One of the major issues on the British political agenda while I have been in the UK this week giving talks about Democracy and Political Ignorance is the prospect that Scotland might become an independent nation separate from the United Kingdom. A referendum on independence is scheduled for September 2014. A recent poll shows the “no” side with a substantial but not insurmountable 47-38 lead.
If Scotland does secede, in the short run Scots might suffer significant economic pain. Scotland is historically a net recipient of funds from the UK government, though North Sea oil has arguably offset that in recent years. If oil revenue falls (and possibly even if it doesn’t), Scotland might have to either raise taxes or cut government spending significantly. In addition, an independent Scotland might not be allowed to rejoin the European Union, if Spain decides to veto its application in order to deter secession by Catalonia. Exclusion from the EU might subject the new nation to trade barriers from some of it’s most important trading partners.
In the long run, however, an independent Scotland might actually improve its economic performance if the cutoff of UK funds forces it to adopt more free market-oriented policies. This is what happened with Slovakia after the breakup of the Czechoslovakia. Ironically, the Scottish government is seeking independence in part because they want to pursue more left-wing economic policies than the present UK government does, which may not be possible, given the tighter fiscal constraints an independent nation might face. Another potential irony is that Britain’s Conservative Party – historically among the strongest opponents of Scottish independence – would benefit politically if independence actually happened, because most of Scotland’s seats in parliament are held by the rival Labor Party.