Seil Chat

5 Reasons Why Scottish Independence Would Be An Economic Disaster

Speaking as a Scot who lives in England, I have divided loyalties in this debate.

But speaking as an economic commentator, I am amazed at the naivety and short sightedness of the Scottish National Party (SNP). Here’s 5 reasons why.

1 Currency confusion

Not long ago (in 1999), SNP leader Alex Salmond described the pound as a ‘millstone around Scotland’s neck’ and derided the currency in 2009. Today he is desperate to keep it, realising that an independent currency would be so volatile and problematic that it would dissuade investors, reduce trade with the rest of the world and threaten to turn Scotland into an economic backwater.

The European Union has effectively ruled out Scotland joining the euro (or even the EU) for many years, leaving Salmond exposed and blustering.

2 Delusions of oil grandeur

The SNP’s main economic platform is that Scotland should own the revenue from North Sea oil and gas, making it a petro-dollar paradise equivalent to Norway. Although they have similar populations (5.05 million for Norway, 5.3 million for Scotland), the hydrocarbon revenues are massively different. Norway’s government gathered $40 billion in 2013 (according to the BBC) while the UK made $10.8 billion (according to the Financial Times), a fall of 40 per cent from 2012. Current predictions? Further falls, to £3.3 billion ($5.5 billion) in 2016/17, according to the Institute for Fiscal Studies.

There’s no amount of careful stewardship that is going to magic $5.5 billion into $40 billion, when many of the North Sea rigs are at the end of their life and production levels are falling.

3 Financial mismanagement

Scotland’s banks have become a byword for chaos and catastrophic losses, after the hubris of the 1990s turned into the near-collapse of the mid-2000s with massive rescue packages needed for Royal Bank of Scotland RBS +1.67% and Lloyds (both of them based in Edinburgh). The SNP announced in November 2013 that, under future independence arrangements, the Bank of England ‘would become a lender of the last resort’ following any future crises.

This would mean taxpayers in the rest of the UK bailing out Scottish banks, despite them being in an ‘independent’ country. The evident nonsense of this position seems to be lost on the Scottish National Party.

As one website remarked, Alex Salmond believes he still has the right to use gym equipment, despite giving up his membership. ‘I have been a member for many, many years, so why they think everything in the club is for the exclusive use of the remaining members is completely beyond me,’ the website imagined him wondering.

4 Loss of credibility

The UK has sunk an awful long way since the height of empire in the 19th century, but it remains the world’s sixth-largest economy and the second-largest in Europe behind Germany. This confers all kinds of useful benefits, including low interest rates, a permanent seat at the UN Security Council, leadership in NATO, a major role at G20 conferences and in the WTO, among many others.

For decades, even centuries, Scots have been at the heart of this economic presence, as Chancellors of the Exchequer (Gordon Brown, Alastair Darling under Labour, Norman Lamont under the Tories) or as Prime Minister (Brown again, Tony Blair – even David Cameron has Scottish roots). They also helped to build and maintain the Empire.

So instead of a seat at this high global table, Scotland seeks to become… what? The new Slovakia (population 5.4 million, average income $24,000)? It’s an instructive parallel. Slovakia became independent of the Czech Republic in 1993 because the Czechs wanted rid of their poorer partner under the forced communist marriage of Czechoslovakia. The SNP, by contrast, is under the illusion that Scotland would emerge a wealthier nation than it is today by ditching its richer partner. The logic is perverse.

At least Slovakia is part of the European Union, with all the benefits that brings. An independent Scotland could not guarantee that its citizens would be able to live and work in the rest of the UK.

5 Lack of natural resources

Once the oil runs out, what does Scotland have that will sustain its fabulously wealthy future? It has whisky, but even with this contribution of £3 billion ($4.8 billion) across the economy, as estimated by the Scotch Whisky Association, it’s small beer. The ability to attract major industries – manufacturing, IT, finance – to the country would be diminished by independence, for all the reasons listed above.

The insurer Standard Life has already warned that it could relocate its headquarters in the event of a Yes vote for independence, endangering 5,000 Scottish jobs. Many more companies are doubtless thinking along the same lines.

