The collapse of
the oil price in recent months has led to a certain amount of glee in the
unionist camp, with their spokespeople taking great delight in claiming that it
‘proves’ that Scotland couldn’t afford independence. In fact, it ‘proves’ no such thing; it’s a
hopelessly over-simplistic reaction.
It’s true, of
course, that the draft figures for the economy of an independent Scotland
produced by the SNP were based on an assumption about the price of oil, and
that that assumption has been proved incorrect.
(Although it’s worth reminding ourselves that the assumptions about oil
prices made by the SNP were very similar to those being used by the UK Treasury to forecast the UK’s revenues and expenditures.) It’s also true
that the fall in oil prices means a fall in revenues from taxes on oil, and
that that reduction would have fallen on the Scottish Treasury in an
independent Scotland rather than on the UK Treasury as things stand.
Taking those
two truths, it’s easy to make predictions of doom for the Scottish
economy. Like all good political
sleights of hand, starting with some simple truths is a better basis for a big
lie than starting from obvious untruths.
The point is though, that, true as those two points are, they’re not the
whole truth. The reduction in revenue
from petroleum tax isn’t the only result of a falling oil price; falling oil
prices also have other economic effects.
One of the most
obvious of those effects is that the cost of travel and transport reduce, and
that affects the price of most goods and services. In some cases that will be passed on to
purchasers in the form of price cuts; in others it will boost the profitability
of non-oil businesses. And consumers
paying less for fuel will have more money to spend on other things.
In terms of
government income and expenditure, there will be some direct benefits from the
reduced price of fuel, and some more indirect benefits from taxes on profits of non-oil businesses, all of which need to be offset against the reduction in revenues from the oil industry. For the economy as a whole,
cheaper fuel can promote and encourage increased economic activity in other
sectors, which will also boost government revenues.
It’s difficult
to be certain whether the ‘good’ economic effects of a lower oil price will
outweigh the ‘bad’ economic effects in Scotland, although there have been some reports suggesting that they will. And there can be no guarantee that the price of
a product like oil will not increase again in the future if the world economy
sees an increase in demand. The nature
of the oil price is that it is essentially volatile, but my personal view is
that, over the long term, energy prices are likely to go in only one direction
– upwards – whatever variations we may see in the interim depending on the
world economic cycle. The economic prospects of a country where a commodity with a volatile price plays a large part can never be judged solely on a short term basis - and that applies as much to an assumption about high oil prices as it does to an assumption about low oil prices.
But the idea
that what is likely to be a short to medium term reduction in oil prices somehow kills the idea of independence for Scotland is simply wishful
thinking. It’s almost as silly as
arguing that the resultant hit taken by the UK spells the end of any
possibility for the UK to remain independent.
The good news is that, if over-simplistic half-truths and wishful
thinking are the best economic arguments the unionists can come up with, the
project that’s doomed is the union, not Scottish independence.
Posts
6 comments:
Scottish independence is doomed right up until the point a majority vote in favour is secured. This much most of us understand, including the hothead nationalists we have here in Wales.
The part we don't understand so well is how to secure the majority vote in favour. Fortunately for Scotland Nicola Sturgeon does understand. People vote 'for' a reasonable expectation of a better standard of living. And people vote 'against' anything that is likely to get in the way of an anticipated improvement in standard of living. Forget 'heart', 'head' will invariably triumph in a well educated democracy.
Anticipated oil wealth in Scotland suggested a reasonable cushion against all the other things that could possibly go wrong in a newly founded independent nation. But now there is question mark over that illusory cushion and 'reasonable expectation' in terms of improving standards of living looks decidedly uncertain.
Under Alex Salmond the SNP failed to persuade rich people and poor people alike that they'd all be better off in an independent Scotland. Nicola Sturgeon has learnt that lesson well. She knows that to carry the day everyone must feel like a winner. Without the cushion of oil the job becomes that much harder. Not impossible. But certainly harder.
It's a shame we here in Wales still keep talking about wealth distribution rather than wealth creation. Wealth creation by all for all.
