Economics Inequality Politics

Independence is Nominal

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Independence is Nominal – long-gestated thoughts given birth to in response to Brian Barder’s blog post on the lack of post Scottish referendum preparedness and the need for the UK coalition government to resign if there is a ‘Yes’ vote.

The view from Scotland
The view from Scotland ©DWP

Here I am, up in Scotland and strangely detached from the debate. (For comparison I was very active for the Yes side in the devolution campaign.) This detachment is partly due to personal events over the last 18 months, but also to a difficulty in getting a handle on what it all means.

I can’t help feeling that ‘independence’ in the context of modern Europe is almost entirely a nominal phenomenon, with little practical import beyond a bit of rebranding of some institutions which will continue as a matter of self-interest on both sides to have Scottish and rUK input. This will be somewhat costly in the short run but since it involves no great continuing costs not economically very significant. (The same is true in regards to asset/debt splits – within a few years they will pale into insignificance compared to the current health of Scotland’s economy – for which no predictions can be made since it will depend on what we Scots actually do AFTER independence has happened.)

As an economist, with game-theoretical insight I think we can safely say that nothing currently being said about the post-referendum negotiating positions has any value whatsoever as a guide to what they would actually be after a Yes vote! If campaigners and voters in Scotland do not understand that these negotiations will be conducted by the rUK on an entirely self-interested basis they are certainly deluding themselves. On the other hand the interdependence of two neighbouring countries with a common language and many common traditions is such that self-interest will involve a large amount of co-operation! The question then becomes to what extent would the ‘equilibrium’ position be different from the current one? I suspect in reality surprisingly little.

As for preparedness, I always assumed that as soon as Salmond won the last Scottish election he would be on the next plane down to London to get some positions established – particularly on the oil question, which in fact really ought to be the most straightforward of all to resolve given existing international resource right precedents. But maybe I over-estimated him – in fact I know I have in many ways, although I have never voted for him or his party. As an economist he is revoltingly neoclassical in outlook.

Being a monetary economist myself, the fascinating question is the currency one. The reality is that in many ways it is the wrong question, or at least is wrongly posed. It isn’t just Scotland that faces a currency problem, but the whole of Europe and probably the world. In many ways, money is a bad answer to the wrong questions about the modern world economy! But we are stuck with it for now, I think, and need to make the best of it! From a theoretical standpoint, Europe’s, the UK’s and Scotland’s welfare would be maximised by a single European currency with proper provision for fiscal transfers. Unfortunately there is little prospect of this when there is such a discrepancy between the power and wealth of rich and poor. The rich in every country wanting to hang on to their immediate wealth (and profit from inter-regime arbitrage) have the power to keep the status quo; the poor in every country have no cushion within which any short-run income reduction for medium or long-run gain is acceptable. So I would argue that the right approach to the currency question is not which sterling rock or Scottish dollar (or whatever!) hard place is less painful, but what constitutional position (if any) would help to reduce Europe-wide inequality and improve Europe-wide co-operation. And I think that could reasonably be argued either way.

Oh, and of course the coalition should resign if there is a Yes vote – but then they should all have resigned out of shame ages ago anyway. At least Warsi had that decency.

With permission, I reproduce below Brian’s response, my further comments and his final response from his blog

Brian writes: Many thanks for this, Diarmid. I agree with much of what you say, although I think it’s much too early to dismiss the concept of national independence as largely irrelevant in an age of interdependence. Tribal nationalism remains, alas, a potent force in international affairs and the nation state will surely remain the basic building-block in international affairs for as far ahead as it’s useful to look. I also have my doubts about the proposition that the argument about a currency union between Scotland and rUK in the event of Scotland becoming independent is less important than an eventual currency union covering the whole of the EU because this would facilitate a reduction of inequality within Europe. Equalisation payments within the EU are not just possible but actually made without an all-EU single currency, which seems to me a very long way off since it would entail something amoiunting to a full political union. Meanwhile the dispute over a £ sterling currency union between rUK and Scotland is a very serious one and will remain so as long as Mr Salmond refuses to recognise the insuperable objections to it — unless he’s prepared to accept extensive control by London of Scotland’s fiscal and monetary policies and London supervision of Scottish banks, all of which would hardly be consistent with Scottish independence.

I responded: Thanks Brian. An interesting response as expected. Of course what you say about ‘tribal nationalism’ is true, but in a sense the Scottish debate has perhaps uniquely been conducted (on the surface anyway) in terms of ‘civic nationalism’. There has also been a strong voice for simultaneous internal decentralisation of power which would tend to reduce the tribal aspects. See eg:

The point about a properly constituted currency union is that fiscal transfers would have to replace differential interest rates and other monetary policies so would inevitably be much greater than current equalisation payments. I’m not sure if my point about inequality came across entirely clearly – I regard inequality as the main barrier to closer European co-operation, including monetary co-operation; the arguments for the latter being mostly on efficiency rather than equity grounds.

You are quite right that the UK currency question would be important, but in fact it is almost certainly moot, because the failure to debate that issue in realistic terms is probably the biggest underlying reason (apart from simple inertia) that independence will be rejected. If it isn’t then there will be a monetary car crash of some description, in the aftermath of which I think the issues I have raised will come into play.

In a reply to another comment you raise the ‘federation’ issue. Well, of course this is what we should have, but it can’t be one solely of the existing countries of the UK – that would be hopelessly unbalanced in England’s favour. So unless the English regions are going to see their way to greater self-determination – inequality here again an issue – it’s not a live option.

Brian writes: Thank you for these further comments. I don’t have much to add, except that whatever the objectives of reducing inequality within the EU, whether for efficiency or for equity, it will be a generation before the possibility of the UK joining a single EU-wide currency comes within the bounds of possibility, given the traumatic experience of the near-collapse of the Euro and the cost to Eurozone members of rescuing it in terms of transferring control of their fiscal and borrowing and bank regulatory powers to Berlin. There’s no sign of any waning of current antipathy to closer integration of the UK in Europe and if anything it’s getting stronger, partly out of a craven fear of UKIP, partly out of old-fashioned nationalism, and partly because of the gruesome spectacle of the crippled €.

This is not the place to resume the debate on federalism for the UK. But I can’t let you get away with the idea that federalism is ruled out by the disparity in size between England and the other three nations (you say that a federation “would be hopelessly unbalanced in England’s favour”). The point is rather that the current constitutional relationship between the four constituent nations of the UK is “hopelessly unbalanced in England’s favour” and that is why a federal system is urgently needed, with its many safeguards against English domination, preventing English meddling in the internal affairs of the smaller nations. Such English meddling in Scotland’s affairs in the current “hopelessly unbalanced” constitutional framework is precisely the kind of insensitive abuse of England’s size and power that has driven Scotland to the verge of secession. The size disparity factor is the main reason for needing federalism, not an obstacle to it. Please see (for example),,,,,,,, and many more, including my responses to many of the comments on them. Hence my reluctance to go over all that ground again here or in reply to similar comments on my corresponding blog post over at LabourList ( when it’s only peripherally relevant to the principal question under debate, namely whether the coalition government should resign at once if Scotland votes for independence, and what will happen if negotiations on the terms of Scottish separation break down in failure to agree.

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