How Scotland’s Economy went South

tumblr_le2d30Fzp21qbyfdio1_500-002Since the decline of the industrial age, prosperity and population has been sucked southwards; it started slowly in the sixties but accelerated quickly over the last 30-40 years.

The de-industrialisation of Scotland has left many communities, both rural and urban, without jobs and without hope. This deterioration accelerated rapidly as the UK focused on finances and allowing market forces to control economic policy, first under Thatcher but then even more so under consecutive New Labour Governments with over-reliance on services, in particular financial services, in London and the South East.

Looking at London and the South East (LSE) as an entity, by 2020 the UK Government expects each to experience a one million increase in population over the next 7 years. This on top of the fact that the populations of LSE have already roughly doubled in my lifetime.

Economically this mass migration has had a major economic impact, creating a massive earnings imbalance.  Income per head in London and the South East has been measured at 70% higher than the UK national average.

Over-reliance on Volatile Financial Markets, Have Unbalanced the Economy

In order that financial services and investment markets thrived, successive UK governments followed polices of keeping the pound consistently strong. This strategy may have been good for the City (in the short term) but it devastated the manufacturing industry as exports became too expensive for foreign countries to buy.  Significant investment in high value manufacturing, research and development could have mitigated this decline and maintained a balanced economy, but we were told the days of making things were long gone. We were told there was no alternative – Germany decided otherwise and that worked out quite well!

Poverty in Scotland

Poverty in Scotland

The de-industrialisation in the regions, as a result of the strong pound/London finance dominated policies, meant that much of the UK regional, Scottish and Welsh industrial workforces lived in deprived areas where generations experienced poor education levels, low investment in skills levels, poor job prospects and thus with no opportunities for advancement, were economically unproductive.

For example, over the last 50 years economic growth in Scotland has been 40% below that of comparative small European nations.

Democratic Unbalance

People have to follow the jobs, and this resulted in a massive population shift southwards, which unbalanced the UK democratically, and led to accelerating calls for devolution and independence. Roughly one in three UK voters lives in London and the South East and so in general terms any political party that wants to form a UK Government needs to offer a policy platform that suits London and the South East. This has meant that even with slogans such as New Labour and the Caring Conservatives, we always get right of centre, finance and City of London dominated governments, regardless of what party Scotland votes for.

The rise of UKIP and their success in London and the South East, whilst conversly losing their deposits in every seat in Scotland at the last general election, is a case in point.  For example, where as Scotland has never delivered a majority of Conservatives in seats or votes in my lifetime we have had Conservative government in the UK for roughly half my lifetime.  In the same timeframe London and the South East have never had a government they did not vote for. Even when we have had governments we have voted for, New Labour had to adopt city led policies to win in London and the South East. So a change of Government can’t help Scotland, only a change in the way we are governed can do that.

A Culture of Debt

What this has meant politically and economically is plain to see, but what has it done to the social and economic policies under which we live?

For the last 30 years the UK has been one of the leading nations following the neo-classical economic model (free markets, low regulation, consumerism, consumption, and widely available personal credit).  This economic model, we were told, is the only available option. Crucially neo-classical economic theory does not take debt levels into account, it believes that market pressures will regulate lending to a healthy level and therefore government economic policy and fiscal policy need not act to control lending.  This led to the deregulation of the banks and financial markets, and to Gordon Brown and Alastair Darling, two global political leaders of the Neo-Classical theory (others include Bush x2, Reagan, Blair, Thatcher), to declare ‘an end to boom and bust’.

What had actually happened was that at the point in the cycle when we should have had a bust, the banks kept lending at unsustainable levels so that people could keep on buying houses, stereos, clothes, cars, etc.  The neo-classical economists said:

“hey this is great, and obviously we don’t have a debt problem or the markets would stop the lending”. 

Alistair Darling’s disastrous deregulation of the UK banking system is a case in point.  Scotland’s budget in 2011/12 had four thousand million pounds taken out of it, just for interest payments on our share of the UK debt mountain.

