Crude plans: from oil to interest rates
|January 30, 2012||Posted by Hugh Oberlander under national|
For Fraser Archibald’s arguments in favour of Scottish independence, click here.
The 1707 Act of Union was brought about by economic stagnation in Scotland caused by the false optimism in the Darien investment venture (recently depicted in a 2010 Edinburgh Festival production). Our bankrupted nation eventually began prospering as part of the Union. Indeed, much of the industrial revolution in Britain owes its advancement to Scots, but their success was bankrolled by investors they may have never met if it were not for unification. For the doubters, the prosperous partnership of James Watt and Matthew Boulton is a case in point.
Since the discovery of oil in the North Sea, Scottish nationalism has seen a revival. The location of such a much-sought natural resource has provided a boost to claims that Scotland could support itself were it to become an independent state, and the slogan “It’s our oil” has been touted to the Scottish electorate since the 1960s. Building upon this, the SNP have systematically made the case for Scotland to be fully capable of supporting itself economically, be it through foreign investment or the development of hi-tech industry such as renewable energy.
But how strong is the nationalist case for such a claim? Can we truly be an independent country with control over our own economy? These questions are often skilfully avoided through attacks on Westminster’s economic policy (a policy with which I personally disagree), deflected through impassioned demands for ‘our oil’, or even ignored, the SNP simply stating that independence would:
“[M]ake Scotland a more ambitious and dynamic country. We could create an environment where our existing and new private industries can grow more easily. We would have the economic levers to create new jobs and take full advantage of our second, green energy windfall.”
When we look at the economic case for independence in the harsh light of reality, however, a very different picture begins to emerge.
First, we can look at oil, the black gold that is apparently going to ease our transition into a more ambitious and allegedly more dynamic country than we already are. While it is true that oil reserves are partly responsible for the success of many Scandinavian economies, the economic models to which nationalists aspire, it is erroneous to think that it will last forever. Indeed, UK North Sea oil production peaked in 1999. Those pushing for a breakdown of the Union may well claim that the development of renewable energy in Scotland holds the answers, but it is likely that oil giants will pool vast resources into lobbying against such advancements in green technology, drastically reducing their full potential. There is a fundamental conflict of interest in the SNP’s post-independence plans for an energy-based economy.
In terms of the economic levers being hawked to the public, it is also highly unlikely that a business-friendly state such as that envisaged by the SNP will make any real effort to tax oil companies effectively. After harping on for so long about how Westminster squanders Scotland’s resources, it is quite comical that the nationalists were so enraged by Westminster’s attempts to levy more taxes on energy companies. Indeed, it seems unlikely that an independent Scotland would want to risk damaging oil-related investment, and it would pursue a low-tax approach. This would only be continuing a trend of rampant private sector profit and short-changing of whichever government is in charge of the oil. The Scandinavian countries that we would allegedly mirror have no qualms about taxing these industries to fund social welfare projects, so here is another discrepancy in the reality of the envisaged economic policies of an independent Scotland. So much for John Swinney’s rose-tinted claim we could be the sixth richest nation in the world thanks to oil.
Second, throughout the current debate over the financial viability of independence, one of Alex Salmond’s mantras has been sorely neglected. The nationalists claimed that our economy was held back and oh-so-cruelly restricted by the loathsome policies of Westminster prior to the financial crisis. Salmond claimed that we could join an economic “Arc of Prosperity” consisting of Ireland, Iceland, and Norway. Trumpeted from the parliament and several media outlets, the phrase is awfully hollow given what happened to Ireland and Iceland (both of whom owe the UK several large sums of money, so perhaps the nationalists would proudly have us become a debtor nation). To Mr Salmond’s credit, Norway, an oil-rich nation, was not as badly affected. It’s a shame that an independent Scotland as a truly successful energy-based economy has already been shown to be a slightly flawed line of argumentation. The sound-bite claiming SNP policies lead to more ambition and dynamism may well be electoral dynamite, but it is a dynamite of a more destructive and less appealing sort that would threaten Scotland were it to become independent. Within the Union we have more bargaining power, whereas Ireland and Iceland have to receive bailouts and downgraded credit ratings, and are subsequently subject to various economic conditions imposed by international organisations like the IMF.
Third, independence will allegedly give us more power over the Scottish economy. If we look at power in terms of authority and control, then this nationalist claim is undermined by the proposals made by the SNP itself:
“[T]he pound will be our currency … As members of the EU there will continue to be open borders, shared rights, free trade and extensive cooperation.”
Interestingly enough, this would see us abandon political union if independence was claimed and yet retain a currency union, where the rate of inflation, and also interest rates, would be set by the Bank of England. In his Hugo Young lectures this January, Mr Salmond also claimed that the Bank of England would also be Scotland’s lender of last resort. Surely having the currency of an independent Scotland subject to regulation by an institution situated outside the country’s borders and unaccountable to whatever government we may possibly have is entirely counterproductive from a nationalist perspective. Independence would therefore bring little fiscal power to Scotland under current plans. The once mooted alternative of joining the Eurozone looks impractical at the moment, due to both the European sovereign debt crisis and political expediency on the part of nationalists. Joining the European Union, while in my opinion no bad thing, would also see the economic levers so desired by the SNP be rather similar to what we currently have (incidentally, more recent members have reaped fewer economic benefits than older ones). EU competition law would constrain an independent Scotland’s ability to foster new homegrown business, an issue important to many nationalists, as they would face competition from currently existing and well-established UK-wide companies, so state grants could potentially face legal challenges if they discriminate against long-time operators in Scotland. Therefore, it seems unlikely that there would be suitable levers to produce the dozens of private industries predicted in the SNP proposals.
In conclusion, if we consider the economic case for independence carefully, it soon becomes apparent that the current proposals are not suitable ground from which an independent nation must try to prosper. There is a fundamental conflict of interest in the current plans for an energy-based economy, business-friendly policies would reduce possible gain, and the envisaged private-sector models as practiced by the majority of the “Arc of Prosperity” states have been exposed as weak in times of crisis, showing up such models as poor acts to follow if we want to pursue dynamism and ambition outside our economically successful Union. There are also clear problems with the SNP’s claim of gaining more economic power, ironically limited by their own plans to retain the pound and not join the Euro if independence were achieved.
We should pay heed to the lessons of the Darien venture. Is it worth risking all that we have in the Union to appease the false optimism of nationalists whose plans are misconceived and inherently flawed?