Category Archives: economics

Peace, European values and the well-being of the peoples of Europe

Glasgow Foodbank
Glasgow Foodbank by Zep 19, on Flickr.
Article 3 of the consolidated EU treaties states: The Union’s aim is to promote peace, its values and the well-being of its peoples.

How can the EU’s aim be compatible with forcing the Greek people into poverty through austerity? Surely it doesn’t promote the well-being of the people of Greece at all. Given that poverty, unemployment and general hopelessness can easily lead to civil unrest and down the line even war, it doesn’t appear to be promoting peace in the longer term either. And I naïvely thought European values were about democracy, liberty and solidarity, not about enforcing neoliberal economic torture against the democratic will of a people.

I’m a huge fan of the EU project, especially the way it was conceived and implemented in the 1980s and 1990s. Promoting peace and prosperity while fostering links between people from many countries is a wonderful idea. Without the EU’s rules about free movement, I might never have moved to Scotland (I got a job here without having to apply for a work permit), which would have deprived my daughters of being born, given that I met my beloved wife here. And if European countries had been at war rather than working together in the 1960s, my father would probably not have moved from Württemberg to Denmark, where he met my mother.

However, the way the EU is currently developing is hugely worrying. It’s increasingly becoming a technocratic project where most decisions are made according to the rulebook of the Party of Necessity (“there is no alternative”).

I’m sure most of the modern EU politicians honestly believe they’re doing the right thing, but they don’t appreciate that there is more than one way to do things, that globalised neoliberalism isn’t the only game in town. As Paul Mason put it recently:

For a technocratic, youthful generation of politicians, brought up in what playwright David Hare calls the “absence of war”, the events in Greece just do not fit the world view in which all these historic issues and grievances, and obscure Greek anniversaries were supposed to be subjects for the documentary channels, not politics.

The modern technocratic politicians are of course everywhere, not just in the EU. In many countries, they’re busy trying to abolish universal benefits, free public amenities, subsidised public transport and so on. For instance, in Denmark there are currently huge discussions about how it’s becoming impossible to live in “Udkantsdanmark” (“peripheral Denmark”) because schools have been shut, bus routes cancelled, hospitals centralised, and so on. Everything was done in the name of efficiency and quality, but the technocratic politicians completely forgot to ask themselves what Denmark will be like when almost everybody lives in either Copenhagen or in the nascent Randers-Århus-Skanderborg-Horsens-Vejle conurbation.

Of course there are exceptions in some places. The SNP has been brilliant at defending universal benefits, lowering ferry prices and doing many other useful things, but in many countries only fringe parties go against the technocratic consensus. Another example is the fight against benefit fraud and tax avoidance. Modern neoliberal technocrats seem to be outraged at the former and quite relaxed about the latter, although the state loses much more money through tax avoidance. Again, the SNP has signalled a very different approach in Scotland.

To return to Greece and the EU, I obviously don’t have a problem with voters electing technocratic governments if that’s what they want. However, currently it seems like the EU is increasingly becoming a tool for the technocratic governments to force any aberrant countries to toe the line. They’re clearly not thinking first and foremost about the consequences of their actions on peace, European values and the well-being of the peoples of Europe, but more about not rocking the boat and upsetting their friends in the multinational banks.

That said, there’s clearly also a cultural clash with regard to bankruptcies. In Denmark and Germany, declaring bankruptcy is more about getting protection from creditors and less about getting a fresh start; if you’ve grown up in a culture where any debt you take on stays with you forever, it must be hard to understand why a country should get half its debts cancelled just because it cannot realistically ever pay them back. However, Germany would do well to appreciate that the forgiveness it was shown after World War II made it the stable and peaceful country it is today, whereas the punitive measures imposed on it after World War I were an important cause of Nazism; if they truly want a peaceful and harmonious Europe, they should perhaps pass on the baton of forgiveness.

I really hope the current technocratic/neoliberal majority in the EU will be replaced by parties such as the SNP and Syriza who’re willing to rethink politics and create a Europe that works for the benefit of its citizens.

Why I’ll be voting Yes on Thursday

Although I’ve written hundreds of blog posts over the past couple of years, I’ve never described my personal journey to Yes. With just a few days to go before the referendum, here it is.

Getting to know Scotland

When I moved to Scotland from Denmark in 2002, I hadn’t thought much about Scottish independence, but I was broadly in favour of it. It would be hard not to when you come from a successful independent country the same size as Scotland.