Those economists and economics commentators like myself who never trusted the unhindered free market approach were not so confident; I felt like we were strapped into the front seat of a car speeding towards to the edge of the Grand Canyon without any brakes.

I actually attended several meetings with UK Government Ministers and with representatives of the Bank of England, including members of the Bank of England Monitory Policy Committee ,in 2006/07/08 where I made the case for acting to cut lending, and  was basically told:

“don’t be silly, Scotland has never had it so good!”

Some Recent Historical Context

I actually didn’t know about the problem with American property investments, I saw the recession looming because of personal debt levels.  In 1964 household debt as a % of income was a manageable 14% yet in 2009 it was an unmanageable 80%.  It has often been said that a government needs bailed out when its borrowing costs reach 7%. I have seen payday loan companies on TV advertising 2000% APR and recent figures show 400 Scots a month are entering some form of bankruptcy.  Personal debt does impact on the real economy, big time, in consumer spend terms but it also impacts on the liquidity of the banks themselves.  Think we are over the personal debt problem think PayDay loans and think again.

In 1964 loans represented 46% of the value of UK bank balance sheets – in 2009 it was roughly 497%. Hands up if you think it is wise to let a bank lend up to nearly 500% over the value of its capital assets?   The money lent across all the UK banks amounted to more than four times the entire wealth generation capacity of the UK.  This was allowed to happen without any real government oversight – why?  Because Alistair Darling, then Chancellor and now leader of the No Campaign, believed that less regulation and London-centric economic growth meant more wealth for the country.

Let’s be clear, lending more than your capital assets, only became possible when the law was changed to allow banks to create new money; money that they could lend, that they didn’t have, and that actually didn’t exist, until they made the loans.  Most people think that the Government creates new money but private banks actually create 97% of new money out of thin air and then charge interest on it.  No I am not making this up, and they still went bust!

The general idea was that those loans had to be secured against physical assets so that if they were not repaid, the banks could grab the assets (people’s homes usually) and stay afloat.  Property was the asset that most loans and investments were secured against, and that was okay as long as market forces meant property maintained a high value.

Housing and Debt – The False Boom

The False Boom

The False Boom

But there was a new market force at play, one the chancellor seems not to have understood but the banks did. The banks could now lend billions they didn’t actually have, against property, and this rapidly increased competition for house purchases thus increasing the sales value of the houses they lent against.  As a result the values of property went through the roof, and as property values rose the banks could print (I mean lend) more money.  People were offering 80% over asking price to secure properties because they could get cheap credit, but the only thing keeping prices high was the banks ability to keep lending.

The politicians who worshiped the neo-classical economic model kept on winning elections and why wouldn’t they, they had delivered an end to boom and bust!  Things were so good for Brown and Darling that they didn’t even get suspicious when the banks started offering million pound bonuses to fairly unskilled traders and started calling themselves “The Masters of the Universe” and drinking £1,000 bottles of champagne at Davos like it was going out of fashion.  Of course the banks were profitable, who couldn’t make money if the Government was giving them the right to make money out of thin air?

Then the Boom, went Boom

The global economy slowed a little, personal debt and lower wage inflation meant people couldn’t keep up payments to debts, especially mortgages in the USA and the bubble burst.  The banks were bankrupt, left holding assets whose value was in free fall, simply because their value was based on access to easy money that just no longer existed.

Worse was to follow, not only had the banks been printing money on the back of over valued properties, they had been selling one another their bad property debts, in bundles of thousands of properties at inflated prices and with the help high ratings from credit agencies, pretending they were worth more than they were paying, by overvaluing the properties.

When the crash came, governments the world over had to decide if they should let the banks go bust, if they should let shareholders (including pension schemes) take the hit, after all those shareholders got rich on the boom. Or if the taxpayer, you know, you, me and the guys whose household debt is 80% of their income should take the hit.

There were other options at the time in terms of how Alistair Darling could have managed the credit crisis. In the end, it is he who invested billions of taxpayer money with limited guarantees of real economic and social return on our investment (like lending to small businesses to boost the economy or our money back in a decent timeframe to pay down debt). There were and remain other options for paying down the debt rather than the austerity agenda of the Tory-led Westminster Government. But we should not have got ourselves into this mess in the first place and the Westminster system doesn’t offer a credible path to sustainable economic growth in these circumstances.

