The “no” campaign against independence has reached the stage of endgame panic that leads to desperately throwing charges and publicity stunts at what the polls indicate are increasing support for independence among Scots. Over the last several days we have seen a new anti-independence troika emerge – Gordon Brown, Mick Jagger, and Paul Krugman. I have written previously about the unintended self-parody of making a “rogue” like Brown the “spearhead” of the joint effort by the Tories, Labor, and the (vanishing Lib-Dems) to convince the Scots not to reclaim their independence. (Note to the “better together” opponents of independence – “spear” metaphors aimed at the Scots are best avoided, particularly when wielded by the kind of Scottish “rogues” that Burns denounced in his famous poem about the corrupt and treasonous origins of Scotland’s “union” with Great Britain.)
But any political campaign that brings together Mick Jagger and Paul Krugman to oppose independence for Scotland demonstrates such gravitas that it can be forgiven for picking Brown – the man most culpable for the UK financial crisis and the self-destruction of the UK Labor Party and the most despised politician in the UK – to “head” the latest legion of “spear” chuckers against independence for Scotland.
Krugman’s column does pose a special challenge for those of us who understand Modern Monetary Theory (MMT) and Krugman’s increasing embrace of MMT. Krugman’s central point in his column is almost correct. He warns that not having a sovereign currency is dangerous for the reasons MMT has long explained and Krugman now accepts. (Bizarrely, Krugman still denounces MMT for taking positions that MMT scholars do not in fact take and he keeps making the same strawman arguments no matter how many times my colleagues and I point out that MMT scholars do not take the positions he ascribes, without citation, to MMT.)
Krugman is correct that not having a sovereign currency is a risk and that Scotland would be far better off recovering all aspects of sovereignty, including its once sovereign currency. That is politically impossible in Scotland (as it is in Ecuador as I have explained previously).
What Krugman does not explain, however, is that Scotland already lacks a sovereign currency because it lacks sovereignty and is part of a “union” in which it is a small, permanent, and often scorned minority. Regardless of the vote on independence Scotland will lack a sovereign currency. The English have a sovereign currency, the Pound, and they have had at all times under the “Union” the votes to set the UK’s economic and currency policies. Scotland was helpless to prevent the insane austerity that crippled Scotland’s recovery from the Great Recession and forced it back into a gratuitous second recession.
Even when a “rogue” Scot like Brown was leading the key ministry or the PM he, disastrously, represented the giant banks at the direct expense of the people of Scotland (and the entire UK). The Scottish politicians that can secure leadership positions under a “union” dominated by the English will overwhelmingly be those willing to accommodate themselves to that domination. It is no surprise that UK’s three “traditional” parties (I will, overly generously, grant the rapidly vanishing Lib-Dems this status) in Scotland have united in their opposition to independence. To use Burns’ apt term, they must be “rogues” to Scotland if they aspire to English support.
Krugman’s Historical Mashup about Canada and Colonialism
Krugman also makes an incoherent argument about Canada suggesting that its lower productivity than the U.S. stems from its “independence” and smaller population. But Krugman is actually talking about Canada’s independence from the United States! (Note to Krugman, Canada was never part of the U.S.) A far more likely explanation of Canada’s lower productivity and far smaller population than the U.S. is that we achieved our independence from the Brits a century before Canada secured its independence from the Brits.
Remaining a British colony until 1867 (at which point it was still not fully independent of the UK) reduced the population and economic growth of Canada compared to the U.S. The Brits were often hostile to the majority of the people of colonial Canada given the fact that they were of French origins. There was substantial migration from Canada, particularly by those of French origins under UK colonial rule. There is substantial academic debate about the drivers of Canadian economic growth, but the data show that under colonial rule the UK made very weak investments in the railroads that later proved critical to Canada’s ability to develop its astonishing mineral and agricultural wealth. The UK’s colonial rule of Canada was, of course, guided by the principle of what the Brits viewed as being beneficial to the Brits, not what would be beneficial to the people of Canada.
To sum it up, Krugman’s arguments, adjusted for historical realities, provide additional reasons for viewing the effort to create a panic about Scotland’s economy should its people vote to reclaim their independence as bogus. Canada gained massively from independence. Oh, and the Netherlands gained immensely from becoming independent from Spain, so Krugman’s Spanish metaphor also proves the reverse of his argument. (Krugman is correct, however, that Spain should have never adopted the euro – and neither should Scotland, or any other nation.)
