By Alasdair Galloway
Jill Stephenson, retired Prof of Modern German History at Edinburgh University, but for our purposes an indefatigable defender of the Union while equally contemptuous of Independence, has a letter in this morning’s Herald, which illustrates some important issues, not least the limitations of infantile Economics.
I have to admit that I was concerned about Humza Yousaf’s use of Denmark, Finland and Ireland as comparators to illustrate Scotland’s potential if independent. The main point of contact between Scotland and these three countries seems to me to be population size, but beyond that comparisons become more difficult. For instance, Ireland has a tax deal with international companies (eg Google and Costa Coffee) that I would hope an independent Scotland would not countenance. Denmark, on the other hand is committed to high quality public service provision (as indeed does Finland), but it requires a high tax regime that would simply not be acceptable in the UK as a whole, and arguably Scotland too. To follow Denmark would require a debate leading to acceptance of much higher tax.
Stephenson begins by questioning why the First Minister did not use Portugal, Latvia or Slovakia to illustrate the potential of an independent Scotland rather than Denmark, Finland or Ireland. She should be careful though about what she wishes for, as Portugal’s growth rate last year was 1.9%, Slovakia’s 1.1%, compared to the UK’s 0.3%. I will concede Latvia as its growth rate was minus 0.7%. However, on this basis the First Minister’s comparison could likewise be said to be ill-advised, as all his comparators had negative growth rates – Denmark, minus 0.3%, Finland minus 1.2% and Ireland’s minus 5.8%. Fair to say none of these stats are inspiring.
But of course, such figures fluctuate over the years, and in this regard GDP per person might be a more reasonable guide to how countries Scotland might secure inspiration. For instance it gives some degree of insight into distribution of income, and social justice. (spoiler – measured by Gini, the UK’s level of inequality is greater than the EU average).
Of the six other countries cited above, Denmark and Finland both have levels of GDP per capita above the UK’s level indicating greater wealth, but having lower Gini coefficients, more less unequally distributed.
I take Ms Stephenson’s point that Ireland’s growth rate is multiplied by sweetheart deals the Irish have with large multinationals, such that they pay tax to at a lower rate than most other jurisdictions in Europe. The revenue coming into Ireland inflates their growth rate but having been taxed, the revenue us then exported to another country (often America)
However, Ms Stephenson’s comparator being the UK, it would be better to acknowledge the UK’s own contribution to tax avoidance, but also the concentration of UK wealth in the south east.
While the three countries suggested by Ms Stephenson do have a GDP per capita figure less than the UK’s, two of them are former eastern bloc, and thus having economies that required radical change from the Soviet model they had followed for many years. They have impressive growth rates to some extent because they are starting from a lower base.
When Ms Stephenson, following Mark Blyth, argues that it took Denmark 600 years to become Denmark, perhaps the point being made is that no country is ever likely to become a clone of another. However, that is not to say we cannot learn from another country. That there are things that can be adopted from elsewhere, albeit with necessary adjustments. In that regard, the commitment by the Nordic countries (not just Finland) to high quality, comprehensive public services is a commitment many could support for an independent Scotland, even if the precise mechanisms to achieve the same aims are different.
In other words having cast doubt without even reverting to statistics – well Portugal isn’t much of a place is it? – she fails to do much more than cast aspersions on these countries.
But more importantly, when supporters of independence point to the much higher quality provision of social services, education and health etc in Nordic countries, we need to appreciate this would require gaining acceptance of the much higher rates of tax (both direct and indirect – VAT in Denmark, for instance, is 25%).
On today’s Politics Now (BBC2) the proposed increase in rates as well as the introduction of a whole new tax rate which would be paid only by the better off, was discussed with the customary critique of high tax. It was left up to the SNP MP on the show to observe that a smaller percentage of the less well paid pay tax in Scotland.
Stephenson quotes Mark Blyth’s ‘observation’ that it took 600 years for Denmark to become Denmark. However, this only underscores the point that nowhere would take another country as a template, they can use examples from elsewhere as inspirations, or even evidence that certain social practices and policies can work successfully.
Lastly, there is Emeritus Professor Stephenson’s contemptuous disposal of Modern Monetary Theory (MMT) as “the Magic Money Tree” (also MMT, geddit?), which illustrates mainly her lack of understanding of MMT, which does not recommend infinite spending. Rather it is critical of the contemporary obsession with deficit and even the level of debt, which the theory suggests is more typical of household accounts, and disregards the advantages of a sovereign currency.
With its own sovereign currency a government can always pay its debt in its own currency. For sure there will be difficulties if there is an unwillingness to accept the currency because of its management, but often users will have no option. For instance, a government will expect taxation to be paid in its sovereign currency, and it will be routinely used within that state.