No one saw it coming!

Professor Steve Keen

Professor Steve Keen

The oft-used defence, the only defence used by Westminster and the banking sector, is that no one saw it coming. One of those that did see it coming and who is, in my opinion, one of the leading economic thinkers of our generation, has some advice for Scotland.

Australian Professor Steve Keen, the Revere Prize winning economist said

“the ‘UK economy is a ponzi scheme that is about to go bust – Scotland should get out while it still can’.

I don’t necessarily agree with the sentiment, but from such an authority on economics, it makes you think.

Conclusion 

Britain is bust, not just economically but politically and democratically.  There is no political solution, it is a system problem and so no change of the party of Government without a corresponding change in the democratic system of Government can make a difference.  Addressing the balance through devolution while maintaining our social and trading union has helped, but we need to go further than devolution – Scotland should become an independent country, but we should do it in a way that doesn’t disadvantage the other home nations and that includes maintaining sterling as our currency to maintain our common market without barriers.

There is time to make the change before our economic options run out. It is time to fire Westminster on the grounds of at least two generations of political and economic systemic incompetence.  It is time to have business and economic policy decisions that impact on the social needs of the people of Scotland, made by the people of Scotland. That is the fundamental truth, at the heart of the referendum debate.

All Pro-Independence business people should sign the Business Declaration - Read More

Further Reading:

Portrait of the South East – Office for National Statistics

Going South: Why Britain will have a Third World Economy by 2014

Steve Keens book Debunking Economics – for those with a serious apatite for detailed analysis!

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Category: Economic Policies, Economics of Independence, Gordon MacIntyre-Kemp, Referendum 2014, Scotland's Economy

About the Author ()

Gordon MacIntyre-Kemp is the Chief Executive of Business for Scotland. Also the owner of the social media and sales & marketing consultancy Intelligise and was the founding member of Business for Scotland. With a degree in business and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G). Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging new school of economic thinking. Gordon Blogs for Business for Scotland and The Huffington Post.

Comments (27)

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  1. Isobel Mackay says:

    Except the status quo will not remain.
    If we don’t take this opportunity to self determine we will lose the opportunity to prove that we can prosper as a new, confident nation,
    ensuring a more equal and better society for our descendants. What better legacy?

  2. Sid says:

    You got it G!
    Erudite, compelling, true.
    My only aside would be that the Tories have a smile/snigger a la “I’m alright Jack”, while they do this.
    Labour under this guise have made themselves unelectable so Scotland have no choice.
    Labour want the seats,50 odd at a glance- Cameron on the other hand has been “Advised” what fiscal damage there’d be if we go it alone.
    On our own terms- Freedom.

  3. Peter Gavan says:

    Excellent article all round. I agree with all the sentiments.

    About the currencies. The GBP is not that high at the moment. In fact I would say it is undervalued. Take two currency comparisons. Not so long ago the AUD was around 3 to the GBP and the NZD around 4 to the GBP. Now the AUD is around 1.5 and the NZD around 1.8. That means the GBP has halved against those currenices. The two countries are doing very well, with their high currencies. Mind you, they were not hit hard by the banking crisis due to tight controls by the RBA and the RBNZ.

    Another thing that is surpising is that Australia and New Zealand were once run from London. After Independence (from London), they found each other. The London adventure with the EEC was another disaster for Australia and Neww Zealand. These countries got out of their difficulties and have close relations with China. New Zealand’s biggest export country is China and it now has an overall trading surplus with exports vs imports.

    Scotland after Independence would have similar benefits being able to choose their friends. I know for a fact that Canada, Australia and New Zealand all love Scotland to bits. Friendship with these three would mean a closer relationship to Asia which is the up and coming powerhouse.

    • Gordon MacIntyre-Kemp says:

      Hi Peter the point I make in the article is that the artificially high value of the pound for several generations drove the process of de-industrialisation. I am not suggesting weakening the pound from this point onwards to improve manufacturing and exporting.

