Six Great Things an Independent Scotland Could Do
September 16, 2014
(This item originally appeared at Forbes.com on September 16, 2014.)
Scotland is, actually, a cold and dank place apparently suited to little more than fishing and cabbage. Nevertheless, it became a birthplace of the Industrial Revolution and our modern economy, including mechanization, mass production, and finance. Adam Smith wasn’t English – he was a Scot.
Britain, today, is basically Spain or Italy plus the financial industry centered in London. Britain has been in decline for a long time. Eventually, the financial industry will locate elsewhere, most likely Shanghai.
Or, perhaps, Scotland. I think Scotland could again become a world leader in commerce and finance, as it was in the 18th century – along with other unlikely places like Holland, Hong Kong, Japan and Switzerland … or New York … who also had their time in the sun, until they blew it.
But, first Scotland would have to get off the sinking British ship. Here are six great things an independent Scotland could do to become one of the most prosperous places on Earth:
1) Get a rational tax system. There are two basic questions to answer regarding taxes. One is: how much, as a percentage of GDP, do we want to raise in the form of tax revenue? I suggest that about 15% (total government) is a good number, which can provide most of the government services we value today, while also presenting a very manageable burden upon the private economy. Singapore (14%) and China (17%) serve as good examples here.
The second question is: how to raise this amount of revenue in a fashion that causes the least harm and distortion to the private economy? Hong Kong’s flat-tax environment again provides an excellent example, although there are other modalities that could work, including systems based mostly on consumption-related taxes.
2) Get a rational currency policy. As a small country, with a high degree of trade, Scotland would have difficulty with a fully-independent currency. The exchange-rate fluctuation with other major world currencies would be troublesome. However, Scotland could adopt an “open currency” model – in other words, people could officially use any currency they see fit.
Into this “open currency” environment, Scotland’s government (or private entities with government sanction) could introduce gold-based currencies, which people could also use as they wished – or not use, if that is appropriate. In this way, Scotland would be providing an alternative to today’s fiat-currency madness, which people could adopt voluntarily if they felt it was helpful. Or, they could stick with dollars, euros and pounds if they felt that was best. After a few decades, I think many would find that Scotland’s gold-based solution was superior, and would either adopt the Scottish “gold sovereign” as an international currency, or imitate it.
3) Remake public social services. I’ve argued that Japan’s current fiscal problems, related to public pensions, healthcare, and other welfare services, are mostly characteristic of welfare programs that were invented in the late 19th century, and were appropriate for the 1950s and 1960s, but are no longer appropriate today. Independence would be a chance to introduce new public policy structures that are appropriate to today’s reality of long lifespans and low birthrates, without being too expensive. Hong Kong, formerly part of the British Empire, provides universal public healthcare at a cost of 3% of GDP.
4) Get a “competitive advantage” versus other financial centers. Financial surveillance and taxes in the U.S. are becoming intolerable to about everyone. Europe is not much better; besides, people are at risk of being “bailed-in” at any moment. Switzerland was once a haven for wealth and free finance, but that is not so true today. There’s a great market need for a place today that could be what Switzerland, or New York, was in the past. Singapore seems to provide about the best alternative at this point, along with places like the Cayman Islands.
5) Get a great environmental policy. Scotland used to have one of Europe’s great fisheries. In the 13th century, the natural oyster beds of the Forth covered over 129 square kilometers. Alas, by 1957, the Firth of Forth was found to have no oysters at all; they had been harvested to biological extinction. The nice thing here is that oysters (or other fishing) are no longer an important industry, so nobody cares if you ban fishing altogether. Perhaps, after forty years or so, Scotland will have again one of the most bountiful marine environments in Europe, if not the world.
Today, prosperity and abundance don’t necessarily have an environmental cost at all. The coal-burning factories of 19th-century Scotland need not be recreated. Additional progress could be made by phasing out personal automobiles by way of high taxes on petroleum and cars, much like Singapore or Britain today. Essentially, this would be a return to the train-centric arrangements of Scotland in, for example, 1890. Although Scotland is a major oil and gas producer, domestic energy efficiency would allow both greater energy independence and also more revenue from export sales.
6) Respect freedom and liberty. Tired of the surveillance state of Britain, the U.S., and (following close behind) the Eurozone? Move to Scotland.
This should be a familiar list. Indeed, it was the Scottish “worldly philosophers” who put much of it into words, a long time ago. The world then was also characterized by oppressive, militaristic statism, notably in the case of Louis XIV of France (1638-1715) and also James II of England (1633-1701). The Scots took a different path, along with Britain, and began their first era of world-beating success.
Scotland (population 5.3 million) could become much like Singapore (5.4 million) or Hong Kong (7.2 million), or even Monaco (36,000), a popular alternative to oppressive statism and economic decline throughout the developed world.
Along the way, Scots could get rich. What’s not to like about that.
Or, Scots could spend the next few decades following Britain down the rathole into some kind of police-state version of Italy, in the process proving once again that crushing taxes and currency debauchery don’t actually prevent sovereign default.