The problem of Scotland

I assume and hope that Scotland will vote to maintain the union on September 18. I am, however, sceptical of the barrage of claims that Scotland will either be necessarily better or worse off if a majority vote “Yes”.

Countries have grown at hugely different rates in the past. Chart one (below) shows the relative growth rates in terms of gross domestic product per head of Ghana and South Korea. In 1950, when the data series starts, the standard of living of Ghanians was 30 per cent higher than those in South Korea, but the latter were ahead by 1965 and, by 2008, when the data series ends, had living standards twelve times higher.

The differences did not lie in natural endowments. Ghana’s gold and cocoa, more recently supplemented by oil, were probably superior to anything that South Korea had to offer. I doubt whether the subsequent divergence was expected or, indeed, could have been forecast. The key to South Korea’s success and Ghana’s failure almost certainly lies in government policies, though perhaps South Korea also had an edge in its level and attitude to education.

Despite my natural Anglo-Welsh prejudice, I doubt whether differences in education will have much impact on any future divergence in growth between North and South Britain; nor will natural endowments. If Scotland and England have significantly different growth rates in the future, it will almost certainly be due to differences in economic policies.

Scotland is unlikely to vote for independence but, as many people have pointed out, this will be only the beginning of the problem. All parties seem to agree that there will be more devolution of powers, probably to Wales and Northern Ireland as well as Scotland, after the next election. This will bring up once again the so-called West Lothian question, which asks why MPs from, say, West Lothian, should be allowed to vote on issues affecting England, if English MPs are not allowed to vote on them in Scotland.

So far the problem has simply been ignored, but this is unlikely to continue. Either MPs from Scotland will not be allowed to vote on English issues, or there will need to be some regional or national English assemblies. Preventing Scottish MPs voting on English issues is organisationally the simplest solution, but it’s politically complicated. It is quite likely that in the 2015 election Labour would be elected to government, but with a minority of English seats. Legislation on issues which are devolved would therefore require negotiations and compromises between the government and the party with the majority of English seats. Politics are, however, all about such compromises, particularly so when we have coalitions.

Labour are, however, likely to try and prevent this solution as it will raise the profile and importance of the English majority party. As Scotland has a government, England must have one or several. If there is only one, it is likely to be a Conservative government. I therefore expect Labour to prefer to have several, as this would dilute the attention given to a unitary English one and, even without much gerrymandering, would allow semi-permanent Labour majorities in some of the regional assemblies. The problem here is that the English have consistently shown a dislike for this solution. It is therefore likely that Labour would not be able to push it through parliament without using the votes of non-English MPs; an undemocratic approach which would be, I hope, too shameful for Labour to contemplate.

The power to tax and spend is among the proposed powers whose devolution is likely to be extended and these involve decisions with economic importance. Whatever the result of the vote on Scottish independence, devolution is likely to have an impact on the economy of both the UK and its constituent countries.

Economic policies involve both dividing the spoils and seeking to enlarge them. The latter is by definition a positive sum game, while the former has historically produced zero to negative sum results. The rewards from seeking a larger share of the cake are greatest for small groups and it is therefore usual for small and relatively poor regions to see more mileage in zero rather than positive sum games. It has therefore been natural for Scotland to have a dependency culture, seeking to extract wealth from others rather than concentrating solely on growth. But the more power it has devolved to it, the greater will be the attention placed on growing the Scottish pot, compared with grabbing a larger share of the UK’s total.

I wrote recently about the likely swing to the left that economics as well as politics is likely to encourage after the next UK general election. Longer term, however, devolution is likely to cause a shift in the other direction, both in Scotland and England. In Scotland this will come from a change in view resulting from a change in circumstances, and in England from the devolution of power to voters with a more right wing political culture.

Scotland is anti-Thatcher. The stated objections to Thatcher are that she was nasty and divisive. But the Scottish admire divisive people such as Nye Bevan, who called Conservatives “vermin”, Arthur Scargill, who aimed to bring down an elected government and succeeded in bringing down an industry, and Alex Salmond, whose style is often divisive and his aim always. The real objection to Thatcher is that she seems to have been right and her opponents therefore wrong. Her economic policies were aimed at increasing the pot rather than worrying about its division. If, as I expect, devolution weakens Scotland’s dependency culture, its government will shift in this direction. It will be fascinating to observe Scotland becoming more Thatcherite while pretending not to do so. Thatcherite policies will have to be relabelled, but this will be easy for good marketing men and, if you are in politics and not good at marketing, then you are in the wrong job.

Doubts about the result of the referendum could have a beneficial impact by depressing sterling. Journalists reaching for their clichés will be able to write that “markets have been roiled as they abhor uncertainty and the exchange rate is the elephant in the room”. (Roiled is a word which seems to be regularly employed by financial journalists, but few others.) As Sam Goldwyn said “Let’s have some new clichés”.