Against expectations, the Chancellor’s visit to Glasgow last week was a success. Speaking to a gathering of Scottish business leaders, and armed with a hefty new Treasury report, George Osborne set-out a detailed critique of SNP plans for Scotland to retain the pound after independence, a key feature of the nationalists’ 2014 prospectus. But framing his specific warnings about the pitfalls of a "Eurozone-style" monetary union was a broader attack on the economics of separation: the size and scale of the UK’s economy shields Scots from the "rapids of globalisation" – leave it and Scotland could be exposed to ameltdown of Irish, Greek or Cypriot proportions. This is a powerful line, repeated with brutal efficiency by unionist campaigners. The problem, however, is that it simply doesn’t stack up. In fact, Scotland’s vulnerability to global economic shocks is amplified by its continued membership of the UK.
Two recent reports – The Mismanagement of Britain by the Jimmy Reid Foundation and The British Growth Crisis by the Sheffield Political Economy Research Institute (SPERI) - shatter the notion of British economic strength. The former, written by Scottish economist Jim Cuthbert, out-lines the long-term decline in the competitiveness of the UK economy. Cuthbert argues that the growing deficit in the UK’s trade in general goods and services from the 1970s onwards was disguised first, in the ‘80s, by high North Sea oil tax receipts and then, during the ‘90s, by revenues from an increasingly dominant financial services sector. The underlying deficit became more pronounced as successive Westminster governments, Conservative and Labour, allowed Britain’s manufacturing base to erode. Ultimately, this made the British economy over-reliant on a handful of large financial institutions operating at the heart of the international financial system.
In The British Growth Crisis, Professor Colin Hay explains how Britain, as one of a group of deregulated economies including the United States and Ireland, felt the effects of the 2008 crash earlier and more powerfully than other Western states with smaller and less globally integrated banking sectors. As the crisis developed, spreading out from its Anglo-American epicentre, international trade went into free-fall. This tightened the squeeze on British manufacturing, which by now was in no condition to prop-up the UK’s public finances as they grappled with recession. The subsequent loss of taxable economic activity, as well as the huge cost of the bank bail-outs, sent the economy into a prolonged slump and precipitated an explosion of British debt.
Coupled with Osborne’s austerity strategy, the structural imbalances in the British economic model described by Cuthbert and Hay account for the severity of Britain’s downturn (the worst since the 1930s) and the weakness of its recovery (the slowest on record). While growth is beginning to return to France, Germany and even the US, the UK remains more or less stagnant. None of this happened by accident. It was the result of decisions taken by two or three generations of British political leaders which viewed state intervention in the market as a barrier to prosperity. The consequences for Scotland, which has one of the worst social records in the developed world, have been profound. Scots might be entitled to feel doubly aggrieved given the origins of the current crisis lie, to some extent at least, in the liberalising policies of the Thatcher governments they repeatedly rejected. That Scotland’s oil wealth was used to fund the implementation of a number of those policies only adds insult to Scottish injury.
Yet, despite the efforts of the pro-independence left, the threat to Scotland’s economic security posed by British financial instability does not feature as heavily in the constitutional debate as it might. This is because the SNP, for both political and ideological reasons, accepts much of the neo-liberal settlement which has dominated British public life for more than three decades. The clearest illustration of this can be found in the party’s support for the current UK-wide system of financial regulation (described by SNP finance secretary John Swinney as a "solid framework") to remain untouched following the break-up of the Union – a position which reflects the closeness of Alex Salmond to Scottish finance capitalism over recent years. The SNP’s controversial commitment to cut corporation tax provides further evidence of its free-market tendencies.
The political significance of the nationalists’ economic conservatism was laid bare last week, widely (and correctly) perceived as a particularly bad one for the Yes campaign. The economic case for independence should be among the SNP’s strongest cards: the British laissez-faire experiment has proved a spectacular failure, leaving ordinary Scots facinga futureof falling living standards and deteriorating working conditions. Moreover, what remains of the Scottish welfare state - protected from the most radical of New Labour’s reforms by devolution – has come under sustained assault by an unpopular Tory-led government determined to turn a crisis of neo-liberalism into one of social democracy. But, in its current state, the SNP can’t make any of this work to its advantage.It may require some awkward policy U-turns and a degree of ideological repositioning, but Salmond has to start explaining just how serious a hazard the UK represents to Scotland’s economic health.