Persuading the Scots

The Government of Scotland has just released its 600-odd-page white paper on independence in advance of the September 18, 2014 referendum on the question. First Minister Alex Salmond and the rest of the pro-independence side have their work cut out, with the latest poll showing a 47-38% plurality in favor of “No.”

In part, the white paper aims to show that independence would not harm the Scottish economy. There is a debate between nationalists and the British government about whether Scotland would face a significant fiscal gap after independence. The Institute for Fiscal Studies says Scotland would face a long-run fiscal gap amounting to 1.9% of national income after independence, while the British government says Scotland would have to raise taxes 9% upon independence to fund the same benefit levels. Nationalists retort that they would change policies to save money. Nevertheless, like most political parties, they are only specific about the new benefits they plan to introduce after independence.

Still, there is good evidence that most Scots are not concerned about the fiscal issues relating to independence. After all, somewhere between 52 and 68% of Scots express support for either independence or “devo max” in polls. “Devo max” is a term used in the UK for full fiscal autonomy, under which Scots would pay no direct taxes to and receive no direct benefits from the UK government (everything would be negotiated between the Scottish and British governments). The strong support for at least devo max implies that Scots aren’t worried about suffering from a fiscal gap even when fully fiscally autonomous.

The dropoff in support from devo max to independence reflects that Scots are more worried about the foreign, monetary, and trade policy uncertainties attendant upon independence. A major bone of contention has been nationalists’ desire for a currency union. The “No” side insists that there is no guarantee the British government will accept a currency union. Salmond has said Scotland could repudiate its share of British debt if the British government didn’t accept a currency union.

The key sticking point in the currency union debate is that the nationalists desperately want Scotland to retain a say in the Bank of England’s monetary policy. Absent that desire, it would perfectly straightforward for Scotland to retain the pound. They don’t need a central bank: people, including the new independent government, could go on using the pound as usual. Indeed, a better threat than debt repudiation that Salmond could make would be for Scotland to abolish central banking, legal tender laws, deposit insurance, and financial regulation, and suck financial business out of London into Edinburgh. (A libertarian can dream, right?) But Scotland’s political culture is solidly left-wing, and any suggestion of going without a lender-of-last-resort wouldn’t fly with voters.

So as we have seen with previous referendums in Quebec, the “Yes” side will insist that all will go on as normal after independence: same treaties, same trade relations, same monetary policy. Meanwhile, the “No” side will play up the uncertainties. They won’t “talk down” Scotland, which would risk a backlash, but instead they’ll just keep saying “there are no guarantees” and attacking the nationalists’ plans as “unrealistic,” “uncosted,” and “amateur.” Steve Saideman notes that there is a tension between nationalists’ desires to “keep everything the same” and promise improvements after independence: secession is either meaningful or it isn’t!

The way to square the circle is that Scots want more left-wing policies than the British status quo on welfare rights, education, the environment, Europe, labor, and defense, but they also like the risk-pooling advantages of a larger state. They see no advantage in a new Scottish currency or a nonaligned foreign policy. Therefore, nationalists promise Scots what they want on the former set of policies while trying to assuage their doubts about the latter.

The figure below shows how Scottish nationalism has tracked left-right ideological change in the Scottish electorate, for UK general elections only. The blue line represents the vote share for secessionist candidates in Scotland: mostly Scottish National Party (SNP), but also Greens, Socialists, and some independents. The blue line represents the UK vote for center and right parties minus the Scottish vote for center and right parties (mostly Conservatives, but also UKIP, Unionists, and the like). In general the two lines correlate pretty closely; the only major exceptions are the 1979 and 1983 elections, when Scotland moved left relative to the UK as a whole, even as the SNP vote collapsed. Since then, the lines have correlated rather well. There is some reverse causation here, since the SNP is a left-wing party, but the fact that the nationalists have adopted a forthrightly left-wing platform tells us something. The bottom line is that Scotland’s move further to the left of the UK has helped promote the secessionist cause. (The spike in the 1974 elections was due to the discovery of North Sea oil, which the SNP politicized under the campaign slogan, “It’s Scotland’s Oil!”)

Whether Scotland votes “yes” or “no” in the referendum will depend on how the pivotal voters trade off concern over future Conservative governance in Britain against the uncertainties of full independence. One reason why “no” appears headed for victory is that the Conservatives look set to lose the next UK election, and over the last two decades, Labour has looked like the natural party of government in Britain and has in fact moved British policy significantly to the left, at least on fiscal issues. Scottish voters have less to fear from union.