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Preserving policy space in an independent Scotland

Last week’s attempts at arm-twisting Scotland over sterling and European Union membership have backfired. But an independent Scotland should want no part in either surrendering monetary sovereignty or EU constitutionalised neoliberalism.

Thomas M. Hanna Joe Guinan
28 February 2014

If it was supposed to be a pincer movement then it was a spectacularly ill-judged one. First a troika of the three main Westminster parties lined up to rule out a currency union with an independent Scotland. Then European Commission president José Manuel Barroso declared that Scotland would find it “extremely difficult, if not impossible” to secure EU membership in the face of a Spanish veto. These crudely staged interventions by London and Brussels elites have been seen for the strong-arm tactics and political logrolling that they are, producing an immediate and well-deserved backlash. A few more forays like this and Scottish independence will be in the bag.

In fact, there are plenty of reasons to believe that a Westminster-Holyrood deal on sharing the pound would be forthcoming after the referendum—not least because of the impact losing Scotland’s oil receipts would have on the exchange rate and the City. The voters know this, and do not take kindly to being treated like fools. Similarly, the equation on EU accession will shift once the votes have been counted in September. Break-up within the European Union may be without precedent, but a number of member states are themselves products of secession. The Spanish will likely come around. (Perhaps they should be offered Scotland’s share of Gibraltar, acquired in 1713 under the Treaty of Utrecht and therefore a “shared asset”?) A judicious assessment in The Economist predicts a four to five year timeframe for accession: “Divorce means breakaways must live as singles, at least for a time … Scary or liberating, that is the meaning of independence

This said, the terrain of last week’s disagreements—monetary affairs and EU membership—has surfaced some important questions regarding the case being made for Scottish independence, though not quite in the way the Osborne-Balls-Alexander cabal intended. Truth be told, an independent Scotland should want no part in either surrendering monetary sovereignty or EU constitutionalised neoliberalism. That these are the positions staked out by the SNP leadership may be a matter of tactics. But it also reflects the continuing prevalence of a suffocating neoliberal economic paradigm at the heart of policy thinking—one that offers a highly circumscribed view of post-independence possibilities for economic self-determination and national development.

Let us be clear: the future of Scotland is a matter for the people of Scotland to decide. So too is the economic policy direction to be pursued by the new polity, should the referendum deliver independence. But decisions to forgo a sovereign currency and to leap straight back into the embrace of the EU will have far-reaching ramifications across the post-independence political-economic landscape, greatly shrinking the policy space available to future governments. For well-wishers like ourselves, fellow travellers along the road to Scottish self-determination, it would be disappointing indeed if Scotland were to awaken from the long nightmare of Westminster-imposed neoliberalism only to prove too scared to get out of bed.

The debate over Scottish independence has been one of the most exciting in UK politics in recent memory. At least in part this is because of new space it has opened up on the left. A younger generation of activists has been re-discovering a truth observed long ago by Tom Nairn—that in contrast to the “slow, festering decay of British state” the prospect of Scottish and Welsh independence injects a jet of fresh air into public debate, “an element of novelty into the hopelessness and corruption of the post-imperial political scene.” How often in recent years have citizens of world-weary post-industrial states been presented with such a prospective “constitutional moment”—an opportunity to discuss, from first principles, the kind of society in which they want to live, the kind of politics and economy in which they wish to participate?

For this reason, the political excitement, energy, and imagination unleashed have all been on one side, in marked contrast to a grim cross-party consensus at Westminster that exists beneath partisan camouflage and the narcissism of minor differences. This is what Labour unionists south of the border fail to grasp: Scottish independence would also be good for the English, helping break the grip of a still unreformed British imperial state and opening up avenues for popular mobilisation around a bottom-up, participatory, decentralised politics. The road to renewal of the dormant traditions of English radicalism runs through Scottish independence and further Welsh devolution.

In this context, forces within the “Yes” campaign such as the Radical Independence Campaign and the Common Weal project have been punching far above their weight. They could yet prove decisive in swaying the undecided “missing million”—a majority of whom, if the pollsters have it right, come from poorer, more deprived areas likely to support independence. Necessarily populist, nationalism in Scotland—as elsewhere—has been in part a response to uneven geographical development and the regional economic disparities produced by metropolitan domination. These have only widened in the neoliberal era, with the ascendancy of the City and the privileging of the needs of finance capital over productive concerns, to the point where they are now the greatest in the EU. To cultural and political demands for Scottish self-determination must therefore be added economic demands arising from the political geography of uneven development. And it is here that the internal contradictions of Scottish nationalism begin to emerge.

While the SNP was eager to occupy the political space vacated by New Labour in Scotland, it has done so, as Michael Keating has pointed out, by straddling “the neo-liberal and social democratic models of political economy, with blithe regard for their inconsistency.” Prior to the financial crash, SNP leaders would tout Scotland’s place in a Northern European “arc of prosperity” encompassing not just the Nordic social democracies but also Ireland and Iceland. Such comparisons have largely disappeared, but the SNP model remains a combination of low taxes and high spending. (Labour types eager to point this out might reflect on similarities to Gordon Brown’s approach). What is far from clear is how this can be reconciled with such visions as the Common Weal—unanimously adopted by a vote of SNP councillors—which encompasses industrial policy, workplace democracy, the extension of universal free public services and other radical departures from neoliberalism. (There is also the strategic problem of whether the Scottish left is latching onto a social democratic model that is itself eroding; of all the OECD countries, the greatest increase in inequality in the neoliberal period occurred in Sweden). Resolving such tensions and contradictions, of course, is what politics is for, and they will play out in due course—so long as the necessary policy space is not foreclosed in advance.

