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ECONOMY...by Alex Porter
FDR (Financial Dispute Resolution) Hearing
As models, the SNP’s ‘Arc of Prosperity’ involved three countries each of which varied in terms of their comparability. Unionist politicians had the right to try and pick apart any aspects of these models which did not resonate and they did.
That done, it made no sense to then point to their perceived ‘failures’, when their respective economies suffered badly because of the global financial crisis, as counter-evidence against Scottish independence. This inconsistency was ignored by Scotland’s mainstream media.
Murphy’s Law contains another false assumption upon which the case for the status quo hangs. If Scotland should look to the ‘Arc of Insolvency’ and conclude that political independence is undesirable what happens then when those models fare better, in independent assessments, than the UK state? By unionism’s own economic criteria the union, is by extension, redundant.
ICELAND V. BRITAIN
Comparability with Scotland:
Location: 1, Natural Resources: 0, Population: 0. Total: 33.3%
The tiny nation of Iceland has a population of 318, 000 people which is much smaller than Scotland’s capital city at just under half a million, and miniscule compared to the UK’s population of 62 million.
To justify his assault against this member of the United Nations Jim Murphy said: “Iceland as a country is on the verge of bankruptcy.”
Iceland’s bankers and government were incompetent and easily influenced. Global merchant banks undertook a sting operation. The banks were privatised, investment flooded into the country mostly from Wall Street and the City of London, the government and the nation felt invincible and was talked into undertaking a hugely expensive national dam project.
The dam project cost billions more than was originally estimated and there was no need for the dam with a generating capacity of 4, 400 GW per year in such a small nation. The reason they were undertaking the project was to provide electricity to a new aluminium smelter plant that would cost another €1 billion to construct and which would be constructed by Alcoa – a US company whose former CEO was George Bush’s treasury secretary. Aluminium would be used to make airplanes and such like products. Could Iceland not manage economic diversification in a more economically sustainable way? The country was taken out.
When reality started to dawn that the nations’ finances were a mess, investment pulled out leaving Iceland with a mountain of debt and little means to repay it. During all the speculation Iceland’s banks gambled on derivatives whose assets were not worth their stated value. Most of these products would have been sold by City of London traders who were not properly regulated thanks to PM Gordon Brown’s policy of ‘light touch’ regulation.
Iceland’s banks seemed to have lots of assets on their books. They offered high interest rates (15%) and so under rules of ‘fiduciary responsibility’ Brown’s government directed local councils to put their savings where interest was highest i.e. said Icelandic banks. This encouraged the speculation that the big global banks were after and Gordon Brown was in the thick of it with the financial oligarchs. The assets on the banks’ books imploded along with the global financial sector.
Then came the thorny issue of getting the money back. When Lehman Brothers went bust and Europe lost money the latter didn’t press the issue. Iceland though was small and could be bullied. To recoup losses Gordon Brown and Alastair Darling branded Icelanders ‘terrorists’; another diplomatic outrage by Labour politicians with a subtext. They used anti-terror laws to freeze accounts in Icelandic bank branches in the UK. The banks could not remit the money back to Iceland and so the banks were insolvent.
Then Britain, the Netherlands, ECB and others demanded that the Icelandic banks’ private debts be transferred to Iceland’s taxpayers. There is an attitude that high interest was not compensation for private risk by investors. On top of that the British Labour government showed incompetence by not taking any responsibility for regulation or oversight for these transactions. Now, foreign countries were demanding that private debts become public debts. It was either that or track down the fraudsters, who were bankers colluding with governments, so that wasn’t the kind of precedent that Gordon Brown wanted to set.
Icelanders held a referendum and refused to assume the debts. Now their former PM Geir Haarde is standing trial on charges of ‘economic negligence’ – a crime which carries a maximum sentence of two years imprisonment. I’m not sure what the right honourable Jim Murphy MP will make of his ‘Arc of Insolvency’ model in light of this development, but I would hazard a guess that this is where he would draw the line when comparing Iceland to Scotland.
Murphy’s contempt over the Iceland financial model was part of a strategy to demonstrate that the UK umbrella could shelter Scotland from the worst of a global recession. By pointing to their ‘near bankruptcy’ status the message was that Scotland would have faced a similar fate without the cushion of the leviathan UK economy sheltering her.
However last November Labour’s John McFall MP, then chairman of the powerful Treasury Select Committee, let slip on the BBC that the entire banking sector of Britain was bankrupt:
”Every bank in the United Kingdom has the taxpayer standing behind them.
