You probably already knew that Adam Smith, capitalism’s first great economist, was a Scot. Alex Salmond certainly does, to judge by the number of times he has cited Mr Smith when explaining Scotland’s proud history and his hopes for independence.
What you, or indeed Mr Salmond, may not have realised is that Mr Smith was also a big fan of the Union. The Wealth of Nations reads like a paean to Great Britain, peppered with examples of how Scotland was better off within the Union — how its terms of trade improved, how prices of key exports, such as cattle, increased.
Mr Smith, born 16 years after the 1707 Act of Union, even claimed that it meant “the middling and inferior ranks of people in Scotland gained a complete deliverance from the power of an aristocracy which had always before oppressed them”.
In other words, were he around today, it’s a fair bet Adam Smith would be voting “no” on September 18. It’s also more likely than not that he would have been disgusted with the quality of economic debate around the issue.
To the irritation of most Scots, who merely want straightforward answers about the pros and cons of the decision, the official campaign has degenerated into a tawdry affair of name-calling and misinformation.
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The one thing both sides can agree on is that, in the end, the referendum comes down to economics — but rather than emphasising the inherent uncertainties of economic forecasts, both Mr Salmond and Alistair Darling have chosen instead to portray a vote for the other side as a surefire route to penury and fiscal disaster.
Each has used a mutant version of the tools bequeathed by Mr Smith to claim that independence would make individual Scots £1,000 better off or £1,400 worse off. Depending on who you listen to, an independent Scotland would either end up a small-scale champion, like Singapore, or a terrible failure, like Greece.
Faced with such patent hyperbole, it’s no wonder both “yes” and “no” voters are so frustrated with the campaign. Neither representative, they feel, is being straightforward with them.
Better Together started it. In an effort to encourage people to turn out and vote “no” (it’s always tougher to get people to the ballot boxes to support the status quo), they hinged their campaign more on the risks of independence than the benefits of the union. Then the “yes” campaign raised the stakes with even more preposterous claims.
You’d be better off listening to neither of them, as the reality is far more prosaic than the apocalyptic scenarios they’re busy sketching out.
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Here’s what neither of them will admit: in pure economic terms, an independent Scotland is unlikely to be all that different from the one that exists today. The trade impact of independence would be smaller than in the 18th century, since international barriers on commerce are far lower. The big economic numbers — GDP growth, unemployment and so on — are unlikely to stray all that far from where they are at the moment. The fiscal deficit would probably be a little higher than at present, though that depends on North Sea oil flows, which currently balance out Scotland’s more expensive public sector but are less likely to in future. This means that there would be little money for post-independence giveaways.
As a small, mature country with a high deficit and volatile tax revenues, an independent Scotland would start off with a lower credit rating than the rest of the UK, probably single or double-A, in line with Poland and Mexico. That would imply investors would charge Scotland more for official lending, which, in turn, would mean higher mortgage costs for Scots. This isn’t to say Scotland couldn’t eventually become a small, high-skilled open economy, such as Hong Kong or Singapore, but it would take many years to get there. Singapore became independent in 1965 but didn’t get its AAA credit rating until 1995. The “yes” campaign’s calculations are based at least partly on attaining Singapore or Hong Kong-style improvements in productivity, which is hardly a given.
Unfortunately, the vexed question of currency would continue to be debated well beyond referendum day. The Treasury’s apparent reluctance to countenance a currency union might well disappear during the horse-trading that followed a “yes” vote, although, as a petro-economy, Scotland probably would be better off with its own currency instead of being yoked into someone else’s monetary system. Most of Scotland’s banks would move south of the border, but, as it happens, most of Royal Bank of Scotland’s executive team have already effectively abandoned Edinburgh.
Bearing all that in mind, it’s not surprising that there is a close correlation between Scots’ cautiousness and their support for the “no” campaign (see graph). Independence would be a big step into the unknown.
There are many economic problems facing Scotland — low growth, high reliance on state spending, big divergences in mortality and educational outcomes — but it is not clear that independence would provide its politicians with many more levers to do anything about them. The reality is that economic change is far more dependent on long-term reforms, which Scotland could carry out regardless of whether it is an independent nation.
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With support for the “yes” camp rising, the referendum is heading for a nailbiting climax. “No” still looks the more likely outcome, but if Scots were to vote “yes”, they wouldn’t be the first generation to hope a constitutional change could overturn longstanding structural problems. After all, Adam Smith thought the Union would deliver Scotland’s middle classes from the power of the aristocracy. As it is, 50 per cent of private rural land in Scotland is still owned by 432 people — more than any other country in the developed world.
Ed Conway is Economics Editor of Sky News