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Monday
Sep152014

From Voting on Scottish Independence to Taming Speculation

In a dead heat and with three days to go before the Scottish referendum on independence, most media and economist arguments - beyond those regarding emotional debates of identity, heritage and autonomy – are increasingly fear-driven. 

For those advocating Scotland embrace its status quo, the panic-inducing exchange goes like this:  if Scotland votes for independence, it will become a debt-saddled wannabe player with no control over its currency or means to raise extra funds during financial crises, the EU will close its doors and NATO will balk at membership unless Scotland continues to house nuclear arms within its borders.

Many mainstream articles, including the recent New York Times op-ed by Nobel laureate, Paul Krugman have poured added more economic panic to the fire. Writing “Be afraid, be very afraid” Krugman promoted a big brother as protector argument. The UK may not make decisions, or allocate tax or resource revenues along the majority of Scottish people’s desires, but when the financial excrement hits the fan, it will save its sidekick. This the UK has done through measures like bailouts and quasi-bank-nationalization (aka Northern Rock), not necessarily on behalf of the population, but for the banks. The Royal Bank of Scotland (RBS) was a recipient of the UK government’s generosity during the 2008 crisis.

Ironically, having received a 46 billion pound bailout from the UK government, RBS has now threated to move its registered headquarters to the UK for fear of higher taxes, greater regulations, or lack of future bailouts, in the event that Scotland votes for independence. This, to me, is a point in favor of independence.  Iceland did well deploying its independent status to divert monies to benefit its citizens rather than foreign banks.

If an independent Scotland does embrace strategies for broad-based economic stability and reduced income inequality, it could become a stronger country. This would be a positive outcome, even considering the limitations of currency-setting control that Krugman mentions. Protection from the most risky capital flows and practices is a cheaper crisis preventative measure in today's complex, private-bank driven global financial system, than the ability of a central bank to manipulate currency levels anyway.

As far as Krugman is concerned, an independent Scotland would be saddled with similar economic pain to Spain, but without the sunshine. Having just spent several weeks in Spain, and many in Scotland during the 7 years I lived in London, I am an enthusiastic supporter of sunshine and Scottish deerhounds,  but it must be said that both countries enjoy stunning landscapes. But first, Scotland isn’t seeking to give up use, or proportionate control, of the pound; it is merely seeking a more autonomous position from which to influence the pound. Plus, its resource revenues dwarf those of Spain, so its footing would be stronger in that regard. Secondly, Spanish banks, kneecapped by bad real estate debt, certainly suffered in recent years. The Spanish economy and public suffered more.  But this was mostly due to the flow of foreign speculative capital that had no allegiance to Spain or any country. Unlike Scotland, Spain had fewer reserves to make up for the financial shortfalls that followed these aggressive capital movements.

It seems Krugman's contends that if Scotland severs politically from the United Kingdom, it will face trouble trying to control its currency and all hell will break loose. But the situation in Spain wasn’t about currency control or lack thereof. Government choices and risky banking policy hurt Spain. After the collapse of its real estate bubble that German banks (along with UK banks) helped to inflate, Germany pressed the ECB to bail out certain big Spanish banks in which Germany had a financial interest. The public was not a consideration. The Euro was an excuse.

A “freer” Scotland would have the opportunity to better monitor rogue capital flows and foreign bank practices in a more stable manner for its population. It could find ways to direct longer-term funds bound to the future of the country, rather than embrace short-term bets bound to nothing. 

There’s no economic reason, given current guidelines, for an independent Scotland to be sidelined from the EU, NATO, or the pound, so those fears seem far-fetched. But, perhaps if the September 18th vote supports independence, Scots will feel more empowered about having a say in their country, rather than feel disenchanted due to their economic needs not being met by Westminster’s choices. That could in turn shape the tenor of ongoing compromises. The possibility of such greater individual engagement is an exciting prospect, no matter what road bumps come along the way.

 

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Reader Comments (10)

Would the author also advocate for independence for Texas? There are also important military and geopolitical considerations. Great Britain has been an important stabilizing force in the world since WW 2 and a staunch ally of the US. Independence will not end this but it will certainly weaken it.

September 16, 2014 | Unregistered Commenterwilliam maliha

There has certainly been a great deal of fear mongering and very little political or economic analysis of the potential benefits for the people of Scotland. The 'great' Margret Thatcher sowed the seeds when she decided to try out the poll tax on the non Tory voting Scots and the Scots are not the forgive and forget types on matters of principal. Scotland is 2 thirds the size of England with 90+% of the UK oil reserves and less than a tenth of the population. Scotland has a highly productive farming and fisheries industry and there is more water in Loch Ness than every river and lake in England. That looks like food, water and energy security are taken care of. The Scots also have one of the most highly educated populations in the world.
What the outside world does not seem to understand is that the people in Scotland ( and much of the rest of the UK including England ) are sick and tired of the UK being run by an elite whose primary focus is London and the South East of England - particularly the financial sector. Scotland will save £billions simply by not having to fund ongoing UK projects which are of very little benefit to Scotland. The claims by Alex Salmond that this is a once in a generation referendum are obviously a political ploy to ensure the maximum yes vote. There could be another referendum within a few years if the no campaign wins by a small margin. Either way Scottish independence is inevitable given the political situation in the UK as a whole. People will ultimately vote yes because being part of the UK will become a more frightening prospect than the perceived risks of independence.

