How to hamstring Scottish economy after independence

THE current Scottish government's plans for the post-independent Scottish economy run the risk of wrecking the economy by accident. Choosing to severely limit the policy options for any Scottish government is a recipe for disaster.

We must always start a post like this with a qualification. The current UK government does not have any vision at all for Scotland. It has no interest in the two most important economic frameworks that occupy the Scottish Government: a wellbeing economy and a just transition. It also does not recognise community wealth building as the way to achieve those economic transformations.

A future UK Labour government may look at things differently. However, policy from the Labour Party has no radically different edge from the Conservatives. 

To remain within the UK is to sit on the sidelines, helpless as we watch an administration deliberately trying to wreck the idea of an economy fit for all. The Scottish Government is totally different. It wants to see Scotland succeed. And it wants to see a fairer society.

However, the plan for Scotland’s post-independence economy is built on the wrong foundations and is fundamentally handicapped by:

1. The decision to keep sterling.
2. An economic framework based on GDP growth, not wellbeing.
3. An economic understanding based on neoliberalism.
4. A desire for a slow and steady transition to a UK-lite state.
5. A heavy reliance on private capital and foreign investment (linked, of course, to the decision not to create our own currency from day one of independence).
6. A pre-determined endpoint of European Union membership.​

The decision to keep sterling

The Scottish Government plans to keep sterling until certain economic tests are passed. These tests were first floated in the Sustainable Growth Commission and reappeared in a different form in the Government’s A Stronger Economy With Independence paper, released last year.

These tests are based on institutional preparedness, market confidence, moving from sterling to our own currency in the “economic interest” and that Scotland is fiscally sustainable.

Even though we disagree with some of these conditions, there is no reason why these could not all be carried out during the transition period so that a Scottish currency is available from day one. We have listed the significant differences between using and issuing a currency and highlight again that this is the biggest decision a new state can make. If Scotland does not issue its own currency on day one of independence, it will severely weaken the policy options for any government.

An economic framework based on GDP growth, not wellbeing

Within the new economic prospectus, there is no mention at all of any kind of wellbeing measurement of economic progress, despite the Scottish Government setting up a Wellbeing Economy Monitor before this paper was published. GDP, on the other hand, is covered 45 times. GDP growth is at the heart of our economic model. GDP growth (1.66% on average from 2009 to 2019) has done nothing to reduce inequality. It is not required to deliver a wellbeing economy or a just transition. So why is it the goal?

An economic understanding based on and supportive of neoliberalism

At the heart of our economic vision is the need for fiscal responsibility. This is framed by neoliberalism and underpinned by one particular view of how to manage an economy. In essence, this entire macroeconomic framework encourages governments to run a balanced budget, like a household. We would argue that this idea has created huge inequality in and between nations, financial fragility and ecological collapse. It is also incompatible with creating a wellbeing economy.

A desire for a slow and steady transition to a UK-lite state

Using financial services as an example, here is a quote from A Stronger Economy With Independence: “During this (transition) period, arrangements would be put in place to enable financial services and products to operate in the same way following independence as they do now. This would maintain confidence and financial stability.”

Scotland will succeed by being very different from rUK, not by being the same or slightly different. Scotland is a tenth of the size of the UK and will have a much smaller financial services industry post-independence. It will require different services and products, regulations and oversight from rUK, with some 55 million people and a huge financial services industry.

A heavy reliance on private capital and foreign investment

As Humza Yousaf’s recent statement on the desire to issue bonds for international investors confirms, Scotland will choose to rely on international finance, which requires a return, rather than fund investment from within the country or with our own currency.

This leads to debts in a foreign currency and will drastically reduce the fiscal space for any Scottish government. 

A pre-determined endpoint of membership in the EU

Everything in the current economic prospectus points towards Scotland’s eventual membership of the EU. The destination may be the best one for Scotland, but surely that decision should be made in the future, not now? It should not derail our economic and social prospects before we get there. We plan to mirror the fiscal rules of the EU before we can even apply to become members, prioritising membership in the future over the interests of the Scottish public in the first years of independence.

Nothing is written in the stars. This is not a prediction. It is the basis of an argument. Nothing would excite us more than being able to debate and discuss the details of the current economic plan and offer an alternative. But to do that, we really need someone to stand up and give a good defence of the current plan. Any volunteers?

Discuss all this month's posts LIVE with the SCOTONOMICS team at 2:30pm on Wednesday, October 25.