On Ireland and the case for Scottish independence

Click pic for the Irish Election Literature blog

One wonders whether in the future small and medium-sized countries will begin to worry when commentators start using their economies as case-studies: whom the gods of economic history wish to destroy, first they make them examples from which wider lessons should be drawn?

Everyone remembers that this was the case with Ireland and its apparent economic miracle. For free-marketeers, Ireland showed the virtues of providing a business-friendly environment with its competitive cuts in corporation tax. Young George Osborne, for example, saw it as nothing less than a “shining example of the art of the possible in long-term policy-making”.

He was less keen on the lesson drawn by European enthusiasts. For them, Irish growth rates had made the case for membership of the single-currency unanswerable.

The present travails have led people to draw rather different conclusions. It has become the misfortune of Ireland to now serve as a warning. For some it has vindicated the argument that European monetary union, in the absence of fiscal union, is incapable of absorbing ‘asymmetric shocks’ in the Eurozone countries. For Keynesians the current meltdown shows the folly of fiscal retrenchment in times of recession.

One can agree with both of these up to a point, although with the latter I wonder what Keynesian solution is open to Ireland with its debt reaching the prices it now has on the markets? A more important qualification is that these are both policy variables that have exacerbated, rather than caused, Ireland’s present economic woes.

But if you’ll forgive me for being parochial, the purpose of this post is to wonder what conclusions the Scottish nationalists are now drawing from all this? While Alex Salmond in particular would frequently use a variety of small European countries as exemplars, it is practically impossible to exaggerate the extent to which he linked the political aspirations of the Scottish nationalists to the economics of the ‘Celtic Tiger’. For example, in his 2008 lecture, “Shaping Scotland’s Future”, no-one in the Dublin audience could have been left with any doubt over the future shape that Alex Salmond thought Scotland should take:

“Scotland looks out to an Arc of Prosperity around us. Ireland, Iceland, Norway, Finland and Denmark. All small independent nations. All stable, secure and prosperous.Of all these nations, no example is more impressive and inspiring than Ireland. And none is more relevant to the decisions that Scotland faces today.”

It is important to point out that Salmond and the SNP have consistently argued that not only would an independent Scotland be economically prosperous, it would be so because it was independent. Given that this is the case, it is entirely unsurprising that he should have taken particular interest in the Irish model. First politically independent from Britain, then economically through membership of the EU and later the Euro, for Salmond Ireland’s growth rates served as an example of what was possible if the dead-weight of the British state could be removed from Scotland’s shoulders.

The identification with the Irish model was practically absolute. Membership of the Euro was to form part of the ‘Independence in Europe’ policy – and even post-credit crunch he was inexplicably arguing that membership might prevent one in the future.

Scotland should also adopt the Irish policy of competitive cuts in corporation tax to attract inward investment, pointing out that the excruciating ‘Braveheart’ was partly filmed in Ireland. I think we were to take it that this was a bad thing.

Most crucially, as far as I am concerned, the former economist for the RBS was as uncritical as anyone else of the ‘light hand on the tiller’ approach to banking regulation and at no point gave the slightest indication that he was concerned about the weight of the financial sector in the Scottish economy:

“And of course we Scots are lucky enough to have the one of the best brands in the world – a global recognition and affection for our culture that money cannot buy.Take financial services. With RBS and HBOS – two of the world’s biggest banks – Scotland has global leaders today, tomorrow and for the long-term.”

That Salmond and the SNP should have been a little more careful with their choice of comparators goes without saying. The Herald’s Ian Bell was prescient enough to point this out over two years ago:

“[I]f a property market failure – with 270,000 construction jobs at stake – leads to negative equity and mass unemployment during a global recession, the Irish beast may seem a little less glamorous. Close study need not imply unthinking imitation, in any case, and nor should it, on the evidence. Yet you would not guess as much when Mr Salmond connects independence with the “arc of prosperity” across northern Europe, and when he holds up Ireland as an exemplar. Best stick to Norway, for now.”

Salmond has belatedly followed this advice with Norway now serving the exemplar function. It is a clumsy shift in emphasis that only the amnesiac would find convincing. But I’m wondering what the political consequences of this will be for the SNP? It’s too early to say but they might not be as profound as they could be or, as some of us would argue, should be.