Yes Scotland's first annual Independence rally
Yes Scotland’s first annual Independence rally, a photo by PhylB on Flickr.
However, at first I wasn’t really aware of the differences between Scotland and the other UK nations. I think I thought the differences were mainly cultural and linguistic, but I gradually started to notice the differences were much more fundamental than that, that Scotland really isn’t just another region of Britain (something which most English people never seem to have realised).

Indeed, surprisingly to foreigners, most Scots seem to consider Scotland to be a country within a political union called the UK. Sometimes believed to be too wee, too poor and too stupid to be independent, perhaps, but a country nonetheless. This is very different from how the UK is seen abroad. In most languages, ‘Britain’, ‘the UK’ and ‘England’ are used with exactly the same meaning. For instance, I have often received letters from Denmark addressed to ‘…, Glasgow, Scotland, England’.

The reason that it took me a long time to work out that Scotland wasn’t just a region wasn’t helped by the media. At first I watched BBC News, Channel 4 News and all that, and it took me some time to realise that half the news stories they were reporting weren’t relevant to Scotland. (Thank goodness I picked The Scotsman as my daily newspaper — I could just as easily have gone for The Independent!) The lack of devolution of the media is bizarre — it should have been a very easy thing to devolve.

However, once you start to realise that Scotland is indeed a country, a lot of things fall into place. You also start noticing how the native culture of Scotland is considered inferior by many people. For instance, although I had learnt some Gaelic before moving to Scotland, I only really started learning Scots after I moved here. It was very difficult, however, because most people will look at you like you’ve got three heads when you speak Scots with a foreign accent. It’s such a strange situation — a language that is spoken by almost half of the population but that people treat as an embarrassing dialect. The language of Dunbar and Burns, for crying out loud! It should be celebrated and be an obligatory subject in all schools as far as I’m concerned!

A political journey

During my first few years in Scotland, very little seemed to happen on the independence front. The SNP wasn’t getting close to power, and I started to think there would never be a majority in favour of independence in the Scottish Parliament (those were the days before Salmond returned to Holyrood), and so I gradually started thinking that perhaps a more realistic solution would be a reformed UK — a written constitution, proportional representation in Westminster, proper federalism, an elected House of Lords. I even joined the Liberal Democrats, thinking they had the determination to reform the broken union.

However, I rapidly grew disillusioned with the LibDems. I think it started when they refused even to sit down with the SNP in 2007 to explore whether a coalition could be formed. It started dawning on me that their commitment to federalism was just skin-deep, and that their real instincts were pro-Union and pro-Empire.

When the LibDems entered government with the Tories, I was initially hopeful that they would manage to get some meaningful reforms out of it. However, they repeatedly got outsmarted by the Conservatives. The introduction of tuition fees was of course a huge betrayal, but from a Scottish perspective it was even worse that they failed to introduce the AV system and to reform the House of Lords. Clearly the voting system referendum should have been about proportional representation (and not AV) if the Tories were going to be campaigning against it — AV should only have been accepted if the Tories committed themselves to campaigning in its favour.

More importantly, if the UK political system couldn’t even implement such a minor reform, what hope was there of ever enacting the far bolder reforms that I considered necessary?

These political events (on top of the Iraq war and the numerous other scandals that New Labour presided over) convinced me that the UK was a failed state that couldn’t be reformed. Many political parties seem quite idealistic when they’re far from power, but as soon as they get involved with the civil servants, they become part of the establishment machine and become carbon clones of the previous government.

In the meantime, the SNP had demonstrated that they could do things differently at Holyrood, and as a result they gained an absolute majority of seats in the Scottish Parliament, which then made an independence referendum an inevitability. I finally realised that I was a member of the wrong party, and I joined the SNP.

A different journey

At the same time I had been pursuing a career at a large publishing house in Bishopbriggs. Every other year, a redundancy round would move more of the best-paid jobs down to London, and I realised that you can only progress so far in your career in Scotland — at some point, you need to spend some years — or even the rest of your career — in London.

This might seem obvious to Scots, but to a Dane like me it was hugely shocking. Unless you want to be CEO of a multinational company, Danes expect they can have fulfilling and rewarding careers without leaving Denmark. If people do move abroad for work reasons, there’s not a single destination that dominates — Brussels, London, Berlin, New York, Oslo and Zürich are all equally likely.

