty times as much trade with each other as they do over the border in the US.
The border between Canada and the US has been estimated to reduce trade by 40%. Migration within Canada is fully 100 times greater than migration from the US to Canada.
Here, it has been estimated that the "border effect" could cost each Scottish household £2000 annually. There are 360,000 jobs in Scotland created by companies in the rest of the UK. A further 240,000 Scottish jobs depend on exports to the rest of the UK. That's 600,000 jobs. As many as 200,000 jobs in Scotland depend on the financial services industry. Fully 90% of Scottish companies' financial services business is with the rest of the UK. Nine out of ten pensions sold from Scotland are to customers in England, and eight out of ten mortgages lent from Scotland are to borrowers in England. This economic activity requires a single domestic market with a single currency in a single regulatory regime. 
Scotland's economy is performing well in the Union. Scotland has a higher economic output per head than Denmark and Finland, and significantly higher than Portugal. And Scotland has maintained a consistently higher employment rate than comparably sized countries in the EU. Indeed, Scotland has the highest employment rate of all the nations of the UK -- and there are more people in work in the UK now (30 million) than ever before in our history. We have a higher employment rate even than the USA.Whereas the EU single market is still replete with trade barriers, in the UK our domestic market sees genuinely free trade, meaning that Scots have ten times the job opportunities they would otherwise have.
The United Kingdom is the sixth largest economy in the world, despite being only the 22nd biggest country in the world in terms of population. Who wouldn't want to be part of it?
………………..Trade and jobs are about economic opportunities. But economic Union is also about sharing risks, absorbing shocks, and pooling resources, leading to greater stability and security for us all. Take oil and gas as an example. North Sea oil and gas is a lucrative business, but it is also highly volatile. The oil and gas is expensive even to locate, never mind to extract, and the price of oil can decline sharply. Tax revenues from North Sea oil and gas fell by a whopping £4.5 billion in 2013. That is the size of the Scottish schools budget. That kind of economic shock is much easier to absorb in an economy of 63 million people than it is in one of only 5.3 million people.
The UK Government supported the injection of over £45 billion into RBS in 2008, and offered the Bank a further £275 billion of guarantees and state support. This total was more than double the size of Scotland's economy that year -- it was 211% of Scottish GDP including geographical share of North Sea oil. The Union delivers for Scotland economic security, as well as economic success. The Union is good for Scotland. Public spending in Scotland is £1200 per head higher than the UK average. At the same time, onshore tax receipts are, per person, lower for Scotland than the rest of the UK.
In numerous ways, Scotland does disproportionately well out of the Union. In 2012-13, for example, Scottish universities secured more than 13% of the UK's research council funding: some £257 million. This isn't just good for Scottish universities: it's good for Scotland as a whole. It was estimated in 2010 that Scottish universities contributed £6.2 billion to the Scottish economy (not least through the 39,000 people they employ). It is not just in raw economic terms that the Union delivers for Scotland: it delivers also in cultural terms. The UK's national broadcaster, the BBC, receives some £300 million annually from Scottish licence-fee payers, but makes nearly £4 billion of programming which is free-to-air in Scotland.

In case my readers think I am being one sided – let me offer a stimulating read from the National Collective website in which a contributor offers us 25 punchy reasons for voting yes

One of the books I’m now waiting to read is by an academic who was for many years the top civil servant dealing with economic issues in the Scottish Office – Guy McCrone. Here is an excerpt from the summary of his book Scottish Independence – weighing up the economic issues given by one reader who, like me, is striving to be balanced.
……the economic issues surrounding Scotland’s prospect of independence remain too fluid to call. What I mean by this is that the book (like many other sources) presents historical and contemporary economic data which is fine and good, but by necessity it is then forced to speculate as to likely outcomes. This for me is the key problem surrounding the plea by members of the voting public who I have witnessed on various television debates and investigative programmes surrounding the referendum, who ask for more certainty.
Neither McCrone’s book, nor in my opinion any others are going to be able to provide that kind of certainty. The bottom line is that McCrone helps the reader identify some of the key economic issues in the debate, but he also highlights how complex and interconnected the range of economic issues are surrounding an independent Scotland compared to business as usual in the Union.
………Given a Yes vote for Independence would have its impact felt for many generations of Scottish residents, too fine a focus upon the question of whether independence, greater devolution or business as usual will deliver a better or worse Scotland seems artificial and dishonest to me.
 The truth is nobody knows. Voters can weigh up the economic issues and this book can help identify many of their peaks, but the outcome will be determined by policies and environments that unfold over the coming decades.
If one looks back at history and reviews the then existing government policies and plans for the future, most of them turned out to be wrong or were subsequently change to take account of shifting environments and surprises.
The reality of the economic and political landscape is that whilst one can plan specific projects, such as whether to build more wind farms or nuclear power stations, it is a very different proposition to try and plan the likely outcome and impact of proposed macroeconomic policies and expect them to be right.
As McCrone’s book emphasises without certainty about the nature of a final currency and monetary structure, then in the event of a Yes vote wining, many of the other economic issues examined in his book are subject to considerable uncertainty.
However, this is the political reality and anyone wanting to get a handle on some of the key economic issues at the centre of the Scottish referendum issue is likely to find something of interest here. Just don’t expect certain answers.

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