Monday, 30 November 2009

Can Scotland really be economically self sufficient?

On November 30th, the Scottish First Minsiter, Alex Salmond, marked St. Andrew's Day by unveiling his Government's plans for a referendum on Scottish Independence. Scotland has been part of the United Kingdom since 1707, when the Scottish Parliament voted to join the English parliament. The Scottish Parliament was subsequently reformed, within the Union, and with limited powers in 1999. While political historians continue to keenly debate the reasons for the Union, there is no doubt that it was gainful in the long run, and its hard to imagine the Industrial Revolution, so dependent on inputs from both sides of the border, being so successful without Scottish participation. The Union also gave Scotland, a country typical of Braudel's thesis of mountain nations less able to support their population, the access to the 'British' Empire that it had long craved.

One of the reasons for Union was that Scotland's own imperial adventure of the 1690s, the Darien scheme, had ended in an abject failure. This was a scheme that saw the formation of the Company of Scotland, which raised at least £400,000 in Scotland, as well as some funds in England, totalling roughly a fifth of Scotland's wealth at the time. The company sent colonists to claim territory in Panama, despite its being territory claimed, though not occupied by, Spain. The attempt to establish a colony called New Edinburgh failed abysmally, with only 300 of the original 1,200 colonists surviving the attempt, with tropical fever claiming the lives of most of the Scots. Tragically a second ship was despatched from Scotland because, in an era before electronic communication, it was not known that the first had failed, with similar results. The loss of savings through the scheme was not surprisingly catastrophic and union with England allowed Scots access to the Empire without incurring future risk. As I demonstrated in my PhD thesis, Scots went on to become very successful foreign investors, in agriculture in Australia and New Zealand, and in mining and cattle ranching the US, among ventures in many other industries and countries (note - the link is to a shorter seminar paper). It seems unlikely that these ventures would have occurred without the long run economic recovery made possible from Union through the agricultural and then industrial exports of the 18th and 19th centuries, many of them to a growing London economy.

Salmond has long claimed that Scotland would be better able to allocate its own resources if it were independent. To do this he has previously pointed towards smaller independent countries in Europe such as Luxembourg, Ireland and Iceland. Both of the latter have suffered disproportionately from the credit crunch, with top-heavy property based economies collapsing while creditor nations, themselves under pressure, sought recompense. The collapse of Iceland's banking system forced it to seek a £6bn emergency loan from the International Monetary Fund; unfortunately much of this will end up being spent recompensing savers abroad. Had Scotland been independent during the present crisis, then with RBS alone loosing around £24bn in 2008 the country would also have been driven to seek aid from the IMF; the whole of Scotland's GDP was £86bn in 2006 (although this excludes oil and gas revenue). To cover this loss alone Scotland would have been forced to spend a more than a quarter of its GDP. Oil and gas revenue might provide some temporary boost but are unlikely to remain substantial in the long term; a smaller economy would also provide more limited opportunities for the profitable reinvestment of these revenues. While the UK is struggling with national debt created by the recession, with the bailout of the banks not even shown on the national balance sheet, the chances of the UK economy growing significantly seem much greater than that of Scotland's alone. Nicholas Crafts writing in 2005 showed that Scotland had a market potential only around 35% of that of London in 1985, because the country continues to find itself on the European periphery. An independent Scotland would undoubtedly be pushed further to the periphery as European business activity centralises further into the London-Brussels-Ruhr-Zurich corridor; surely better for the country to continue to take advantage of its continuing connection to the wider UK so that it can have a more active stake in this centralisation.

Further Reading:

Crafts, N.F.R., 'Market Potential in British Regions, 1871-1931', Regional Studies issue 39, pp. 1159-1166.
Prebble, J., The Darien Disaster (London, 1968).
Tennent, K.D., Owned, monitored, but not always controlled: understanding the success and failure of Scottish free-standing companies, 1862-1910, unpublished PhD thesis, LSE, 2009.


  1. There would also be significant consequences arising out of reorganisation of the civil service and Ministry of Defence - two huge employers. Also, according to Salmond, RBS is not a Scottish institution but merely has its headquarters in Scotland.

  2. Indeed, there are some UK Depts with offices in Scotland, and the re-organisation of the military would also be a thorny issue, as the UK's nuclear submarines live at Faslane. Salmond is very much a fair weather fan - I'm sure when things were apparently better he would have been very keen to have associated RBS with Scotland, bungled bids for ABN Amro and all.



About Me

London, United Kingdom
I'm Lecturer in Management at The York Management School, at The University of York, UK. I teach strategic management to undergraduate and masters students, as well as running the masters dissertation module. My research focuses on business and management history.