A WARNING: I’m an economist. When I heard Alex Salmond claiming that there were two economists among Alba’s candidates, that seemed to me a warning to the electorate about the risks of voting for the new party. An economist will tell you tomorrow why the advice he gave you yesterday about what to do today, was, in fact, wrong.
I started studying economics when Mrs Thatcher was in her pomp. She listened to the advice of a particular group of economists, notably Milton Friedman. There was a joke went around about a May Day parade in Moscow. On the podium, the politburo looked on as every larger and more destructive weapons went past. At last the largest nuclear missiles trundled past. And then there was a single row of men in grey suits, carrying briefcases. What was this? The most senior general announced in hushed tones, “Comrades, these are our economists: our most secret weapon.”
I suppose that Mrs Thatcher was one of the reasons that I began studying economics. I found her claims that there is no alternative baffling. The loss of jobs, the destruction of industry, the division of the country: surely not all of it was necessary. At the peak of her authority, early in her third term in office, she coined the aphorism “There is no such thing as society” and she came to the General Assembly of the Church of Scotland to preach her self-help gospel.
Yet, by that time, she had truly fallen into the clutches of economists. The denizens of the Adam Smith Institute had persuaded her government that rather than a property revaluation for local rates in Scotland, she should introduce an “efficient” tax.
Poll taxes are the “ideal” tax in economic theory. Because the liability is fixed, and isn’t dependent on the level of output, or the amount earned, or the price that goods sell at, poll taxes don’t affect prices in the way that taxes on cigarettes or alcohol do. They cause the least possible distortion to economic activity, which economists think is good. In addition, the liability to pay the tax is clear.
What could possibly go wrong? All poll taxes are regressive. A Duke in his castle pays exactly as much tax as his tenants. The chief executive of a company pays just as much as her workers on zero-hour contracts. In economic terms, a poll tax fails the requirement that taxes should be equitable, with liability related to ability to pay. There is no perfect tax, and every tax comes with both economic and political costs The advocates of the new tax overlooked that, or at least underestimated hugely the political challenge of introducing the new tax. For them, there was a political imperative that pensioners in low incomes and large houses could not afford to pay higher rates. The long postponed property revaluation was a political time bomb.
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The problem was not local taxes. The problem was a social security system which worked on the basis that men would earn enough to provide and that it was the duty of women to stay at home. The system did not take good care of widows. In general, it discriminated against women. But reform would take time, and would not address the pressing problem that revaluing property would substantially increase pensioner poverty.
Perhaps Mrs Thatcher, instead of berating the General Assembly, should have paused and read carefully what the Bible has to say about the care of widows and orphans. Instead, she listened to economists. Not “defunct economists” whom Keynes warned against, but, in adopting the poll tax, she was “distilling [her] frenzy”.
Mrs Thatcher could have taken different economic advice. She could have considered introducing a local sales tax, a local income tax or a land value tax. Maybe she should even have thought about releasing the control over taxation and given local authorities the responsibility of raising and managing their finances. Or maybe she should have looked at all these challenges, considered the political consequences of change and thought that reform could be left to her successor.
Instead, after securing the approval of the electorate, it was left to her party to force her resignation. They simply feared loss of power. There is a lesson here for every long-serving party leader. As the leadership of the SNP contemplates the choices facing it in a fourth term of government, Mrs Thatcher’s example should remind them of the risks of operating within a closed political ecosystem, in which common purpose is seen as a virtue.
Achieving independence will be difficult. There will be many challenges in designing new institutions. After 2008, we did not fully apply the maxim “never waste a good crisis” and fell into austerity. That let the Brexiteers win their referendum so that they came blinking into the light of a new dawn, uncertain about what they had done. We live with the consequences of their actions. Building a better Scotland after independence is not a project for a single party, but for the whole nation – even those who are still to be persuaded that this is the right choice.
Robbie Mochrie is an associate professor of economics at Heriot-Watt University
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