No More Branch Office

One of the good thing about unionists  is that they’re committed. And when the more thoughtful ones—of which I cheerfully admit there are many—pester you with questions, they are often questions deserving of not just an answer but a fair bit of pondering and self-examination in order to supply that answer.

One such epiphany happened this week on Twitter, when a particularly terrier-like series of questions revolved around the presumption that Scotland would do better on its own just ipse facto, quite apart from any other factor. That wasn’t quite what I had asserted. I had been claiming that Scotland was, on balance, prospering even now:

“Taken as a unit, all of it is: Tower Hamlets is a basket case but next-door Canary Wharf & the like make London boom.”

But this wasn’t good enough for my correspondent:

“The parts not engaged in successful industry are not doing so well. Edinburgh & Aberdeen prosper. I’m more of a Michael Porter / John Kay kind of guy. The focus should be on industries & regions rather than national borders.”

This is a thought-provoking point. Do we, in our political fixation with where laws and cultures run, get fixated on boundaries that make little sense in a global economy where raw materials, factories and customers are scattered across the globe. The Nation State is dead: long live the Multinational?

Back in the Seventies, I read The Sovereign State of ITT, a non-fiction portrait of how Harold Geneen created a continent-spanning monster out of the non-American segment of AT&T. Back then, it appeared only a matter of time before GM, IBM, Macdonald’s, Disney and other darlings of Wall Street took over the Third, as well as First, World. Now I don’t believe my correspondent was necessarily a fan of such philosophy but he did dismiss the relevance, if not the importance, of sovereign states.

But I would contest that. While there are certainly enough cases of states running their own affairs running them into a wall, this is not the norm. Certainly Africa offers a rich suite of examples how not to run a country and other parts of the world are no better. Mighty and elusive though multinationals may appear, there are sharp limits to what they can achieve without the active co-operation of the countries in whom they do business. Entire sectors get nationalised, tax regimes are adjusted and it’s not at all clear that multinationals do have the whip hand.

But let’s look at how well sovereign states do as units to better the lot of their inhabitants. You might think that most countries in a demographic grouping, such as Europe would do pretty much the same, with the ‘big’ countries dominating, the odd specialist like Switzerland alone being able to break the mould of ‘big is better’. You’d be wrong.

Taking a long view to iron out the vagaries of war, recession, oil shocks, etc, let’s look at European countries from a GDP purchasing power parity perspective (PPP—an accepted way of comparing economic apples with apples). The chart below is pretty self-explanatory.

Source: Contours of the World Economy, 1–2030 AD and Index Mundi http://www.indexmundi.com/g/

This provides an interesting picture. Major European countries have done well for their citizens, providing GDP growth of 1000% and more over the century. The UK is actually the worst at 879%, this can be explained by the UK being the world’s largest economy at the time and therefore other countries’ later growth would be likely to exceed it.

Most interesting of all are the countries that barely existed 100 years ago. Norway had just recently asserted its independence from Sweden in 1905; since then it has come on a whopping 4,409%. Finland would break from being a province of Imperial Russia during the mayhem of their revolution in 1917, after which it has managed 3,030% growth.

But the star performer is Ireland. After being a surly and fractious component of the United Kingdom for 121 years, it was granted independence in 1922 by an ill-tempered still-imperial/imperious Britain that sought to retain Ulster and thereby kept the most surly and fractious component.

Ireland did not prosper in its early years. Having little industry and few obvious natural resources, it suffered endemic migration of its best and brightest for over a generation until they joined the EU and played a shrewd hand of being an English-speaking manufacturing and distribution hub within the EU boundaries that played to those same multinationals we discussed above.

The rest, as they say, is history. Since the 1980’s when Ireland wrong-footed a slew of British development agencies at this game, in the 30 years since they have caught up with and surpassed anything other countries have achieved in a century with an out-of-the-park score of 10,100%.

While none of the three top countries and necessarily templates for what Scotland could achieve post-2014, it is up to the unionists to explain how staying a part of Britain slices  to 1/10th the growth in wealth that the people of Ireland experienced by leaving—not staying—in this Union.

About davidsberry

Local councillor, tour guide and database designer. Keen on wildlife, history, boats and music. Stood for the Scottish Parliament 2011; lost by 151 votes.
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4 Responses to No More Branch Office

  1. Danny Zinkus Sutton says:

    I am, to borrow a phrase from Lalland Peat Worrier, the terrier like interlocutor. First I’d like to thank the OP for his generous engagement and his wisdom in not trying to carry out this dialogue on Twitter.

    I have some comments on the content of this post and then a question. I think the question is one of the most important in the Independence debate. I think it’s one that neither side has, so far, really addressed.

    First my comments on the data and conclusions in this post.

