IPF Team Member Rebecca Collier attended a talk by leading economist John Kay at the University of Glasgow.
On the 21st of February, the University of Glasgow was fortunate to welcome John Kay a leading economist in the United Kingdom, and among many other things is a Visiting Professor of Economics at LSE in London, and a fellow at Oxford University since 1970. This lecture, in a series of keynotes on the matter of Scottish independence, was on the economic challenges of an independent Scotland.
The discussion on this issue started with looking into those small Western European countries that have proven to be among the viable and successful. Mr Kay alluded that this was due to current economic realities meant that smaller states are able to survive and flourish economically via activities with a high aspect of specialist advantage (example: Switzerland and its advantage in precision engineering), unlike the economies of scale mind-set that drove the pre-20th century empire-building mind-set. Using this logic it is conceivable to say that perhaps Scotland does have the ability to be able to fully function as an independent state.
There were two important things that were brought up by Mr Kay with regards to the issue behind Scottish independence. The first of these is on an issue surrounding much of the independence debate: currency. The second was on the business environment in Scotland, and what their competitive advantage has the potential to be.
Mr Kay established three possibilities on how to deal with the issue of currency with an independent Scotland. Firstly, is for Scotland to join the Euro, a suggestion that seems to be in constant discussion. Scotland would not initially qualify for membership into the European Union due to the debt level that would undoubtedly arise post-independence, and Scotland would not automatically qualify just because of their previous relationship with the UK. Instead they would need to be treated as a new sovereign state. Secondly, is for Scotland to form a monetary union with the UK, allowing them to continue using the English pound. This however, would not be easy to achieve within political and market circles, and an immediately post-independent Scotland, out of the two countries, would be poorer. With currency being shared, but backed by only one central bank there runs the risk of capital flight (investors moving their securities out of one country for fear of country specific risks), which would require a degree of fiscal coordination. Third and finally is the option of separate Scottish currency altogether, which will prove important when independence becomes a serious option, and a move that will make Scotland wholly independent.
John Kay spoke at the University of Glasgow on the subject of Scottish Independence. Image Credit: Chor Ip/Flickr
With regards to the latter, Mr Kay listed five “narrow areas” of specialism that could make Scotland effective where they already possess a degree of competitive advantage. These are (in no particular order); (i) financial services, (ii) tourism, (iii) premium food and drink, (iv) energy services and (v) life sciences and medicine. There was also the suggestion that creating a new, or increasing the existing climate of entrepreneurship in Scotland would lead to new businesses that can exploit these areas.
On a fitting endnote, it was said that the issue of Scottish independence should not been seen as only an economic issue, whether that be a ‘No’ because it has the potential to be an economic disaster, or ‘Yes’ because it has the potential to be an “economic bonanza”.
Interestingly, on the same day, the University of Glasgow completed a mock referendum. The results of which were available on the BBC on the 22nd of February, show that 62% (1614) of students voted ‘no’ in whether or not Scotland should be an independent country. While no more than 2,600 students out of 23,000 students took part, it can nevertheless be said that these were not results many were anticipating. What can be said is there is still more than a year until the proposed referendum for the wrinkles in this debate to be worked out. Paraphrasing the words of Mr Kay, this debate on independence stretches much further than economics.
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