I also fell in love with one of my colleagues, and one thing led to another. With five children in the house, I now see the educational aspect of devolution, too. Because they’re at Scottish schools, you can’t easily move to England for a couple of years, and you worry whether they can have a good career here. You also notice that the school holidays here aren’t in sync with the BBC’s school holiday programming and with the back-to-school products in supermarkets. The separate school system is making it hard to move to England and back, but you need to do that for your career. In this regard, the current system gives us the worst of both worlds.

Reforming the UK

If it was likely that the UK would be fundamentally reformed soon, my natural instinct would be to give it a chance. However, given that very few meaningful reforms have happened after more than a decade of Labour governments followed by a coalition government that includes the Liberal Democrats, I cannot see where the willingness to reform the UK will come from.

The main political parties in Westminster don’t seriously want to overhaul the system (because it’s working exceptionally well for the Westminster and City of London elites), and there’s not even a party that can carry the beacon of hope (in the way the LibDems did before 2010). The only untested party that has a chance of gaining power within the next decade is UKIP, and that will most certainly be a change for the worse!

If we have a choice between being part of a failed state or a new, potentially very successful one, the choice is easy.

Some people have suggested that the main diving line between people voting Yes and No is whether they feel Scottish or British. This national identity question is not what makes me a Yes. I don’t feel British in the slightest — I would probably describe myself as a Danish-Swabian-Scottish European, but I’m not against unions per se.

If somebody suggested creating a single country out Denmark, Norway and Sweden, I would look carefully at the proposal. If the new Scandinavian Union could achieve things that the existing countries couldn’t do themselves, and if all three countries were going to get a fair share of political power, I might be in favour. If, on the other hand, the Union simply meant putting Stockholm in charge of Denmark and Norway too, making Swedish the official language in all three countries, and the main benefit of the Union was to give the Swedish generals a bigger army to wage wars with, I would most definitely be against it.

The same applies to the UK. I haven’t found any area where we’re better together inside the UK. Externally, the UK might be stronger than its constituent parts when the country tries to punch above its weight in the UN and on the world stage generally, but unfortunately the result is not anything that furthers peace, democracy and the rule of law elsewhere on the planet, and what’s the point then?

Scotland can lead the way

Then what? Nordic Horizons!
It’s also very clear that Scotland and the majority of the rUK have very different visions for the future. An independent Scotland would want to retain and improve the welfare state (the Common Weal), whereas the rUK (led by London) is on its way to becoming a terribly unequal global city state. I believe Scotland could even inspire the other Nordic countries, where a certain degree of welfare state apathy has set in, but where Scotland’s experiences with living under Thatcher and Cameron will galvanise the resolve to do better.

What I want

I want to live in a rich, egalitarian country. Where my children can have a decent career without moving away. Where a welfare state provides healthcare and education for everybody. Where people get a hand when they’re down instead of being kicked further down. Where important rights are guaranteed by a constitution. Where immigrants are welcomed because most families consist of immigrants and emigrants. Where people are focusing on building the best small country in the world, not feeling disempowered and disenfranchised. Where nobility has been abolished, and ideally where the monarchy has been voted out too. A country that is growing at a normal speed, rather than seeing all other countries overtake it. A country that is a happy EU member state, not suffering from the Little Englander syndrome. A politically normal country, where people discuss the economy and foreign policy, not independence all the time.

The choice is simple. It has to be Yes.

(I haven’t mentioned the currency of Scotland, the transition costs or anything like this, because those aren’t reasons to vote Yes or No to independence — they’re purely practical problems to be resolved.)

The EU budget rebate

European Council backstage March 2013
European Council backstage March 2013 by European Council, on Flickr.
The No campaigners keep repeating their scaremongering stories about the EU ad nauseam:

A spokesman for Better Together said: “As part of the UK we get special deals in the EU.

“What Alex Salmond needs to be honest about is what would happen to our opt-outs on the Euro and the no borders immigration scheme, as well as what would happen to our rebate.”

I don’t know why they even bother mentioning the Euro any more. As discussed previously on this blog and in many other places, Scotland does not currently fulfil the criteria for joining the European currency, and it seems unlikely that Scotland would be able to introduce the Euro before 2023, even if it became a political priority. Also, Sweden has demonstrated how any EU country can stay out of the Euro without having a formal opt-out by refusing to join the Exchange Rate Mechanism (ERM-II).

