There are three macroeconomic statistics generally recognised as indicative of the health of the economy: growth, inflation, and unemployment. An independent Scotland would have exceptional difficulty maintaining the stability and robustness of those statistics, creating an insurmountable barrier to implementation of its stated policy aims.
There is a common theme among the desirable attributes of these measurements: stability. Stable growth provides a trustworthy foundation for capital investment; stable inflation makes real wage negotiations easier and staves off the risk of deflation; and a stable unemployment rate enables an accurate assessment of government spending into the future, essential for policy considerations. The uncertainty and burdens an independent Scotland would have to bear would undermine that stability.
There is no doubt that an independent Scotland has a potential for strong growth. North Sea oil, booming tourism and a pervasive financial sector are all perfectly reasonable ingredients for that growth. It is the volatility of these industries that is entirely problematic. Supplies and the price of oil naturally dominate the revenue of Scotland’s oil reserves. Both of these continually confound even the most knowledgeable experts’ opinions. Countries struggle to contain instabilities such as these even when they are reasonably well diversified, such as Britain in 2008 and the Eurozone in 2011. The problem is only worsened, and to a dramatic degree, when the instabilities come from the most important business sectors in the country.
Industrial difficulties such as these would be compounded by monetary uncertainty. Eurozone crises have shown the difficulties of union of currency without appropriate monetary and fiscal union, as divergent forces pull economies in different directions. ‘Sterlingisation’ would put Scotland in the same category as Panama and Montenegro and force quick accumulation of sterling reserves. This renders Scotland facing higher costs, unstable prices and the subsequent declining real living standards.
Policy does not exist in a vacuum, separated from macroeconomic stability. Decreased monetary power coupled with a heightened climate of risk in business would lower the potential output of Scotland and ultimately threaten the promised prosperity of independence. A reduced potential output also scuppers the grand social causes championed by the SNP. The risk now present in Scottish business diminishes the new government’s ability to issue debt by raising its cost, a common problem in new states. The high price of debt and structurally reduced tax income mean that the redistributive social policies that have so captivated Scottish voters will be unfundable and so impossible to implement.
The argument for Scottish independence is clearly not an economic one. High-handed promises of a new, reddish dawn have no basis in the realm of the possible, making them misinformed at best and disingenuous at worst. Only once these realities are understood can the argument for independence be seen for what it is: emotionally captivating populism, rather than a rational assessment of how to improve the lot of a people.