The constraint according to MMT is not deficit, but levels of unemployment (to force the use of available resources) and the level of inflation. Exceeding the target rate would suggest the economy was beginning to overheat, for which the government should diminish its own demand by spending less. It is, though, inflation and unemployment which are the appropriate criteria, not deficit. It is not irresponsible – it just employs different criteria, one of which (inflation) will maintain the value of the currency, while the other (inflation) encourages a level of demand in the economy which supports (at or near) full employment.
Coincidentally, just as I was finishing this off, the National published an article by Scotonomics also critical of Humza Yousaf’s speech Humza Yousaf’s speech showed SNP’s economic contradictions | The National
Some of this concerns what was missed out – such as the high levels of foreign ownership, lack of corporate HQs and the amount of corporate profit shipped straight out the door for these reasons. In this regard we are a bit like Ireland, just without the sweetheart deals. Just because of a defective economic structure which over the years has failed to protect Scottish ownership of Scottish industry. Ownership of energy production – including oil and gas – is bad enough, but ownership of the Scotch (ha ha) whisky industry is just ridiculous. Hard to say which is the bigger tragedy – that it was allowed to happen, or that no one seemed to really care that it was happening.
Then there are the contradictions – for instance setting out to finance infrastructure development with oil revenue, or aligning industrial policy with the EU, a body we wont be able to join for some years and perhaps never will (eg if instead we join EFTA). Moreover, the policy of continuing to share the Pound Sterling continues, we wont be able to join the EU which requires a member state to run their economy consistently with their rules. A country which would be a ‘minor’ shareholder in a much larger country’s currency (and which with some acrimony had left the EU) could hardly be expected to do this.
Moreover, as a member state, the EU would expect action to be taken to bring any Scottish deficit down to a level consistent with their Stability Pact. This would be true even with a sovereign Scottish currency.
As Scotonomics concludes
“These contradictions are quickly coming into sharper focus.”
Talking-up Scotland 'Albatraz' 
What also needs to be considered is Scotland’s resources, existing and potential. My understanding is that Scotland has greater resources than any of the comparator countries mentioned.
Bill
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There are two points I would like to make:
1. Supporters of independence have always pointed to countries with relatively low populations to refute the contemptuous argument of British nationalists like Professor Stephenson that Scotland is too wee to be independent.
2. The smaller independent countries used as examples are to show that these small countries have the powers to make decisions for themselves. Whether we agree with the decisions taken as being good or bad is not relevant. It is a matter for the people who live in these countries and how they run their countries. The fact that Ireland at present has a pretty buoyant economy does not imply that an independent Scotland will be the same. Nor does the fact that Latvia currently is not experiencing growth does not imply that an independent Scotland will not experience growth. A British nationalist argument is that as well as being too wee, Scotland is also ‘no very good’. Until relatively recently, Ireland was sneered at by UK politicians and media as ‘no very good, by virtue of simply being Ireland’. Its present relative buoyancy gives the lie to that. Whether we agree or not with what Ireland has done to achieve its present affluence, is not relevant. The point is that despite centuries of BRITISH colonial repression, resulting in poverty, ill health and emigration, Ireland has shown that it can provide comforts for most of its people.
I want independence because I want the people who live in Scotland to make the decisions about what our nation becomes. I hope it is a better nation and I want us to have the powers to try to do that.
Let’s not get into the obfuscatory ‘ah, but… ‘ games the unionists deploy.
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I’ve submitted a comment, and it hasn’t appeared. Tried again and I’m told this is a duplicated comment.
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That was me writing about the ‘duplicate comment’ that has gone missing.
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Part 1:
Good stuff Alasdair! It’s hard to imagine why anyone takes Ms Stephenson seriously on economic matters. Sadly the same might be said of some of the FM’s speech.
I’d also say that Mark Blyth has hardly been consistent on his opinions about an independent Scotland, having been both for and against having our own currency.
And of course the FM and most of the SNP MSP’s would shackle us to the Bank of England for some indeterminate period after a vote for independence. As Tim Rideout, and the Scottish Currency Group, have been telling them for years now – we should be making preparations now!
All those comparisons with other countries just confuse matters. I get why they do it, but the best comparison is with rUK – would you join a failed state if you had the choice? There are good points and bad points about most of the countries quoted, as Alasdair has said. The key fact is that devolution means Scotland is currently like a local authority in economic terms. In fact, as Jim Cuthbert has recently pointed out, local authorities have more borrowing power than the Scottish Government. With the powers of an independent monetarily sovereign, state, we can clearly do a lot better (provided our government understands monetary sovereignty!).
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Part 2:
As for what Alasdair says about MMT and about joining the EU, he has correctly hit both nails on the head.
