By: Kyle Hunter
Last weekend, supporters of Scottish independence led polls against “’No’ Campaign” opponents for the first time since their referendum campaign began in 2012. The “Yes” correspondents’ resultant confidence was short-lived, however. An updated Sept. 11 poll revealed that status quo proponents have retaken a crucial lead, with the official Sept. 18 vote approaching. Quickly responding to these shifts in polling, recent fluctuations in the financial sector suggest the profound implications the referendum may have on the British and Scottish economies, as well as on their respective places in European and world affairs. On Sept. 8, the Pound Sterling (GBP) experienced its largest one-day drop in the past 13 months, totaling 3 percent of its worth relative to the U.S. Dollar (USD). Not surprisingly then, analysts attribute the Sterling’s 0.2 percent recovery on Thursday to the pro-union campaign’s recovered ground. These levels of fluctuation are not unheard of in Britain, but both their timing and their magnitude suggest a correlation that, if true, could critically expand in response to Thursday’s result.
Despite any apparent correlation between pro-independence sentiment and economic descent, it is vital to consider the implications each campaign’s success could have, since either result is clearly feasible. Demonstrated by the economy’s presumed response to fluctuating polls, investors’ fear of the movement’s uncertainty seems to outweigh their refusal to support a politically independent Scotland. With a population of around 5.5 million and a culture historically distinct from its southern counterpart, Scotland has a relationship with England based not on servility or modernly forced integration, but rather as a vestige of Britain’s industrial success in the past centuries. Thus, the disparity between historical and modern realities certainly fuels pro-independence fervor, but it also reflects how historically entrenched the two regions’ financial relationship is today.
One might wonder why some Scots desire independence if their financial relationship with Britain seems valuable. In 1997, the Labour Party-dominated UK allowed Scotland to create its own Parliament, hoping to curb pro-independence fervor by giving Scots more local autonomy, as in education and social services. Instead, the effort actually fostered more Scottish pride than contentment, and younger Scots in particular have since valued their “Scottishness”; the Economist thus deems them “The Braveheart Generation.” Along with having more local autonomy in politics, this social change explains why Scots tend to be more liberal than other citizens of the United Kingdom, the English in particular. Consequently, a Scottish government with a majority of pro-independence politicians was elected in 2011. Because Scotland now has more political autonomy, it also has the means to create its own economy to capitalize on national pride.
Because its implications are uncertain, independence could actually benefit Scotland relative to its current status in the United Kingdom. Wikistrat outlined four possible scenarios that could arise from a successful referendum, only one of which is definitively positive. This “hole-in-one” result would include successes in each of the “Yes” campaigners’ goals, as expounded by the Scottish National Party (SNP): easily attained membership in NATO and the European Union (EU); continued use of the Pound as currency; government institutions successfully created without Parliament’s influence; a generous social welfare state; and a vigorous economy based on oil reserves, renewable energy, and higher education. Although each of these ambitions would require cooperation from multiple financial sectors and multiple governing bodies, their combination would result in an economy like those of Scotland’s Scandinavian neighbors. This similarity is evidenced by analysts’ claim that Scotland would have to raise its taxes to Scandinavian averages to achieve all of their goals.
Namely, the SNP has cited Denmark as a national model, referring to its similar population size and resources, as well as its designation by Columbia University’s Earth Institute as the happiest country in the world. To recreate itself in Denmark’s image, however, Scotland would have to overcome barriers from nearly every direction as it redefined its international relationships and its own domestic policies. The European Commission has informed Scotland that it would have to leave the European Union and reapply as an independent nation if its referendum were successful. Rejoining as a new nation would be difficult, as Europe’s recent financial crisis hardened the Union’s approach to membership. Further complicating the financial situation, all of London’s main political parties disagree with the SNP’s desire to continue using the Pound as an independent Scotland’s currency, heightening investors’ uncertainty even before Scotland has the opportunity to define its economy. Consequently, banking giants such as the Royal Bank of Scotland and Lloyds Banking Group have threatened to move their headquarters to England if the referendum vote is affirmative. Such a loss of capital would derail the SNP’s plans for an energy-based economy, since these banks are Scotland’s two largest.
Thus, investors’ uncertainty about independence is no great shock. Compounding on their hesitation are Europe’s already-expanding political problems, suggesting the campaign is not necessarily hopeless, but perhaps unwisely timed. An independent Scotland would have to define its own economic relationship with Russia, which faces sanctions from NATO countries because of its perceived military threat in Eastern Europe and diplomatic incompliance. Further, the United Kingdom recently raised its terror threat from “substantial” to “severe,” deeming Scotland vulnerable to domestic attacks in the wake of activity from the Islamic State of Iraq and Syria. Without the continued protection of MI5 and the British government, a free Scotland might be even more threatened.
Setting these international problems aside, an isolated Scotland shows uncertain economic promise, and investors in an independent Scotland would be contributing to a narrowly focused economy. While Scotland certainly has diversified industries, the SNP’s plan relies on North Sea oil reserves for future prosperity, requiring uninterrupted investment and continued supply. However, this constant investment of capital would be difficult to achieve. Due to the cost of the endeavor, multiple investors would have to be mutually assured of each other’s continued funding for an investment with uncertain long-term prospects. All of this coordinated action would have to occur in an unstable domestic and international political climate, which a fledgling Scottish government could not likely mediate.
Pro-independence supporters have accused the British government of unethical tactics, including a Royal Treasury official leaking the aforementioned news that the Royal Bank of Scotland might move its headquarters in response to a “Yes” vote. According to Scottish First Minister Alex Salmond, “There is clear evidence that while the Prime Minister was telling us what a wonderful nation we were, his business adviser was trying to get any business he possibly could to say something negative about independence.”
The uncertainty regarding Scottish independence reverberates again in answering this question. With levels of support unprecedented in the modern era, the pro-Scottish independence campaign has an opportunity to define its own interests. However, these interests’ fruition would require cooperation from multiple fronts, including many independent actors outside of Scottish influence.
Scottish pride will not diminish anytime soon. With an independence movement already led by a young, increasingly liberal population, the “Yes” campaign certainly reflects social realities. Still, voters must realize the depth of external realities that would affect their status as independent Scots. Since pro-independence fervor will likely persist in the future, and because Scotland’s economy is currently stable under British leadership, timing is the most crucial consideration voters should make as they head to the polls.