I was surprised by how MMT his column was. I didn’t read it as a case against a free Scotland but a need for a sovereign currency. However after reading your take I guess I may have been giving him too much credit…
Is hatred of Thatcher and her politics really sufficient to break up a country? It’s an interesting debate. I must admit though that, from the little I’ve seen so far away, the pro-UK campaigners haven’t been very good at presenting their case. There are significant advantages that can be obtained even by ordinary citizens from residing in a large and powerful country. There are activities that such countries can do and deeds that they can accomplish that no small state can. Such great deeds can reach into the homes of all citizens and inspire them and involve them. And yet, I don’t hear such talk from the British gov’t, I don’t hear such inspiration from the European Union, even the American gov’t hasn’t done much inspiring since those brief days of “Hope and Change”. I hear endless talk of social stagnation and limited horizons. Maybe the powers-that-be are obsessed with enshrining the status quo, maybe their vision is blurred.
Great post Dr. Black! I am very interested in the goings on the Scotland and have a couple questions. Firstly, can you (or anyone else at NEP) post a link to where you discussed why sovereign currency is not politically possible for Ecuador? I only recently realized that Ecuador was using the USD when reading articles about their nascent foray into digital currency. Also, are the reasons essentially the same for Scotland vis-a-vis the political-impossibility? I’m not sure I see why this would be the case at all. Much obliged!
I can accept, Bill, that you emphatically believe Scotland should free itself from the chains of the English. However, I think those who understand MMT should emphasize the positive in this story. The big news is that Paul Krugman has accepted and seems to be using his pulpit to popularize a fundamental MMT concept about the importance of a sovereign currency (even while not acknowledging MMT — OK, that’s frustrating). I mean, the fact that he stated outright that a nation that controls its own currency “can’t run out of money” is the beginning of an important public education. Just think about how that discussion could impact the USA if he says it again when we’re heading for the next gov’t shutdown or debt ceiling debate.
Sure, it’s probably valid to criticize Krugman for slowly, belatedly, and incompletely understanding and making that point, even while ignoring and criticizing other MMT concepts. And sure, it can be frustrating that despised bankers and politicians are part of the current chorus. But isn’t it better that even those slow or unwilling to acknowledge MMT’s contribution to economic understanding are making this point rather than pushing shared non-sovereign currencies?
The question of whether Scotland is better independent or part of the UK is only partly economic. The rest is political (not an MMT arena — and yes, I understand your points about the current odd status). Krugman’s comparison with Canada may or may not be valid from an overall economic strength and political independence standpoint. But what I took from his article was his main point was almost entirely (or at least most importantly) the importance of a sovereign currency. His comparison to Canada was that they have one. His comparison to Spain was that they do not and they have shouldered the depression alone and badly. His comparison to Florida was they do not, but have survived our recession, with great dependence on the federal government, relatively better. His point about Scotland was that independence without a sovereign currency, which is part of the promise, is a huge mistake. This gets to the heart of MMT’s point about the difference between a currency issuer and a currency user. It would be nice if he had used those terms, but let’s say thank you when the right argument gets some publicity outside the MMT world, and at a time when people around the world have their ears perked.
His point was not that Scottish independence is wrong on its overall merits, but only that, based on the current promises of becoming a user of a truly foreign currency, they are in for a world of hurt because they fail to understand the actual role of currencies. We need to acknowledge correct conclusions (about currencies) even if they are made by people by people we usually disagree with and for reasons that are incompletely understood or stated. Without acknowledging the role of sovereign currencies there is no understanding of how or why we won’t all become Greece or Spain, or….
So now that Krugman, the Bank of England, and the English political parties have made public the sovereign currency point, albeit feebly, the next question people should have is, “Huh, why’s that?” There, potentially, starts the next phase of public understanding. These moments don’t come along very often. I say, acknowledge progress and gently move the conversation forward.
I second Marley’s request for some information about why Ecuador and, more particularly, Scotland cannot establish their own sovereign currency. I can see the possibility that the dollar is so entrenched in the Ecuadorean economy that switching to its own sovereign currency might be impractical. However, if the Scots vote for independence and create a new nation, why won’t they be able to create their new sovereign currency at the same time?
Also, thank you for your excellent articles. I particularly enjoy your take downs of the idiot pundits who write for the mainstream press.
I also thought that it was a good thing that Krugman realised the MMT consequences of Scotland not having a sovereign currency. Wasn’t so sure about other parts of his post re Canada etc.
