The Economics of Independence (Part 97)

by Ken Gibb

This is the first in what I hope will be a series of posts in the broad areas of housing, public policy, academia, economic ideas and beyond. I am an economist in the School of Social and Political Sciences at the University of Glasgow. Once the site gets developed further you will find out more about my research and policy interests. My personal webpage at Glasgow University is at http://www.gla.ac.uk/schools/socialpolitical/staff/kennethgibb/.

As a social scientist in Glasgow and Scotland, these days it is difficult not to touch on or indeed collide with the independence referendum. The debate is gearing up and will undoubtedly rage on through 2013 and beyond. There is much said about the lack of evidence-informed debate, of ideology trumping analysis. In fact, the ESRC is running a major research programme on the Future of the UK and Scotland – a call for a large-scale multi-themed proposal is out just now. The programme aims to shed light and provide empirical material and analysis to help fill the presumed gap.

This evening, the University of Glasgow hosted the eminent economist, John Kay, who delivered a sparkling lecture on the economics of independence (there are, actually, many such public debates and roundtables taking place – the David Hume Institute in Edinburgh held a session earlier on the week on social security and independence). The Scottish commentariat will evidently have increasing opportunity to debate these issues – though one questions the extent to which it will filter beyond these circles either in Scotland or elsewhere in the UK. That is a challenge for everyone involved in public engagement and civic discourse.

John Kay stated that there were problems ahead with an independent Scotland seeking to enter into currency union with the rest of the UK. At the same time, he suggested that fiscal issues of debt, deficit and spending were not dramatically important given Scotland’s broad comparability to UK spending per capita, once one takes account of oil & gas. His currency union argument was as follows: setting himself up as the impartial adjudicator of post-independence negotiations between London and Edinburgh, he felt that it was inevitable given Scotland’s small size that the rest of the UK would seek strong financial control over fiscal and financial regulations and policies. This loss of control would be unacceptable to Edinburgh and it would be pushed towards a Scottish currency (the Euro being quickly dismissed). While expensive and potentially risky, he did not think it impossible to peg a Scottish currency to Sterling – so it was no economic deal-breaker.

Kay felt that small states are potentially economically viable – provided they enjoyed real competitive advantage in specific areas. He identified four potential such sectors in Scotland: financial services, premium food & drink, tourism and life sciences. He did not include either oil & gas, or renewables. He also made three other interesting points. First, that the Scottish Government since devolution had delivered a poor return on higher levels of spending on health and education compared to outcomes in the rest of the UK. Second, he urged growth policy to be focused on enabling and nurturing entrepreneurial skill. Third, he scotched the myth that Scotland has a very high comparative public sector employment figure – in fact it is only slightly above the rest of the UK (in much the same way that across many indicators the Scottish economy is broadly similar to the UK as a whole).

We are having a student independence referendum on campus just now and it is attracting a lot of media interest judging by the cameras and furry microphones evident around the University precincts. The pro-union campaign has adopted the frankly awful motif: “UK OK”. But it seems that John Kay’s conclusion overall was that, as an independent economy, Scotland voting yes would be ‘ok’, too. His key take-home message for me, however, was that people should really not vote simply on perceptions of whether the economy will be marginally better or worse as a result of the vote. Like in India, Ireland and America before them, independence in Scotland is about many more things than crude economic calculation. As important, Kay denied that an independent Scotland could miracle away our profound inequalities, poor health and other wicked problems. Rather, independence would make the responsibility for difficult choices much more explicit and local. But those difficult choices remain whether we are in or out of the UK.

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