Winner of the New Statesman SPERI Prize in Political Economy 2016

Wednesday, 3 September 2014

Dreams of autonomy

The latest poll results suggest a Yes vote for Scottish independence is a distinct possibility

In one sense Nigel Farage (leader of UKIP, the UK Independence Party) and Alex Salmond (leader of the SNP, the Scottish National Party) are doing the same thing. They are trying to convince voters that if only they (the UK and Scotland respectively) were free of them (Europe and the UK respectively) life would be better. The rhetoric is much the same: you will be free to make your own decisions, make your own laws, and decide your own destiny. Recent events suggest the rhetoric is working.

Here is another similarity. In both cases, the economic benefits that would flow from independence appear to be based on wishful thinking. Detailed analysis by economists not attached to any particular side come to a clear conclusion: existing arrangements are beneficial. (For example economists at the LSE for the UK and EU, and for Scotland studies by NIESR and IFS that I note here, or John McDermott on North Sea Oil here.) Let’s be blunt: independence is likely to make the newly independent poorer rather than richer.

Another similarity. At the economic level, neither side actually want complete independence. UKIP still wants all the benefits of free trade in goods with the EU – it is the free movement in people that they really object to. The SNP want to maintain a monetary union with the rest of the UK. What they do not want is to see their national health service starved of money, and their poor and disabled treated badly.

So the rhetoric is simplistic. Neither the SNP nor UKIP want complete freedom: they recognise the benefits that can come from cooperation with larger groups. So the arguments get into what is always involved in cooperative agreements: messy give and take. Will Europe allow free movement of goods without free movement of people (see Switzerland)? Will the UK allow a monetary union, and at what cost in terms of UK control over Scottish fiscal policy? But those promoting independence would rather you didn’t worry about such things, and instead focus on the rhetoric of freedom.  

Of course UKIP and the SNP are in very different places on the political spectrum. How does this influence the rhetoric of independence? Traditionally the benefits of individual freedom and autonomy have been emphasised by those on the right, and the benefits of cooperation by those on the left. England votes more to the right, Scotland more to the left. So it is quite understandable that the English right (be it UKIP or Conservative party members) should buy the benefits of going it alone. There is, after all, the phrase ‘little englander’, not ‘little britisher’. Perhaps those arguing against Scottish independence have focused too much on the safety of the status quo, and not talked enough about solidarity.

But here is the rub. Is it solidarity with the British people, or with their governing class? Although an independence vote should be about the next hundred years, there can be no doubt that a current UK government that is arguably more right wing than Margaret Thatcher has won many to the independence cause. Yet ironically Cameron and Osborne’s Conservative party have probably also encouraged UKIP’s cause by trying to chase the anti-immigration vote, and appeasing its right wing by committing to a referendum on Europe. 

Which brings me to this final thought, for those contemplating voting Yes to an independent Scotland on 18th September. Suppose you win, and as a result the remaining UK under a newly elected Conservative government without Scottish voters narrowly votes to leave the EU. Not our problem, the newly independent Scotland might say. But it would leave Scotland with a horrible choice. Do they forsake Europe to keep sterling and preferential access to their largest market, or do they become poorer still by joining the EU/Euro and trying to redirect their trade in that direction? But no worries: Scotland will be free to make that choice!


  1. There is a fine joke by an Irish comedian in which he says that on the very same day that Ireland won their 800 year struggle for independence their leaders handed the country straight over to the Pope.

    Freedom is a fine Jimi Hendrix song but lousy as an argument for a country's future. Let's hope they go 'Nae!'

  2. A very good post that reflects what I have been saying in many places for some time. Cameron cannot claim that the UK/England leaving Europe is good while simultaneously saying Scotland leaving the UK is bad without hypocrisy. But then, as a politician he seems to have a very poor grasp of how current actions or speeches on his or Osborne's part, often made to deflect from this Tory controlled Government's economic mistakes, will affect things down the line. He has taken scapegoating and distraction to new lows.

    1. "Cameron cannot claim that the UK/England leaving Europe is good"

      And doesn't.

