Osborne’s wrong but we need to consider a Scottish currency
George Osborne is in Glasgow today to lecture us on how independence would be a bad idea. This is, he argues, because the rest of the UK wouldn’t allow Scotland to have a say over monetary policy in a shared currency – the pound sterling. His position is that currency unions are not a good thing if they are cross-national. The rest of the UK would therefore have to prevent Scotland from having a say in Sterling-wide monetary policy – what Alex Salmond calls a “currency union”.
This speech was, of course, political not economic in content. Conservatives have a nostalgic and emotional attachment to the Union which requires action. Conservatives also have a direct economic interest in retaining the Union.
But there are some substantive points in this speech and the report to which it refers. It’s important that independence is what Scots want it to be, rather than what the SNP say it will be. The case for a Scottish currency merits more debate and consideration by those with interests beyond those represented in the Fiscal Commission.
I’d like to make three points about Osborne’s speech:
The monetary policy of the United Kingdom already treats Scotland as peripheral
The British economy is heavily weighted towards the financial services sector, and particularly the City of London. The very strong opposition of Osborne to the Financial Transaction Tax (popularly known as the Robin Hood Tax) shows just how in hoc he is to the City of London’s big money.
In 1986 the ‘Big Bang’ removed the regulatory framework keeping the City of London in check. Since then the British economy has become more and more dependent on the revenues raised by the City of London. This has worked in two ways. Firstly the City of London was able to increase the level at which it borrowed, penetrating more markets and making returns through privatisation of utilities and other newly marketised areas of the economy.
Secondly, the creation of a global financial centre in London pushed the value of Sterling up. This is for a number of reasons, including that Sterling becomes a hot currency used to buy stocks, shares and other financial products. This makes it much more difficult to sell other goods abroad as the currency is effectively over-valued. It is for this reason that UK manufacturing went into terminal decline after the Big Bang.
And that’s before you take into account the impact of big money donations from the City of London to the political parties, preventing the Robin Hood Tax and preserving bankers’ bonuses.
So already the monetary policy of the UK is focused on the City of London, not Scotland. Scotland is at best peripheral in decision making about monetary policy. And you can see that policy focus in the UK government’s approach to the great recession. The priority has been to protect big City institutions not the people of the UK. And certainly not the people of Scotland.
Osborne says “if it ain’t broke don’t brake it”, but it’s only true that Sterling “ain’t broke” if your view is that from (or for) the City of London.
Osborne’s attitude towards Scotland’s participation in Sterling shows Westminster’s intent to Scotland
Osborne’s key point is to ask the question “why would 58 million people give away some of their sovereignty to another state?” This reflects the approach of the Westminster government to Scotland. Scotland is “better together” with the rest of the UK only if it does what the Westminster government wants. It’s what most of us would call bullying.
If we really are better together, then surely any of the concessions given by an independent Scotland to retaining elements of the Union should be welcome to unionists like Osborne?
Saying you’re better together with a partner whose approach is to threaten you when you want to assert control over your currency seems a pretty thin argument. It’s clear from his stance that what Osborne is seeking to do is continue Westminster control over Scotland. The case that the rest of the UK would be disadvantaged by a “currency union” is particularly weak. It seems to amount simply to a threat to do damage to an independent Scotland in a fit of spite.
His argument that currency unions are a bad thing across nations applies within nations where the national economy is differentiated. Having a currency set up for financial services has destroyed manufacturing industry throughout the UK to benefit London. That’s without any national borders.
The substantial arguments about a “currency union” are those about the negative impacts on Scotland. But those are Scotland’s concern, not those of the rest of the UK.
This bullying attitude reflect poorly on those who claim that Scotland is better off as part of the Union. It tends to reinforce the feeling that Scotland only gets attention when it tries to act in its own interests.
A Scottish currency is the logical outcome of Scottish independence
There are some substantive arguments in the report. These relate to the true nature of Scottish sovereignty as part of a “currency union.” And for this reason an independent Scottish currency bears further examination.
An independent currency would avoid the problems caused by Sterling’s inflation by “hot money” coming in to the City of London. It would allow the regeneration of manufacturing industry in Scotland. It would promote Scottish exports.
There would be increased transaction costs related to trade with the rest of the UK, and there may be problems of capital flight. But these are things that need to be investigated further and fairly.
There is also a clear interest in the British capitalist class which is heavily dependent on North Sea oil for its future enrichment. The need to retain control of oil and other strategic interests, such as the Faslane nuclear weapons base are his reasons for wishing to keep Scotland as a dominion. The logic of Westminster privatisation and austerity will become irresistible if Scotland remains in the Union. As money spent on public services in the rest of the UK falls, so Scotland will have to follow because of the dependence on Westminster that the Union requires. Scotland in the union can hold out against this neoliberal logic. But it cannot resist it forever if it remains in the Union.
Conservative backers will be keen to take advantage of the business opportunities that will follow from the privatisation of health and education that seems inevitable in the rest of the UK. Scotland will be forced to follow suit in the 10 to 15 years following privatisation in England. And that makes it very important for Osborne to make the case for the Union.