Apart from the weakness of the Scottish opposition, there are two reasons for this:

1) From the outset of the banking crisis, I have been astonished at the impressive ability some people have to pretend that absolutely nothing that could even dent their world-view has happened at all. In public at least Salmond gives the impression of belonging to this group – although whether this is so privately, I couldn’t say.

2) When economic disasters on this scale hit, they tend to shatter a consensus view that has been more widely-shared than some people care to remember. What has happened to Ireland is a species of the more general meltdown in the world banking system, affecting countries large and small, some who are part of the Eurozone and some who are not. Not even all of the opposition parties in Scotland can claim distinct policies on the Euro and Scottish independence and even those who did cannot claim to have many Jeremiahs in their ranks.

Nevertheless, nationalists have some difficult questions to answer. The experience of banks being ‘too big to fail’ is one that has not been unique to Ireland but the reality is that smaller nations are by definition more likely to experience this, as well as being less able to cope with it. Salmond is right to suggest that we have seen two of the biggest threats to the independence of small nations – territorial acquisition by larger states and lack of access to markets – effectively removed over the last twenty years or so but in his assumption that globalisation was an entirely benign development for small countries he failed to take account of this one.

I would imagine it is dawning on the more thoughtful supporters of Scottish independence already: while it is obviously possible for small countries to have both, prosperity is not the same thing as sovereignty, the latter does not guarantee the former and, most importantly, if we had followed the trajectory drawn by Alex Salmond and the SNP, it seems highly probable that Scotland today would have neither.

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  • Anon

    People should stop making long term predictions on short term trends. Nationalists believe that over the long term independent states will out perform dependencies. That has been true of the Republic versus Northern Ireland – even when the trough of the recession hits the Republic, it should still be ahead of its state subsidised brother. And if it hits a strong recovery, it’ll likely increase the gap again.

    But it took an awful long time to get there. No nationalist should deny that independence means increased risks for messing up. It also was a different Republic than was envisaged in 1916 that hit on a successful formula. There is no point in being inflexible.

    As for banks, the loss of monetary policy as a brake was clearly an important loss of sovereignty. But it was bad policy by the government and a bad job by the regulators that led the Republic into a crisis. Bad policy could have equally led much bigger economies into more serious trouble – things came very close in 2008. But the bottom line is – you either believe in your ability to produce good outcomes and get through problems, or you don’t.

  • Mack

    It is a serious stretch to suggest, as I think you do in your last paragraph, that Ireland has neither prosperity nor sovereignty. Indeed in comparison to Scotland she has both in spades..

  • If I was a Nationalist, I would consider the following lessons that should have been learned if a small state is to survive and prosper

    (1) Keep your currency until it is as strong or stronger than the Euro
    (2) Keep your banking system properly regulated and never allow the banks to overreach.

    I hasten to add that I am not a Nationalist but if Independence was what I really wanted, I would seek, as a stepping stone to independence, a separate currency for Scotland within the United Kingdom.

    That would result in a drop in value of that new currency but it would also enable them to acquire a balance of payments surplus. That is what they really need for economic independence and prosperity.

  • Mack

    Yes, exactly.

  • plainly speaking

    Anon wrote: “Nationalists believe that over the long term independent states will out perform dependencies. That has been true of the Republic versus Northern Ireland – even when the trough of the recession hits the Republic, it should still be ahead of its state subsidised brother.”

    After nearly 100 years of independence, the erstwhile independent state has had maybe 10 good years – hardly a ringing endorsement for an all-Ireland independent republic on the basis of sustainable national prosperity. Moreover, for at least a third of the century, the ‘subsidised brother’ was unwillingly placed on a de facto inward investment blacklist, such was the dedication of Republican advocates, a phenomenon sustained to the present by the Republic’s aggressive corporate tax policy.

    When a level playing filed is established, let’s see how unfettered entreprenuerial dynamism fares to wean the brother off subsidies, while the Republic embraces deep red socialism and continues to tolerate the usual encumbrances of a corrupt and incompetent political elite.

  • Not sure what the logical consequence of this article could be other than: Ireland should not be independent?

    The issue is not about size of country but type of economic management.

    As has been pointed out by others the Irish government embarked on a programme of extreme austerity measures some time ago that then weakened the economy and made it more difficult to meet guarantees to the banks. The Irish were widely praised for their tough approach at the time. This then resulted one in 20 people defaulting on their mortgages, making the debt crisis even worse.