      When manufacturing and heavy industry died out, so did the component suppliers and service companies (the supply cluster) and so when you manufacture nowadays much of the components / raw materials have to be sourced from abroad and a strong currency can help with that, in the same way it makes imports cheaper. Currency manipulation for economic reasons is a tool of the past. I feel now that there is only a small opportunity for variation from the natural level of a currency when compared to the state of the countries economy. When you look at the state of the UK economy regardless of the rise of other currencies against the pound, you could argue that the pound is still higher than its natural position currently as so there is actually a danger of a sudden fall.

      Taking Scottish exports out of sterling by launching our own currency for example would probably trigger such a devaluation and that would cause rapid inflation.

      All that said I agree with almost everything you say.

      Gordon

      • Peter Gavan says:

        Hi Gordon,

        I think that the new Scottish Pound (Scottish Crown?) if there were such a beast might tumble initially. In the long term though, especially with the stability of the economy, it would go up against to at least parity with the GBP.

        As far as credit ratings are concerned, the major credit rating agencies are not speculating regarding an independent Scotland.

        Scotland’s Liberal Democrat spolesman Mr Alexander claimed Scotland’s small population size would make it less likely to achieve a AAA rating.

        It should be noted that around two-thirds of the countries currently holding a AAA status have populations of less than 10 million, including Norway, Switzerland, Finland, Sweden and Denmark.

        • Gordon MacIntyre-Kemp says:

          Peter I disagree a scottish pound wouldn’t tumble sterling would and that is why I support (have done since 2005) an independent Scotland keeping sterling.

          See my blog on the issues here http://www.businessforscotland.co.uk/euro-pound-or-scottish-pound/

          • Peter Gavan says:

            Hi Gordon. I read your article above “euro-pound-or-scottish-pound”, and see that you have really thought the process through, based upon the experiences of other countries that have had the same experiences. What you are suggesting definitely seems the sensible, prudent and correct approach.

  4. Paul Codd says:

    Interesting article and debate. I’d just like to add to the discussion that Iceland, Norway and Switzerland are inside the EU free trade area, but outside everything else http://en.wikipedia.org/wiki/Free_trade_areas_in_Europe . Outside the currency zone, outside the Stalinist European Stability Mechanism (ESM), outside the influence of the good the bad and the ugly we get from the unelected Commission, but able to do business freely with other community members. It seems to me that this position gives us >80% of the benefits for <20% of the cost, and therefore would nullify the need for rational people to get emotional about whether we should stay in or out of the EU.

  5. Andrew Sinclair says:

    Nicely put Gordon. The challenge is getting more people to understand how serious the UK position is. Have you looked at the stats for Greece that are being put about today? I’ve seen these numbers floating around Twitter this morning. If they’re true then there can be no more damning indictment of the failure of the Euro, the Banksters and the neoclassical economic theories than this.

    #Greece unemployment 27%. 31% among women, 64.2% among youth. 1.3 mln unemployed (+1 mln since ’08), 3.3 million inactive, 3.5 mln employed.

    For those of you who are parents – just try and imagine what it must feel like to see 64% of the youth of your country with no jobs, and probably little potential to find anything either.

    How far away from this is the UK? We have an independent currency which we could devalue to ameliorate the worst effects, but we’ve already done that to some extent over the past 3 years. So maybe not as far away as we’d like to think. If the markets do turn against the UK then it’s for sure that London and the SE will be protected at the cost of Scotland and the regions.

    That is, I think, the stark choice facing us. Yes means taking control of our own destiny, No means risking being sacrificed to protect the Londonistas.

    • Gordon MacIntyre-Kemp says:

      Agreed but the trouble is people are quite used to having another country in charge of our destiny and there are a lot of people who fear change.

