The Scottish Government’s Economics Case for Independence
On Monday 17th October the Scottish Government released the third paper under the “Building a New Scotland”. The paper is designed to provide “financial confidence” in an independent Scotland. It can be downloaded here.
To discuss the paper Scotonomics invited two commentators on Scotland’s economy. Dr Craig Dalzell from Common Weal and Richard Murphy from Tax Research UK. Dr Tim Rideout and Cameron Archibald also joined the discussion. This 1-hour LIVE discussion was powered by questions and comments from their audience. We share it here as part of our discussion series on future economics.
More from Scotonomics here.
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Gosh what arrogant bastards!Why doesn’t the SNP listen to ME!( smirky smirky)
Don’t you just love ‘job’s comforters.’ If left to these creatures we would have Westminsters boot on our neck forever.
Fortune favours the brave…
And anyway we might be in a nuclear war soon…well we won’t because Scotland would be annihilated first..keep going FM
..ignore these know it alls…whether you like it or not Independence is coming unless Putin wipes out the central belt of Scotland first.
For Scotland!
Years ago when I was working as a translator in Amsterdam with Bank Mees&Hope (Hope was Scot), between and 1982, I exchanged some Scottish pound notes to guilders at the desk downstairs. The exchange rate for the Scottish notes was higher than that for English (sterling) notes. Mees& Hope was taken over by ABNAMRO in 1982.
I read the paper as it was being announced by NIcola Sturgeon on Monday.I have to say I was stunned at how bad it is.On all the significant areas-currency,trade,borders,central bank,fiscal policy and much more-it has handed tons of ammunition to those who oppose Independence.It is a highly aspirational document and thats good but aspirations have to be supported by preparation and planning else they will fail.When that happens folk get disappointed then angry.I would urge people to actually read the paper which,given most of it is detail free,wont take long.
The position on currency alone is good old sterlingisation proposed by the Growth Commission in 2016.That was dropped because it is a terrible idea that would open an indy scotland to attack by speculators and require massive tax rises with accompanying cuts in public spending.Now its back but it will be “managed” in “phases” to be “stable and secure” so that’s ok.Charlotte Street Partners will be nodding in approval because,make no mistake,those who will pay the cost of this will not be them and their buddies but those who rely on Public Services most.
https://www.opendemocracy.net/en/oureconomy/snp-must-rethink-its-economic-model-independent-scotland/
This is a response to the 2016 Growth Commission Report but it retains it’s relevance today as the currency plan is basically the same as that announced on Monday.
I have a few friends who question how serious Nicola Sturgeon is about Independence given how bad this paper is and,no,they are not ALBA members.I dont go along with that however NS must be mightily happy at the madness in London as it has taken the focus off this colossal turkey of a paper.That wont go on forever and eventually the spotlight will fall on these plans.Fight an Indy campaign on the basis of this report and it will fail.
I am mightily relieved that none of the commentators on the podcast will be allowed anywhere near Scotland’s economic decisions. Instead of these dabblers, none of whom have any serious credentials in macroeconomics, read the chapter by John Kay in A Better Nation (Edited by Gerry Hassan and Simon Barrow). He at least brings some realism to the discussion.
Thanks Paddy – will read that now. What were the issues you disagreed with the contributors? #GenuineQuestion
Two things mainly: they underestimate – more accurately, totally ignore – the risks associated with introducing a new currency on day one, while exaggerating the risks of using Sterling in a transition period.
When Scotland becomes independent, it will do so in an economic context that is presently unknowable, once an agreement with the UK has been negotiated, the terms of which are as yet unspecified. What we do know is that Scotland will need to prove its credit-worthiness to borrow on the international money markets. In these conditions it is not sensible to plan to introduce a new currency on a fixed timetable, or straight away. It makes far more sense to plan for a transition period during which Scotland will, in tandem, take the necessary steps to introduce the currency and apply for EU membership. Otherwise, lack of confidence in the new currency may strangle it right from the start – and set the independence project back for years. Much of the Scot Gov paper is about building confidence while transitioning to the new currency – including the proposed negotiations about paying a share of the UK debt – and that is the only responsible line to take, however unpalatable it might seem to parts of the Yes movement.
I don’t know why the Scotonomics panel ignored these issues so comprehensively, but I suspect it’s because they adhere to the Modern Monetary Theory notion that a country with its own currency can print as much of it as it wishes, within productive capacity limits. I doubt this is true in global economies, especially in a newly independent Scotland where Sterling and Scots Pounds will coexist, without undermining the new currency’s value. But in any case what matters is not what the Scotonomics people think, it’s what the markets think that count: and there is little doubt about that. Not to mention the people we will need to convince on the doorstep. Just imagine the conversation: “So, what if the new currency suffers a loss of confidence on day 1 and heads for the rocks?”; “Oh, we’ll just print more of it”; “Righty-o, I’ll stick with the Union and Sterling then, thank you very much”.
The second issue relates to the risks associated with using Sterling during a transition period. This is sometimes described as Sterlingisation: it’s not. It’s a transitional arrangement, during a period in which the Scottish economy will still, largely, be aligned with that of the rest of the UK. External shocks will apply to both Scotland and rUK, and will be dealt with, as now, by the Bank of England. The situation will be little different from what it is now: after all, do you really imagine that the Bank of England take special account of Scotland now when setting interest rates, or intervening in the bond markets? Of course not. Only if the Scottish Government were suddenly to indulge in fantasy economics like Truss might it cause a localised problem in Scotland which the Bank of England could choose to ignore, leaving Scotland to sort out the mess as best it could.
