Why neoliberals will be voting Yes to Scottish separation

Scotland votes for independence or not from the rest of the UK in just ten days time. Until now the complacent Westminster establishment, politicians and media alike, hasn’t taken the debate seriously. In the last week more opinions polls have been commissioned for the Clacton by election than on the referendum question – one reason that it is hard to tell how opinion is shifting. But the Yes campaign now seems to have the wind in its sails, and Westminster has to take the issue seriously. They are completely unready. Westminster types understand why a Scots breakaway is bad for them, but are struggling to understand why it should be bad for the Scots. Or to show that Westminster complacency has been dented by anything more substantive than temporary panic. The latest idea is to promise Scotland more devolution within the UK if it votes No; but the idea of a constitutional convention for all of the UK still seems to be off limits.

And yet there is muddle on the Yes side too. Independence supporters are making real headway with the argument that separation is the best way to preserve the Scots’ social democratic heritage. Scottish people have tended to be more left leaning than the English, and treasure such institutions as the NHS and social security. But this is under threat from “neoliberals” in Westminster, who want to shrink the state and run Scotland more like Texas. A Yes vote means No to the neoliberals.

At first sight this line of argument looks plausible. Most neutrals think that separation would be financially neutral; the extra social security transfers that Scotland gets compared to England will be made up for by extra oil revenues. This being so, an independent Scotland should have little difficulty in keeping the current level of state generosity going. And anyway, look at Sweden, Denmark or Norway, notable for very generous social security, in spite of being of similar size to Scotland.

All this follows the popularity of deciding political questions on “facts”. But there are two problems with factual analysis. First factual analysis is backward looking, when political decisions must be based on the future; second is that our usual factual analysis is based on aggregates and averages – concealing important fluctuations and details within. Both issues affect any analysis of Scotland’s future prospects.

The first point is that bigger ships make for a smoother ride. Look at northern Europe’s smaller nations, from Ireland in the west (or we could include Iceland) to Finland in the east. Their economic history of the last 40 years has been marked by deep economic crises, striking deeper than anything that the UK has experienced (Denmark may be an exception, admittedly) – even as they might experience headier booms. This rougher ride makes generous provision of state services more difficult to manage over the long term. During periods of crisis governments find it difficult to borrow and they are forced to make deep cuts.

But the Scandinavian countries have achieved a generous welfare state, haven’t they? Yes, but at the cost of much higher levels of tax. According to the Heritage Foundation, the UK tax take in 2012 was 39% of income; in Finland and Norway it was nearly 44%, in Sweden nearly 46%, and in Denmark it was 49%. Funnily enough Scotland’s First Minister Alex Salmond’s main idea for economic growth is to reduce taxes, modelling his policies on Ireland (2012 tax take nearly 31% and a weak welfare system to match). Danish welfare based on Irish taxes doesn’t add up.

But can’t Scotland just follow the Danes and Swedes and ratchet up taxes? Ignoring the economic issues with this (which these states have managed to overcome), the political tide in Scandinavia is rightwards. It seems that the higher taxes were acceptable to homogenous, inward-looking  societies where people were less worried about freeloaders – but that the pressures of a modern economy undermine that. Surely Scotland will find it impossible to recreate the conditions of a past Scandinavia;  it will be politically hard to raise taxes.

And meanwhile Scotland faces the same demographic challenges of an aging population, and rising healthcare costs, as the rest of the developed world with the added challenge of having to reallocate jobs, infrastructure and taxes as its oil resources are depleted.

Scotland faces a much more bracing climate as an independent country than within the UK. This is not a bad thing in itself, of course. It will help the Scots break out of a victim culture, where too often problems are blamed on the English. But the political movement that will most welcome this state of affairs is that despised breed: neoliberals. Independence would give them a shot in the arm. Scotland’s cherished social democracy depends on being part of a larger system of taxes and transfers that absorbs shocks more easily, and makes financing on world markets easier. Big states are more sustainable in big countries.