Economics of Independence Scotland's Economy

No Party Political Solution to the Failures of UK PLC


London is Bleeding Scotland Dry“How London is Bleeding Scotland Dry”
, screamed the front page headline in the Herald last  Sunday.  A report by the increasingly well regarded Jimmy Reid Foundation that analyses 30 years of economic data on Scotland’s economy was published last week, and comes to the conclusion that there has been a prolonged and systematic mismanagement of Scotland’s economy by Westminster.

This is a message that I have tried to get across for years, most recently in my article last month “How Scotland’s Economy went South”.

The report The UK Economy: A strong and secure UK? is co-written by highly regarded husband and wife economist team Margaret and Jim Cuthbert.  Both are former government economists and the sort of experts which economic commentators such as myself (on both sides of the referendum debate) reference when citing sound research and evidence.

This is what makes the report so important and also why the findings are significant.

Key Findings:

  • Since 1963, UK GDP has on average grown by 2.5% a year, but only by 2% in Scotland
  • If Scotland’s growth had kept pace with the UK, its economy would be 25% larger today
  • Scotland has far more part-time and low-skill employment than London, suggesting a structural problem with the labour market
  • Weakening of UK export performance, balance of payments, & reliance on borrowing, disproportionately affects everywhere outside London
  • The UK has the largest wealth distribution gap of any European nation. For example France’s wealthiest region is almost double as wealthy as its poorest, but London is 470% wealthier than the UK’s poorest regions
  • Deindustrialisation and a poor balance of payments means that the UK can no longer be seen as a successful economic entity
  • Far from being Better Together the UK has a systematic weakness, in that the overblown population of London and the South East is sucking wealth, jobs and prosperity out of the rest of the country at an alarming and accelerating rate, and concludes that we would in fact be better off as an independent country

Economic Migration from Scotland

A No Campaign claim that the fact that 750,000 Scots live in England means we should vote No has been doing the rounds.  This report puts that somewhat spurious reasoning to the sword, especially when it notes that Scotland has witnessed decades of population decline due to economic underperformance under Westminster policies.  The fact that 750,000 Scots (including my own family) had to become economic migrants to find jobs and feed their families due to Westminster mismanagement is a key reason to vote Yes in my book.

People have to follow the jobs, and this has resulted in a massive population shift southwards which unbalanced the UK economically and democratically, and led to accelerating moves to devolution and ultimately independence. Roughly one in three UK voters lives in London and the South East and so in general terms any political party that wants to form a UK Government needs to offer a policy platform that suits London and the South East. This has meant that we always get right of centre, finance sector and especially City of London focussed governments, regardless of what party Scotland votes for.

City-led Westminster Policies

New Labour and the Liberals had to adopt City-led policies to win in London and the South East and Labour has become unrecognisable as a left of centre party to leading think tanks such as the Jimmy Reid Foundation.  As a result of this required policy shift no change of government at Westminster can help Scotland, only a change in the political and economic model can do that.

A Statue for Jimmy Reid

Regular readers may know that I believe Scotland’s move for self-governance is part of a wider global epoch, a movement towards a new enlightenment, one where amongst other things the political definitions of left and right are seen as old fashioned and insignificant.  The above may explain why despite being the leader of a business network, and business policy think tank, I can still claim Jimmy Reid (Scotland’s most impressive trade union leader of all time) as an inspiration and key thought leader in my own socio/political thought processes.  It also explains why every time I reach the top of Buchanan Street in Glasgow I wonder why we have a statue of Donald Dewar and not of Jimmy Reid!  I hope you are not still wondering who Jimmy Reid is?  If so take a few minutes to read his rectorial address to Glasgow University, described by the New York times as “the greatest speech since President Lincoln’s Gettysburg address”.

The Currency Question

Having heaped praise both on Jim and Margaret Cuthbert and Jimmy Reid himself, let me now disagree on one of  the report’s key perspectives. In this latest report it is stated that the unbalanced economy of London and the South east has become so alien to us that we must (as well as becoming politically independent) launch our own currency after independence.

Others have also stated that UK is a failed economy and by keeping sterling as our currency we are tethered to an economy that could sink rapidly and drag us with it.  This is a credible position and I have a great deal of sympathy for that conclusion.  Indeed, I believe that launching our own currency would not be a bad solution for Scotland. However, we trade significantly with the rest of the UK, and our friends and neighbours in England, Wales and Northern Ireland need Scotland to keep our exports and energy sales in sterling or the currency runs the risk of collapsing and, due to the interconnectedness of our economies, that could bring us down anyway.  So leaving sterling may actually create the problems for the Scottish economy that the idea of leaving set out to solve!  See my article Euro, Pound or Scottish Pound  for more details.  The economist in me recognises the spreadsheet analysis that says we should consider our own currency, but the businessman in me sees the need to maintain our common market with the rest of the UK, with minimal barriers to trade, and that includes maintaining the currency union whilst discontinuing the broken political union.

Conclusion

The economic and political system of governance in the UK has failed.  Scotland has been held back economically and socially for decades, and the requirement to create policies that gain votes in the overblown population centres of London and the South East means that all political solutions from the Westminster parties are focussed on repeating the same mistakes that created the global banking crises in the first place. Mistakes which will also prove to be against the interests of the South East of England in the long-term too, even if they serve short-term political gain for Westminster parties trying to win elections every few years.

The Jimmy Reid Foundation report is important and provides decades of data that proves conclusively that Westminster doesn’t work in Scotland’s interests, it can’t because of how our political system of Westminster rules all is structured.  The Westminster political parties try to tell us that voting for them can change things, but the system means if they follow policies that would redistribute wealth from London and the South East they would lose, and it now looks like we could probably end up with a Tory / UKIP Government with possibly not one single elected member in Scotland.