  6. Ivior tiefenbrun says:

    Manufacturing output and productivity grew under Thatcher and its share of GDP that was 50% higher in real terms in comparison with falls of equal proportions during periods of Labour before and after her period in Government . How can this man say otherwise and why try to blame her or free market economics for a problem the Left caused.
    Spending by Government especially the last one and their spending and money supply increasing policies and ever expanding public payroll and benefits increased public sector spending and borrowing beyond measure despite their assurances and pledges.
    Populist Government set the rules for the Banks and their capital ratios and encouraged them to lend to those who could not afford to buy houses and were unlikely to be able to repay their loans.
    The Labour Government bribed the electorate with deficit spending and lied that they had abolished boom and bust, when they had only abolished any chance of a boom and condemned us to the greatest bust in our history, while they broke their own rules and told the voters they bought with their lies and borrowed money that things could only get better!
    They devolved Scotland and vastly increased its cost of Government to placate their power base and retain its welfare dependent slavish support.
    Because the Left has dominated Scotland for a century we have had ever more irresponsible and profligate public spending and complacent and sometimes corrupt politics which together with the consequent much higher local rates and our bloated Public sector have stymied Scotland’s competitive position and reduced its economic performance.
    Government policies and an ever expanding payroll have helped disadvantage the regions and concentrated wealth creation and accumulation in London and the South East. We have indeed had the opposite of a rational Regional policy but all this was magnified beyond previous imagination by Labour.
    Nationalist and Socialist false arguments to scapegoat Capitalism or free market economics or Bankers or England are characteristic of the delusional power hungry extremist Left with their unremitting track record of failure, poverty, war and famine.
    To argue, when the two major delinquent Banks that did so much harm were Scottish, that we would be better off leaving the UK while keeping the Pound and remaining subject to UK and Bank of England control over financial policy and interest rates is ludicrous as it could only increase the very factors and disadvantages that are being complained about by those most distant from Central power and spending.
    I could go on and on but one wonders whether it is worth while contradicting such absurd views when they are held with the irrational passion of a fundamentalist religious doctrine and are used to support revisionist fantasies that excuse those responsible for creating the problem that they now complain about so bitterly.
    Yes we have run out of money.
    The people who were most responsible, like junkies still want more so they will delude themselves and others without limit rather than face the facts and their responsibility for the state we are in.
    Believe them and we are all lost.

    • Ivan McKee says:

      Ivor,

      I agree with your comments regarding the spiralling deficits – public and private sector. The banks required to be bailed out at a consequence of excessive debt generation in the private sector (individual’s mortgages and credit cards).
      I think that is the point Gordon is making is that spending was out of control in general, and like you, he is highly critical of the last Labour government’s role in that.

      I also agree with you about the cost of government – one excellent consequence of Scottish Independence would be to remove the most expensive layer of government: the 59 Scottish MPs at Westminster and our share of the cost of the House of Lords costs Scotland about £50m per year.

      (When you find 2 people doing the same job in an organisation I always see it as an opportunity to get rid of the expensive one)

      I agree with you about the lack of responsibility when it comes to matching revenue and spending driving irresponsible behaviour. When those decisions are made closer to the people that elect the politicians you should get more responsibility on both sides – there are fewer places for people to hide.
      That’s why I think that giving full control of tax and spending to the same government makes sense.

      I think the Scottish Government has done a reasonable job in those terms: of the few taxes they do control they have managed to implement a Council Tax freeze and to balance the budget every year.

      The currency proposal (using sterling) forces a future Scottish Government to comply with a fiscal pact, keeping spending under control. I don’t see that as a bad thing.

      When a bank gets into trouble the responsibility for bailing it out lies with the different governments in proportion to where the banks customers are. In the case of the RBS bail-out the US and Australian governments also contributed to the bail-outs as the banks did business in those countries.

      Had Scotland been Independent our responsibility for the bail-out package would have been limited to about 10% of the total.

      As a businessman and entrepreneur I see great opportunity under Independence for us to create some focus on manufacturing in Scotland.
      I wrote a separate piece on Business for Scotland on Manufacturing in Scotland. Would appreciate your comments on that.

      Finally with regards to your comments on Manufacturing as a % of GDP, I checked the data from the World Bank (I can send you the link if you like) :

      UK manufacturing as a % share of GDP was 25% in 1980, dropped to 21% in 1992, then to 19% in 1998, and to 11% in 2010 .

