Both sides of the debate on independence, should, by the time the referendum is held, be a great deal better educated about the economics of Scotland. That is assuming of course, that the information we receive is actually accurate, that the spin doctors are held in check and more importantly, the electorate does not become so bored by the whole affair that the majority of them simply cease to pay any attention. There is little we can do about the bias, disinformation, half truths and out and out lies which will be peddled by the popular press. What we have seen, even at this early stage, does not augur well for what we are about to receive, much of which we will certainly not be thankful.
The latest edition of Investment Week, a financial services magazine for those involved in the industry, carried a piece under the heading, "Will Scotland be given a AAA rating?" followed by the information that the SNP has not asked for any indication of what the rating might be. The three agencies, Standard & Poors, Moody and Fitch volunteered the information however, that "it was unlikely that Scotland would be given the sought after AAA. That was followed by the assertion from the National Institute for Economic and Social Research (NIESR) that Scotland would likely run a "considerable trade deficit". All of this of course, was part and parcel of the veritable flood of such headings and specualtion, we can expect during the period before the referendum. Of one thing we can be sure, none of the agencies or financial papers will be presenting us with a favourable outlook for an independent Scotland. It would never do for Scots to start to feel good about themselves or, to feel in any way confident that independence might work to our advantage.
Let us take the ratings agencies first. They are the agencies which provide guidance on the credit rating of individual companies and even countries, will provide information on the worthiness of securities and whose word is taken almost without question by the world's bankers, investment houses and politicians. Their critics - and there are many - argue their word is tainted and is given far too much weight, sometimes creating instability where none or very little already exists. In the 1970s, the agencies started to charge those who were bringing securities to the market for sale, for providing ratings for the products being sold. There is such an obvious conflict of interest here, that it is difficult to understand why their ratings are accepted at all.
They were accused of creating instability in Latin America in the 1980s and 1990s, at the time of the debt crisis and consistently overrated sub-prime, mortgage backed securities in America, right up until the market collapsed. By the same token, they have consistently underrated nation states which refuse to bow to the agencies' orthodoxy by cutting spending, thereby creating greater difficulties than are necessary. In May 2011, they created a storm by cutting the AAA rating of the USA, followed in August by doing the same to Japan. The downgrading of 15 members of the euro, brought the agencies into conflict with the EU Commission. The ratings of Ireland, Hungary and Greece have all been reduced to "junk" status, despite the actions taken by the Irish government to solve the financial crisis, being far more likely to achieve that aim, than those taken by the Greek government. The standard of research carried out by the agencies has long been a major source of concern and criticism and the Scottish government, while it may have some illustrious colleagues, will have a fight on its hands.
While the available statistics on the Scottish economy are far more numerous than they once were, there are still gaps which need to be addressed. The NIESR's contention that Scotland "would likely run a considerable trade deficit" is hardly worthy of comment. The UK ran a considerable trade deficit over many years but its balance of payments was in surplus for much of that time. The balance of trade tells only a part of the story anent any country's trade situation and unless the balance of "invisibles" - services such as insurance, tourism etc - are included, the statistics are meaningless. It gives us a flavour however, of how the (mis) information is going to be delivered. If Scotland would find it diffcult to cope with independence with a balance of trade deficit, what can we say about the position of the UK?
The UK (including Scotland and Scotland's oil resources) has run a current and capital account deficit in every single year since 1997 and in every Quarter since the 3rd Quarter of 1998. In the 3rd Quarter of 2011, the UK's current account deficit was £15.2 billion, the highest on record. The Balance of Trade deficit (the part about Scotland's trade figures which so exercised the NIESR) in the 3rd Quarter of 2011, went up to £9.96 billion, up from £7.2 billion the previous Quarter. The income surplus in that Quarter came to a paltry £0.3 billion, the lowest level since 2000 but more importantly, in 2010, the UK was a Net Borrower of £44.9 billion, the highest ever recorded.
Opponents of Scottish independence speak about oil as if it was the only thing that Scotland produced, arguing vehemently that any economy which relies to such an extent on one natural resource, will inevitably have problems as the resource begins to disappear. No country should know that better than the UK, having been the recipient of oil wealth worth approximately $1 trillion since 1975. What has been done with that wealth? Look at much of urban Scotland and there is little evidence there was ever any oil discovered, with the possible exception of Aberdeen and surrounding area. Compared with what has been done in Norway, with independence, Scotland's oil has been completely wasted and the longer Westminster can hold on to Scotland, the more of what is left will also be wasted. Meantime, the Bank of England has just announced it intends to inject another £50 billion into the UK economy. The Bank has already injected £275 billion into the economy since 2009 and we now know the UK economy contracted by 0.29% in 2011. And they have the gall to tell us we are not fit to govern an independent Scotland!