The side favoring Scottish independence in next week's vote appears, at least for the moment, to have pulled even or slightly ahead in the polls, and this is sending the poo-bahs of British politics into a tizzy. On Wednesday, the BBC reported that the leaders of all three major political parties (Cameron of the Tories, Clegg of the Lib/Dems and Miliband of Labour) had made pleas for a "no" vote:
Prime Minister David Cameron said he would be "heartbroken" in the event of a "Yes" vote, while Labour leader Ed Miliband said the case for the Union came from the "head, heart and soul". [Cameron said:] "I care hugely about this extraordinary country, this United Kingdom that we've built together. I would be heartbroken if this family of nations that we've put together - and we've done such amazing things together - if this family of nations was torn apart."
Looks like it's time for a little contrarianism from the Manhattan Contrarian. On balance, I come out in favor of Scottish independence. I suspect it will be a good thing not just for Scotland, but also for the remainder of the U.K. and for the rest of the world.
Let's look at some background facts. You might think of Scotland as a poor backwater, but according to data here put out by the Scottish government, Scotland actually has a higher GDP per capita than the rest of the U.K., $39,642 versus $35,671. To be fair, these numbers include what they call "illustrative geographic share of North Sea [oil] output" in the Scottish figure. I don't think it's by any means a done deal that an independent Scotland is going to get allocated a big share of the North Sea oil revenue, but I also don't think that that skews the numbers all that much. Here is a briefing paper from something called Centre for Public Policy for Regions from April 2013 that analyzes Scotland and rest-of-U.K. per capita income excluding the oil, and concludes that the two are almost identical.
Although economically Scotland is not notably richer or poorer than the rest of the U.K., the politics of Scotland are dramatically different. The Tories rule in the U.K., but are almost non-existent in Scotland. According to Parliament's website, the current House of Commons has 650 seats, of which the Tories hold 304 and their coalition partners the Lib/Dems hold 56. Labour holds 256 seats, and all other parties hold 36. But in Scotland, Labour completely dominates. Of 59 MPs from Scotland, 40 are Labour, and the Scottish National Party holds 6. The Lib/Dems have 11, there is one "Independent," and that leaves exactly one seat held by the Tories. An excellent question is why the Scots vote for Labour in such overwhelming numbers. Analyses I have read of the subject trace Scottish support for Labour back to the 80s, when Thatcher pulled the plug on subsidies for Scottish heavy industry and refused to relent as most of it closed down. Today Scotland seems to have mostly recovered economically, but apparently they have not forgotten.
Whatever the cause, if Scotland suddenly pulled out of the Parliament, the Tories would instantly go to an absolute majority (304/591) without needing their Lib/Dem partners. Also, Labour would be very substantially hobbled in trying to gain control of the Commons any time soon. Given these facts, it is actually a fascinating question why Cameron and the Tories are so strongly against Scottish independence. When the BBC put this question recently to Cameron, he responded, "I care far more about my country than I do about my party."
Given their leftist political proclivities, you might think that upon independence the Scots would promptly go to a higher tax, higher spend government model, and try to put their socialist fantasies into effect. Maybe they will, but my bet is that they won't move far in that direction if at all. And if they do, they are so small that they are subject to the economic discipline of the market much more quickly than a larger country like the U.K. as a whole.
Would an independent Scotland set up its own currency? I would bet strongly against it. Having your own currency gives the government huge license to steal from the people, at least in the short run, by inflation or exchange controls -- think Argentina or Venezuela; but it also imposes big, big costs for acquiring imports and for international travel. The Scots are just too sensible to do this. But as soon as you don't have your own currency, then when you borrow, you must repay in currency that you can't print. This is the mechanism that keeps the U.S. states financially responsible (and would keep Eurozone states responsible if they didn't keep getting bailouts).
An independent Scotland could also theoretically run big deficits and get into economic "stimulus" in a big way after the fashion of an Italy or a Greece. But the funny thing is that the smaller a country is, the more obvious it becomes that this "stimulus" thing is a fallacy. In a place the size of the United States, when we run a deficit of a trillion dollars, nobody can really perceive who is paying for the massive income transfer to the government's cronies. Even in the U.K., with about 64 million people, they run annual deficits of 5 - 10% of GDP, and have a cumulative debt of almost 80% of GDP, without the people really being able to tell how destructive it is. But Scotland is only about 5.25 million people. Somehow countries of this size are among those with the most responsible economic policies and the best economic results. Think Switzerland (8 million), Singapore (5.4 million), Hong Kong (7.2 million), Norway (5.1 million).
At least according to what the leader of the Scottish National Party is saying, they have no intention of implementing dramatic changes in policy in a leftward direction. For example, asked recently at a debate about taxes, party leader Alex Salmond responded
"We don't have proposals for changing taxation. We certainly are not going to put ourselves at a tax disadvantage with the rest of the UK."
So I think the worst thing that would happen to Scotland would be that they adopt something of a "blue state" model akin to New York, Illinois or California, and then find themselves in a position of slow relative decline compared to their more dynamic, lower-tax colleagues to the south -- much like New York and California find themselves in relative decline compared to Texas. New Yorkers and Californians seem OK with that, but I think it's because the decline in New York and California is taking place out in the hinterlands where the smart set can't see it happening. Scotland is small enough that the Scots are likely to see it happening and do something about it.
And meanwhile, England will be freed of those 40 Scottish Labour MPs constantly trying to vote themselves subsidies with someone else's money. A frequently noted aspect of the Scottish independence debate is that Scotland is seeking to exit the U.K. even though Scotland is a net recipient of subsidies from the U.K. Here is David Boaz writing today in USA today:
Critics of independence often say that Scotland is subsidized by wealthier England. The analysis is controversial, but it does appear that the United Kingdom spends about £1,500 ($2,500) more per person in Scotland than it does nationally. If it is true, as many British conservatives say, that Scots are whiny subsidy-suckers, then take them off the dole.
Somehow, this makes independence sound like a win, win to me. The Scots get their independence and the English don't have to subsidize them any more. And the English get a more conservative government at least somewhat likely to spend less money on foolish subsidy schemes.