"People vote 'for' a reasonable expectation of a better standard of living. And people vote 'against' anything that is likely to get in the way of an anticipated improvement in standard of living." A tad oversimplistic, I fear. The number of people prepared to vote against membership of the EU on the grounds of a largely irrelevant factor, namely immigration, suggests that voting behaviour is a lot more nuanced than you suggest.
"But now there is question mark over that illusory cushion" I don't think that the cushion is 'illusory' nor that the question mark over it is any greater than it was before. Temporary low oil prices have made the price volatility more obvious, but it was always there. And the SNP have recognised that for many years - that, in essence, is why they've long argued for investing the revenues in a sovereign wealth fund, rather than spending them as they come in, which has been the preferred option of the UK Government. Even now, it's not too late for that, although periods of low oil prices are not the times when the fund would be added to.
"It's a shame we here in Wales still keep talking about wealth distribution rather than wealth creation." I almost agree with this one, but we should also remember that the two are not mutually exclusive, and we need to deal with both.
All Anon 10:34 is saying really is that when it comes to votes of first order importance, such as general elections or major referenda, the main issue tends to revolve around which choice is likely on balance to make the polity as a whole or the voter as an individual better, or at least not worse, off. Nota Bene this doesn't apply to more second order elections (MEPs, PCCs, Cllrs or AMs) nor second order referenda (on issues like the voting system), where the basic elements of economic prosperity/security are not directly at stake.
Ultimately unless proponents of change can make a plausible case that their preference will stand to benefit (or at least not threaten the standard of living of) large proportions of the population and the polity overall then they will not be able to earn a hearing for the rest of their arguments.
In Scotland the growing independence debates since the 1970's have largely been powered by North Sea Oil. The fact that Scotland has oil and Wales doesn't is vital to understanding the differences in the evolution of nationalist politics over the last 40 odd years. Whereas in Wales since the seventies it has never proven possible to construct a really credible fiscal case for independence, in Scotland the opposite has been true for most of the last 4 decades and it has allowed independence to be presented as an answer to other problems. Low productivity? Poor health? Low educational attainment? Poverty? An independent Scotland could address them all once the proceeds from Scotland's economy were flowing to a Treasury in Edinburgh, not London. It was a hugely powerful populist argument, based on fact and buttressed by the example of Norway. It took all of Better Together's Project Fear to pull together the more complex case that there are other compensating benefits to Scotland's pooling her resources in a bigger, wider and more diversified economy.
The trouble with pushing this sort of line is that one can all too easily be tempted to spend the new revenue many times over and make overly rosy assumptions. It was the tendency of Salmond's Scottish government to do so (vast sovereign wealth funds do not spring into existence at once - even with higher oil prices it would take a decade or so of running big surpluses) that gave Better Together cover to claim that the entire foundation of its' economic plan for independence was built on sand.
Given that Scotland's vote in Nov 2014 was considered fairly close - though a 10pt lead for staying in would seem pretty healthy in the context of current EU Referendum polling - it's understandable to pose the counterfactual of where Scotland might now be with independence barely 2 months off? In some ways it can also to help to illuminate the issues that a Brexit vote would bring into sharp focus.
In Scotland the disappearance of taxable profits from the oil sector on top of the need to move the post Salmond SNP on from their failure to win the referendum has rather compelled Sturgeon to execute her switch in focus from wealth distribution toward creation. In Wales we've never had the luxury of a pot of gold at the end of the rainbow and consequently independence has seldom formed a central part even of Plaid Cymru's platform. Rather nationalist sentiments have percolated such civil society as Cardiff can offer and diffused through all the principle so called 'unionist' parties from 1979 on under the guise of the subsidiarity principle and the prospect and evolution of devolution.
As John's original piece points out there are downsides to economies heavily skewed toward a single sector, particularly natural energy resources like oil, or in 19th Century Wales, anthracite coal; and these are particularly acute as they begin running down. The rich world does appear gradually to be moving beyond burning carbon and the era of the $100 barrel may never return.
Interesting contributions.
John Dixon 10:58, you wrote, 'The number of people prepared to vote against membership of the EU on the grounds of a largely irrelevant factor, namely immigration, suggests that voting behaviour is a lot more nuanced than you suggest.'