  3. The "yes" campaign should just say that they're going to introduce the "Scottish" Pound, like a Canadian or Australian Dollar. Also, the Eurozone will be glad to have them, does Scotland want the Euro?
    I think the Tories also want the free movement of goods without the free movement of people. They're just sitting on the fence whether one is worth the other while UKIP has made up its mind.
    The general neo-classical consensus is that we'd all live best in a world government without borders and with free movement of everything, yet people obviously do not want that. And as soon as you add another country and the "rest of the world" to your model, things get complicated. For example, it might become beneficial for yourself to levy custom duties to pay for public goods. In fact, that might be the problem: As you say, Scotland tends to the left, England tends to the right. The huge economic difference between the ideologies is the appreciation of public goods. Scotland might be able to tax imports from Great Britain at almost no loss, because transport costs from Britain to Scotland should still be relatively low - after all, they're on the same island. I wonder though what the general fiscal situation of Scotland will be.

    1. "As you say, Scotland tends to the left, England tends to the right."

      I'll believe that once we have different tax rates. The main proposal for tax changes I've heard from the nationalists has been to cut corporation tax, while no government in the past 15 years of Scottish devolution has dared touch the basic rate, even at sub-Thatcher levels of taxation.

  4. Economic analysis by IFS and NIESR etc tend to take factor endowments as given. This is fine for analysis of UK in or out of EU: the small control that Brussels exerts does not have any side-effects for the scale economies and hence attractiveness of London. However this is not true for Scotland in or out of the UK. London is a serious migratory option for Scottish human capital and competitor for what could be "Scotland's share" of international human capital. The status benefits of being able to exercise the levers of national government, the opportunity for Scottish based firms to influence real policymakers and decision makers, and a favourable immigration policy can all help the attractiveness of the Scottish economy with consequent scale and agglomeration benefits. Clearly some of this is business-stealing - but given the size differential I don't think rUK will notice.

    The analysis of the economics of ScotInd has been much too fiscal and monetary, with a lack of focus on supply side. Even Scottish Government simply ran projections assuming GDP growth was sufficient to bring them into line with some western European averages. So, yes I agree - wistful thinking with not enough focus on the mechanisms - but that is not to say that mechanisms don't exist.

    1. I agree that the supply side issues should be looked at more carefully. There is an excellent paper showing that the effect of independence on Scottish trade with the rUK will reduce Scottish GDP by something like 5%. This is quite a serious drop. Its by two of Scotland's top economists.

      Regarding the effect on human capital migration there are lots of skilled Scots moving to non-UK countries, even those arguing that independence will stem the flow of human capital out of Scotland. This doesn't bode well for the effect of independence on the flows of human capital.

      Or will they return? It would be good to have them back. Might even change my vote.

  5. 'Suppose you win, and as a result the remaining UK under a newly elected Conservative government without Scottish voters narrowly votes to leave the EU.'

    Quite, found myself making this point to a committed 'Yes' supporter yesterday.

    Interesting points, Dave, but can't help feeling 'status benefits' rather speculative - could easily go other way, surely? You might be interested in my take on independence as expressed here

  6. "Suppose you win, and as a result the remaining UK under a newly elected Conservative government without Scottish voters narrowly votes to leave the EU. But it would leave Scotland with a horrible choice. Do they forsake Europe to keep sterling and preferential access to their largest market, or do they become poorer still by joining the EU/Euro and trying to redirect their trade in that direction? "

    A choice is better than no choice. If Scotland rejects independence it may be taken out of the EU against it's will.

    1. No, that is the whole point! In the scenario I gave, you only have that 'choice' because you left the UK. If you had still been part of the UK it would have voted to stay in.

      Note also that if Scotland stays in the UK, but the UK still votes to leave the EU, Scotland could still vote to leave the UK subsequently.

      Being free to make your own decisions can mean not being able to influence the decisions of other on whom you depend.

    2. Apologies, my misunderstanding. But I don't think we can assume Scottish votes would make a difference at the end of the day.Could Scottish independence fan the flames of UKIP or isolationism? Possibly but not necessarily. A crisis of confidence caused by cesession could alternately make the rUK less willing to go it alone. At any rate I'm not sure these hypotheticals should be at the forefront of voters minds on the 18th of September.

    3. Ukip and many in the snp share many beliefs, but the right wing of the snp knows that it needs to keep quiet until the referendum has been won in order to keep the scottish left vote onside.

    4. Al, if we aren't supposed to think about hypotheticals in the referendum, what are we supposed to think about?

    5. um, where did I say we aren't supposed to consider hypotheticals? The point is that highly speculative scenarios should not be a deciding factor on what way to vote.

    6. Al 3/09/2014 "At any rate I'm not sure these hypotheticals should be at the forefront of voters minds"
      Al 05/09/2014 "um, where did I say we aren't supposed to consider hypotheticals?"