As an activist, I felt great relief when the idea of transitional use of Sterling was mooted, first by the SGC, now (more convincingly) by the Scot Gov paper. I felt this was something we could get behind and campaign on convincingly, that would take us beyond the sterile currency arguments of 2014 (“Yes they’ll share the pound”; “No they won’t”.) and actually made sense. I feel the Scotonomics position is just another simplistic hostage to fortune that the Yes movement could well do without.
Thanks Paddy, that’s really interesting.
How do you address the counter argument that it’s not coherent to say ‘we’ll rejoin the EU’ and put a lot of emphasis on the benefits of that, when we know that the conditions of (re) joining are either your own functioning currency an central bank of last resort, or membership of the Euro?
Look, I’m not an expert on any of these things – so others will be far better qualified than me (or the Scotonomics team, I expect) to respond. All I can give is my gut feeling.
Procedurally, as I understand it there is nothing to stop Scotland applying for EU membership while still using Sterling, and negotiating a transition route with the EU on the basis that it intends, “as soon as practicable” (in the words of the Scot Gov document) to set up its own currency. This is what Nicola Sturgeon said at the launch, at any rate. Again, like much else, this will be a negotiation, with agreed milestones and criteria for progression along the way. But I imagine the two – EU accession and moving to a new currency – proceeding in tandem.
But perhaps more importantly, from a political point of view, I think that the EU is likely to be pragmatic, flexible, and accommodating to Scotland’s desire for accession. And so for two reasons: it really needs enthusiastic new members, and what’s more, Scotland has a lot to bring to the table. The negotiations will doubtless be tough, but I expect that they would be conducted in an entirely different spirit from those around Brexit, and with goodwill.
Finally, and related to my earlier points: I think the EU will be far more likely to look favourably upon Scotland’s application if the Scottish Government displays a degree of financial caution, rather than rushing the launch of a new currency. A botched early currency launch would likely prove to be a more serious roadblock to EU accession than the more gradual transition set out in the Scot Gov document.
I agree that we dont need to fix specific dates and times for our transition to independence. The context – which we cant predict precisely – needs to be taken into account. In fact there’s a glaring omission in the debate which is a realistic assessment of what that transition might involve. We need to build awareness of what might be involved in that, bearing in mind that it will be a gradual process even if we’re able to expedite matters as much as we’d like. So to talk about day ‘one of independence’ fails to take account of what that might involve.
It seems to me that to hold on to a rigid theoretical position which does not take into account how circumstances might change – is not a good place from which to engage in responsible politics.
“it’s not. It’s a transitional arrangement, during a period in which the Scottish economy will still, largely, be aligned with that of the rest of the UK. External shocks will apply to both Scotland and rUK, and will be dealt with, as now, by the Bank of England. ”
That is simply not credible.If there are any financial shocks the Bank of England will act to support the RUK economy and not Scotland which will be,by then,a foreign country whether its “aligned” or not.The Bank of England will have no responsibility for the Scottish Economy at all.
“The situation will be little different from what it is now: after all, do you really imagine that the Bank of England take special account of Scotland now when setting interest rates, or intervening in the bond markets?”
Of course the BOE doesnt take any special account,whatever that might be,of Scotland now as our economy and that of the UK is only notionally seperable.Post Indy that will change radically.The situation will not be “little different from what it is now”.
Personally I think the currency issue indicates something very important about the Independence debate..Whatever happens there are consequences to either Sterlingisation or a new currency and they are not all positive.There are negatives and,IMO,its important to admit this.Folk arent dumb-if someone is bullshitting them they know. The current SNP Paper is,as I wrote,highly aspirational but it recognises no negatives to Independence and folk are not fooled by that nor are opponents of Indy.Whatever path is proposed for the Currency will incur positives AND negatives and I know some will think this is scaring folk and handing ammo to the NO campaign etc but so does refusing to recognise reality.The Economic Paper attempts to point up the positives but refuses to address any difficulties at all.IMO that wont work.
your video desent hane any sound.
As if the descendants of the Scot’s that delivered the modern enlightenment could not deliver an equally stunning outcome by reverting to a Sovereign Scotland AGAIN. Who better than a people that have been described as uncommonly intellectual deep thinkers to deliver a vibrant social justice based environment safeguarded by the riches delivered by Scotlands natural assets and the ingenuity of its people. About thirty years ago a German survey nominated that an independent Scotland would be approximately the Worlds 16th wealthiest nation, ironically I came across a recent survey that nominated exactly the same placement. Many nations have already resigned from the British Commonwealth with far less going for them than Scotland, most have prospered and NONE have begged to return. You can use the best currency of choice that maximises its use until establishing your own currency. All very logical isn’t it and that’s exactly how Scots rationalise to the point of overthinking just because they can. Millions of words waffled on about the subject of Scottish Sovereignty when it’s bleeding obvious being conjoined to the failing state of England is to remain shackled on the road to oblivion. Scotlands existence as a distinctive people surviving in its equally distinctive land is TOTALLY dependant on having TOTAL control over every aspect and decision making process that effects the security and well being of its populous. Being Scottish is a state of being anyone can embrace and become Scottish, which means every single person residing in Scotland can consider themselves equal to any other Scot by adopting the resident outlook and philosophy.