The no borders immigration scheme is a novel way to refer to Schengen. Schengen is actually a wonderful idea, which allows people to travel freely across Europe without ever needing to produce a passport. However, the UK and the Republic of Ireland decided not to join this and to continue with their own Common Travel Area (CTA) instead. The whole idea of the CTA would fall apart if Scotland joined Schengen instead, so it would probably lead to all of the British Isles joining Schengen shortly afterwards if this happened. I would expect the rUK to put up a big fight to keep Scotland in the CTA for this reason. There’s a good discussion of this on Wings over Scotland.

The last point made by Better Together was the UK rebate. There are actually huge problems with the way it works:

The rebate distorts UK funding negotiations with the EU. Normally, countries and independent agencies within each country bid to receive central EU funds. The UK government is aware that two-thirds of any EU funding will in effect be deducted from the rebate and come out of UK government funds. Thus the UK has only a one-third incentive to apply for EU funds. Other countries, whose contributions into the budget are not affected by funds they receive back, have no incentive to moderate their requests for funds.

I wouldn’t be surprised in the slightest if this was the reason for Westminster’s recent decision to block Scotland’s access to EU funding for tackling youth unemployment:

Westminster’s decision to stand in the way of Scotland accessing EU funding to help tackle youth unemployment has been branded one of the clearest examples of Westminster’s anti-Europe agenda “actively damaging” the job prospects of people in Scotland.

The European Youth Guarantee provides young people under 25 an apprenticeship, training place, job or the chance to continue in education within four months of leaving education or becoming unemployed. However, the UK Government does not support the scheme, meaning that young people lose out on the EU support available to them.

In Scotland the Opportunities for All scheme already guarantees an offer of work, training or education for young people in a similar way to the EU’s Youth Guarantee – but the Westminster Government’s stance means that Scotland is unable to benefit from this EU funding.

Of course, an independent Scotland might try to apply for as much EU funding as possible, rather than trying to obtain a rebate like the UK’s. To take just one example, as pointed out by Business for Scotland, Scotland currently receives the lowest agricultural support in the entire EU. If we play our cards well, we might well manage to receive more money in this way than the rebate would have given us.

However, if Scotland doesn’t manage to receive significantly more funding after independence, it’s worth pointing out that Denmark, the Netherlands, Sweden, Austria and Germany are now also receiving various rebates, and it’s therefore not a mechanism unique to the UK any more:

Future correction mechanisms (ORD 2014-2020) subject to approval:

The UK rebate will continue to apply; Denmark, the Netherlands and Sweden will benefit from gross reductions in their annual GNI contribution of €130 million, €695 million and €185 million respectively. Austria will benefit from gross reduction in its annual GNI contribution of €30 million in 2014, €20 million in 2015 and €10 million in 2016; reduced VAT call rates for Germany, the Netherlands and Sweden will be fixed at 0.15 %.

Of course, given that Scotland after independence will be a richer country than the rUK, it’s completely fair if we have to pay a wee bit more in EU membership fees. At the same time we should be able to get substantial amounts of benefits back from the EU, much more than we currently get, and if we still need some sort of rebate, I’d expect other small rich EU countries like Denmark and Sweden to be our allies in the budget negotiations.

Focusing solely on the UK’s rebate is not the right approach, and it reveals a lack of understanding of how the EU works. Of course Scotland will continue to do well out of our EU membership, and probably significantly more so after independence.

Debt equals assets

Exchange Money Conversion to Foreign Currency
Exchange Money Conversion to Foreign Currency, a photo by on Flickr.
I had a feeling of déjà vu today. I was reading the NIESR’s blog post about the Scottish national debt:

The first option is where an independent Scotland pays the full amount of its share of UK debt at independence, which we call a ‘clean break’ option. Of course, one would need to take the maturity of the debt into account; after all, owing £100 in 10 years time is less burdensome than owing it today. A simple back of the envelope calculation, taking the duration of UK public debt at 8.5 and the 4.1% as the discount factor (the average yield on 10 year UK gilts since 2000) reduces the population share of gross debt from £153bn to £109bn.

I had a strong feeling that I had seen the £109bn figure mentioned in another context, and a bit of googling showed I was right — Business for Scotland recently came up with exactly the same figure for the an independent Scotland’s assets:

An independent Scotland will inherit a fair share of the UK’s £1.3 trillion assets. This is of huge significance. These assets will generate a huge economic windfall for the people of Scotland of £109 billion.

Of course there are many ways to calculate Scotland’s share of the UK’s debts and assets (both the blog posts mentioned above provide many useful details), but it’s still a rather interesting coincidence to find the same figure in both places.

