Scotland’s Independence

(TAKAHASHI Yoichi, PPPC President)

Media are full of reports regarding the referendum on Scotland’s independence. BBC is full of the news in eye of the voting on September 18.

Polls suggest the results would be too close to call.

There was a similar referendum in Quebec in Canada in 1995. At that time, while “yes” side exceeded in the prior census survey, “no” side finally gained the victory. This time, there is an optimistic view that Scotland finally stays for suggestions of Queen Elizabeth or Prime Minister Cameron.

What is the United Kingdom, from the first place? The U.K. is composed of England, Whales, Scotland and Northern Ireland, which respectively sends the national team to the World Cup soccer games. While I was staying in U.K. during the World Cup, my friends told me not to call the national team as “British” in Scotland, given the team was England.

The national flag symbolizes the complicated history of the commonwealth. England’s mark is the red cross on white background, Scotland is white cross on blue, and Ireland is red cross on white, which all comprises the Union Jack.

The reason I pay attention to the Scotland issue is from the perspective of decentralization. According to the decentralization theory in the economics, decentralization is superior to centralized regime in terms of efficiency just like the market mechanism is basically superior to bureaucratic allocation of resources. Yet, even in this case, it is premised that the central government engages in the national defense, financial and monetary policy.

From such perspectives, it consequently leads to the principle of “near is better” that the private sector does what it can, and the government takes the leftovers, and that the local governments do what they can and the central government takes the rest. However, looking at the true state of U.K., while it could be said that the private sector is doing what it can, the central government is dominant within the central-local demarcation.

The U.K. is a uniquely centralized country in the international standard. It is a surprising fact given that the other Anglo-Saxon countries are having much more decentralized regimes. True, there are little local assembly or local taxes in the U.K. Because there is no local tax, there is no need for local assembly to decide local taxes. Most local governments are managed by allowance from the central government.

Recently, the Blaire administration started the decentralization moves by first establishing local assemblies in Scotland, Whales and Northern Ireland, which reinvigorated Scottish independence. Main independence supporters are young citizens and poor residents. Frustrations of the weak are turning to the independence campaign, seemingly.

The present situation is, it seems to me, that the central government had forcibly pressured voices for decentralization reform for long, and its outcome was the poor management of the local economies, hence the people’s frustration unmasked as the current independence movement. However, administrative infrastructure is not prepared as the state has long been centralized. Virtually no local tax exists in Scotland and the local finance depends almost exclusively on allowances from the central government. It is also guessed that the Scottish bonds owe to the central government. Therefore, once Scotland becomes an sovereign state, existing loans from the central government will likely be exchanged with the existing bonds that the current central government has. It means that new loans will be imposed to the new state which has little financial resources from the beginning. The new Scotland will face the risk of financial crisis as soon as it gains independency.

The new Scottish government will no longer receive supports from the central government. Leaders of the independence campaign will seek the North Sea oil as alternative financial sources, but the North Sea oil is declining itself, so financial management of the new state will not be easy. Also it has nuclear facilities in its territory.

Independence also means that a new government must issue its own currency. British pound is a legally-based currency in England and Whales issued by England Bank, and legally speaking there are rooms for Scotland Bank and others to issue new currency. However, there is no know-how of monetary policy in Scotland. Henceforth, the “yes” side insists an easygoing idea of currency treaty centered on England Bank.

To avoid possible troublesome conflicts such as above, many capitals may evacuate from Scotland, or even from the entire U.K. Scotland’s independence will cause the conservatives in the U.K. to take advantage in the country, which might lead the British society to lean nationalistic, and even the government to retreat from E.U. Only vicious circles can be predicted on its way.