September 17, 2014 | Unregistered CommenterFritz

My wife and I took the family there in June as part of a summer vacation and when we met anybody, I made it a point to ask their opinion on independence. The most thoughtful answer came from a cabbie who acknowledged that there were far more questions than answers and that no one was able to provide any real numbers on the actual cost of independence. But, he responded, he believed that Scotland had sufficient natural resources to make it on it's own after a rough period of initial going. He was leaning towards it...

And yes, there really is a massive generation gap on the opinion. Especially since the Scot leader, Alex Salmon, pushed through a measure several years ago that would permit teens as young as 16 to vote in the referendum. As one Scot stated on a train, the English have some good polliticians, but this guy swam circles around them.

September 17, 2014 | Unregistered CommenterPracticalDad

The PTB can not let Scotland separate from the U.K. . Should an independent Scotland succeed other parts of Europe would also seek independence, Catalonia Spain for example. The vote will be close but the yes vote will fail. Voting is on electronic tabulating machines, and software can control the outcome.

"It isn't those that vote that count, it is those that count the votes" Joseph Stalin

September 17, 2014 | Unregistered CommenterSheryl Winters

"As far as Krugman is concerned, an independent Scotland would be saddled with similar economic pain to Spain"

I'm a Krugman fan, and my takeaway from his comments about Scottish independence was a little different. He has had two key points, one that independence will not come cheap (a price worth paying for political independence? Who's to say), and two, that sharing a currency brings with it significant risks. He has embellished his articles with some fairly stark imagery - as is his way - but I don't think he's wrong, especially on the latter point.

The recent experience of the Eurozone is his reference point for arguing an independent Scotland should have it's own currency. I agree entirely, Spain - a model of fiscal responsibility for close to a decade - has been forced by Brussels and Berlin into severe austerity because it does not have its own currency. That's the risk Scotland would be taking, and I cannot see how this either qualifies as independence or is a remotely desirable outcome.

My own sense is that politically, Alex Salmond has had to hold this off the table. A manifesto that included stuff like leaving the pound would have been too difficult to sell. But if Scotland does vote yes, this immediately becomes an issue and I think Scottish leaders would do well to heed Krugman's advice.

That said, Scotland is large enough and capable enough to manage its own currency. And they should be bold enough to do that. Sterlingisation or a formal currency union carries too many risks over which Scotland will have little or no control.

September 17, 2014 | Unregistered CommenterEd

Excellent comments on the Scottish independence issue, Ms. Prins.

As for Krugman, I believe Prof. Michael Hudson has described him best when calling Krugman a bank lobbyist, which essentially all the members of the Group of 30 (group30.org) have been, bank lobbyists for the central bankers, ever since that outfit was created by the Rockefeller Foundation in 1978.

September 17, 2014 | Unregistered Commentersgt_doom

Decentralized government is one's best hope so yes, Independence is the right course. Those bent on control won't let this happen.

September 17, 2014 | Unregistered CommenterEnid lillian

I'm ambivalent about Scottish independence, but I think you're somewhat misrepresenting Krugman here. His point was NOT that Scotland is identical to Spain, but that the problems in Spain (and Portugal, Greece, Italy, and now even France) have been made virtually impossible to fix because these nations no longer have sovereign control over their currencies. Although they too theoretically have "proportional control" over the Euro, in reality the strongest power (Germany) dictates monetary policy. Sadly, but not not surprisingly, the Germans have run the Euro in the best short-term interests of Germany, dragging other nations into extended depressions.

I'm all for Scots creating a political-economic order that challenges the awful neoliberalism of the Tories, but they really should recognize that you can't be successful as a partly-sovereign nation. When problems strike, you need your own currency. Or you will be at the mercy of foreign politicians in your hour of need.

September 17, 2014 | Unregistered Commentersomeone

Reply to: Sheryl Winters

"Voting is on electronic tabulating machines, and software can control the outcome."

No, voting will be by simple paper ballot, as it is in every other UK vote.

An interesting article, Naomi Prins, and a useful antidote to some of the fearmongering.

September 17, 2014 | Unregistered CommenterA Scot

Some birds even when the door is left open prefer to stay in the cage. A little initial terror is not worth a world of freedom.

September 18, 2014 | Unregistered CommenterRandy Oldman
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