Simon Wres-Lewis wrote a hypothetical Wikepedia entry for David Cameron. The entry is far from charitable: his government is not even able to keep the UK in the European Union, with opponents campaigning under the slogan: ‘If Scotland can do it, so can we.’
This post summarizes how some of the best people I read characterized Scotland’s prospects after the referendum.
What do US-based academics think?
A panel of respected economists was asked whether it agreed with the following statement:
“Although there are many issues for Scotland’s voters to consider, one consequence of separating from the rest of the UK would be greater macroeconomic instability for Scotland for many years.”
62% of economists on the panel agreed:
- Barry Eichengreen summed up his views as follows: “Many reasons to be uncertain, but lack of established CB [central banking] institutions and the drawbacks of the euro & sterilization are reasons to agree [that instability would increase].”
- Anil Kashyap: “Splitting = extreme economic pain: sharp budget adjustment needed, big monetary challenges, big financial risks, they’re ‘better together’”
- Oliver Hart’s response is closest to what I would have said: “The main uncertainty concerns whether Scotland retains the pound (bad idea) and stays in Europe (good idea). Once resolved things may be OK.”
- Robert Shimer qualified his agreement with the statement: “Change creates the potential for instability, but a floating currency with good governance could be stabilizing”
- Steven Kaplan: “Instability high initially, but could force left-leaning government to govern more effectively. In medium run, may be better for Scotland.”
Not a priori opposed to a separation
- Abhijit Banerjee, who said he was uncertain, said: “It depends on the exact institutional details of the separation.”
- Caroline Hoxby said it would come down to the policy trajectory: “Short-term uncertainty would be high, yes, but “many years” depend on choosing sound policies for real growth.”
- Nancy Stokey: “Not obvious why fluctuations would be greater. It depends also on what happens to the currency and what happens with the EU.”
It is not just the economists observing the issues from a safe distance — when asked “Do you agree that that Scotland would be better off in economic terms as an independent country?” the majority of the respondents in The Centre for Macroeconomics survey gave a negative answer.
Warning about a “yes” vote
- John Aziz reminds us that: “E.U. membership would require that Scotland join the eurozone and adopt the euro. … [P]ost-independence, the Scottish government would have to choose between two key promises they have made: whether to keep the pound and abandon the European Union, or jettison the pound for the euro and join the E.U.” Moreover, membership in the eurozone would would be inconsistent with the promises to increase public spending — Aziz says that voting yes equals: “committing not only to austerity now, but under the terms of eurozone membership, austerity forever.”
- Deutsche Bank chief economist David Folkerts-Landau called the desire for separation “incomprehensible” (full report). The report concludes that: “The economic and financial arguments against independence are overwhelming. … Scots have benefited from the sharing of fiscal and monetary risk. To end this relationship is simply a wrong turn.”
- Then there’s Joseph McDonnell: “If Bank of England continues to support a Scottish Pound as lender of last resort then that is not independent” (source).
- James Forsyth opines: “The Scots could vote to end the greatest, most successful union in human history next week”
- Frances Coppola tweets:: “Scots are only EU members by virtue of being part of the UK. Leave the UK, you leave the EU. … temporarily, admittedly. Scotland has to apply for membership as a new state.” (here and here)
- Adam Posen warns:
The claims that such [economic, social, and political] integration will be undiminished after independence are absurd – and this isn’t just about losing the pound. The integration between Scotland and the rest of the United Kingdom enjoyed today is what people around the world in small economically vulnerable countries dream of having.
Wren-Lewis leans against, on fiscal grounds:
for me the evidence that Scotland will be worse off for at least the first decade of independence seems pretty clear [post 1]
There are many laudable reasons to campaign for Scottish independence… [but the] more I look at the numbers, the clearer it becomes that over the next five or ten years there would more, not less, fiscal austerity under independence. [post 2]
Martin Wolf predicts a messy divorce:
From the moment of a Yes vote, the UK government will have next to no interest in the welfare of the Scots. But, until Scotland has become independent, the UK government will represent it in international negotiations. At the same time, it will be negotiating on behalf of the rest of the UK’s interests, against Scotland. Divorces are always difficult. But rarely is the abandoned party asked to represent the interests of the departing.