“Let’s not be kidding ourselves, there’s no bank at the moment in a sense standing on its own two feet because there’s so much government money going around with quantative easing, with the printing of money, that they are getting the benefit of this cheap taxpayers money.”
Remark on state of UK banks comes at around 1 min 19 secs.
Labour was well aware of the problems the banks were having and allowed them to continue trading. They did this by allowing the banks to transfer their debts to the public through bail-outs and money printing.
The huge debts that the UK banks, government and population now have combined mean that credit has frozen. Money continues to be printed and given to the banks who simply buy from and sell products to other banks using taxpayers money and draw down giant bonuses but the economy is broken. You can borrow money to pay deficits and that money will go towards consumption and make the economic statistics like the GDP look a little less bad but what happens when the government can’t borrow to plug the hole in the public finances anymore?
In August Britain borrowed over £15 Billion in a single month to balance its budget. Soon austerity will cost Britain almost 500, 000 public sector jobs which can’t be absorbed by the private sector as they are struggling with declining sales and being credit starved. This cull of public services will be a real shock to people’s way of life and on top of that, more unemployed will mean less consumption and place a higher social security burden on a reduced workforce.
These problems with deficits and austerity undermine unionism’s implied assertion that Scotland is sheltered by the scale of the UK and its global roll as a key financial player. With the Legatum Institute’s findings that public confidence in Britain’s financial sector stands at 101st in the world, ranking among third-world nations, it transpires that the economic icon of the mighty British wealth generating City of London was actually a parasite flush with ponzi finance and dependent on state subsidies to survive.
Money printing is technically defaulting on debt. With a printing press a nation can avoid running out of money but when a government and its central bank resort to printing to pay debts and balance budgets, that’s bankruptcy. The new government’s deep austerity cuts are merely a symptom of that.
Labour’s economic negligence perhaps can’t be better expressed than it was by the outgoing Labour Chief Secretary to the Treasury, Liam Byrne, when he left a note on his desk for his Liberal Democrat successor which said:
“Dear Chief Secretary, I’m afraid to tell you there’s no money left. Kind regards – and good luck, Liam.”
Iceland has less unemployment than Britain and her per capita GDP is five places higher in the Prosperity Index. Perhaps Iceland wasn’t the best example for Salmond to point to. It is not Iceland’s exposure to global economic volatility that rattled them but manipulation, fraud and bullying, much of which emanated from London. However the lowest ranking nation on the Legatum Index out of the ‘Arc of Insolvency’ still scores higher than the UK. If Iceland is an example for Scotland not to follow then according to Jim Murphy neither is the UK.
IRELAND V. BRITAIN
Comparability with Scotland:
Location: 1, Natural Resources: 0, Population: 1. Total: 66.6%
Ireland’s population is around 4.6 million people. Although it was described as the Celtic Tiger, Ireland had a much smaller financial sector than Scotland. Her economy is modern and diversified. Historically, ties between Ireland and Scotland are very strong and so culturally both nations are in some ways very similar.
Scottish Labour leaders like Murphy and Iain Gray have pointed to Ireland as a model for Scotland not to follow.
The ‘Arc of Insolvency’ and other derogatory claims about the Irish economy have prompted harsh words from Ireland and one Irish economist, Marc Coleman, in particular felt it necessary to defend his country (and Scotland) in relation to the Scottish constitutional debate in the Scotsman newspaper:
“Ireland's GDP per capita is 30% above the European Union average, while Scotland's, sadly, is well below it. Labour has ruled Scotland for 13 years, and it's been a very unlucky 13 indeed with Scotland's population and relative living standards falling far behind…
"And, according to forecasts of the International Monetary Fund, the Organisation for Economic Co-operation and Development and the European Commission, once the correction of the last two years is past, the Irish economy will resume its record of growing faster than both Britain and the euro zone...
“The nation that invented the phone, television, penicillin, the Enlightenment, modern economics (I could go on), is just as capable as Ireland, if not more so, of rapid growth. But not if its politicians love their Westminster careers more than their country. And not if a one-size-fits-all economic policy – ideal for the south-east of England but devastating for Scotland – draws economic activity and talent away from the north and towards an already over-congested south-east."
Hear Marc Coleman's full interview
The tenet of Murphy’s Law which seeks to undermine Scottish self-confidence was exposed as intellectually redundant in this blistering riposte. Yet, that stands for nothing. The other tenet of Murphy’s Law ensures the first survives unaffected. For Scotland’s compliant mainstream media it was business as usual when Labour MP Ann McKechin, referring indirectly to Scottish independence – and in spite of Marc Coleman’s protestations - again felt it incumbent upon herself to run down the Irish economy on a BBC Radio Scotland programme.