    The interesting and informative chart shows that peripheral territories which were relatively unindustrialised when they gained independence can do very well. Ireland’s economic growth and development over the last hundred years is fantastic. Ireland has moved from a poor part of the UK to one of the most prosperous countries in the world. Looking at the figures in the chart, Ireland has an annualised growth rate of 4.71% over the period 1911-2011. Leading to hundred fold increase in GDP. The UK has managed 2.2% per annum for a nine fold increase in GDP. Looking at the GDP series data from the Office for National Statistics UK GDP growth has been relatively consistent over the period. I suspect Ireland’s is more hockey stick shaped.

    I’m not convinced that comparing 21st Century Scotland to newly independent historical 20th Century Ireland, Norway or Finland is a comparison on all fours. All three of the examples were under-developed peripheries of much larger states at the beginning of the 21st Century. Scotland in the 21st Century is not. We are already an industrialised nation, with many successful industries exporting all over the world or supplying excellent goods and services to our own people. We have high levels of education, good physical infrastructure, good institutions such as courts, police services, professional regulatory bodies, firms with centuries long pedigrees and brand new start ups. We are already in the EU. Unlike Ireland of the 1910’s Scotland of the 2010’s is already connected to the world and doing very well.

    I think what the chart in the OP shows is that becoming independent isn’t a short cut to economic death and for the right areas it can unlock huge untapped potential. I don’t think, however, that just by becoming independent Scotland is going to find itself with a long term growth rate of 4.71%. I don’t think Ireland is going to either in the 21st Century.

    This isn’t to say that independence won’t mean a significantly better economic future for Scotland. Even very small improvements in economic performance, compounded over a century can make a staggering difference to the lives of people. Scotland’s long run GDP growth in the 20th century of 2.20% yields an economy 8.8 times bigger, with a correlated improvement in the material standard of living for folk. A very small improvement in that growth rate, changing it from 2.20% to 2.25% yields an economy 9.25 bigger rather than 8.8%. That’s an extra five months of 2012 GDP every year by the time we reach 2113. That’s pretty good. When you look at the additional accumulated wealth over that century Scotland would produce about 13 years equivalent extra to 2012. Imagine having 13 years additional income over the course of your life. That’s a handsome prize.

    Of course, the flip side is, that if Scotland does even slightly less well after Independence over the next hundred years we miss out on a lot of wealth.

    Now for the question, with a bit of pre-amble by way of context.

    I’m of the view that to talk about national economies competing with each other is the wrong way to look at things. I agree with Michael Porter that when looking at why some national economies do well and some do badly you need to look at the firms and industries operating in that territory and what makes them successful or not, rather than looking at the economy of the territory as a lump.

    Porter identifies four elements he thinks are important factors to the success of an industry in a particular territory.

    http://en.wikipedia.org/wiki/Diamond_model

    They are

    Demand Conditions – how strong is domestic demand for the goods and services of the industry?
    Factor Conditions – how many and how good are the inputs to the industry, raw materials, components, quality of labour and so on? What is the physical infrastructure like?
    Firm Structure and Rivalry – are there lots of firms competing and getting good at making and selling stuff, or is the domestic market stagnant?
    Related and Supporting Industries – can firms get access to other firms that supply services they need? Can they share the cost of these services with other successful firms?

    Looking at these factors it is easy to see why Scotland has successful whisky and oil industries but we don’t have many tropical fruit juice processing plants. We are likely to have a great renewables industry. Our ski-ing goods industry is likely to struggle.

    There are lots of things an activist state can do to support industry in their territories. They can co-ordinate investment in physical infrastructure. They can invest in education, training and skills. They can find an industry that is close to being globally competitive but for one missing factor and provide development grants to build that factor (an example might be really, really good broadband to support Dundee’s computer games industry).

    Plenty for an activist state to get stuck into there. Plenty for it to get wrong too.

    Looked at another way, the number of enterprises per 1,000 people in Scotland is 26.5. In Sweden it is 67.3. What changes can the activist state make to get our business birth rate up the levels seen in Scandinavian social democracies?

    My question is this?

    What makes a sovereign government in Edinburgh uniquely better at playing this role than a devolved government in Edinburgh, or a the UK national government or local authorities? Or the same question to a Unionist, what makes the status quo better than either of the changes on offer?

    I don’t think either side in the Independence debate has really address this issue. If we wake up in 2014 with a sovereign Scotland, what can the government of Scotland now do to make our growth rate more like 2.25% than 2.20%?

    A great answer to this question turns me from a cautious Yes voter to an enthusiastic Yes campaigner.

  2. davidsberry says:

    As said, the original question is a fair one and this one equally deserving of an answer. As a preliminary, I take entirely on board that all three countries cited were in a relatively primitive state of industrial development and their stats benefitted from their having further to come. That said, Austria and Denmark were similarly underdeveloped but do not show the same growth.