      So manufacturing as a % of GDP fell during the Thatcher government, the Major government and the subsequent Labour governments – all are equally guilty in this matter, and I think that is the point that Gordon was making.

      Ivan

    • Gordon MacIntyre-Kemp says:

      Ivor, We agree on a few things, that populist politicians bribed the electorate., but they bribed then with benefits whilst simultaneously removing their ability to earn buy following policies that de-industrialised Scotland and the regions and created the need for benefits.

      You paint Scotland as a free spending left wing corrupt state but almost all the evidence that could back that up comes from Labour and Westminster politicians – in other words unionists. In John Swinney we have a finance minister who has made the public sector far more efficient (by freezing council tax and cutting of the councils ability to effective print money). it is a fact that social spending in Scotland as a % of GDP is consistently lower than in the UK as whole and so the facts don’t back up your arguments.

      My point is that left or right governments that can be classified as Westminster led will never be able to act in the best interests of Scotland where that differs from the best interests of London and the South East.

      I also agree with you when yo say that “we have the very opposite of a rational regional policy” but there al agreement stops as i am afraid your argument becomes an irrational rant.

      You say > Nationalist and Socialist false arguments to scapegoat Capitalism or free market economics or Bankers or England are characteristic of the delusional power hungry extremist Left with their unremitting track record of failure, poverty, war and famine.< Nowhere in my article do I blame England, I was brought up in Hexham and moved to Scotland to go to university. I do not have a single member of my family who I am in touch with who does not live in England, we have many articles n this site written by English business people and i simply wont stand for accusations of that sort. It diminishes your own contribution.

      Gordon Brown, Alistair Darling are Scots and I blame the Westminster sycophantic unionists of all nationality and creeds. I am also a capitalist, even slightly right wing, when I lived in England I always voted Conservative. I believe that we are experiencing a new enlightened form of capitalism and that the people of Scotland taking control of their own destiny rather than being governed by others is part of that. I accept that people like yourself who are Members of the Most Excellent Order of the British Empire (MBE) may never agree with any positive restructuring of the system of governance but that doesn't mean that you get to suggest that my views are

      >>”absurd and are held with the irrational passion of a fundamentalist religious doctrine and are used to support revisionist fantasies that excuse those responsible for creating the problem that they now complain about so bitterly”.

      Sorry Ivor but that is just unprofessional and not worthy of the style or standard of level headed, evidential debate we are looking to engage in on this website.

      I should finish with a nod to the fact, that I would hold up your business as a strong example of what I would like to see manufacturing companies aspire to in terms of added value, manufacturing and exporting in Scotland and see independence and the renewed focus on Scotland need to manufacture more and be less reliant on the highly volatile financial services model followed by the rest of the UK.

      See Ivans article on this site “Made in Scotland” http://www.businessforscotland.co.uk/made-in-scotland-2/

  7. Tony Tarr says:

    An interesting article stating historical fact (hindsight is a perfect science) as far as I am aware the wealth in all countries of the world tend to revolve certain regions or capitals, maybe in Scotland it revolves around the Glasgow and Lothian centres (no change there then) I am not saying this is fair just the status quo.
    As for the uk export market I believe this is the real tragedy, our problem here is not being able to produce volume high quality engineered products, the uk motor industry in the 70s which was a farce is a prime example of a totally blindfolded approach to world markets, it is fact that the Germans in particular are well ahead in engineering capability and foresight.
    I personally as an Englishman wish to have much of our independence returned from Brussels, particularly the legal system, ours is by no means perfect but it is ours.
    I must say if I was Scottish I would vote for independence from Westminster but I would also be fully aware that it would initially be a very hard struggle, but most things in life worth having do not come easily.

    • Gordon MacIntyre-Kemp says:

      Hi Tony, I can see where you are coming from on Brussels – some reform is needed there but the EU common market element is vital to Scotland in or out of the UK. As for very hard struggle, I have to say that if we vote no then there will be a harder struggle ahead as if Westminster doesn’t change course then Scotland will fail as a nation as a result of maintaining Westminster control.

