Independent Scotland, Free of London’s Dominance, May Go Awry

A dark star, in theory, is a sun so dense that its gravitational field overpowers light itself, sucking in every ray that attempts to escape its surface. Much like Greater London, says Alex Salmond, the first minister of Scotland who’s leading the drive for independence in a Sept. 18 referendum, the outcome of which has become too close to call. In a March speech in Edinburgh, Salmond quoted a professor named Tony Travers, who said, “London is the dark star of the economy, inexorably sucking in resources, people, and energy. Nobody quite knows how to control it.”

Scots are already free to eat haggis, drink Irn-Bru, and toss poles. They have their own parliament and courts. But they can’t escape London’s orbit, and they aren’t happy about it. Those campaigning for “yes” in the referendum promise that independence would finally give Scotland escape velocity, and make it, in Salmond’s words, “a northern light to redress the influence of the dark star—rebalancing the economic center of gravity of these islands.”

Behind this week’s covers<br /> <br />Photographs by Image Source/Corbis (landscape); Mar Photographics/Alamy (bagpiper)Behind this week’s covers
Photographs by Image Source/Corbis (landscape); Mar Photographics/Alamy (bagpiper)

It’s not England from which many Scots wish to detach themselves. It’s London, the oversize hub controlling the revenue of an undersize empire. The Scots’ prickliness is understandable, and an untethered Scotland would satisfy the romantic yearnings of nationalism—Braveheart without the gore. Outright independence, however, would rupture valuable commercial ties for uncertain benefits.

The referendum is being watched closely, because the Scots aren’t the only restive people in the world. If the Scots lower the Union Jack after 307 years, the republicans in Northern Ireland could make another push to get out of the rump kingdom. Cities in Wales and England will seek “devo max,” which is how U.K. politicians describe the maximum devolution of power from the center to local governments. In Spain’s Catalonia, President Arturo Mas says a “yes” vote in Scotland would be positive for the region’s independence movement, which Spanish Prime Minister Mariano Rajoy is trying to squelch. A Scottish “yes” might even please Russian President Vladimir Putin, who could portray it as a precedent for eastern Ukraine breaking away from Kiev.

In the United Kingdom the tension between center and edge is especially acute because London is dominant in two crucial respects. First, it’s the most populous, the richest, the most international city in the U.K. by far—the unquestioned commercial and cultural capital. London has snapped back from the financial crisis faster than any other U.K. city. It remains a magnet for people and investment from all over the world. Real estate firm Savills estimated in January that property in London’s 10 richest boroughs is “worth 9 percent more than Scotland, Wales, and Northern Ireland combined.”

Even some Londoners say their city is too dominant, although the specific complaints are sometimes hard to evaluate. Last year, Vince Cable, U.K. secretary of state for business, innovation and skills, who hails from Twickenham near Heathrow Airport, said London “is becoming a giant suction machine draining the life out of the rest of the country.” A report last year by Deutsche Bank (DB) analysts in London on business cycles in different parts of the U.K. said “the overall pattern that emerges … is one of the rest of the U.K. dancing to the capital’s tune but out of time.”

Beyond that, London is the capital of one of the most centralized governments of any wealthy nation. Revenue from taxes flows inward and is then disbursed outward in a thoughtful yet rather lordly way. In the U.S., the federal government raises about 60 percent of all taxes. In the U.K., the figure is 95 percent, giving Westminster and Whitehall enormous power over every corner of the nation, out to the remotest of the Shetland Islands.

The closeness of the independence polls in Scotland reflects the tug-of-war among Scots, who both want to go forward alone and fear doing so. Scotland is strong in energy, biotech, textiles, food, beverages such as Scotch whisky, and electronics. Productivity and incomes are reasonably high. But Scotland, which leans left, is also politically committed to high social spending. Salmond is counting on capturing 90 percent or more of North Sea oil tax revenue after independence to help pay for that spending, but geologists disagree on how much longer the hydrocarbons will flow. On Sept. 8 the unaffiliated Centre for Economics and Business Research estimated that an independent Scotland would begin life with a 2016-17 budget deficit of more than 6 percent of gross domestic product. “The probability is that the fiscal pressures on the new government of an independent Scotland would be substantial,” the Centre said. Notwithstanding Salmond’s bravado, the best laid schemes of mice and men gang aft agley.

Mike Emmerich, executive director of New Economy Manchester, a government agency that advises the northwest England city on economic policy, argues that Scotland should work with London, not resist it. His group has advised Manchester to develop an economy that complements that of London. “If you’ve got a city that’s a world city on your doorstep,” don’t try to “make gravity work in reverse” and pull away from it, Emmerich says. Being part of something bigger is especially useful when things go wrong, he notes. The 2008-09 financial crisis ravaged Dublin, the capital of the independent nation of Ireland, but did less damage to Edinburgh, because the U.K. government gave a £45 billion ($73 billion) bailout to the giant Royal Bank of Scotland (RBS).

Those who say that London sucks the vitality out of other cities are committing what economists call the lump-of-labor fallacy: that the amount of work to be done is fixed, so if one person gets a job then someone else is unemployed. The truth is that the rich young City traders everyone loves to hate are buying stuff made throughout the U.K. “I don’t think London’s success means that Scotland suffers,” says Jim Whyte, senior insights analyst at Fitch Worldwide in London.

“It feels to me much more like London lifts Scotland up,” says Edward Glaeser, a Harvard University economist who advised Scottish cities on economic development in the early 2000s. “There’s no question that London does excite envy, but I still see envy as being a mortal sin rather than as a sound basis for politics.” Paul Romer, who runs the Urbanization Project at New York University’s Stern School of Business, argues that instead of complaining about London, other U.K. cities should stop restricting real estate development, which drives up housing costs and stunts their growth.

All that may be true, but pro-independence Scots are in no mood to live any longer under the status quo. Pro-union forces won’t be able to breathe easy even if the kingdom survives the Sept. 18 vote. To keep from breaking, London will have to bend. That will inevitably mean devolving more power from the center, in particular the all-important power to tax, says Travers, the London School of Economics government professor whose dark star analogy was picked up by Salmond. A natural place to start is the corporate income tax, whose rate is the same throughout the U.K., putting peripheral Scotland at a disadvantage, says Julia Darby of the University of Strathclyde Business School in Glasgow.

It could be too late for that now. Westminster may not have woken up in time to save the union. But if there is still hope to keep the United Kingdom united, it lies in more devolution and federalism. The dark star of London will have to loosen its hold.

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11 September 2014 | 9:49 am – Source:


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