Printer Friendly

eMail Article

May 07, 2003

Independence For Scotland
by Andrew Smithers

The most interesting feature of the Scottish elections was the pledge by the Nationalists to cut business taxes. It shows why Scotland and England should both benefit from an independent Scotland.

Representing only 10% of the UK's population, Scotland has long suffered from a dependency culture. While this was dominant, the central aim of politics was to get as much money as possible out of England, either through a heavily biased allocation of expenditure or by claiming exclusive rights to oil revenues.

Whichever route was preferred, it was a world away from the self-help philosophy of Samuel Smiles, which seems, as much for countries as for individuals, to be the long-term winner in terms of economic success. Over the centuries, the achievements of Venice, Holland, Britain, Hong Kong and Japan, compared with the Argentine or Venezuela, suggest that it is an economic advantage to have poor natural resources. This has been so well illustrated in recent years that the debilitating effect of easy wealth on the economies of the Middle East has become known as the curse of oil.

At first, oil enabled the Scottish National Party ("SNP") to call for independence while pandering to a dependency culture. But as hopes fade about the long-term potential of Scottish waters, the clash between independence and dependence has become too blinding to ignore. From being to the left of Labour, the SNP seems to be starting on the long road to Thatcherism.

The current trend towards economic realism is generally attributed to the economist Andrew Wilson, who was previously at the Scottish Office and the Royal Bank of Scotland. He is advocating a cut in business rates and in corporate taxes, in order to encourage companies to "return to Scotland."

Such measures are opposed by Gordon Brown, who has, therefore, been attacked by the SNP for advocating tax-competition within the European Union, while denying it within the British one. The SNP's case is impeccable, but Gordon Brown's dislike of Scottish independence is not likely to depend on economic logic. He stands for a Scottish seat and may not be anxious to give up the world stage provided by Westminster and G7 meetings for the more parochial pleasures of Edinburgh.

While the SNP are to be congratulated on the speed with which they seem to be accepting the economic logic of independence, they run a big risk of leaving their supporters behind. A Thatcherite Scotland is the sensible and natural result of independence. It is not, however, the most likely route to it.

Andrew Smithers
Smithers & Co.

Smithers & Co. Ltd. provides advice on international asset allocation to about 100 clients based mainly in Boston, London, New York and Tokyo. Our work is based on the fundamental belief that no one's judgement is better than their information. We believe that our clients' decisions will be helped if we can provide them with important information that is not otherwise available to them. We therefore concentrate on research which aims either to tackle issues in greater detail and thoroughness than is otherwise available or to tackle issues of importance which seem to have been generally overlooked. Examples of the former include our work on stock market valuation, the profit distortions arising from the use of employee stock options and the underlying secular problems of Japan's economy. Examples of research into areas which have otherwise been largely overlooked include our work on the Japanese life insurance industry.

Our approach to research is also different. The standard approach bases market projections on economic forecasts of major economic aggregates, such as GDP and inflation. Stock market, bond and currency forecasts are then derived from the way these estimates differ from the consensus. We consider this approach to be flawed in two ways. It places excessive reliance on the ability of any particular analyst to produce forecasts which are consistently better than average. It also ignores the evidence that stock markets tend to lead economies, rather than the other way around. In contrast, we put greater emphasis on "information arbitrage", in which we include identifying factors which have been overlooked, drawing on data and academic research which have not yet been exploited and pointing to inconsistencies in the implicit forecasts of different markets.

Andrew Smithers, founder of Smithers & Co., is also columnist for London's Evening Standard and the Tokyo Nikkei Kinnyu Shimbon's Market Eye, and is regularly quoted in the New York Times, Barron's, Forbes, The Economist, The Independent, and the Financial Times.

Copyright © 2002-2007 Andrew Smithers

Image rendition and html coding Copyright © 2000-2009 SafeHaven.com

« Opinions expressed at SafeHaven are those of the individual authors and do not necessarily represent the opinion of SafeHaven or its management. Articles are available via RSS/XML. Please visit RSSHelp for instructions. »