      And as an aside I hope that an independent Scotland will cary on with the process of devolution to the the Scottish regions and allow power, financial controls and prosperity to filter throughout the country and especially rural / highland areas and will be campaigning for such.

  8. A very good article. Just one point: I know that the Scottish economy is close to the mean across the nations and regions of the UK and therefore a much more plausible candidate for a single currency than the very divergent economies of the eurozone, but if keeping the pound artificially strong was one of the factors that destroyed manufacturing industry, is there not an inherent risk in maintaining currency with rUK after independence?

    • Gordon MacIntyre-Kemp says:

      You may want to have a look at my previous article that explains why we should keep sterling after independence. http://www.businessforscotland.co.uk/euro-pound-or-scottish-pound/

      Unfortunately the high pound has done its job and destroyed the clusters that surrounded the manufacturing business. As a result if you wish to manufacture in Scotland now there must be an element of importing components and weak currency wouldn’t help with that.

      Maintaining the currency union at least for a decade would ensure stability within the UK common market and allow Scottish companies to trade seamlessly with rUK suppliers and customers and because the rUK purchases so much from Scotland (especially oil and energy) then maintaining the trades in the same currency would not negatively impact on the rUK balance of payments which is in danger of sinking the pound. So the danger / real risk is not in keeping the pound but in launching our own currency.

      • Ivior tiefenbrun says:

        There are lots of very sound arguments for keeping the Pound but they also are arguments for keeping the Union.
        Similarly to leave the UK but remain in the EU is idiocy as we would gain no real independence and be in the middle of any contentious quarrel between the UK and the EU. It is never a good idea to split an Island and it generally guarantees the we will be in opposite sides of any future European wide conflict.
        As for manufacturing input costs, as a proportion of the selling price and so on exports should benefit from a strong currency but not by faking one with high interests rates resulting from high inflation, big deficits and the need to borrow.
        I cannot follow the logic of the arguments here I am afraid especially as advanced manufacturing uses less and less material as a percentage of the overall sales value and that trend will continue in any advanced competitive Industrial society.
        The first rule of business is buy cheap and sell dear so this argues for a strong currency but that in turn requires constant productivity and quality improvement which requires low taxes and high investment and a skilled and continuous learning flexible workforce operating in a free economy and we need access to Global markets not just those of the collapsing EU. In short a free economy model with a classical Liberal approach and the complete opposite of our current Stateist mind set.

        • Ivan McKee says:

          Ivor

          Can you help me understand this?

          With a lower material content (in other words a higher Labour / Overhead content) then a manufacturer is going to be more vulnerable to a stronger currency.

          Assuming that the majority of the materials are sourced overseas then these are cheaper – but these only represent a small % of the total cost.

          The costs incurred at home will be higher relative to a competitor abroad.

          In those terms a strong currency is absolutely a problem for manufacturing.

          Policies taken by government to keep a currency strong (I.e. higher interest rates) will also have a detrimental impact on manufacturing.

          The Swiss, for example, have had all kinds of problems recently with the strength of their currency and have had to work very hard to keep it to a manageable level of around 1.22 to the EURO.

          Sweden and Norway have similar problems on occasion. I’m working on a project at the moment involving some manufacturing done in Sweden and the strength of the SEK is a major problem for the local manufacturing plant in terms of cost competitiveness (We are hoping to bring some work to Scotland as a consequence of that).

          The strength of Scotlands balance of Payments vs the UK, and the lower levels of debt in Scotland would mean that a free-floating Scottish currency would be valued too highly for manufacturing competitiveness. In a currency zone with rUK would go a long way to help fix that problem.

          I am also intrigued by your comment about it never being a good idea to split an island.

          Does that mean that you are in favour of a united Ireland for example ?

  9. Erik McLean says:

    Excellent Gordon. You have exploded a few popular myths in this article.

  10. Great article. This is the status quo my “Better Together” friends would have us enjoy for the next 50 years.

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