THE BEAR'S
LAIR Scotland: Norway or
Greece? By Martin Hutchinson
It now seems certain that the Scottish
people will have the opportunity of voting on an
independence referendum, at latest in 2014 and
probably sooner, with David Cameron's government
and Scottish first minister (and Scottish National
Party leader) Alex Salmond disagreeing mostly on
the referendum's timing.
It's thus worth
looking at the prospects for an independent
Scotland, and whether its economy and political
management are likely to lead towards a
Norway-like prosperity or a Greece-like slough of
subsidy and corruption.
With a population
of 5.5 million and a gross domestic product
(GDP) around US$220
billion, Scotland is certainly big enough for
independence, whether or not its economy was
closely integrated into that of the European
Union.
Croatia, Slovenia and Slovakia,
countries I know well, are all considerably
smaller in terms of their economy, with Slovakia
being comparable in population. Norway is slightly
smaller and considerably richer, with a population
of 5.0 million and a GDP of $255 billion. With
Slovakia and Slovenia full euro members, Croatia
about to join the EU and Norway proudly
independent, that gives Scotland several quite
encouraging examples of independent countries of
comparable size that have done quite well.
The other factor encouraging seekers of
Scottish independence is the massive contribution
Scots have made to civilization. The Scottish
Enlightenment, containing as it did David Hume and
Adam Smith, is at the apogee of human intellectual
achievement, while Scottish contributions to the
Industrial Revolution, to the governance of the
British Empire, and to pure science (James Clerk
Maxwell, to name a notable example) are far out of
proportion to the country's modest population and
suggest an immense potential in an independent
Scotland.
Before we get carried away
however we should note that nearly all the best
Scottish achievements in culture, engineering,
government and science have come while the country
was part of the United Kingdom. Its achievements
as an independent country before 1707 are less
impressive. Admittedly before 1500 or so the
country was a mass of feuding tribesmen (sorry,
Braveheart fans) but even in the 1680s the
mutual religious massacres of the Killing Time
don't suggest a well-ordered polity.
Economically, the most celebrated attempt
at asserting Scottish independence of English
capital was the 1698 Darien project, an attempt to
set up a colony “New Caledonia” at the Isthmus of
Panama. This incompetent effort ended in disease
and failure with the loss of over 2,000 lives, is
estimated to have absorbed one fifth of the wealth
of Scotland and led directly to the 1707 Act of
Union with England.
Then there's the
Scottish financier John Law, who set up Europe's
first paper money scheme with the French Banque
Royale in 1718, which collapsed two years later,
taking with it French credit and much of the
wealth of the French middle class, preventing the
much larger France from adequately financing its
eighteenth century wars with Britain. Modern
Keynesian economists have attempted to
rehabilitate Law as an economic genius. His
contemporaries saw Law for what he was, a
persuasive swindler, and forced him to flee France
disguised as a woman - an indignity never visited
on John Maynard Keynes except in Bloomsbury Group
amateur theatricals!
Thus Scotland's
record of achievement as an independent state is
much less impressive than Scots' records of
achievements as British subjects. It should not
therefore be assumed that Scotland will segue
quickly to a position of Norway-like success; the
country's track record admittedly in the distant
past, suggests that Norwegian levels of
self-discipline and probity do not come naturally.
In the 1970s, when independence was first
seriously mooted, the Scottish economy had a major
resource asset, North Sea oil. However, in the
past 30 years, the North Sea reserves have been
depleted, and the remaining reserves are estimated
at only 920 million barrels, worth about $92
billion at current market price, only about five
months' national output. The oil industry employs
an estimated 100,000 people, 6% of Scotland's
working population. It's a business well worth
having, but it is no longer capable of supporting
the Scottish economy. Scotland is not Norway.
One of Scotland's major problems on
independence will be the loss of the subsidy from
the British parliament. This currently totals
about 27 million pounds annually, almost 20% of
Scotland's GDP. However that figure ignores the
Exchequer's receipts from Scottish taxpayers. The
net subsidy appears to be of the order of 8
billion pounds annually, a more modest 6.5% of
Scotland's GDP - in other words, significantly
more than the total government receipts from North
Sea Oil, which are declining.
