How Scottish trade unions are shifting in favour of independence

The SNP could use Labour’s promise to maintain coalition austerity policies to increase union support.

In 1968, Mick McGahey, president of the National Union of Mineworkers in Scotland, attacked nationalism, an increasingly prominent force in Scottish politics, as a bourgeois deviation from the class struggle: “[The Scots are] entitled to decide the form and power of their own institutions,” he said at a specially convened trade union conference on devolution. “But Scottish workers have more in common with London dockers, Durham miners and Sheffield engineers than they have ever had with Scottish barons and landlord traitors.” The belief, expressed here by McGahey, that working class interests are indivisible across the United Kingdom was deeply embedded in the British organised labour movement throughout the 20th Century, and no more so than between the late-1940s and mid-1970s when Britain was at its most identifiably social democratic.

Today, the post-war welfare consensus has been shattered by more than three decades of Westminster-led neo-liberal reform, while trade union influence has diminished under the weight of Thatcher-era constraints. Moreover, the nationalism McGahey so forcefully denounced holds the reins of power in devolved Scotland and - current polls aside - stands a realistic chance of breaking-up the British state in next year’s independence referendum. In the midst of all this, Scottish trade unionism faces a difficult choice: to reaffirm its traditional commitment to the UK or abandon a British political system which seems exhausted of all radical potential.            

Few people are better qualified to assess that choice than Dave Moxham, deputy general secretary of the Scottish Trades Union Congress (STUC), an umbrella body representing 37 affiliated trade unions and 630,000 workers across Scotland. Speaking to the New Statesman recently, Moxham explained the challenge the constitutional question poses his organisation: “The constitution stands apart from things like workplace protection because people don’t become trade unionists in order to win independence or stay in the UK. If we were to declare for a Yes vote or a No vote, we’d be projecting a complicated dynamic in binary terms. Where would that leave those constituent unions who voted differently?”

The STUC has a long history of support for devolution. In the 1970s it argued for the creation of a Scottish workers assembly and, two decades later, was instrumental in delivering the Holyrood parliament. For a while, it looked as though it might play a similar role in the independence debate, campaigning alongside other civil society organisations for a multi-option ballot. But the UK parties vetoed this, leaving the STUC reluctant to rush into an endorsement of any one constitutional position: “Initially, there was an assumption that the civil society alliance which emerged in the ‘80s and ‘90s over devolution might re-emerge”, Moxham said. “But the consensus which existed then is now more evenly split between [opposing] positions. Because of this, we’re not prepared to make up our mind until a series of key concerns have been addressed.”

These concerns were articulated in a detailed report - A Just Scotland - the STUC published last November. The report calls on the debate’s main protagonists to outline how their preferred constitutional settlements might improve life for working class Scots. Referring to the widespread support for a more powerful Scottish parliament which exists among anti-independence trade unionists, it also challenges Scottish Labour to produce bold proposals for the next phase of devolution, something Moxham believes is crucial: “Labour desperately needs to change if it’s going to regain its historical position in Scotland. This means bringing forward a positive vision and sweeping away all the pejorative language it has been using about, for instance, Scotland’s finances [outside the UK].”

Nonetheless, Scottish Labour’s relationship to the unions could have a substantial bearing on outcome of the referendum. Many women and public sector workers – two core constituencies in the referendum battle – are members of major unions, like Unison and Unite, which are still formally affiliated to the party and maintain relatively close links to its leadership. Without high levels of support from these groups, it will be extremely hard for the SNP to secure a majority for independence, not least because Scotland’s professional classes have remained steadfastly opposed to separation for decades.

At the same time, there is little doubt Labour’s sway over the unions has weakened. Not long after the STUC refused an invitation to join Better Together, the pro-UK campaign vehicle, the second largest branch of the Communication Workers Union (CWU) in Scotland, which represents Edinburgh, Stirling, Fife and Falkirk postal workers, voted to back independence. The CWU branch vote echoed a 2010 poll conducted by the Scottish Fire Brigades Union (FBU), which showed more than half its membership favoured secession. These developments reflect an underlying trend in Scottish politics: that of natural Labour supporters gradually switching to the SNP at Holyrood elections.

Cross-border ties between unions, which for so long helped cement solidarity among Scottish and English workers, also seem to have deteriorated over the last ten or twenty years. The onset of devolution and the transfer of control to Edinburgh of, among other things, transport, health and education policy, created a new layer of state power with which Scottish branches of British unions had to negotiate, reducing their reliance on larger, Westminster-focused, UK-wide structures. The recent statement of support for Scottish independence by Rail, Maritime and Transport (RMT) boss Bob Crow - not to mention the conspicuous failure of Mark Serwotka, general secretary of the Public and Commercial Services union (PCS), to speak out against it when last given the chance - has added to this sense of divergence.

There are powerful political dynamics at work here too. Scottish Labour leader Johann Lamont’s speech last September questioning the sustainability of universal benefits in Scotland established a clear ideological divide in the referendum campaign, pitching the SNP’s more conventional approach to social democracy against Labour’s Blairite demands for greater means-testing. This contrast has grown sharper still since Deputy First Minister Nicola Sturgeon – the most prominent centre-left voice in the SNP leadership - assumed control of the nationalists’ referendum strategy at the end of 2012. Given the severity of the coalition’s public spending cuts, worsening material inequality and the continued presence of nuclear weapons on the Clyde (something the STUC strongly opposes), it’s easy to see why, for large numbers of Scottish trade unionists, the appeal of London rule is beginning to wear thin.

Of course, scepticism about the likelihood of independence transforming Scotland into some sort of “progressive beacon” persists. At a recent seminar of the Red Paper Collective, a left-wing devolutionist group with close links to the unions, delegates cited the over-reliance of the Scottish economy on international finance capitalism, as well as its high levels of foreign ownership, as evidence that self-government will not lead to a revival of socialist politics. The neo-liberal streak in SNP economic policy also featured heavily in the Collective’s critique and, according to Gregor Gall, professor of industrial relations at Bradford University, represents a significant factor in the shaping of trade union attitudes to the national question: “The potential for unions to support independence on the grounds of social justice and workers’ rights is undermined by the SNP’s overtly pro-business agenda”, he told the New Statesman. “In order to win unions away from Labour, it will have to become more radical and reject the neo-liberal model.”

The opposition of organised labour in Scotland to separatism, formed over decades of shared struggle with workers across Britain, is less intense today than it was during, for instance, the mid-20th Century, when Mick McGahey presided over the Scottish NUM. A pragmatic assessment of the likely risks and benefits of independence –rather than political conviction or ideology –now tends to inform the response of Scottish trade unionism to the nationalist challenge. To whose advantage will this work in 2014? Professor Gall thinks the answer depends on how effectively the Yes campaign employs the language of social democracy to frame its case for self-government: “The basis of union support for independence exists because it is under the British model that the welfare state has been continually attacked. The SNP could use Labour’s promise to continue coalition austerity policies, albeit at a slightly slower rate, as a way of opening the door to the unions. But it will take boldness and political foresight to grasp this opportunity.” 

Pro-independence graffiti is written on the gable end wall of a derelict cottage in Bannockburn, Scotland. Photograph: Getty Images.

James Maxwell is a Scottish political journalist. He is based between Scotland and London.

Getty
Show Hide image

We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?