    Go figure. What this has got to do with Scotland continuing to being tied to the failed British state is unclear.

  • Glencoppagagh

    Scotland has very poor prospects of a prosperous independence if it does not take vigorous measures to wean its population off state dependence. Setting about that task would test the SNP’s zeal since it has tended to do the opposite whilst in power. The decline of the Scottish Tories suggests that it is politically impossible.

  • Mack

    Bella Caledonia,

    the Irish government embarked on a programme of extreme austerity measures some time ago that then weakened the economy and made it more difficult to meet guarantees to the banks.

    No.

    The Irish state was never able to underwrite the entire liabilities of the Irish banking system. Measures to correct the structural fiscal deficit had zero impact on the foolhardy policy of guaranteeing bank liabilities. Ultimately making private bank debts sovereign is what sunk the state.

  • joeCanuck

    Welcome to Slugger Shuggy.

    I don’t think the size of a country matters any more. Their is little independance. the Masters of the Universe in Wall Street and other financial centers are the de facto rulers.
    Good luck though. What percentage of Scottish folk are committed to independence?

  • john

    Size of country does not matter at all – sure look at Spain its next to fall and people shouldnt be so smug about Britain either as it has serious problems also

  • Aldamir

    The fact that Brian Lenihan described it as the cheapest bailout ever shows that the bank guarantee was a policy which the minister deciding it didn’t even understand.

  • Hello…

    @Mack

    “It is a serious stretch to suggest, as I think you do in your last paragraph, that Ireland has neither prosperity nor sovereignty. Indeed in comparison to Scotland she has both in spades..”

    No, not exactly. I was referring to the position that Scotland might find itself in, had we followed the SNP’s policy. Scotland’s banking sector is proportionately bigger than Ireland’s. The bailout for the RBS alone would have practically bankrupted the country. With regards to Ireland, I think the angst about the loss of autonomy is over-blown. Nevertheless, they ceded control over monetary polciy via the Euro, which I think was a mistake and there will be some temporary loss of control over fiscal policy – although I see from recent events that this is as yet undecided. As for prosperity, I was under the impression it had taken something of a dent recently. Have I been misinformed? There is a reason, surely, why Ireland is currently the largest net contributor to intra-EU migration?

    @Bella Caledonia

    “Not sure what the logical consequence of this article could be other than: Ireland should not be independent?”

    What an extraordinary interpretation. No – one of the logical consequences is that if the SNP want to sell independence, they’d better come up with better arguments than the ones they’ve been making hitherto. We can do without this simplistic, “This wouldn’t be happening to us if we were independent”, argument that the nationalists make about everything when it is patently clear to anyone who has been paying attention that in this case it is likely that that what is happening to us would have been immeasurably worse if we’d followed Alex Salmond’s advice – which brings us to this:

    “The issue is not about size of country but type of economic management.”

    The type of ‘economic management’ that Salmond prescribed would have invited disaster. I’ve already agreed about the extreme austerity but this is a response to an already existing problem.

    In general I am not saying small states are not viable but it would help their fate if their governments would take more seriously the need to diversify their economies rather than merely celebrating the size of their banks in some kind of nationalist willie-waving competition. Without this, there’s always the risk that what happened to the Scottish town of Motherwell when its steel plant closed can also happen to small states. There is no point in pretending that the size of a country doesn’t matter. You think one bank could bring down China?

  • soosider

    First time on this site and am impressed with the quality of the posts.
    However I cannot help but wander where we got the idea that independence can be measured by accountants or financiers. We seem in this article to be playing a version of the what if scenario, “what if Scotland had been independent when the banks went down” I tend to think that this is one of the poorer arguments for remaining in the union, but it does seem to be an effective stratagem for getting some folk to back away from the idea.
    We can then get into a debate about what independence means and if there is such a thing as a wholly independent country in the modern world and here I think the article mixes up independence and interdependence of a modern economy.
    Ah the arc of prosperity funny how so many only discuss one end of the arc and dont mention how Denmark, Finland and Sweden are doing, never mind Norway which at the last count had control of some 1% of the worlds stocks, Norway where they have used there long term funds to buy up assets across the world at knock down prices,
    All in all yes Ireland is in serious financial difficulties, but do you know what, it will survive, it will continue to be independent and will progress by its own efforts. I do not mean to be flippant here but Ireland has come through worse in its history and continues to be Ireland and the very best of luck to them.