    The further point of how steadily they developed with Norway and Finland showing UK-style steady growth, apart from regression around WW2, while neutral Ireland showed no such regression but was comparatively flat, followed by an amazing 30-year spurt following joining the EU (the ‘J-curve’ mentioned).

    Those examples used are the closest available to the Scottish scenario but, being a century old, may not provide an accurate picture. Where I will accept to commentator’s point is that “There are lots of things an activist state can do to support industry in their territories.” The UK government is not being malicious when it manages what it sees as to the benefit of the UK. But a major plank of the independence argument is that Scotland would do much better if managed otherwise.

    I agree partially with Porter that identifying industries and their growth is at least as important as drawing lines on maps but I do not accept the four factors of success as posited. Quite apart from increased economic agility in a smaller state and the 21st century reality that nobody is likely to be invading anyone—let alone Scotland—and time soon, assuming Scotland retains all taxes and pays England for services it sees as uneconomic to run itself (e.g. smaller embassies) I would cite the future economic pillars on which an affluent future could be built for the country as follows:

    1) Savings on the UK Budget: elsewhere I discuss how Scotland, now paying over £3.8bn for defence and receiving much less than its share of MoD postings & work could furnish a more effective (and non-nuclear) defence for £2bn total outlay.
    2) Oil & Gas. Even with the 6,000 sq km rip-off of 1999, Scotland’s territorial waters still include over 50% of the remaining gas and 80% of remaining oil reserves around the UK coast. That includes 80% of the territorial UK seabed and Rockall so most new finds would be Scottish. Though oil may be declining, over 50 years’ stock remains and at prices far higher than the last 50 years. If oil is included and priced over $110/barrel for Brent Crude, Scotland pays more into the UK treasury than it receives.
    3) Financial Services. Though they took a knock in the 2008 crisis, we still have 100,000 people working in financial services—far more than anywhere in UK outside London and still the 4th biggest centre in Europe. With our international profile and reputation, not only could the deficit in stature be made good but aspirations towards another Switzerland are not to be dismissed.
    4) Manufacturing. Quite apart from global companies like Weir Pumps, the Wood Group, Scotland still manufactures and exports marginally more per head than England. It is also almost entirely now modern and not reliant on the heavy industries of the 20th century, including leading biotech, optical, and marine specialties. Engineering and Defence sectors employ around 30,000.
    5) Food and Drink: Dominated by whisky (experts just passed £4bn), specialty foods like salmon and other seafoods, venison, beef, soft fruits and real ales are gaining an international reputation. Quite apart from sustaining premium prices that cover shipping, this also underpins:
    6) Tourism, currently driven on the triad pillars of golf, culture and wilderness. Whether we’re talking about the UK Open or the US Kids Open, about Highland Castles or Edinburgh’s Festival, about sea eagle hides or Moray dolphins, Scotland has had two decades of growth in tourism that is becoming increasingly international as the Asian customer base is developed.
    7) Renewables: After a slow start, Scotland is catching up in exploiting wind energy, both as a component of its own generating capacity and as a field of engineering expertise. With over 60% of Europe’s renewables and positioned to lead in tidal and wave energy exploitation, this could be for 21st century Scotland what shipbuilding was to the 19th equivalent—but much more evenly spread across the country. We’re up to 25% of our 8MWH peak demand coming from renewables (mostly wind). The secondary factor of exporting surplus will be a bonus.
    8) Water: Once the vagaries of climate change set in and the English drought of last year returns with a vengeance, fresh water will become a major export, initially in small tankers (e.g. Perth to King’s Lynn) and eventually by pipeline to an ever-dryer England. The unified and publicly owned Scottish Water has an optimum strategic posture to capitalise on this.

    None of the above is an exhausted or even near-exhausted option. And what is unique to Scotland for all of the above is an international profile that Slovakia or Macedonia or Burkino Faso would kill for. By combining business competence with our skilled workforce and such a profile, Scotland would be able to capitalise on that intersection the way that Germans already do with engineering and the Swiss with banking.

    More than any other romantic or emotional reason, the stark facts above prove that Scotland is placed to be successful as a country far more than any other of comparable size anywhere in the world outside of specialist mini-giants like Leichtenstein or Hong Kong.

  3. Danny Zinkus Sutton says:

    So, I don’t disagree with any of the points 1- 8 above or the general theme that Scotland is a prosperous country with lots of opportunities ahead of it. But Scotland is a prosperous country in or out or halfway in-out of the Union. We’re not being asked to decide between being Macedonia or Scotland, we’re being asked to decide between several different versions of Scotland, all of which are economically successful.

