The Battle for Scotland

09.10.14

The Battle for Scotland

09.10.14
Kyoshi MasamuneKyoshi Masamune

Sir William Wallace, the legendary Scotsman, who is fondly remembered for defeating an invading English army at the Battle of Sterling Bridge in 1297 would be turning in his grave if he saw how the very question of independence for which he had sacrificed his life was dividing a nation. To be fair, Sir Wallace would not have been able to fathom the degree of complexity and the complications that a secessionist nation in the 21st century would face.

Scotland will go to the polls in less than a week to decide whether or not to remain within the United Kingdom. This referendum is unlike any other because no matter the outcome, the political landscape in Scotland will be changed. Over the past few months the debates has divided the nation. Over the past few months the debates have divided a nation and states with secessionist plans such as Catalonia will watch the results of the referendum with much apprehension.

The question of Scottish independence goes far beyond the fear-mongering tactics of Alex Salmond’s and Alistair Darling’s televised debate, or for that matter the emotionally-driven ties that would be unbound if a historic vivisection took place, ending over 300 years of cultural and political unity. However, the question of Scotland’s independence addresses economic pragmatism. The crux of the dispute lies squarely on whether the costs of independence will exceed the benefits of breaking away from the rest of the UK.

For all of the arguments put forward by the Yes and No camps in the past few months there is no doubt that the outcome of this referendum will have wide-ranging implications for the rest of the UK and for Scotland. This is despite the fact that a yes vote does not necessarily mean that independence is assured or guaranteed, as it needs to be ratified by parliament, followed by a complex process of negotiations will take place in what would be a constitutionally unchartered territory. The divorce will take years to settle, and if Scotland votes independence the chance for celebrating statehood in 2016 will be very slim, as there will need to be first and foremost sensible solutions that address the economy, defense, and social policies.

In the event of a resounding victory for the yes camp, Scotland should brace itself to face four issues that if not solved could threaten to destabilize the nation.

The first question is one of currency. A currency union will only work if Scotland chooses to remain in a political union with the rest of the UK. An independent Scotland will not be able to keep the pound sterling. Scotland does not have a central bank hence one of their options is to use the Scottish Pound, which would mean that they will have to trade at the interest rates set by the Bank of England, which will cause Scotland’s financial services to suffer and if there is a crises in the financial sector this will lead to an economic crisis. Apart from that, a failing currency will create issues ranging from mortgage payments to inflation, and for a nation of 5.3 million people any shift in monetary policies made abroad will adversely effect their fiscal polices which would in turn affect the long-term stability and prosperity of Scotland.

Currently 75 percent of Scotland’s export market is the UK, and in a post-independent state, the type of currency that Scotland chooses will have huge implications in Scotland’s ability to borrow. Should Scotland have a new currency and take on a share of the national debt of the UK its credit rating will be impeded and it exposes itself to a higher rate of interest in the bond market.

Apart from the question of currency, the bulk of Scotland’s assets lie in North Sea oil and in the advent of economic volatility, Scotland could use its assets to underwrite the losses that stem from being a newly independent economy. However, considering the nature of this declining commodity, and the fact that it has been exhausting its resources for over 40 years, what will Scotland do when revenue from oil falls as it did last year. What this does is place Scottish prosperity and quality of living at the mercy of the amount of extractable oil. At present the revenue raised from North Sea oil is used to fund among other things, the health service and schools, hence any reduction in revenue will adversely affect institutions that depend on oil. Scotland’s public spending is roughly 1,200 pounds per person each year, hence in order to maintain a high quality of living as an post-independent state, and in the likely event of declining revenues from the North Sea oil, the Scotts will have to cut public expenditure and raise taxes. Being a rentier state is a risk especially when the commodity in question is a moribund decline.

Besides declining oil revenues, there is the question of Trident which in itself is a question of maintaining job security, as thousands of jobs in the Clyde will almost certainly be lost if Trident were to be scrapped. Even if Trident is not removed, jobs will still be affected, because Westminster will simply not allow foreigners to work or be part of their sensitive military programs. Added to that it is equally important in this day and age of geopolitical uncertainty to have an operationally defence mechanism in place to secure off shore assets which are a vital cog to the development of Scotland. According to the Royal United Services Institute, the removal of Trident will take an estimated 14 years to complete which by sheer deduction from the sheer time-scale, will be a very costly endeavor for Scotland to pursue, all in the name of being free of nuclear weapons.

Finally, Scotland has an aging population, and when granted independence, they will need to urgently address the issues related to the decrease in the labour market. Furthermore, the Scottish government will have to re-negotiate the pension schemes with the UK, which is unfortunate for those at the cusp of retirement as those negotiations would be long and complex. Furthermore, with an aging population there will be added pressure for the government to spend more on the National Health Service, which essentially means that at a time when Scotland needs to make key investments to prevent its economy from receding, it will not be able to do so as it lacks the funds. With a fixed national budget, Scotland will find the costs associated with dealing with this issue will require a range of austerity measures that will be unpopular with the vast majority of the population. Part of the solution may be to amend its immigration policies so as to attract investors in order to keep the economy competitive. Whether that would be enough to stem the tide of recession is difficult to speculate.

The grim possibility of a recession can only be countered with strong leadership, a range of sensible policies, and stoic realism. As the world watches with baited breath, Scotland will have to decide whether it is financially and politically expedient to secede. Either way Scottish voters will define the existentialism of the UK, but more than that it will define how the Scotts want to be known to the rest of the world.

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