Listen to Ann McKechin here:
Ireland has a higher GDP per capita seven places above the UK and its economic outlook is far better according to the Prosperity Index. Again, given that Ireland has no large oil revenue, it is perhaps not the best example of what an independent Scotland would be like. According to the Legatum survey Ireland ranks two places higher than the UK in terms of prosperity. This begs the question that if Ireland is a model of failure according to Jim Murphy, Iain Gray and other unionists, then why should Scotland thole a Britain which is comparatively worse?
NORWAY V. BRITAIN
Comparability with Scotland:
Location: 1, Natural Resources: 1, Population: 1. Total: 100%
Norway’s population is just under 4.9 million people. It is, like Scotland, a serious oil producer. Scotland has some key advantages that Norway does not have such as a large financial centre and whisky exports. Norway has been more cautious with the exploitation of their oil fields and now produces more than the UK. However, recent large discoveries in the UK sector and as yet untapped deposits West of Shetland and indeed West of Scotland where the sea is less deep may, in the medium term, mean that situation is reversed.
This member of Jim Murphy’s ‘Arc of Insolvency’ is the second richest country in the world in terms of wealth per adult. According to Credit Suisse the average wealth per adult is $326, 530 which is almost $100, 000 more than the UK and represents a 195% increase since the year 2000.
Labour politicians in Scotland argued that Norway was struggling due to the crisis. In the last year Norway’s oil fund, which is now valued at £315 billion and amounts to £67, 000 per person, grew by 26% - an amount which is more than double Scotland’s grant from Westminster.
This oil fund called ‘Statens pensjonsfond utland’ or ‘Pension Fund Global’ is a pension fund which is set aside for future generations to enjoy. It is the second-largest sovereign pension fund in the world and the most respected according to the prestigious Peterson Institute in Washington DC. Around 60% of the fund is invested in overseas shares in companies quoted on different stock-exchanges worldwide. It is thought to own around 1% of the world’s wealth. Only 4% of Norway’s oil revenues go into public spending.
The former World Bank chief economist and key economic advisor to President Clinton, Joseph Stiglitz, pointed out to Gordon Brewer of Newsnight Scotland recently that Britain had ‘squandered’ its oil wealth whereas it should have invested it.
This supported Alex Salmond’s call for oil taxation to be devolved so that an oil fund for Scotland could be established. Professor Stiglitz is now an advisor to Scotland’s First Minister.
In Scotland’s mainstream media, the sensational story of Joe Stiglitz joining the Scottish Government’s Council of Economic Advisors invoked Murphy’s Law – it is undeniably good news for the SNP and so a media blackout is enforced.
With the UK’s tax-base plummeting, North Sea oil will soon contribute 20% of all of the UK’s corporation tax. This doesn’t take into account tax levied at the pump. It is clear that if those revenues were attributed to a Scottish treasury that Scotland would move in the direction of Norway’s economic success and away from Britain’s public sector debt, financial and currency crises.
Invoking Murphy’s Law, BBC Scotland invited the Professor of Economics of Strathclyde University to discuss why the benefits Norway accumulated from oil would not be so beneficial to the UK with a population of 62 million. No mention was made about how those benefits would go to an independent Scotland. There were some comments about how North Sea oil is a mixed blessing for Norway’s economy. One wonders how the second-richest people on earth would respond to that observation.
The SNP’s enthusiasm saw them point to example nations such as Iceland and Ireland. These were poor examples and unionism had good cause to point that out. However, unionism about turned after the financial crisis when these nations developed financial problems. Suddenly they were good examples of what Scotland would be like. Despite the media ignoring this opportunistic and logically absurd volte face these models still nevertheless favour Scottish independence by dint of the fact that the UK is outmatched by all three nations.
The three best models for the SNP to point to in arguing for the cause of independence are 1) Norway, 2) Norway and 3) Norway.
Murphy’s Law extends beyond the ‘Arc of Insolvency’ and in fact permeates every aspect of the economic debate. Another example is Scotland’s financial sector. The unionist case, carried uncritically in the mainstream media, is that an independent Scotland would not be able to afford to bail out the affected Scottish banks.
No serious probing analysis of this assertion has been forthcoming from Scotland’s mainstream economic commentators. The fact that the bailout money mostly went to bondholders and shareholders in London is not considered to be a salient fact undermining the key premise of unionism’s thrust. The argument is a little complex and so for unionism the corrosive charge of unaffordability finds headlines easy to come by.