I once asked a politician who represented the Western Isles of Scotland why people living in these remote and hostile places should receive subsidies. ‘To keep a diversity of culture,’ he replied. You could say the same of Scotland as a whole. The rest of the UK is content to subsidise this rich and ancient culture. But take away that subsidy and there would likely be massive depopulation. ‘Go to Scotland and there’s nobody there,’ as the country’s best-known comic Billy Connolly succinctly put it.

All these arguments pale into nothing for nationalists, whose blood is up and who scent a kind of revenge on the English for centuries of (as they see it) domination and exploitation. They’re determined to cut off their nose to spite their face.


* * * * *

As a Scot, a yes vote at independence would feel like my parents divorcing. As an economist, it would feel like a regressive, small-minded, self-inflicted act of exile from the 21st century.

WHETHER it is best for Ukraine to split, or the UK to join the emerging Single European State, or Catalonia to leave Spain, or Scotland to leave the UK are not fundamentally economic questions. Rather, they are bound up with constitutional issues, issues of identity, and the question of with whom one wants to share a future.

For Scotland to leave the UK would, in my view, be a catastrophe both for the values that Britain – that great fused project of the English and Scottish Crowns – has developed and projected around the world these past 300 years, and for Scotland itself – the great flourishing of which, in philosophy and finance and invention and economic theory in the eighteenth century, and then in military adventure and colonialism in the nineteenth century, occurred as part of Britain.

But although economic considerations are not decisive for the question of whether Scotland should become independent, they are relevant.

If Scotland leaves the UK, two things immediately follow. First, it will not participate in UK economic institutions. Second, it will not automatically be part of the EU.

Whenever a sub-division of a larger country or some member of a trade agreement proposes breaking away, it is always told “you are too small to survive in today’s world”. That is no more true of Scotland than it is of anywhere else. Scotland has many businesses – in electronics, agriculture, financial services, mining, and luxury foods, to name but five – that would compete strongly at international level if Scotland were independent. And even if it had none, it would find some.

However, just because a small country could operate happily enough by itself does not mean it would be economically well-advised to do so. Furthermore, one should not underestimate the transitional costs an economy choosing to go it alone might experience.

Scotland will not have a currency union with the rest of the UK. The Scottish National Party (SNP) claims that when Cameron and Miliband and Clegg and Osborne and Balls and Alexander say there will be no currency union they are bluffing. If the SNP really believes that, they are fools. Much of the British political establishment has spent nearly 20 years, in respect of the euro, arguing that a currency union cannot work without political union. There was no chance whatever of its reversing that position once Scotland came into the picture.

Even if English politicians were willing to compromise, the SNP appears not to grasp this difficult truth: English voters do not want Scotland to leave and, if it were to do so, would be mortally offended. Alex Salmond merrily claims that Scotland would be England’s best pal in the world after independence. I can assure him that the feeling would not be mutual. In the unlikely event that Scotland were to vote for independence, English voters would be incandescent. Their view would be that the Scots had voted for independence precisely and mainly because they hated the English. Their attitude to any suggestions of political accommodation would be: “If, after all we’ve been through together, you hate us that much that you’re off, then be gone!” No English politician could stand against the rage that would follow.

Scotland might eventually find a friend in the European Union. But it would have to sign up for all the details of the Single European State to have any chance of getting in. There would be no Scottish rebate like the UK rebate. Instead, Scots voting for independence will be voting to pay money towards the residual UK rebate. (Scandalously, some Scots appear to have been told that Scotland would get a higher rebate than at present. No chance.) Scotland would have to join the Schengen Area and the euro. Perhaps there would be some special arrangement at the English border, but perhaps not. Some 2m UK citizens regularly crossing that border might be held up in future.

What of Scotland’s oil and gas? For a short time that might provide some buffer. But there would be no Norwegian-style sovereign wealth fund, as the SNP still implies. Instead, there would be a race to extract what they could before fracking in England (which would be accelerated by Scottish independence, to provide energy security) and elsewhere drove down oil and gas prices to a level that made the North Sea uneconomic.

None of this need be a disaster. Britain is a fantastic constitutional and cultural project. Scotland should stay in it. But if they leave, Scots should do so understanding the economic challenges. The independence debate doesn't appear to properly reflect these yet.

"THIS year is the centenary of the outbreak of World War I, one of whose major causes was the growth of nationalism. This is no year to celebrate the morally dubious and, in modern Europe, impractical philosophy of nationalism – in Scotland or anywhere else.