Scottish
public spending is currently 21% higher than the
British per capita average, while its per capita
GDP is about 5% lower. Thus the country has a
bloated public sector, with public spending above
50% of GDP. In an independent Scotland, this will
drag down growth and will need to be financed.
To balance the Norwegian and to a lesser
extent Slovenian and Slovakian successes, there is
of course a counterexample, of a small country
that joined the European Union with its eye on the
massive EU budgets available for infrastructure
and other investment in poorer countries. I refer
of course to Greece.
From its accession in
1981, Greece's crafty socialist premier Andreas
Papandreou ensured that the country would have
ample access to every possible EU subsidy, with
the result that the Greek people advanced to a
living standard ahead of most of Western Europe,
entirely without gaining the productivity to
justify such wealth.
For those wishing
success to an independent Scotland, the Greek
example is worrying. Writing in the Financial
Times Wednesday Salmond set out a "Plan Mac B"
proudly claiming that he would reverse the cuts in
public investment planned for the UK by 2014-15,
while the public-sector Scottish Investment Bank
would finance appropriate private sector
investment, for example $1.2 billion in Scottish
renewable energy in the year to September 2011.
He would maintain the guarantee of no
compulsory redundancies, abolition of prescription
charges, a freeze in council tax and free
university education. As a flagship project he
proudly announced that on December 21 construction
had begun on the new Forth Road Bridge, "one of
the largest infrastructure projects in Europe".
Salmond also believes an independent Scotland
would automatically be a member of the EU, a
development that is by no means certain. He has
also announced that an independent Scotland would
eventually join the euro. However there is one
problem with this. Scotland's exports have been
declining in recent years, with the manufacturing
sector particularly weak, and now represent only
6% of UK exports, down from 9% a decade ago.
That bodes ill for membership in a
currency which has consistently been very strong
against sterling. Judging by the record of its
past decade, Scottish membership of the euro would
lead to a steady loss in competitiveness, ending
with a PIIGS-type debacle in a decade or so. [1]
Salmond would no doubt wave his hands and
assert that Edinburgh would grow rapidly as a
financial center with Scottish euro membership.
However, since the country's two largest banks are
Bank of Scotland, a major component in the HBOS
collapse and bailout, and RBS Group, now
ignominiously controlled by the British
government, Edinburgh's ability to take over parts
of London's financial services role may be less
than he thinks.
The days are long gone
when Scottish banking was an example to the world,
with no central bank, free banking and a cost of
money so low that the Scotch whisky industry, with
its 12-year maturing cycle, was able to
out-compete continental rivals simply because it
could better afford to let the spirit mature.
In any case, with Salmond's ideas on the
size of government, it's difficult to see any but
the most deranged expatriate bankers coming to
work in Edinburgh, braving its icy January
north-easters and punitive taxation.
Finally, the economic acuity of Scotland's
political class can be gauged by remembering that
the last two authentically Scottish prime
ministers (Sir Alec Douglas-Home - born in England
- and Tony Blair don't count), Ramsay MacDonald
and Gordon Brown, presided over the two greatest
economic disasters in modern British history. The
days of Adam Smith, when Scotland led the world in
economic enlightenment, are clearly long gone.
One wishes the Scots well; indeed as an
Englishman by birth one is so well disposed to
them that one hopes they vote against
independence, expensive though that choice would
be for British taxpayers. However, the political
balance in Scotland is such that an independent
Scotland is most unlikely to be economically
successful, even though there is no intrinsic
reason why it should not be.
Instead it is
likely to become Greece without the sunshine, an
unhappy land of political bickering, excessive
taxation and eventually of spiral into poverty. In
such a polity, whisky sales would no doubt soar,
even though the unfortunate Scots would no longer
be able to afford the good stuff!
Note 1. PIIGS - Portugal,
Italy, Ireland, Greece and Spain.
Martin Hutchinson is the author
of Great Conservatives (Academica Press,
2005) - details can be found on the website
www.greatconservatives.com - and co-author with
Professor Kevin Dowd of Alchemists of Loss
(Wiley, 2010). Both are now available on
Amazon.com, Great Conservatives only in a
Kindle edition, Alchemists of Loss in both
Kindle and print editions.
(Republished
with permission from PrudentBear.com.
Copyright 2005-12 David W Tice &
Associates.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