If Scotland can resume its existence as an independent country with hardly any national debt, it will make life much easier, even if buying a navy, fifty embassies and the Scottish share of the Royal Mail will require us to borrow a few billions.

Most countries have some national debt, but the UK has accumulated far too much for its own good, so it will be a huge advantage for an independent Scotland to start out with a clean sheet.

Warning taxes could go up 21% after No vote

Tax Form
Tax Form, a photo by 401(K) 2013.
The Herald has today published an article about the new IFS report:

The IFS also makes clear a ­breakaway Scotland would probably need to undertake some fiscal tightening.

“But to give a sense of possible scale,” the report says, “previous IFS research has found £2 billion of tax rises or spending cuts would be needed during 2016/17 and 2017/18 to match the UK Government’s plans. If a Scottish government also wanted to offset the decline in oil revenues by 2017/18 as forecast by the Office for Budget Responsibility, another £3.4bn would be needed.” This would mean an independent Scotland would begin life needing to find £5.9bn.

The report continues: “We estimate a one percentage point increase in all rates of income tax, or in the main rate of VAT, would raise around £430 million in Scotland,” and adds: “Making a substantial contribution to a possible fiscal tightening would require significant tax increases.”

Mr Adam calculated filling the fiscal gap by tax hikes alone would mean a rise of 13.7%.

Andy Lythgoe has used GERS figures to repeat Mr Adam’s calculations and done the same for the UK. The results are very interesting:

Scotland Revenue incl. North Sea £56,871m
Scotland Total Public Sector Expenditure £64,457m
Fiscal Deficit -£7,586m
Fiscal Deficit as % of Revenue 13.34%
UK Revenue £572,636m
UK Total Public Sector Expenditure £693,599m
UK Fiscal Deficit -£120,963m
Fiscal Deficit as % of Revenue 21.12%

An independent Scotland will thus only need to put up taxes by 14% in the same sense as the UK will need to put taxes by 21%.

In other words, an independent Scotland will be able to lower taxes by about 7% compared to the taxes we will incur if we remain in the UK.

Higher taxes, but more money in your pocket, too

Halftone, a photo by I’m George on Flickr.
When people discuss proposals such as the Common Weal, you often hear complaints that taxes would have to be sky-high to finance a Scandinavian-style welfare state.

Taxes are indeed a wee bit higher in Scandinavia (but not drastically so, once deductions are taken into account), but most Scandinavians nevertheless have more money coming into their bank account than their current Scots counterparts.

This is because salaries are typically higher in Scandinavia than here. (The exception is at the very top — if you make more than £100k a year, you might be better off under the current system.)

For instance, in Denmark the minimum wage is about £12 per hour, so almost twice as much as in the UK. I believe somebody on this salary would pay about 30% tax in Denmark, whereas they would pay nothing in the UK at the moment, so the take-home pay is still almost 50% higher for the Danish worker, although they’re paying much more tax, too.

Combined with subsidised child-care and other elements of the cradle-to-grave welfare state, most people would definitely be better off if an independent Scotland introduced the Common Weal proposals.

Sweden in the north, Freeport Ho! in the south

The divided electorate in England and Wales
The divided electorate in England and Wales
In their book Going South: Why Britain will have a Third World Economy by 2014, Larry Elliott and Dan Atkinson claim the UK needs to make a fundamental choice: Should it move in the direction of a Scandinavian welfare state (similar to the Common Weal ideas currently being discussed in Scotland), or should it become a low-tax state based on free trade (called “Freeport Ho!” and “Freeport Britain” in their book)?

They don’t really discuss Scottish independence in their book, and they seem to think that the UK must make the choice as a whole.

However, it appears to me that Scotland and London have already chosen. Scotland wants to go down the Common Weal path (and what we’re really discussing in the independence referendum campaign is whether we can convince the rUK to go down that road with us, or whether we should do so alone), and Greater London has practically decided to become a global free port (which is why so many people in the South-East want to leave the EU, dismantle the NHS, and all that).

It’s probably the case that a majority of people in Wales and Northern England actually agree more with Scotland than with London, but given that the Tories are essentially a Southern English party (see the map above), and that Labour are forever chasing the swing voters in Southern England, they have unfortunately handed over the power to make this decision to London.

Only in Scotland have we got a chance to choose a different route, which is why we have to vote Yes now, before the process of becoming Freeport Ho! makes it utterly impossible for Scotland to make a different choice.