I anticipate entirely normal voting tendencies for this EU vote. If you think you'll be safer or do better by voting NO you'll vote no. If the reverse is true or you aren't sure you'll vote to maintain the status quo. Simples. The only complicated bit is working out what is truth and fact and what is downright rubbish.
Immigration is hardly an irrelevant factor if you've been told you could lose your job to an immigrant. If no-one is able to convince that it isn't true or unable to point to various alternative means of employment, hopefully better paid employment, I think I'd be worried about immigration too. And especially so if people keep on banging on about the issue, no-one choosing to rebut robustly.
It's much the same with the poor steel workers in Port Talbot. For years they've been told they're a 'highly skilled' workforce when in truth they're just workers with easily replicable skills and subject to normal market forces. They have no medium or long-term future in the business of steel milling. But does anyone dare to say such? Of course not, it seems it's best kept as a secret.
It's time we really took a long hard look at the society we have created here in Wales. I doubt any other nation would find much to envy.
I'm not sure about this. The oil price drop is a big problem. John is right to say that you can smooth it out over the long run and use a Sovereign Wealth Fund. The SNP has always been consistent on this.
But the issue with achieving Scottish independence is that the first few years have to allow you to maintain a similar standard of public spending. The oil price drop does hurt that.
It remains to be seen whether the EU issue changes that. If the Scottish people feel strongly enough about it, they might accept some short-term problems with public spending.
I don't think we should pretend that financial and public spending matters can be brushed aside. Not that John does that, his points are valid, but the issue of austerity and public investment was quite central to the idea that Scottish independence is progressive, which saw it win in places like Glasgow and Dundee.
In the later comments, both Democritus and Anon 10:24 have a more nuanced interpretation of voting on the basis of self-interest than the original comment to which I responded. I'd like to take that debate further, but will do so in a new post in a day or two, rather than in a debate about something rather different, which is the effect of changing oil prices on the Scottish economy. For similar reasons, I'm also going to ignore the comments about steel workers in Port Talbot - not because the point being made isn't important, but because it isn't relevant here.
Democritus suggested that "In Scotland the growing independence debates since the 1970's have largely been powered by North Sea Oil." I'm not sure that's entirely true; I'd be more inclined to say that the availability of oil revenues has made it easier to counter the "too wee, too poor" narrative, which isn't quite the same thing. I do agree, though, with the point about the downsides of an economy heavily skewed to one industrial sector, and also that a sovereign wealth fund can't spring into existence overnight, particularly when prices are low.
But perhaps the main point I'd make here - and this responds to part of the comment from Anon 10:52 as well, and is also part of the point of the original post - is that economics is complex, and the complexities are usually skated over in political debate which prefers to seize on simple - and simplistic - arguments. Such arguments are both easier to make and easier for people to understand. Thus, I can understand both why Scottish oil became such an attractive point for the SNP to make, and why the fall in oil prices has become such an attractive point for the unionists. But what I was trying to get at is that both are hopelessly over-simplistic arguments - the Scottish economy is more complex than that.
For sure, falling oil prices will look like a short term problem for an economy over-dependent on oil (although the idea that the Scottish economy is as heavily dependent on oil as some suggest may be another over-simplification; it's not an oil-based economy like some of the Middle East countries, but is more dependent on oil than the UK as a whole), but the effect of falling oil prices isn't only a one-way street. And you can't really judge the health of any economy by taking a snap-shot at a point in time; if you did, then the UK was irredeemably broke a few years ago. We have to take a view over a period, and that means accepting that for an economy which has a degree of dependence on a product with a high level of price volatility there will be times when it looks very good and times when it looks a lot worse. Evening that out is one of the major aims of investing rather than simply spending revenues in the good years. An there are counter-balancing factors even in the times of low prices.
Democritus suggests that the days of an oil price over $100 may be over. Perhaps. Given an infinite number of economicts with an infinite number of calculators, one of them will make the correct projection of the oil price - but most of them, like most politicians, will get it wrong. But the current price looks to me like a short to medium term anomaly.
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