What conclusions can prospective referendum voters draw on the economic case for and against independence presented by the 'Yes' and 'No' campaigns in the last few weeks?
(I include here the full version of the brief article that appears, along with the views of 4 other economists: Jim & Margaret Cuthbert, David Bell and Jo Armstrong in today's Sunday Herald)
From the Scottish Government we have had the publication of the report of the Fiscal Commission Working Group, including 2 Nobel Prize winners in economics amongst its authors, which set out a possible macro-economic policy framework and policy options in an independent Scotland. This week the Scottish Government published Scotland's Economy: the case for independence, which purported to explain why independence is an essential step in securing a more prosperous and fairer economy.
To be set against this we have had two publications from the UK Government as part of its Scotland Analysis programme. The first covered Currency and Monetary Policy issues in an independent Scotland. The second, published this week, sought to address the position of Financial Services and Banking in an independent Scotland.
As an economist seeking to evaluate these documents, the first conclusion I would draw is that voters should try and read the documents and not rely on the views and opinions expressed about them by the spokespersons for the 'Yes' and 'No' campaigns. And, yes, don't even rely on the views of commentators like myself.
The question that voters want answered on the economy is fairly simple, I think. They want to know will they be better or worse off if Scotland becomes independent. Some more farsighted might also want to know whether their children and grandchildren will be better or worse off. The two questions do not necessarily have the same answers. And both questions, embodying speculation on many future unknowns, are difficult if not impossible to answer with certainty.
So how are the two sides doing?
First, in my opinion, the quality and depth of analysis in the two UK Government papers far exceeds that in the Scottish Government's case for independence paper. We can set aside the report of the Fiscal Commission Working Group because that report, worthy as it is, does not seek to argue the case for an independent Scotland. Rather, it seeks to address the brief: what macro-economic policy framework should be put in place in an independent Scotland?
The two UK Government papers on the economy published so far are well grounded in theory and evidence. Written by civil servants, they are more balanced and objective than the pronouncements of the UK Government politicians and 'No' campaign officials. Both papers make a good case in identifying the risks to the economic well-being of Scots if they choose the independence route. The currency paper does this best because given the Scottish Government's declared option of retaining sterling, the paper very powerfully argues that this would be a second best to the present arrangements within the union. What that paper does less well is make the case that adoption of an independent Scottish currency after independence would necessarily be worse.
Both UK Government papers have to speculate on possible outcomes and it is inevitable that they focus more on worst-case scenarios and ignore the possible up-side. So the financial services paper makes a strong case that an independent Scotland would be in a weaker position to support the financial system given its relative size than is the case in the present UK. But future crises might not emerge and in the event of crisis there might be scope for a Scottish Government to internationalise the problem. I doubt it, but it is possible.
The Scottish Government's paper in contrast has a more difficult task. It chooses not to talk down Scottish industry but at the same time it wants to suggest that performance would be better under independence. So underperformance has to be laid at the door of the union. And policy in an independent Scotland would be more favourable to competitiveness and growth.
It doesn't succeed in doing any of this.
The paper provides stats on Scotland's growth rate over the past 34 years to 2011. Scotland's growth is a little weaker than both the UK and small EU countries. But not by much. At 2.3% annual growth in Scotland between 1977 and 2007 compared to 2.8% growth in the comparator countries, Scottish GDP would have doubled by 2008, while comparator country GDP would have doubled by 2003. Some might query whether that gap is of sufficient size to warrant breaking the UK union.
But, in fact the gap isn't necessarily that large. If the paper had included the available data from the 1960s it would have shown Scotland growing more strongly than the UK and possibly the small EU countries. The choice of start date is therefore spurious and clearly designed to suit the Scottish Government's case.
Even if we accept that Scotland has a growth deficit compared to say the small EU countries does the Scottish government's paper demonstrate the cause? I think any reasonable observer would answer no!
In the paean of praise to Scottish industry there is no mention of historic weaknesses such as a low business birth rate, low business research and development spend, low innovation, low quality investment and adoption of managerial best practices. These problems have bedevilled Scotland's development and enterprise agencies for years. It is difficult to see how such problems can be laid at the door of the UK union, particularly when other non-metropolitan parts of the UK do better on some or all of these indicators.
But even when the paper does focus on perceived deficiencies of the union we are offered largely ad hoc explanations such as no oil fund, credit boom in the 2000s, inequality high in UK, the austerity policy of present UK Government, recent UK cuts in capital spending and so on. There is no systematic explanation of how their perception of weaker Scottish growth over the last 34 years is the fault of the UK union.
Moreover, there is little if anything proposed on the policy programmes that an independent Scottish government would deploy to raise the well being of the Scottish people. Even if independence was necessary for improved well being, which I don't think it is, we are almost asked to believe that it will be sufficient.
The Scottish Government and the 'Yes' campaign can do much better. The UK Government also needs to be more willing to admit there are many unknowns and that independence might offer benefits as well as the costs.
But don't believe me, read the documents yourself.