Wednesday 23 July 2014

Scotland's Vote 8: The Independent Republic of Edinburgh

Much of the referendum debate hinges on whether Scotland's economy will be better or worse off under independence. Here is a thought experiment which may put this discussion into perspective.

Free Edinburgh in 2027

From the preamble to the manifesto of the Free Edinburgh Party, for the 2027 General Election in an independent Scotland:

We believe Edinburgh should be a free city-state, a member of the UN and the European Union in its own right. We will no longer tolerate being ruled by Glasgow and other areas which do not have Edinburgh's interests at heart.

Edinburgh: The next member of the UN?
Source: PhotoEverywhere

We believe Edinburgh will be an enlightened and prosperous country once it has cast off the shackles of union with Scotland:
  • Edinburgh and the Lothians have a larger population than three existing members of the EU: Malta, Luxembourg, and Cyprus.
  • We seek to follow the example of successful city-states such as Singapore. 
  • We will base our economy on finance, research, high-tech manufacturing, shipping, tourism, and renewable energy from wind and tidal generators. Therefore, we will no longer be at the mercy of volatile oil prices, as the Scottish government has been.
  • The Constitution of Scotland is an unsatisfactory document based on shabby political compromise. Having learned from its mistakes, we will create a much fairer system for ourselves.
  • In particular, we will abolish the undemocratic monarchy and set up a republic. The Palace of Holyroodhouse and Scottish Parliament building will become a new complex containing museums and educational facilities.
  • Edinburgh is a rich city. Its per capita GDP is much higher than the Scottish average, and will remain so after independence.
  • The rest of Scotland believe we are "too wee and too stupid" to manage our own affairs. This is a shameful scare tactic, and we will show them how wrong they are.
We will seek friendly relations with our neighbours after independence, but we believe the time has come for a Republic of Edinburgh which can stand proudly as a free nation.

Beyond self-interest

One could argue over the details in the above manifesto, but the point is, Edinburgh could do very well as an independent city-state within the EU. It has the bulk of Scotland's finance sector, and world-class educational and cultural institutions.

With 849,000 people, Edinburgh and the Lothians have about 20% of Scotland's population. Edinburgh is growing, and projected to surpass Glasgow in population by 2035, but it will never be able to outvote the rest of Scotland put together. An independent Edinburgh could create a constitution which served its needs better than one which compromised with the rest of Scotland. On a cold-blooded financial evaluation, there is a strong case for Edinburgh to declare independence from Scotland.

It won't happen, though. (At least, it is exceedingly unlikely at this point.)

The reason is obvious: Edinburgh is united with Scotland. The historic, cultural, geographic, and family ties are too strong for Edinburgh to contemplate independence under any plausible conditions.

Economic self-interest cannot be the only deciding factor in whether to keep a country together.

Viability in numbers

The fact is, Scotland would be economically viable as an independent nation.

No one is seriously disputing this. Rival analyses from the Scottish and UK governments respectively claim Scots would be £1000 better off and £1400 worse off per year.

I won't break down these estimates in detail; but one thing certain about both is their uncertainty. From the BBC report:

The difficulty here is that it's almost impossible to know whether either figure is correct. When we're dealing with economic projections 20 years into the future, there is a huge amount of things that could make the figure go up or down.
If these figures did turn out to be accurate, what would it mean?

On Scottish Government figures which include North Sea oil, current GDP per capita is US$39,642, slightly higher than Finland ($39,160). The £1400 reduction predicted by the UK Treasury is roughly $2400. Subtracting gives a Scottish GDP per capita of $37,242. This is slightly higher than France ($36,933) and higher still than the UK as a whole ($35,671).

Under the more optimistic Scottish Government prediction, Scotland's per capita GDP would increase by $1700 to $41,342, a little above Belgium ($40,838).

The good and bad cases are, respectively, 4% rise or a 6% fall in GDP.

Threats and promises

Here is the dire threat from the No campaign: A standard of living comparable to France.

Here is the utopian tomorrow promised by the Yes campaign: A standard of living comparable to Belgium.

A little perspective is in order. No matter whose figures are correct, Scotland will be a moderately well-off northern European nation. It won't be Norway (per capita GDP $66,135) and it won't be Greece ($25,586).

What would it mean for an individual? The government will not hand over £1000, or confiscate £1400,  in cash for everyone in the country. There would undoubtedly be winners and losers. For all its problems, France maintains a more generous welfare state than the UK, and the SNP plans to do the same. Then again, an oil price crash would swing a wrecking ball through the SNP's financial plans, and inevitably bring cuts to welfare spending.

The value of your investment

The economic debate often sounds like a decision on how to invest a pension fund. On these assumptions, after twenty years, you might have this amount of money; but they are only assumptions and the value of your investment can go down as well as up.

It might as well be the fine print of an ISA. Both sides are playing up to a caricature, in which Scots are cautious, canny accountants who know the price of everything and value of nothing. (I know very well this is untrue, but you would hardly realise it from the referendum debate.)

No one knows exactly how the economy will develop. Those willing to make an informed guess, on either side, are not predicting a drastic change under independence. Of course the economy is important, but these predictions are of limited use for making a decision. Scotland's voters need something more than forecasts of a narrow loss or gain in economic activity.

The historic ties of Scotland to the rest of the UK are weaker than those of Edinburgh to the rest of Scotland; but they do exist. Are the bonds of shared history and institutions strong enough for Scotland to remain part of the UK, or are they not? This is a vital question, and no amount of sterile economic analysis will answer it.

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