Another unionist narrative which is implicitly and explicitly promoted in the mainstream Scottish media is that Scotland is subsidised by London. Last week the world renowned economist Andrew Hughes Hallet told BBC Radio Scotland that an independent Scotland would not in fact have had to pay for the entire bail-out of Scottish banks as they had significant operations in England.
Hallett also exploded the unionist myth that Scotland is subsidised by England in the same programme when he argued that for a number of years, at least, Scotland has subsidised the UK.
See Hallett V. Britain.
Indeed, GERS (Government Expenditure and Revenues Scotland) demonstrates a surplus going from Scotland to London.
None of this world-class or official analysis matters when you have a captured mainstream media. The narrative doesn’t change, despite the evidence.
This reality well explains the abundance of pro-independence blogs and websites on the internet. Unionism has identified this phenomenon and has sought to undermine its effects by categorising ‘cyber-nats’ as a peculiar SNP problem. All these outlets are attempts at by-passing the captured mainstream media where nationalism cannot expect a fair hearing. The problem for nationalism is that these are disparate and so, without some kind of aggregation, lack any serious counter-balancing effect on the mainstream media.
That is the void into which Newsnet Scotland has stepped. Its mission must be to rewrite the Scottish debate in such a way as to force unionism into an evidence-based defence of Scotland remaining within the union. Not to directly benefit the SNP, but to benefit Scots who switch off because the debate is not fair, free and honest. Murphy’s Law must be challenged - an audience frightened out of its wits, confused and misinformed will incline towards disengagement with the political process or arrive at non evidence-based political conclusions and that only suits the status quo position. This is a systemic problem and is an unacceptable affront to democracy.
For Scots to make informed decisions about their future, only an honest and intelligent debate will engage them. Unionism must supplant Murphy’s Law with a cogent defence of the union.
For the sake of Scottish democracy, it is imperative that Newsnet Scotland succeeds in its mission to become mainstream. Unionism must be forced out into the open to argue its case intelligently. Newsnet Scotland is small and run by volunteers yet, despite a crowded media market, more that 20,000 people are already reading it. That is testimony, not only to the passion and determination of those who established Newsnet Scotland, but to the reality that hundreds of thousands of Scots feel betrayed by their media and have no refuge from deception and fear-mongering.
This unserved market is rich pickings for Newsnet Scotland – it is not loyal to mainstream newspapers which continue to shed readers by the thousand. The fact that the SNP won the Holyrood elections in 2007, in spite of an almost uniformly hostile unionist press tells a story of that enormous constituency’s resilience and scepticism.
To force unionism out into the open, nationalism must beat it at its own game. The stranglehold unionism has over Scotland’s media is an insult to our nation.
Britain is heading into a very deep and protracted economic depression. It is not the consequence of business cycles and there is no recovery or recession despite what the economic propagandists tell us. The British government and the Bank of England are involved in money printing which is creating volatility and uncertainty for business and Scottish institutions.
Nationalism must seize this opportunity to turn the tables. Scots can not afford to go down the road of austerity and do not have to. Scotland is in surplus and consequently, with the economic powers only independence can grant, Scottish businesses and institutions will be able to plan ahead with confidence and create jobs and prosperity in so doing. Our North Sea oil wealth would pay for the debts Scotland would have to carry over from bankrupt Britain and would stabilise our higher education sector. That done the rest of that wealth would be invested in future generations. Those generations face either austerity and a legacy of debt under the UK or economic freedom and prosperity in an independent Scotland. This is a strong self-confident message which must be heard.
It is my belief and prediction that Newsnet Scotland, born to democratise Scotland’s media, is here for the long-haul and will ensure that that side of the story has the right to be heard. I look forward to its swift growth and success.
In closing, I plead to my fellow Scots to see through those who conspire to blind you. You are the highest authority in Scotland. In the forthcoming Scottish elections, I urge you to grant Scotland a final divorce in the case of Scotland V. Britain.
Published with special thanks to Kevin McCourt and Stephanie Gough.
Read more of Alex Porter's Essays written for Newsnet Scotland:
LABOUR'S BANKRUPT BRITAIN
Rediscovering Oil – A From Rags to Riches Story
Part 1 - http://www.newsnetscotland.com/economy/686-rediscovering-oil-a-from-rags-to-riches-story
Part 2 - http://www.newsnetscotland.com/economy/689-rediscovering-oil-a-from-rags-to-riches-story
Part 3 - http://www.newsnetscotland.com/economy/696-rediscovering-oil-a-from-rags-to-riches-story-
Would an independent Scotland have a viable economy?