There is no political solution to the failure of the Union and just as there is no business and economic case for voting No in 2014.  If you want your politicians to make a difference to Scotland’s economy or to our social infrastructure, then first get rid of the failed system of Governance that restricts them from doing so, by voting Yes.

 

Further Reading

Reid Foundation The Dysfunctional UK Economy

Sign the Business for Scotland Declaration – Read More

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

5 Comments

  • The debate on the currency of Independence has yet to start in earnest, and then perhaps we shall be properly informed of the pros and cons. At the moment there is no point in considering the euro because Scotland could not join without a two year ERMA qualification period based upon its own currency – a currency independent of Sterling. So there remain only two options, stay with Sterling and the Bank of England or an independent currency with a Scottish Central Bank.
    The Unionist stance remains that Scotland would need to apply for the privilege of joining a Sterling Area and that this is in the gift of Westminster. We may regard this as political posturing in that we hold a minority interest in Sterling, but being realistic our voice would be in the wilderness.
    Gordon is right that we do not wish to see Sterling collapse, and this would be aggravated by the loss of Scottish oil to the already disastrous balance of payments. At our discretion this blow might be softened by agreeing to sell some oil for Sterling rather than for harder currency, but in the opinion of many the UK economy is far too dependent upon the alchemy of the City of London. The UK, even with the oil, is dangerously dependent upon ‘financial services and markets’ and Sterling will be extremely vulnerable when, as it surely will, this gigantic bubble eventually bursts and reality comes to town.
    Many of us believe that Scotland needs to have a Plan B for its own currency for many good reasons. Among which are

    • It is not good negotiating practice to be a supplicant with no credible alternative
    • The authority to reform and regulate the banking system
    • Anyone who considers that Sterling is a solid currency has not looked at the balance sheet
    • Westminster has dithered over Europe since its inception – no one knows if the UK will be in or out within the next five years.
    • Only an independent currency opens the door to the prosperity which promotes full employment and the revenues which can support top class public services and social cohesion.
    • No competent business has difficulty with foreign exchange nowadays, it is no barrier to our exports worldwide – including to euro land.
    • We would manage our own positive balance of payments a great deal better than Westminster.

    There is no need to weaken our negotiating stance by committing ourselves to either option. , but there is a need to inform the voters that realistic alternatives exist.

  • […] “How London is Bleeding Scotland Dry”, screamed the front page headline in the Herald last Sunday. A report by the increasingly well regarded Jimmy Reid Foundation that analyses 30 years of economic data on Scotland’s economy was published last week, and comes to the conclusion that there has been a prolonged and systematic mismanagement of Scotland’s economy by Westminster.  […]

  • Who are we kidding? Ourselves more than anything We already have a different currency. Just try spending Scottish bank notes down South. If you’re lucky all you get is an odd look. But lets not get stuck in the non-issue of currency. The real issue is financial services. Scotland has had a long and stable history of excellence in the financial sector when we had Scottish banks. When Westminster deregulation and mismanagement created the too big to fail British banks they got bailed out and their bonuses and we got stuck with the bill and austerity. Westminster still hasn’t done anything to fix the problems. Scotland can certainly do better. We’ll need independence for a start. Scottish Democrats have a sound plan which is well worth a read: http://www.scottishdemocraticalliance.org/policies-section/economy/financial-services

  • Gordon I admire your passion for Jimmy Reid and all that he stood for – in my eyes he stood for something that would crush the very soul of an astute entrepreneur, passionate about building a business in the country he loves so much. Trade Unions just about killed this country (UK) and I delight in their sideline status now.

    Having said that I agree with your deliberations over the Jimmy Reid Foundation report, particularly the currency issue – having an independent currency from the rest of the UK would be challenging at best. The only alternative would be the Euro – I have yet to witness a competent economist argue the case for it.

    The ‘YES’ campaign is gaining strength for the right reasons; keep the socialist, union loving stuff to a minimum and I believe businesses based in Scotland will get behind it.

    • Between Jimmy Reid and Margaret Thatcher there is a happy medium that can be achieved. Before trade unions there was slavery in kind but not in name – just as the industrialists became too powerful and had to be dealt with so did the trade unions. Power has swung like a pendulum between the two mantras of left and right. Only by accepting that there are good intentions and good ideas on both sides can we see that in an enlightened society the best way for business to profit and to simultaneously ensure workers are fairly treated is to have a shared goal.

      Look at the relationships between trade unions and companies in Germany, some people say yes but they are more reasonable than ours, but reasonableness is relative to the position being promoted by the other side in an argument. Germany sought to balance the equation, Thatcher sought to crush the unions – how did that work out economically and especially in terms of manufacturing output?

      Anyway a quote from Jimmy Reid who became a supporter of independence in later life –

      “Government by the people for the people becomes meaningless unless it includes major economic decision making by the people for the people. This is not simply an economic matter. In essence it is an ethical and moral question for whoever takes the important economic decisions in society ipso facto determines the social priorities of that society”.

      As the article points out what defines a major economic decision /power is pretty much the only thing i disagree with the report on.

    • In Canada there is a Union with important differences from the “Trade Unions (that) just about killed this country (UK).” It’s The Christian Labour Association of Canada. “The CLAC claims that their approach to labour relations develops workers’ sense of responsibility, participation, stewardship, and dignity. The CLAC opposes what they call the undemocratic, adversarial, and monopolistic practices of the labour movement.[2]” Read about it: http://en.wikipedia.org/wiki/Christian_Labour_Association_of_Canada

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