Finally, Paul Krugman sent the following message to the Scots:
Be afraid, be very afraid. The risks of going it alone are huge. You may think that Scotland can become another Canada, but it’s all too likely that it would end up becoming Spain without the sunshine.
Could Scotland have its own currency? Maybe, although Scotland’s economy is even more tightly integrated with that of the rest of Britain than Canada’s is with the United States, so that trying to maintain a separate currency would be hard. It’s a moot point, however: The Scottish independence movement has been very clear that it intends to keep the pound as the national currency. And the combination of political independence with a shared currency is a recipe for disaster. Which is where the cautionary tale of Spain comes in.
I find it mind-boggling that Scotland would consider going down this path after all that has happened in the last few years. If Scottish voters really believe that it’s safe to become a country without a currency, they have been badly misled.
Speaking for independence
Joseph Stiglitz starts his op-ed by warning that the UK may end up leaving the European Union soon:
Would Scotland, going it alone, risk a decline in standards of living or a fall in GDP? There are, to be sure, risks in any course of action: should Scotland stay in the UK, and the UK leave the EU, the downside risks are, by almost any account, significantly greater.
He then speculates that Scotland is bound to choose different — and indeed better — policies, if it is independent:
But the Scottish vision and values are different from those dominant south of the Border. Scotland has free university education for all; England has increased student fees, forcing students with parents of limited means to take out loans. Scotland has [also] repeatedly stressed its commitment to the NHS [unlike England].
Deliberate economic pain?
While Stiglitz made the case that a separation can be good for the economy, others have speculated that many Scots may willingly give up some economic comfort in exchange for greater autonomy.
When Alberto Alesina was asked whether independence was likely to bring instability, he answered that “more instability may be a price worth paying for independence.”
Similarly, Neil Irwin believes that the vote comes down to economic vs. cultural motivations:
Among democracies, the march has been toward greater scale and reach, at the cost of less distinct national identity.
If Scotland chooses to go independent, it will shed the advantages that come from being part of a relatively large global power … for the chance to be governed by people with whom they share a deeper cultural affinity.
He adds, almost approvingly, that “it’s a lot easier to give up that autonomy when you are giving it to people who look like you and talk like you.”
Consider a case from two decades ago: when Czechoslovakia split into two countries, it was clear that the underdeveloped Slovak territory would be in an inferior position after the separation. Still, I found this somewhat representative quote from a Slovak citizen on Quora: “I was aware that the separation would have bad economic impact on Slovakia, but that was a price I was willing to pay for getting the nation mature without (often offensive) mentoring from the “older brother”.”
Are the economic costs actually known?
Wren-Lewis is concerned:
If Scotland wants to make a short term economic sacrifice in the hope of longer term gains and political freedom that is their choice. But they should make that choice knowing what it is, and not be deceived into believing that these costs do not exist.
Jeffrey Sachs argues that the costs are unknowable at this point:
The key point is that the costs of separation are a matter of choice, not of inevitability. They would depend mainly on how the RUK [rest of the United Kingdom], the EU, and NATO decided to respond to a Yes vote, and how moderate a newly independent Scotland would be in its negotiating positions.
A non-economic perspective
From Nick Cohen:
The best reason for voting “No” has nothing to do with pounds and oil. If Salmond wins, the people who want to check accents and bloodlines will everywhere be strengthened. Britain has had few successes recently but one has been pushing to the margins the small-minded obsessives who want to ask whether you are ‘really’ English or ‘truly’ Scottish.
People often vote “yes”
The Guardian published this remarkable chart. It shows that, in most cases, the margin of victory was large:
The chart raises a troubling question: how will people in Scotland and the rest of the UK react if 50.2% of the voters say they want a fundamental transformation of its political institutions?
We shall see tomorrow whether this parody account was wrong…