By Mark McNaught
Structural debt and deficit, reserve currency bonds, IMF tutelage, World Bank structural adjustment, forced austerity, and other blunt financial instruments that have formed the international financial system since the Bretton Woods agreement of 1947 have shown their age and inflexibility.
As part of the UK, Scotland is bound to this institutionalised financial fate, with little control over its own economic management. If the Chancellor of a UK government Scots did not vote for actually believes that less public spending and high-end tax cuts will somehow boost UK GDP, even though supply-side theory is completely counterintuitive and has been thoroughly discredited, all Scots can do is wait and pray the next government will have some measure of economic competence.
However, independence in 2014 offers Scotland the opportunity to chart its own financial destiny, breaking many of the damaged economic moulds that shackle countries the world over, most notably the UK. Much of this could be done while initially maintaining the pound, even if Scotland subsequently opts to create its own currency or adopt the Euro.
While keeping the pound would leave the Bank of England with influence over interest rates, and would set some banking standards, Scotland would in no way be prevented from creating an equitable, transparent, and safe banking system, miles ahead of their English counterparts.
For example, Scotland could impose a version of the now defunct US Glass-Steagall act, the absence of which did much to bring down Wall Street and The City in 2007. This law separated publicly-insured commercial banks from investment banks, so that investors couldn’t make huge bets with taxpayer dollars , which led to the privatisation of profit and the socialization of risk.
An innovative banking regulatory structure could be established that goes far beyond whatever base rules the BOE would establish. Any bank operating in Scotland would have to separate its investment and commercial banking services, to assure that Scottish taxpayers would not pay for investor losses. Banks would be bound to assure that insurance funds for Scottish account holders could not be used to cover investment losses in other countries.
Is it possible for a country to live within its means, be debt free, and have a permanent sovereign wealth fund? An independent Scotland could try.
Most countries sell bonds to finance their debt, then later become subject to the whims of the financial market speculation. Just ask Greece.
Assuming an independent Scotland takes on its part of the UK national debt, a policy could be put in place to pay off the debt with a portion of oil revenues over a fixed time, and sell no more bonds in the meantime. Scotland could become bond-free in a matter of years and create a substantial sovereign wealth fund as a buffer against the vicissitudes of the future.
A fair, slightly progressive rate of taxation could be placed on all transactions, and incomes, which could be varied to finance deficits, rather than borrowing with interest from the financial markets. Budgets could be passed for the coming two years, factoring in tax variations to plan as far ahead in advance as possible, while having the sovereign wealth fund available for unplanned emergencies. Surplus revenue could be given back to the taxpayers, all with total transparency.
The most fundamental opportunity afforded to Scots in the event of independence is to craft a modern financial infrastructure, prudently and carefully choosing which regulations, tax plans, and policies would best promote a stable and fair economy to all Scots well into the future. In so doing, Scotland could craft a society as egalitarian and democratic as the world has ever seen.
A huge component of this is the question of which international financial institutions Scotland should become part of: The World Bank? The WTO? The IMF? When approaching these decisions, Scots should not be seen as rushing towards the economic access doors without truly appreciating how a quickly a country can wake up one morning realising Goldman Sachs owns them. Once independence is achieved, all measures must be taken to construct an incorruptible financial system.
If not in 2014, when?
Mark McNaught is a member of the Constitutional Commission and an Associate Professor of US Civilisation at the University of Rennes 2 France. He also teaches US constitutional law at Sciences-Po Paris.