So if Scotland does secede but remains pegged to or uses the GBP somehow, how is it not in the same situation as the EU periphery nations, not having appropriate fiscal and monetary tools available to deal with a recession when it occurs because it doesn’t have its own currency? It will be hamstrung wont it? Surely sooner or later it will be have a Spanish or Greek or Irish moment? And when that happens it will probably be subjected to austerity measures again as its leaders fall for the austerity siren song just like the EU periphery leaders have.
I don’t know if Scotland seceding is a good idea or not, but can seceding without a sovereign currency succeed in the medium/long term?!
Always remember that the argument that Scotland would be ‘better off’ outside the UK also applies to California and Texas and quite a few of the other States.
Both Scotland and Ireland would be ‘better off’ inside a United Kingdom that knew how to use its sovereign currency to ensure that everybody had a decent income, a pension to look forward to and somewhere decent to live and where the democracy was sufficiently devolved to allow people the feeling that they were in control.
The problem is that everywhere in the United Kingdom is getting slowly sucked into the black hole that is the City of London.
I like Neil Wilson’s comment. Debates about relative productivity in Canada and the US are always interesting, but generally far from conclusive, and, depending on one’s starting point, can be argued one way or another. Import factors include population, French mercantilism and lack of settlement after the death of Henri IV (as compared to Britain’s freer hand in the 13 colonies), the curtailment of slavery in the Canadas by 1801, and of course, the combination of climate and lack of arable land (as Urquhart points out, it was only with the development of Marquis Wheat 50 years after Confederation that settlement of the Canadian prairies became viable).
It is certainly true that Canada’s imperial overlords, whether French, British or American, have always acted in their own rather than Canada’s interests. But, on the charge that the Brits didn’t invest enough in railroads, it is worth noting that during the 1850s almost 3000 kilometres of railway track were built in the Canadas. When the Grand Trunk Railway was finished in 1859 it was the longest railway in the world. It is fair to say that railway investments under British rule (on top of the many canals built earlier in the century) made Confederation possible.
And, far from Canadian growth being slowed by the country’s slow accession to nationhood, to a large extent the British North American Colonies were driven together by the END of the link with Britain, with the repeal of the Corn Laws in 1846. The end of this “union” with Britain led to disastrous recession, until a reciprocity treaty with the US was achieved (at the price of giving Americans unfettered access to Canada’s fisheries). That was abrogated by the US in 1866. And in the end, Confederation was triggered by Canadians’ fear of the undue influence of a huge, neighbouring, expansionist, federal state with a fiat currency after 1862, and notable disregard for the social and economic (and linguistic) particularities of “peripheral” minorities. Sound familiar?
Canadians have so benefitted from Scottish dynamism, resulting as much from opportunities provided to the Scots in the British Empire as from imperial abuses which drove Scottish settlers overseas, that it is hardly our place to support either the yes or no sides in the referendum. But, coming back to Neil Wilson’s point, and based on Canada’s own debates about national unity, isn’t the question really whether one takes the pessimistic view that economic and constitutional disfunction cannot be solved, or the optimistic belief that things can be changed and improved if one works together?
A major prize for the EU in its’ quest to kill nation states and create a Europe of regions would be the break-up of Britain. Whose interests clash with this push for devolution? It’s obviously workers, those who work and live in Britain, who only by deeper unity can resist the globalised intensification of exploitation, led by the EU and the US, which lowers standards, degrades culture and deprives peoples of popular sovereignty.
With forthright statements against the NATO attack on Yugoslavia and condemning war in Iraq, the SNP leader Alex Salmond has seduced many wavering trades union and Labor members into the euphoria of his campaign for a brave, new, capitalist Scotland. Going almost unremarked are his unequivocal statements over several years on the benefits of EU membership, and now his pledges that Scotland would change to the Euro after independence. Enticing promises on Council Tax and to pensioners, coupled with bravado on the seizure of North Sea oil reserves make titillating reading. But the unstated reality begs the questions: Who actually owns and controls the oil? On breaking with London, who is Salmond now pledging allegiance to? A short answer might be global capitalism, the European Central Bank, Brussels.
Regionalism, separatism, petty nationalism – all were made redundant by the Industrial Revolution, the demise of feudalism and the forging of a nation of workers who looked out for each other, who were determined to fashion a new and better world by their own power, efforts and inventiveness. The historic process created during the Renaissance, the Enlightenment and subsequent leaps in scientific thought, created a modern secular society with its rich tapestry of culture. One can be proud of the united class that arose, capable of defending itself, with great potential for progress. The futile attempt to restore the old Catholic, feudal monarchy was finally buried at Culloden in 1745 in the last battle on British soil. Thereafter it was the onslaught of capitalism that was felt in equal measure from the east end of London to the east end of Glasgow, from the shooting of the Calton weavers to the transportation of the agricultural workers of Tolpuddle, from the fish gutters of Orkney to the tin miners of Cornwall.