The key fact about MMT is that the government deficit is our surplus. There are only two sources of funding that don’t have to be paid back – newly created government money and money from exports (or the excess of exports over imports – i.e. the trade balance). The problem with exporting, or export-led growth which is favoured by the Tories and Labour, is that a country ends up utilising more and more of its resources to provide other countries with goods and services. The focus should be more on using those resources to benefit ourselves, funded by government spending. Another way of looking at that is to say we should only be exporting to gain imports we need. For example, exporting A and importing B if we can’t produce enough of B. That doesn’t mean we should suddenly stop exporting, which would cause unemployment, but the focus should shift over time. The clever folk involved in producing those ‘valuable exports’ for others to consume would be better employed in activities more useful to our own people.
The key fact about joining the EU is that it stops you having monetary sovereignty, and many of the current members suffer from that – not just Greece! For example, youth unemployment in many of the peripheral countries of the EU is very high – e.g. it was above 13% in Ireland a year ago.
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Stephenson is a status quo disciple, Francis Rossi would doubtless be appalled….
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To delve a little further into comparisons of nation-states, based in Washington DC, the Tax Foundation claims to be ‘the world’s leading nonpartisan tax policy 501(c)(3) nonprofit. For over 80 years, our mission has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity.’
It publishes an annual assessment of the tax systems operating in OECD member states. On 18 October 2023, it published its ‘International Tax Competitiveness Index 2023’. In this it notes: ‘The variety of approaches to taxation among OECD countries creates a need to evaluate these systems relative to each other. For that purpose, we have developed the International Tax Competitiveness Index—a relative comparison of OECD countries’ tax systems with respect to competitiveness and neutrality.’
The Foundation EMPHASISES VARIABILITY amongst OECD members. At least as interesting to me is THE MARKED VARIABILITY IT FINDS AMONGST EU MEMBER COUNTRIES, INDEED EVEN AMONGST MEMBERS OF THE EUROZONE!
The Index and its rankings BASED AS THEY ARE ON A CONSISTENT APPROACH TO ASSESSMENT gives useful insights, even if the Foundation’s – and indeed the OECD’s – VALUE JUDGEMENTS on what is ‘good’ or ‘bad’ for a country’s economy , society and environment may be CONTESTED. The Foundation argues that a ‘competitive tax code is one that keeps marginal tax rates low’ and that a ‘neutral tax code is simply one that seeks to raise the most revenue with the fewest economic distortions.’ It adds: ‘This means that it doesn’t favor consumption over saving, as happens with investment taxes and wealth taxes. It also means few or no targeted tax breaks for specific activities carried out by businesses or individuals.’
It also argues that: ‘A tax code that is competitive and neutral promotes sustainable economic growth and investment while raising sufficient revenue for government priorities.’ However, with this caveat: ‘There are many factors unrelated to taxes which affect a country’s economic performance. Nevertherless, taxes play an important role in the health of a country’s economy.’
See https://taxfoundation.org/wp-content/uploads/2023/10/TF-ITCI23-Book_16-10_FV.pdf
In the context of the main blog post and to look at some of the countries referred to therein (plus others for illustration), the following snapshot of rankings may be of interest. Of 38 OECD member states:
Estonia – ranked first overall – considered to be ‘best’ for the competitiveness and neutrality of its tax code
Latvia – ranked 2nd
Slovak Republic – ranked 12th
Germany – ranked 18th
Finland – ranked 19th
Ireland – ranked 28th overall (breaking this down further: on corporate taxes – ranked 5th; on individual taxes – ranked 36; on consumption taxes – ranked 34th)
Denmark – ranked 29th (on corporate taxes – ranked 17; on individual taxes – ranked 31; on consumption taxes – ranked 20th)
UK- ranked 30th (on corporate tax – ranked 28th; on individual taxes – ranked 26th; on consumption taxes – ranked 35th)
Portugal – ranked 33rd overall
France – ranked 36th
Italy – ranked 37th
Of course there are other methods and other sources available for comparing taxation systems e.g. this from Eurostat published 26 October 2023: ‘Tax revenue statistics’.
This reports: ‘The TAX-TO-GDP RATIO VARIED SIGNIFICANTLY BETWEEN EU COUNTRIES in 2022, with the highest shares of taxes and social contributions as a percentage of GDP being recorded in France (48.0 %), Belgium (45.6 %), Austria (43.6 %), Finland and Greece (both 43.1 %) and Italy (42.9 %). Among EFTA countries, Norway recorded the highest ratio in 2022 at 44.4 %, strongly influenced by higher revenue from gas and oil extraction as a result of the high energy prices. (my emphasis).
‘At the opposite end of the scale, Ireland (21.7 %), Romania (27.5 %), Malta (29.6 %), Latvia (30.8 %) and Bulgaria (31.1 %) as well as Switzerland (27.0 %) registered the lowest ratios.’