    I think what’s on offer here is basically this. Following independence

    1. We save some money on not engaging in military adventures or holding expensive nuclear weapons.
    2. We take the handsome surplus from our already successful industries and regions and hold on to it, instead of sharing across the whole of the British Isles.
    3. We use the additional wealth thereby located in Scotland to do either or both of i) fund state interventions, ii) lower taxes and stimulate demand and our industrial base prospers. Rinse and Repeat.
    4. We keep working away and wait whilst that virtuous circle plays out and we get our slightly better growth rates.
    5. We get to live a more prosperous, more social democracy.

    Personally, I think the plan will work. I’m not trying to offer up a straw man so I can knock it down. I think the plan above would probably make Scotland a marginally richer place in 100 years’ time. And that’s great. I don’t think it necessarily implies a sovereign nation state. It’s an argument for comprehensive fiscal autonomy. Even if fiscal autonomy within the Union precludes part 1 of the plan part 2 is sufficient to carry us forward, albeit more slowly. People living in Scotland, Scots are better off. Job done.

    I think the argument underpinning the above plan is essentially an emotional argument rather than a technical one. That’s not a problem, politics is about balancing technical and emotional issues, but I think we need to be open about the fact that this solution is about how we define WE.

    What it says is that people in the prosperous parts of Scotland should share their surplus wealth with some people in the British Isles, but not those in other parts of the British Isles. This argument is about who counts as US when we talk about sharing our wealth. If I were sitting reading this in Aberdeen I might start to wonder why I shouldn’t start an independence campaign for Grampian to succeed from the Union. Or if I were a Londoner, for London to set up as the Singapore of Europe.

    I guess I’m not yet convinced that, for me, my version of we includes people from Dundee but excludes people from Durham. Other people’s mileage may vary. It’s a personal decision where you locate your kinship, a matter of conscience.

    What I think is still missing is a technical argument that explains how and why a sovereign state of Scotland would manage the economy better than a fully fiscally autonomous Scotland in a federal Union, or, indeed, the UK government based in London. An argument that works even if Scotland isn’t already producing a surplus over our fair share of funding the Union, a surplus that can be concentrated for our own use.

    I think there is a cogent argument that a smaller state is less complex to run and can therefore be run better. I think there is a cogent argument that decisions made by people closer to the action will be made with more care, more knowledge, more connection with the values of those affected and be better decisions. I think there is a cogent argument that we know our own business best.

    I’m not hearing those arguments being made much, so far. I’m not hearing worked examples of how in Scotland closer, finer decision making would translate into better economic growth.

    The phrase, small agile nation, gets mentioned a bit. As discussed above, I’m far from convinced that it is meaningful to talk about the agility of nation-states rather than the agility of firms and industries located within them. So far, I’ve not heard an argument that small and agile is better than the economies of scale that come from being part of a large organisation. That sharing excellent facilities, or only having one regulatory body, or all of having access to a world expert isn’t as good for us as being smaller and more agile.

    Or, to be utterly fair to the Unionist side that the economies of scale they imply exist are better than the agility offered by an independent Scotland.

    The differences between the two, small and agile, large and scaled, aren’t really being explored. I think the tactical onus to have that conversation rests with the Yes campaign, as they are the ones proposing a change.

    • davidsberry says:

      Glad we seem to agree on most of this—I would not quibble with the thrust of your synopsis. Where we seem to have most disagreement is what you call the “emotional” argument. While you are technically correct, you seem to be dismissing the key psychological factor that makes Royal Marines fearsome opponents or Apple innovators keep coming up with world-beating products.

      The same “buzz” works for countries. Ireland was drifting and losing population until its EU entry turned its economy around and thousands of Irish—abroad because they thought that was their only chance to get ahead—returned and added to the boom. Once 3m, Ireland’s population is on trajectory to pass Scotland’s 5m in 20 years.

      As for economies of scale, industrial history is littered with fallen monoliths: LNER, John Brown’s, Polaroid, North British Locomotive company, British Leyland, Pan Am and so on. Microsoft is bidding fair to be next. The shape of industries changes constantly. BA holds all the cards to dominate and yet Ryanair, Easyjet, Jet2, etc all ate parts of its lunch. The same applies to countries, especially to empires of all stripes—Persian, Inca, Moghul, British, Russian/USSR. As a factor, scale must be considered—the US had huge resources and market as drivers—but it is no magic bullet.

      Knowing who and where you are, feeling like you belong, brimming on occasion with pride, all such things are powerful accelerators to what people can achieve. We did that as ‘British’ for most of the last couple of centuries. But post-empire and -WW2 we lost that component. I believe we are in the throes of rediscovering another: being Scots. And it will bind Dundonians with Teuchters and Black Bitches with a common currency of culture that will be both a celebration of who we are and a driver to something better yet.

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