It was the forging of a single working class during the centuries of industrial revolution that really made Britain and its future potential.
By the 1730s in the east end of Glasgow the first associations of weavers started to form and link into a common culture of resistance throughout Britain. Organising defence against intensive exploitation continued apace, from the Glasgow Association of Cotton Spinners in 1820 to the convening of the first ever delegate conference of trades unions called by the Glasgow Trades Council in 1864 – all well documented by the People’s Palace Museum in Glasgow Green.
Most of this energy and power to change the world was gradually manoeuvred into safe channels. And with their absorption into the Labour Party, a cosy “living within capitalism” outlook evolved and persisted for generations, especially in Scotland.
Looking now at the last 35 years of class struggle we see that all the important actions in Scotland have been strongly part of, or assisted by, Britain-
wide solidarity. Think of the occupation, work-in at Upper Clyde Shipbuilders (UCS) in 1971. It indeed did become a prototype for the next 30 years: Plessey’s (Alexandria 1971), McNeil’s Engineering (Glasgow 1972), Robb Caledon Shipyard (Dundee 1981), Plessey Bathgate (1982 with Plessey Liverpool in solidarity), Timex (Dundee 1983), Caterpillar (Uddingston 1987), Kvaerner Engineering (Clydebank 2000). Many actions revealed strong national coordination; for example the successful strike of the six BBC orchestras (Musicians Union 198O) and the Miners Strike of 1984 (with great cooperation between the strong National Union of
Mineworkers presence in Kent, Wales and Scotland).
And right up to date actions continue – the brief but decisive occupation of the Simclar electronics manufacturing factory in Kilwinning brought national attention to the constant leaching of skilled jobs to lower-wage countries and the severe decline of the once trumpeted sunrise electronics industries of Silicon Glen.
The Labour Party in Scotland has no interest in such proud histories of struggle, nor in a resurgent class creating a new industry for a future Britain. Obsessed with running capitalism (badly!), meddling endlessly in the minutiae of people’s lives, trying to control the arts and constructing an independent foreign policy (taking Malawi under their wing and parading through the avenues of New York, for example), they are taking Scotland towards an abyss of separatism.
I suspect there is a lot of banker input behind the scenes. If there is a No vote, it seems like Scotland would become more State-like with ultimate control of monetary and fiscal policy by the Bank of England. Considering no one from the Yes side has considered the independent currency implications (they called a banker most likely), they have some homework to do. I assume the English banks are absolutely dead against an independent currency.
So how would be advising the Yes party? The notorious RBS that fell for inflated assets like a trout swallows a fly, chasing profits, commissions and bonuses. They were led by a Board that knew nothing about banking risk, nothing about investing and nothing about sovereign currency. RBS was fighting over the last vestiges of toxic waste served up by Wall Street. Are they in a position to lead the country forward? No. Are they in a position to have a say in every decision? Yes. Right now, I think they are effectively owned by the Bank of England. Of course nothing will happen overnight but it doesn’t look promising. The immediate answer was to share the pound, which to an MMTer, and others, is ultimately an unsatisfactory solution given all the recent examples of shared currencies and unresolved debates (mandates?) around austerity or stimulus, do you add, convert or increase velocity? This is a matter for the Scots to figure out, both monetary and fiscal policy.
Perhaps I am too hard on RBS. But the Yes group needs an old fashion bank that is satisfied with managing the country’s credit, without the conflict of investors demanding returns, regardless of the needs of the economy. Too boring for high risk, high energy investing with rewards to match.
According to Ian Fraser there was no board to speak of…after helping ‘turn round’ NatWest Fred Goodwin consolidated control of the levers of RBS and people found him intimidating enough to let him do more or less what he wanted. The overall problem of the UK financial sector in which RBS found itself was that it was prepared to tolerate a lot of criminality to gain a lot of business.
I wouldn’t be surprised if the pound option is mainly there not to scare the horses or the more frightened of the Scottish people. Wasn’t Ireland within the sterling zone for far longer than it had its own currency? (prepared to be corrected on that one).
I agree though that it’s all about governance. If people vote no because they’re worried about paying a few more quid at John Lewis then they might end up regretting tying themselves to a London-centric wannabe tax haven, mired in financial crime, and open to all the funny money seeking a bolt-hole.