  • HeinzGuderian

    Nail on the head Shugg !! When the RBS had to be bailed out by a *foreign* country…….Salmond and co realised that independance was more than Mel Gibson’s VERY dubious take on history,and tartan short bread !!!

    The British Isles are intertwined in their histories……….One constituent part wanted to go it alone…………….the results of that little fiasco,are there for all to see !!! 😉

  • Anon

    You remember the UK was bailed out by the IMF, like? Turns out it’s still going. It’s very likely the Republic will still be going after all this, and have a decent standard of living.

  • JR

    I think that all countries, big or small have their crises. Germany has been devastated by war. It didn’t make it’s population want to give up it’s sovereignty.

    Greece and Iceland, and Ireland (so far) have undergone economic catastrophes as the USA did in the 20’s but they will just pick up the pieces, learn lessons and move on.

    On Scotland, they seem happy where they are but who knows what they will do in the future.

  • Mack

    @Shuggy

    Scotland’s banking sector is proportionately bigger than Ireland’s

    Are you sure?

    I’m guessing your assuming that as Scottish banks operate on a UK wide basis they’ll have larger balance sheets than banks operating in Ireland? That may or may not be true given the size of the credit bubble in Ireland. But equally the size of the total banking system (including shadow banking in the IFSC) is staggering. External debt in Ireland is a shocking €1.67 trillion or around €350k per man, woman and child..

  • Greenflag

    The ‘level playing field’ is a figment in the minds of ‘free market’ ideologues . A cursory look at world economic history shows that the world’s imperialist powers favoured ‘free trade’ only when they controlled the market for their products or had tied down their colonies as cheap suppliers of materials and food .

    It’s little different today . Those who push globalisation free markets i.e free access to developing mass markets are none other than the former leading imperialist powers and the USA the world’s current leading ‘imperial power’ disguised as a ‘democracy’

    The UK gave up it’s Empire so that it could hold on to ‘democracy’ at home . This it did in fits and starts and there are still a few ‘red spots’ on the globe far distant and some not so from Britain. The USA has 750 (red white and blue )spots all over the globe -many the remainder of the legacy of the Cold War but many recently acquired . Today’s ‘imperialism ‘ is financial more so than directly territorial . But no matter which way the cake is cut -the result is usually the same -the rich countries/banks.corporations win -the poorer countries /smaller banks and smaller businesses are gobbled up as the race to vertically integrate the entire world economy or large parts of it continues apace .

    The ideologues of capitalism offer the world a choice between the state capitalism of one party NON democratic China or the anarchic self and world economically destructive American brand .

    Meanwhile those smaller economies who still can are reintroducing capital controls in their economies so that they cannot become victims of ‘anarchic’ capitalism out to make a quick speculative billion or two on the backs of smaller countries .

    If anarchic capitalism is to be saved from destroying itself and the rest of the world along with it then the elected governments in the west are going to have to tackle the powers and greed of the financial services sector and the largest corporations and they can only do this by ‘taxing ‘ international transactions and reintroducing exchange controls which discourage the international speculators .

    How difficult would that be ? When the centres of the international speculative masters of the universe are located in Wall St and the City (London) it ‘s easy to see why there would be resistance to major change in the present anarchic world currency markets -by these powers .

  • Neil

    Anyone who thinks Nationalism can be bought or is dependant on finances is either thick as shit or is projecting their own shallow, unscrupulous and whorish values onto others.

    Put another way to those who instantly piss themselves with joy every time the financial argument is presented as a reason not to unite Ireland, Nationalists wouldn’t give up their wish to see a united Ireland for money any more than Unionists would give up their link with Britain.

  • Neil

    *Unionists would give up their link with Britain for money was what I meant to say.

  • Greenflag

    Mack.

    Have you given any thought to what the broader economic and financial consequences for Ireland (ROI) would have been had Anglo Irish been ‘allowed ‘ to default ? Would that not also have dragged down AIB and eventually BOI and other smaller banks , credit unions and building societies ?

    Was Lenihan not in essentially the same position as the USA Senators and Congress were when they were forced to swallow the bail out -for fear of something so much worse that it in retro seems unimaginable ?

