Independent Scotland must take a different approach to trade
SCOTLAND The Brief, written by Believe in Scotland, is a fantastic read for anyone wanting to learn more about Scotland’s diverse and rich economic resources. These resources include energy, oil, gas, food, beverages, finance, life sciences, chemical sciences, digital, creative, education, construction, tourism and even l ‘space.
Additionally, with 8% of the UK population, we have 70% of UK fish landings, 60% of UK timber production, 96% of UK crude oil, 63% of UK natural gas UK, 90% of UK fresh water, 26% of UK renewable energy generation, 90% of UK hydropower, 32% of UK landmass , 62% of UK maritime area, 34% of UK natural wealth, 10% of Europe’s wave potential and 25% of Europe’s offshore wind and tidal energy.
Do you understand all this? If there was one country that was ever ready and spoiled for independence, it would be Scotland.
READ MORE: Scotland must transform its economy. Here’s how he can do it
However, there are a few quirks I have with the book that run counter to progressive macroeconomic thinking.
In the opening of the book, Believe in Scotland asks the reader to consider various factors that make a nation prosperous. One of the factors they include is the ability to export goods, writing: “In highly developed economies such as Scotland, it takes technological advantages, or the natural wealth we have just seen, to develop specialties that create high-value export demand and higher prices. This in turn creates new, better quality jobs and offers higher wages than would otherwise be the case.
There are two problems with this argument. First, this analysis seems heavily based on a microeconomic level, but does not take into account the broader macroeconomic picture that this article will detail. Second, the common obsession with exporting resources is also embraced by Unionist opponents who attack Scotland’s overall balance of trade.
Unionists often deploy the argument that Scotland’s trade deficit, together with the theoretical government deficit, would put Scotland at a disadvantage. The argument goes, net exports add to our aggregate demand, further increasing our GDP and national income. This can lead to increased employment for export services, thereby generating wages and profits. On this basis, developed countries often push for export mania when national policies fail to achieve full employment.
Consider the wider implications of Scotland’s trading position as it currently stands.
In real macroeconomic terms, Scotland’s exports are a cost and its imports are a benefit. When Scotland’s real resources, including our workforce, are used to produce products for the overseas sector, the domestic sector loses out in consuming or using those resources for investment goods. As Nobel Prize-winning economist Paul Krugman writes (below): “Having a trade surplus is not a ‘victory’; if anything, it means you give the world more than you receive, receiving nothing but IOUs in return.
Therefore, imports mean that we accumulate real goods that we do not have to produce. Scotland’s position as a net importer puts us in an advantageous trading position.
However, there are various caveats that we need to heed, especially with the transition to a greener, climate-resilient economy.
First, producers place a higher priority on the income they derive from their services or goods, rather than on those who purchase them. If a producer sells his goods on the domestic market, he will receive the national currency to cover the costs of his next sales. If a producer sells their goods to the overseas sector, the buyer will need to exchange their home currency for the new Scottish currency (often via Transmate). Either way, the seller receives the change, but when the goods and services are taken to the foreign sector, the Scots lose the fruit of their own labor.
Belie in Scotland could counter this argument by pointing out that previously unused resources and the unemployed have, thanks to a trade surplus, found an income. Workers are now receiving wages and companies are increasing their profit margins, so what are we complaining about?
READ MORE: Ruth Wishart: We have to work to convince switherers – whatever their generation
First, higher government spending can lead to higher wages, profit margins and growth – we don’t need to ship our resources to achieve this. Having a domestic growth model enables Scotland to better respond to potential market changes (domestic or global) that can be potentially damaging while enjoying the fruits of our labor. Creating jobs and using our resources for domestic consumption results in greater net benefits than sending our resources overseas.
Another counter-argument from Unionist opponents would be that an independent Scotland can enjoy all the real resources it wants, but we would still face transaction costs with trade. This argument might hold more if it were not for the obvious fact that transaction costs are an integral part of world trade.
If transaction costs were such a burden, you would expect Canada to pressure Joe Biden to support the introduction of a North American dollar or cede sovereignty to Washington. Yet, it seems that Canada still enjoys monetary sovereignty despite the transaction costs. Nor would we expect Ireland, which is not monetary sovereign, to suddenly cede democratic control to the UK due to transaction costs.
If we look at Eastern European countries with their own currencies, such as Poland, Hungary and the Czech Republic, we see that they have grown the fastest against their euro colleagues since 2002. The euro may have removed transaction costs for many European countries, but euro members are also suffering from levels of unemployment, political instability and higher interest rates. Unionist transaction cost alarmism simply does not stand up to macroeconomic reality.
This does not mean that an independent Scotland should cut itself off from the rest of the world and deprive other countries of our resources. Westminster cut funding to UNICEF by 60% to support children around the world, while cutting its funding to the UN Population Fund’s family planning program by 85%. On top of that, billions of pounds of aid have yet to be cut that would go to humanitarian projects at the UN. As Westminster isolates itself from the rest of the world, an independent Scotland should stand tall on the international stage and proudly pledge to support humanitarian projects.
Sending resources to countries in need to rebuild communities, develop modern healthcare and expand education is not only a representation of the values of an independent Scotland, but more importantly it is the moral thing just to do.
Trade is not a competition or a game – it is a power relationship between different interest groups. An independent Scotland must recognize this or it will simply stay on the path that Westminster has laid out for us.
An independent Scotland can use policy tools and institutions to increase equality, develop a humane welfare system and achieve full employment, while challenging international free market ideology by supporting humanitarian aid, promoting high environmental standards and focusing on workers’ rights for future international agreements.
We can help developing countries build public industrial policies that produce long-term infrastructure and green technologies that are both sustainable and efficient. This technology includes solar panels and wind farms for countries that may be short of oil and gas, while also relying on hydroponics for countries that are much hotter. This will in turn reduce our carbon footprint as we divert our finances away from the extraction of fossil fuels that threaten the long term survival of our planet.