Post by earl on Apr 12, 2007 15:22:29 GMT
Could Scotland “go it alone”? It is a tantalising prospect, provoked I think more than anything else by the example of Ireland, which has seemed to have prospered as an independent country in a way that it could not have done had it been part of the UK.
Of course independence is not just about economics. It is about identity. But one of the principal arguments being used by people who want to keep the Union, including the present British Government, is that Scotland would be worse off without the annual transfer of funds from Westminster. But if that argument disappears – as it might were Scotland to become the second “Celtic tiger” – then the country could make a decision based on identity, its true vision of its place in the world.
So how do the economic arguments stack up? First, a couple of qualifications. One is that we are not talking about Scotland truly going it alone, for it would remain in the EU and hence have access to the market south of the border. A second is that economic performance is not a static analysis: how Scotland performs will turn more on the policies it adopts than the situation it starts from. Ireland, after all, had many years of economic failure right through to the late 1980s, before it began its present run of success. (I should add, too, that these decisions will be made by people in Scotland, not part-Scots brought up in Ireland, such as myself!)
That said, I think there is a clear economic argument to be made that Scotland might well find it easier to prosper if it had a greater degree of independence than it does at the moment. That argument goes like this.
The country does get an annual subsidy from England; well actually not England as such, but from three regions, London, the South-east and East Anglia, all of which are large net contributors to the overall tax pot. You can have a debate about the precise size of the subsidy. For example, to what extent should Scotland contribute to the overall defence costs of the UK given that after independence it could run a slimmer military?
You could also have a debate about the amount of the North Sea oil revenues that should be attributed to Scotland rather than the UK as a whole. The point here seems to me to be that there is a negotiation: a deal could be struck, with Scotland keeping most of the oil revenues but losing the subsidy from the South. The figures are broadly similar.
There is another subsidy issue: what Scotland might get from the EU. The UK is a net contributor to the EU equivalent to about 0.4 per cent of GDP. Ireland has, in the past, received up to 6 per cent of GDP from the EU but that is now declining and there would be no chance of Scotland getting anything like that. On the other hand, Scotland starts from a much more favourable position than Ireland did. Its GDP per head is around 95 per cent of that of the UK, whereas Ireland was equivalent to about 75 per cent of the UK’s in the 1980s.
Indeed in terms of total GDP Scotland is around number 30 in the world league. It would be in the top 10 in terms of its position in the two key industries: financial services and higher education. Thus Edinburgh University is ranked higher in the Shanghai University index than any university in Germany, Italy or Spain and only just behind the highest-ranked in France.
Scotland is also physically well located, not only being part of the EU but also having a land border with the world’s third largest import market. England and Wales import more even than Japan.
Quite aside from all these tangible advantages there are the less tangible ones of culture and brand, and the potential resource of the Scots overseas. Some 10 million people in the US and Canada claim to have Scottish ancestry, while there are a further five million of Scots-Irish. This is a tremendous potential resource, one that has played a key role in the Irish boom, and one that Scotland would find easier under a new jurisdiction to exploit.
So a good position to start from, in many ways better that Ireland before its present run of success; what about the dynamics of the Irish boom?
The plain fact here is that Ireland has boomed because of inward investment and that has been the result mainly, not entirely, because of favourable corporate tax rates. These are now 12.5 per cent (they used to be zero for foreign investors for the first year of their investment). We saw in the last budget how the Chancellor has been forced to cut the main UK rate from 30 per cent to 28 per cent but that hardly changes the equation.
Scotland would have to think of matching Ireland. However, were it to do so it might find corporate tax revenues went up rather than down. That is what has happened in Ireland. It would certainly stop any Scottish companies from relocating south of the border.
The ability to use tax competition as a weapon is something that large countries find hard to do because the losses, initially at least, are likely to be larger than the gains. For small countries it is different. The amount of inward investment you need to attract to offset the loss of revenue from the existing corporate base is more attainable. Scotland would be further helped because one of the most mobile industries, and hence most likely to be attracted, is financial services – in which it is already very strong.
But competitiveness is not just about tax. It is also about education, quality of life, the environment and other issues. One of the features that helped sustain the Irish boom was the human capital available: lots of young, English-speaking graduates, who until the late 1980s, emigrated to find work. Scotland has that too. In Ireland, once that initial supply of skilled labour was absorbed, the country was able to draw on its expats, and then on the wider community of young Europeans. Scotland, like Ireland, has to become a magnet for talent if it is to emulate Ire-land’s growth.
That leads to what seems to me to be the most interesting issue of all. This is not whether Scotland would be successful as an independent country. With the right policies of course it could, as Ireland has done post the late 1980s. With the wrong policies it would be an economic failure, as Ireland was before its boom.
The most interesting thing is how Scotland would cope with success on an Irish scale. How would it cope with the excesses of a runaway boom? How would it cope with mass immigration? Ireland has gone from 2.8 million to 4 million in the space of a generation. Would Scotland draw back and try and stifle growth? Or would it welcome its different position in the world and the people who came to share it? One thing is sure though: it would be a different Scotland.
www.belfasttelegraph.co.uk/news/opinion/article2439952.ece