After Brexit: Pouring Cold Water on Scotland’s Dreams
An independent Scotland within the EU risks becoming Greece, but without the handouts. Its living standards would rapidly descend.
March 23, 2017
In general, I am in favor of self-determination for small nations. However, in today’s world, it has become more difficult for small nations to be economically self-sustaining. As a result, they pretty much need to be a member of a larger grouping.
It needs to fit
The problem is to find a grouping that is large enough, crosses no cultural fault lines, yet offers an adequate measure of influence over the central bureaucracy to preserve rights, freedoms and local culture.
How then to think about Scotland’s First Minister Nicola Sturgeon’s proclamation on March 13, 2017, that yet another independence referendum would be needed for Scotland?
With all due respect for her ambitions, she is very likely going to be the example of a self-determination movement that may have gone too far.
If a referendum is held in the first half of 2019 (when the terms for the British Brexit are known), there is a good chance that Scotland will vote for separation from Britain and reunion with the EU.
Oil is no help any longer
From the viewpoint of the ordinary Scots’ living standards, that will be a major mistake. Scotland’s oil, which appeared to be a major money-spinner at the time of the 2014 referendum, today yields very little in revenues to the government.
After all, the relatively high production costs of the old fields in the North Sea are close to today’s oil price.
Political dreams vs. budgetary realities
Moreover, the Scottish budget, considered on a stand-alone basis, is in deficit — to the tune of about 9.5% of GDP. Even if Scotland were allowed to break away from the UK without assuming a proportionate share of UK debt, it would run into budgetary and debt problems very quickly.
There are two further problems that would make an independent EU-member Scotland’s future a grim one. The first concerns the quality of government.
The Scottish nationalists have shown a tendency to overspend and award themselves social programs that would meet less resistance from Brussels than it has from London.
Second, since Scotland would enter the EU as a relatively rich member, it would benefit from only modest subsidies from the EU’s various slush funds.
Even if Scotland tried to make a case that it needed special help after Brexit (and then presumably independent), the other poorer members of Eastern and Southern Europe would unite to make sure that its budget and subsidy position would not in any fashion tap into their take.
Another Greece, but without the handouts?
Given those problems, an independent Scotland within the EU would be Greece without the handouts; its living standards could rapidly descend to below those of Portugal and Malta toward those of Romania and Bulgaria.
While this assessment may sound harsh, let us not gloss over the fact that, as bucolic as much of Scotland is, it is generally badly run. It is also largely an agricultural economy, without much in the way of world-scale industries.
Small countries can usefully join free trade areas of any size, provided all the economies in the FTA are of relatively equal capabilities and living standards.
That is probably their best destiny. If the EU had remained a simple free trade area, small countries like Scotland could prosper within it.
However, once an association of nations is more than a free trade area, its governance becomes critical to the economic health of countries within it.
Scotland’s somber financial history
The Act of Union in 1707 was a telling indication of Scotland’s inability to operate on the basis of balanced accounts.
The bailout by England which the Union Act represented at the core, was in the long run helpful to Scotland.
Why? Because it subjected it to the more economically sophisticated government of Great Britain (even if much of the sophistication was provided by Scotsmen like Adam Smith.)
Extracting a pretty pound
Initially, however, the benefits for Scotland from better government were modest. In essence, the rip-offs by better connected English institutions were considerable, and the resulting resentments were ferocious.
Daniel Defoe, who had been an active supporter of Union in 1707, was surprised when he toured Scotland in 1724-25. Many previously prosperous areas such as Galloway had fallen on hard times.
Meanwhile, the Highlanders were so resentful of the English that Defoe was forced to pretend to be a Frenchman, a much more acceptable variety of foreigner at the time.
Only in Glasgow were there signs of increased prosperity. The Glasgow merchants of the era were making a very good business with the American colonial market, which the Act of Union had opened up.
Nevertheless, after the spasm of the 1745 Jacobite rebellion, Scotland became steadily richer and more important within the British political system. In fact, the Earl of Bute (1762-63) was only the first of several successful Scottish Prime Ministers.
EU: Not a way out for Scotland
No such success is likely for Scotland within the European Union. Scotland is far too small to have any significant effect on EU decisions, which will be taken without regard to its interests.
It stands to reason that, after independence, the ambitious and capable will leave Scotland, to make a life either in wealthy Germany or in familiar and welcoming Britain.
Scotland within the EU would be Greece without the handouts; its living standards could descend to the level of Romania.
Even if Scotland separated from the UK without assuming a proportionate share of UK debt, it would run into budgetary problems.
Scotland is too small to have any effect on EU decisions, which will be taken without regard to its interests.