  7. Hi Simon

    Scotland might well be less rich under independence. But it might well be a more equitable society too. And, for rich countries, there's persuasive evidence that equality is at least as important as wealth for well being.

    It's a frustration of mine that the UK left that aren't in favour of independence seem to skip over this potential benefit to focus on potential economic costs and a distaste for nationalism (which I share).

    Of course, as a macroeconomist you could be forgiven for focussing on the macroeconomics. I do think the debate could benefit from your and others thoughts in this respect.

    If an independent Scotland became a more equitable society, would the benefits of this be likely to outweigh what you see as the economic costs?


    1. It's hard to see independence being good for egalitarian income redistribution in Great Britain as a whole, since it would introduce tax competition on an island with a perfectly porous border. Indeed, the UK government has been willing to devolve corporation tax powers to Northern Ireland so that they can compete with the Irish Republic on lower taxation, despite regarding corporation tax as a "line in the sand" for Scottish devolution.

    2. I originally started off thinking I'd vote no for just that reason, but I thought about it a bit and changed my mind.

      Corporation tax isn't particularly linked to inequality - for example, it's high in the US. Corporation tax competition doesn't seem to happen that much. See Ireland and the UK, other EU countries.

      Given the relative size of the UK and Scotland it's unlikely to be worth the UK cutting corporation tax on all companies to stop a few leaving/attract a few from Scotland.

      It's also possible that the rest of the UK might be encouraged if more redistributive/egalitarian policies work in Scotland.

    3. Isn't the current corporation tax-cut programme exactly motivated by tax competition with countries like the ROI? Also, headline tax rates may obscure other sorts of competition to attract multinationals e.g. corporate welfare and payroll tax cuts.

      Headline corporation tax may not be closely correlated with inequality, but headline income tax isn't either, and I don't hear many people on the left saying that they don't care about income tax cuts/competition because they aren't closely linked with inequality.

  8. In view of the hundreds of psychopaths who have gone from the UK to the Middle East to fight for ISIS, tighter control over immigration over the last twenty years would have been highly beneficial. Plus we’ll have the dubious privilege of welcoming a proportion of these nutters back into the UK at some stage. Plus for every psychopath actually going to the fight for ISIS, I assume there are several sympathisers who stay in the UK who would take part in violent Jihad if and when that gets going in the UK.

  9. "Suppose you win, and as a result the remaining UK under a newly elected Conservative government ... "

    There seems to be an assumption that without Scotland the Conservatives would reign supreme at Westminster. I would like to challenge that. It has not, I think, been thought through. The plain fact is that the Conservative (& Unionist Party, let us not forget) simply could not survive "losing" Scotland, and despite what is being said in the press, neither could David Cameron. The most likely scenario is a split between a soft and hard wing (corresponding roughly to the more left-centrist-moderate and more right wings of the party) with the former pressing for a favourable kind of divorce and the latter pressing for very hard terms or even refusal to accept the result. However, by 2016 they would be in opposition as the 2015 election would still have Scots voting, and they would vote for the party that offered the best divorce terms (expect a Labour softening). As we know, opposition allows parties to tear themselves apart, and the chance of a split between a hard wing of the Conservatives allied or in a formal pact with UKIP and a moderate (wet) Conservative rump with perhaps some defectors Orange book Liberal Democrats.

    The way I see it is that the Labour Party would remain more or less intact but the Conservatives would tear themselves apart, and remain out of power for decade.

  10. "The way I see it is that the Labour Party would remain more or less intact but the Conservatives would tear themselves apart, and remain out of power for decade."

    Like they did over Ireland, India, Suez, and Rhodesia?

    I can only think of one case of a major party splitting on foreign policy issues, and that was the SDP breakoff from Labour in the early 1980s, which was PARTLY in reaction to Labour's European and defence policies.

    The hard right of the Tories may go after Cameron on the issue and challenge him, but they're far more interested in Europe, immigration, and even gay marriage. If and when Cameron gets challenged after 2015 by the Tory right, it will primarily be on the first of those two issues, even if we vote "Aye".

  11. An important difference is UKIP are one party within an unchanged system, whereas the SNP are proposing a new system. I imagine independence would see the SNP split, and Scottish tories free-er to make more locally relevant policies. I think the bias would be pro-business in general (although maybe more pro-small business?) but maybe with consumption and high-earner income taxes, as influenced by proportional representation of labour and green politicians...

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