Opening the SNP conference, Alex Salmond said the coming referendum is “the chance… to culminate the aim and efforts of this party over 80 years”.

Over these decades the party have twisted to left, right and centre, their only consistent
position their fundamentalist nationalism. In the 30s and 40s, some members flirted with the far right – they opposed Labour in 1945 and in 1979 voted with Margaret Thatcher to bring down the Callaghan government.

The SNP moved to the left but more recently have slithered back to a sort of policy-lite neo-Blairism, strong on soundbites but evasive on policy detail.

They promise a low regulation, low corporate tax regime to please the right and a strong welfare state to please the left.

The SNP have been in power in Scotland with a large majority since 2011 but have used few of the powers available, such as raising tax levels.

They like to present themselves as offering a “new” politics but European nationalism is an old, failed and often dangerous philosophy. It was the curse and pest of the continent from 1918 to ’45 and threatens to become so again as it gains strength across a Europe disoriented and impoverished by the 2008 banking crisis.

For all nationalist parties, national assertion comes first. All other issues – differences over state intervention, housing, jobs, everything – are secondary.

By its nature, nationalism divides people into “us” and “them”. And it always defines itself against some enemy “other”. It is about dividing people, not uniting them.

Now for its unworkability. The SNP’s White Paper told people it would be easy for an independent Scotland to have a currency union with the rest of the UK, (rUK) and automatically to join the EC. But it wasn’t true – rUK and Europe were forced to look at what would be in their best interests after Scottish independence.

All the British political parties have agreed it is not in rUK’s interest to set up a currency union with an independent Scotland.

And the EC Commission have made plain the rules do not allow for automatic Scottish entry – though the SNP always told us it would be easy.

I find the prospect of separation heartbreaking. A Yes vote means a long process of negotiation with rUK and Europe, which will dominate Scottish politics until 2016. The outcome of those negotiations is inevitably uncertain. Wouldn’t it be better to concentrate on real existing problems, instead of creating unnecessary new ones?

The SNP, twisting and turning as ever, are currently making a pitch to undecided former Labour voters, suffering from the recession and disillusioned with the party.

But they have no detailed policies to deal with Scotland’s problems, only slogans and soundbites. One of those is to blame all problems on a “Tory-dominated Westminster”, though it is odds-on the current British Government will lose the 2015 election. The SNP will then, of course, attack Labour, as they have in the past – simply because they are a British governing party.

A small clutch of left-wing independents have joined Yes Scotland, hoping independence will enable an “inherent” Scottish culture of equality to flourish.

The SNP are using them. I can’t think of a single case in the last century where socialists have hitched themselves to a nationalist party in Europe, helped them
to power and not then been unceremoniously ditched.

And while some of Scotland’s problems are common to the whole UK, Scotland’s past is not some rosy story of equality, any more than England’s is.

Scotland has more unequal land distribution than anywhere in Britain, something the SNP Government have done virtually nothing about (except try to recruit Donald Trump).

The Highland Clearances were carried out by Scottish landlords, and the industrial and housing problems of Glasgow were
originally created by Scottish industrialists. Independence is not some magic solution to
Scotland’s divisions and
inequalities – in fact by downplaying them, it makes them all the more likely to continue.

The SNP talk about the “Westminster elite”. But if independence comes, Scotland will continue to be governed by the small, middle-class SNP elite.

Money much better spent on other things will be wasted on setting up the expensive
bureaucratic apparatus of independent state – the sort of thing nationalists always love.

I would say this to undecided people who are struggling with debt, housing problems, lack of jobs, growing inequality – who are, rightly, anti-politician and “thrawn”. The SNP are not offering new politics but an old, failed nationalist dream that never delivers for the people.

They ask Scots to take a leap in the dark, with a casual irresponsibility which reinforces my view that in Europe nationalists always really care about the ideal of the nation, not those who live in it.

I offer a slogan for the next five months: “No to nationalism”."

Innes Newton wrote:Not long ago you included a feature about a Shetland girl who was a yes supporter. I found it quite interesting although I disagreed with some of her views. Those I include are also the opinions of some normal people and are useful to help further the discussion. You can't argue with them? Only use them to raise different points from different sides of the argument.