So once again, evidence of substantial diversity – in essence, diversity in the exercise of agency, in the making of democratically endorsed fiscal choices, and diversity of outcomes – EVEN among EU and EuroZone members.
Whatever might be taken from such comparative analyses, one thing seems clear: with ‘agency’, independent democratic nation-states can and do make different decisions which have different outcomes . And with ‘agency’, substantive and deliberate change can be achieved! From a btl contribution to TuS on 3 January 2024: ‘It seems that by using the agency available to ’normal’ democratic independent countries, places like Greece can achieve very substantial, (arguably) positive economic change in a time period equivalent to just one or at most two five year terms of a Westminster parliament!
‘The Economist (magazine) has recently placed Greece at the top of its list of 35 richer countries with the most improved economic performance in 2023. According to The Economist’s analysis based on five economic and financial indicators (inflation, “inflation breadth”, GDP, jobs and stock market performance), Greece has the best economic marks among 35 mainly rich countries this year. Greece is top of this international ranking for the second year running.’
Of course staunch Unionists simply don’t want the electorate in Scotland – nor the government of its choosing – to have the necessary agency to decide, to make choices, to realise change. They prefer us to be held as spectators as England’s electorate determines what it needs and what it wants, and then decides who will form the all powerful government in Westminster to rule over us, again and again and again.
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UK Gov raises £731Billion in revenues and taxes. Spends £1090Billion. 202021. UK Gov accounts. More was raised in 2019/20. £817Billion. Yet claims are made of over taxation?
Scotland raises £87Billion. Spends £54Billion. Westminster spends £50Billion half of Scotland’s accured revenues. £106Billion. Westminster decides how half is spent. £50Billion. Not Scottish taxpayers.
Westminster spends it on wasteful projects not in Scotlands interest. HS2, Hickley Point, £40Billion spent on the military. Trident, redundant weaponry, illegal wars. The list is endless wasting Scotlands monies. On wasteful projects of no value. No taxation without representation. No Democracy. Scotland outvoted 10 to 1 at Westminster.
Nuclear decommissioning £13Billion a year, £130Billion over ten years. Increasing all the time. Leaving contaminating, rotting subs at Rosyth. Flying waste all around the world. HS2 London to Birmingham £66Billion. Better spent on something else. Like renewables or NHS.
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The cost of living in IR is lower and the standard of living is higher. Higher pensions + benefits. Half private NHS. €60 doctors appointment. €100 hospital appointment. Insurance claim back. Exemption pensioners, children, benefit claimants, pregnant people.
No illegal wars, nuclear, or redundant weaponry. Saving £Billions. EU membership.Pop 5 million.
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‘No illegal wars, nuclear, or redundant weaponry.’ And let’s not forget the Irish Defence Forces’ important and proud record of contributions to peace keeping and humanitarian missions internationally on behalf of the United Nations and other agencies.
For details of past missions going back to the 1950s and present missions, see https://www.military.ie/en/overseas-deployments/past-missions/ .
And from the text of UN Secretary-General António Guterres’ message on the sixtieth anniversary of unbroken Irish United Nations peacekeeping service, in Dublin on 24 June, 2018:
“I am pleased to address you today as you mark your country’s long-standing commitment to United Nations peacekeeping.
“For over 60 years, Ireland has deployed both military and police personnel to many of our operations. And your country holds key leadership positions in some of our missions. These include the Head of Mission and Force Commander in the United Nations Interim Force in Lebanon (UNIFIL) and the Chief of Staff in the United Nations Disengagement Observer Force (UNDOF).
“But, Ireland’s valuable contributions to United Nations peacekeeping go well beyond the deployment of uniformed personnel. Your Government has shown great leadership and support to the development of peacekeeping policy and doctrine.
“I commend Ireland’s steadfast commitment to peace and security. And I thank you for your partnership.”
Since then of course Ireland was elected to a term (2020-22) as member of the UN Security Council.
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Not illegally invading countries and blowing them to bits in the Middle East.costing £Trillions. Vietnam. North Korea, South America. Taking all their Oil & revenues. India taking the equivalent of £Billions in assets. India and Pakistan Partition millions died.
The illegal Partition of Ireland 1922/23. Led to years of struggle and strife costing £Billions and lives. Blair bung to NI £12Billion + the rest. No self Gov in NI. The DUP have manipulated it. Ireland could vote to reunite. The Famine. The Land estate controlled by the unionist supporters of Westminster. The fight for Home Rule/Independence. NI gets £22Billion block grant. Population 2 million. More pro rata than Scotland. Scotland £42Billion block grant. Equivalent to NI would be £55Billion.
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Irelands GDP is way better than Scotlands, it is well above the average Scottish household
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