    While there are those who make play of Anglo Irish’s rescue being for the sake of saving the ‘friends of Fianna Fail ‘ I suspect that just like in the USA , Ireland was facing a systemic wide collapse of the financial sector and it’s economy . Recovery from such a mess would make recovery from the present mess seem like a walk in the park ?

    While I agree that making private bank debts ‘ sovereign is what sunk the State is it also not true that the three major banks in Ireland had all become too big to fail in the local context and as we have seen since even in the Eurozone context.?

  • Mack

    Greenflag –

    Would that not also have dragged down AIB and eventually BOI and other smaller banks , credit unions and building societies ?

    That happened anyway – it’s effectively why the IMF are here. What we could / should have done is found the least costly path. Protected depositors up to the pre-agreed maximums and started a new with a new bank / banking system after shareholders, bondholders and large depositers had taken the brunt of the pain..

  • Mack

    Recovery from such a mess would make recovery from the present mess seem like a walk in the park ?

    It depends, pain would have been front loaded for sure, but growth would return far quicker. My guess is that our new emmigrants and long term unemployed would prefer the former. They’ve lost the most too..

  • Sure – but you’re assuming that a lot of people choose nationalism/unionism to dominate their world-view. In the Republic, most people don’t seem to any more – and a sizeable portion of the Sixlet don’t either.

    Whatever political activists think, there has to be a straightforward and coherent case that removing the border would make people’s lives materially better before anyone will consider it.

    I suspect the earliest date that this could happen has moved very significantly further into future as a result of recent events (I’m saying this as an agnostic on the question of partition by the way).

  • Greenflag

    Mack,
    Thanks for that much as I expected .

    ‘and started a new with a new bank / banking system after shareholders, bondholders and large depositers had taken the brunt of the pain.’

    Presumably while listening to the sound of Rotschild’s, Goldman Sachs and other investors ‘screaming ‘ ? Nice thought but perhaps in another universe or another time . The name of the current game is the ‘rich ‘ and those responsible for the crisis the bankers, hedge fund managers and politicians get off the hook whereas taxpayers everywhere get it in the neck .

    As for front loading the pain ? Very difficult in ‘democracies’ particularly in a democracy like Ireland where the ‘public sector ‘ constituency is organised , unionised and strong enough to probably oust any government that tries to trample on it’s priviliges .

    The least costly path would have been for Mr Cowen and others in FF to have stopped or slowed down the ‘gravy train’ of overcheap credit back about 2002. Alas I believe Mr Cowen is no party pooper and has been on occassions been heard singing for more beer for the party 🙁

    It’ll take several more G-20 meetings and some serious banking reforms before people in Ireland and elsewhere can expect to see international currency stability -imo.

  • Fairly, although wouldn’t stake my life on it or anything. The data from the OECD I came across put Scotland second only to Luxembourg for the size of financial sectors within small European countries. Internally it’s second only to energy as the most important industry here.

  • Michael Gillespie

    Ireland should follow Scotland’s constitutional Path.

    In a T.V. interview Alex Salmond stated categorically that he envisaged an independent Scotland with the Crown as head of state like those other independent nations in the modern world that have the Crown as head of state. In this Alex Salmond is stating clearly that he is a constitutional nationalist not a Republican. With that distinction a suggested referendum for Scotland’s independence should take the following form: –

    Do you wish Scotland to be a sovereign independent nation with
    (a) The Scotland Constitution Act as its constitution making the Crown Scotland’s head of state?
    (b) A Republican Constitution with a president as head of state?

    For a nation to be a nation it must have an agreed constitution. The Irish have been in conflict over the constitution for centuries. In a referendum for all Ireland identical to the suggested Scotland’s referendum Ireland should replace Scotland and The National Government of Ireland Act should replace the Scotland Constitution Act. The referendum should be counted separately in the 6 and 26 counties. The Queen’s state visit to the Republic is a step in the right direction but to unite and stabilise Ireland an agreed constitution will require the acceptance of a reformed elected Crown as head of state in an all Ireland within a Federal Kingdom. There is more on a Federal Kingdom at http://www.authorhouse.co.uk by typing my name into search.

    Michael Gillespie Federal Unionist-Early Sinn Fein Derry