The Financial Implications of Independence for Scotland

There was much in the press yesterday concerning a recent study that showed the top issue that voters were concerned with was the financial outcomes of an independent Scotland.  Unsurprisingly, what matters most to people is how independence will effect their pocketbooks.

See the BBC here, the Guardian here and The Scotsman here

I can’t for a minute call out any of these state- or corporate- owned news agencies for being balanced. There is clear bias but for the most part these articles report the facts in this instance and give us both sides of the story. This news is indeed timely for the Academic Entrepreneur as the crux of my argument is that innovation policy and programming, combined with sound strategy, will increase productivity and GDP per capita far above that which is currently being realized in a country. However, the key of course to winning votes is the keen articulation of such, and first the policymakers themselves must grasp the concepts and have at least a base level understanding of the processes and potential for the mining of knowledge and translation of this into innovative products and services as well as the creation and growth of new research- and technology- based ventures.  Currently the voters are running scared over the financial risks of an independent Scotland. There is much fear about and the issue is murky.

Reading through the First Report by the Scottish Government’s Fiscal Commission Working Group – by “a group of renowned international economists, including two Nobel Prize winners”, it is clear that Scotland will be able to stand on her own economically as an independent nation-state.  The report is thorough enough and has some pertinent data points that I’ll be using in further writings. However, I don’t agree with all of its conclusions and assertions, and think it needs further scrutiny before being followed by future policymakers. (For starters, I find the currency argument and assertion of a ‘Sterling Zone” to be quite Luddite and shortsighted. There is room for innovation in currency, including the use of technology and electronic currency, and also for sounder money. Simply yielding to the Bank of England and its printing press and manipulation of interest rates falls short of the potential for a truly world-changing, example-setting monetary policy in the new era. Enough on this for now as it will be the topic of another post for currency and monetary policy is a key lever in driving innovation, growth, and ultimately the economic advancement of many in a society).

Can Scotland afford to be independent?  For more see the “Yes” campaign –  First Report by the Scottish Government’s Fiscal Commission Working Group – a group of renowned international economists, including two Nobel Prize winners.  The link can be found here:  The Yes campaign has answered the question here  (buy it or not).  We’ll also be discussing the counter arguments as well, again, in future writings.

Is a smaller nation-state more powerful by itself than as a piece of a larger puzzle?  That is really the question that should be asked, isn’t it however? 20 years ago Futurist John Naisbitt in perhaps his most underrated work “Global Paradox” explained the fragmentation of nation-states and the decentralization forces that would be at work in the world. We are just now beginning to see this trend take shape on the globe, and Scotland is but one example of the move towards independent nation-states, decentralization, and fragmentation. For a review of the book please see I have provided an excerpt of this review by Scott London below.  As did the technology revolution, this change will be massive and will be met with a lot of resistance.

The major new trends in global economics, politics, and social life all point toward a “global paradox,” according to John Naisbitt — “the bigger the world economy, the more powerful its smallest players.” As the overall system grows in size and complexity, the importance of the individual parts increases in direct proportion. This apparent contradiction is at work in both business and politics, he says. To survive, big companies today are decentralizing and restructuring. Many have discovered the increased efficiency and effectiveness of lateral rather than vertical organization — networks of autonomous units rather than formal hierarchies. Similarly, as the world economy gets larger, the component nation players become smaller and smaller.

By way of example, Naisbitt describes the political and economic imperatives underlying the break-up of the former Soviet Union, Czechoslovakia, and Yugoslavia, as well as the push for national sovereignty that has characterized such states as Andorra. While economic and technological forces have weakened the traditional nation-state, he maintains that they have strengthened, not separated people from, longstanding identities of language, culture, religion, and ethnic heritage. Paradoxically, “the bonding commonality of human beings is our distinctiveness.”

Both of these trends, universalism and tribalism, are supported by technological advances in electronic communications, according to Naisbitt. Telecommunications are the driving force that is simultaneously creating the new world economy and making its parts more and more powerful. We are moving in telecommunications to a single worldwide network of information networks, with everything linked to everything else, he remarks. This change has important consequences for democracy worldwide — it can be likened to the shift from sluggish, centralized mainframe computers to interlinked PCs. “As the power and reach of the communications infrastructure expands, the tools needed to harness that capability shrink.”

Consequently, the idea that the central government — “one huge mainframe” — as the most significant part of governance is obsolete, he says. In fact, traditional representative politics is coming to an end for “now citizens who live in representative democracies have the power to radically decentralize and to evolve into direct democracies.””

-Scott London on John Naisbitt’s book “Global Paradox” 1994

Following Naisbitt’s logic, Scotland will “decentralize itself” from the UK not only to realize a more democratic society, but also to harness its full potential as an economic actor. Thus, the people of Scotland will be better off in the long run as benefactors of a more productive economy.  Viewing the prospective of Scottish Independence in this light let’s us see that it’s not just about a component of the UK wanting to separate itself, but more about global forces at work, and the continuance of a trend we are witnessing the world over.  Smaller actors are actually more powerful. Where there was formally synergy there now is stagnation and the natural response will be decentralization, through democratic methods (hopefully) and unfortunately in other situations through force.

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