Which brings us back to sterling. Should Scotland surrender monetary sovereignty and the power of fiat money, with it will go control over a host of associated macroeconomic policies. The importance of this can be seen in the contrasting experiences of Argentina and Greece when each fell on hard times. The former reclaimed its monetary sovereignty in 2001 and has since managed to right its economic ship, while the latter’s prospects remain at the mercy of the European Central Bank (ECB) and International Monetary Fund (IMF). A sterling currency union would remain heavily dominated by the UK and thus, of course, by the City. Moreover, just as with the eurozone countries and the ECB, Scotland would find herself subject to strict fiscal rules set by UK monetary authorities as a condition for acting as lender of last resort. It would be ironic, as Ben Jackson wryly observes, if Alex Salmond’s legacy in passing up the chance for a separate Scottish currency were to amount to “a new Scottish state bound hand and foot by the Bank of England.”

Then there is Europe. Like Plaid Cymru in Wales, the SNP has embraced pro-Europeanism as an antidote to a rancid UK chauvinism. Brussels also answers the perceived need for a safe harbour—“the totally Pickwickian ‘economic problem’,” as Tom Nairn put it, “of whether Scotland would be ‘viable’ and could survive ‘on her own’—as if she was some kind of small shopkeeper, in fact, not part of an international economic order.” As in England, the left-wing case for Euroscepticism has disappeared from public debate. But EU membership may in fact be inimical to aspirations for a more egalitarian Scotland.

From its inception the EU has been a top-down project driven by political and administrative elites—“a political system,” in the judgment of the late Peter Mair, “constructed by national political leaders as a protected sphere in which policy-making can evade the constraints imposed by representative democracy.” The main thrust of EU economic policy has been to deepen the market through liberalisation, privatisation and flexiblisation, subordinating employment and social protection to goals of low inflation, debt reduction and increased competitiveness. Any attempt from inside the EU to create a different kind of economy will quickly run into difficulties. Across a range of economic areas—trade, financial regulation, state aid, government purchasing, public service delivery—many of the things the Scottish left might conceivably wish to do would likely fall afoul of competition policy or single market regulation and be disallowed. Under such neoliberal conditions there will be little that is distinctive about a new Scotland.

Forgotten in this picture is the fact that there can be life outside of the EU. Many countries manage it. Take Norway, for example—often compared to Scotland and with a similarly sized population. Rather than engaging in race-to-the-bottom competitive liberalisation or a rearguard defence of social protections on ever less favourable ground, Norway has charted a very different course. It was recently revealed that the oljefondet—the publicly-owned government pension fund capitalised with revenues from North Sea oil and gas—has amassed assets worth around £100,000 for every Norwegian man, woman, and child, the returns from which are available to meet agreed-upon social purposes or to ease the pressure on taxation.

Scotland could do something similar. The Grangemouth debacle last year underscored the pressing need for a new set of economic relationships given the grotesque power private corporations wield over communities and local public authorities. Notions of ‘good’ and ‘bad’ capitalism miss the point. At the heart of today’s capitalism is a set of institutional relationships—private credit creation, capital markets, the giant publicly-traded corporation—that together form the most powerful engine for the extraction of value the world has ever seen. “Its purpose,” in Marjorie Kelly’s definition, “is manufacturing financial wealth in ever growing quantity.” This basic institutional design, through its normal operations, drives the outcomes we are seeing in terms of labour arbitrage, compounding inequality, social atomisation and environmental destruction.

This need not be the case. A very different economy, based on alternative institutions and policies, is possible. To begin with, the footprint of government and of associated public spending is sufficiently large that, used more intentionally, it could stabilize local economies on the basis of sticky capital and anchored jobs. This in turn would reduce the effectiveness of corporate blackmail and restore the capacity for real democratic local economic decision-making—and, critically, for sustainability and resiliency planning. If returns to capital are increasing at the expense of labour, then we should look to broadening the ownership of capital. There are already moves in this direction with the recent upsurge of interest in cooperatives and mutualism. Worker ownership, consumer co-ops, community lands trusts, municipal enterprise and a host of kindred institutional forms all represent ways in which capital can be held in common by small and large publics.

Based on growing experimentation in communities around the world, it is becoming possible to project and extend a vision of democratised municipal and regional economies as an alternative to neoliberalism. Economic salvation need not come from outside; rather, it can be found in place-based economies oriented toward local multipliers and ‘taking in each others’ wash.’ Public economic development programs and workers’ pension funds can invest in local businesses. Municipal enterprises can build infrastructure and provide services, raising revenue and promoting employment and economic stability, diversifying the base of locally controlled capital. Participatory budgeting can allow citizens direct engagement in the allocation of public funds and other planning functions. Commons management systems can provide an expanding zone of de-commodification to buffer against the market. Public trusts can receive revenues from the management of natural resources or be extended into other domains, from land to the electromagnetic spectrum, providing funding streams to underwrite public services or issue a citizen dividend. Community land trusts can ensure affordable housing and prevent disruptive gentrification and speculative real estate bubbles.

If such an economy is to be built in Scotland, however, it will require a radically expansive view of the economic opportunities that come with independence. A hundred years ago, Irish republicans grappled with similar questions about true self-determination and how to get beyond a nominal independence that would merely ‘paint the postboxes green,’ in the words of James Connolly, the Edinburgh-born Irish republican socialist shot in 1916 for his part in the Easter Rising. “If you remove the English Army tomorrow and hoist the green flag over Dublin Castle,” Connolly warned, “unless you set about the organisation of the Socialist Republic, England would still rule you.” Should it amount to painting the Saltire on the prevailing neoliberal economic order, independence for Scotland would prove a similarly hollow victory.

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