Scotland and Filettino

Yesterday I read this rather wonderful story in which the Italian town of Filettino, population 550, has declared independence from the rest of Italy in protest at the government’s austerity measures.

This got me thinking about whether the move was in fact a good one. Sure Berlusconi isn’t running things for them now but he has been replaced by someone whose first act was to print bank notes with his own face on so the jury will have to remain out on the leadership point for now.

Since I don’t know too much about Filettino, I decided to first think about a more familiar independence argument – should Scotland be independent from the United Kingdom? I wasn’t sure about this either so I do what I always do in such situations – I asked Twitter. I also cunningly asked respondees to give me their nationality.

These were the results:

Votes for Independence for Scotland

Overall things are a bit mixed but we can say that the Scottish respondees were mostly against independence and everyone else was split about evenly. (Except in North America where Canadians were 100% against independence and US was 100% in favour. It was a small sample though.)

Quite a few of the English Yes votes were accompanied by a brief “we should stop paying for them” type quote. This always seems to be what the argument boils down to but the SNP argues that Scotland more than pays its way because of North Sea Oil.

Let’s look at this. If Scotland became independent and international waters were divided up according to standard methods then they would certainly have a far larger share of the North Sea oil per head of population than England. Scotland isn’t Abu Dhabi though, so is it enough for them to successfully function independently?

The price of oil is hugely volatile. It varies between $50 and $150 a barrel and seems to shoot between these two extremes all the time. Major oil producers like Abu Dhabi hold lots of oil in reserve and actually help to set the oil price by controlling its supply into the market. Scotland could not do that – if it based its economic independence on oil then it would have a very volatile income. Because the UK economy is much larger than an independent Scottish economy, this volatility in the oil price has a much lower effect on it. Scotland could however, get around this through borrowing money when the oil prices were low and paying it back when oil prices were high, it’s a more expensive way of doing things but probably not a big issue.

You could though, argue that oil is going to run out at some point and that relying on it for your income is not a particularly clever long term strategy. That’s true but like it or not, oil will be around for a while yet and there would be plenty of time for an independent Scotland to invest in other industries before the oil is all gone.

Anyway, back to the key question – is the rest of the UK funding Scotland or vice versa? More or Less on Radio 4 recently did the maths. They calculated that over the past 27 years Scotland had been subsidised by the rest of the UK to the tune of £20 billion. It might sound like a lot but £20 billion over 27 years is nigh on nothing. It’s about £741m per year, or to look at it another way it is equivalent to 20 tonnes of platinum at today’s prices. 20 tonnes of platinum is handily pretty much exactly a block of one cubic metre. (One cubic metre of platinum weighs 20 tonnes! Pretty cool, no? No? Oh.)

Why is that nothing to worry about? Last year the UK as a whole borrowed the equivalent of more than twice the height of Big Ben in such blocks – one block really isn’t an argument defining amount.

(If you just read that and said, “Actually Big Ben is the bell, not the clocktower, this RedEaredRabbit is an idiot!” then you are both a pedant and a poo.)

My point is that in reality, the rest of the UK does not fund Scotland and Scotland does not fund the rest of the UK. Ok, the rest of the UK funds it a little bit but everywhere outside London is like that. London is a huge, global financial centre – why should we not expect it to generate more money per head than other parts of the country? Of course it will. Accepting this is not having a dig at any particular region, it is just obviously going to be the case. On the other hand, saying that because London does produce a lot of money, it should keep it all for itself and not give anything to the rest of the country is frankly, a bit silly.

So we can see that with all things average, Scotland can take care of itself financially. Sadly though – things are not always average and I think an independent Scottish economy would have struggled more during the financial crisis than the UK economy has – not least because its two major banks HBOS and RBS failed in the most spectacular fashion. In tough times, being part of a major economy, with access to borrow an awful lot of money cheaply is very handy and that is probably my biggest economic argument for Scotland to stay as part of the UK.

I got sidetracked massively then. I was talking about Italy.

So then, what of Filettino? Well Italy’s national debt is about €31,000 per person and it’s going up all the time. I don’t really see that Filettino can declare independence and avoid taking its share of the debt so now the 550 people in Filettino need to pay off €17m on their own. If the town has a (very) disproportionately large economy then they can do this and they might be ok. If they don’t though they are going to find it extremely hard to continue borrowing at any reasonable rate. Although it’s a fun story, I can’t help thinking that the motives behind it were based less on economics and more on a crazy mayor with a power trip.

In conclusion, I don’t see economic benefit to a declaration of independence in either of these two situations but economics isn’t everything. I’ve grown up in the United Kingdom, I love it and I love all four countries. Of course they each have their own history and culture – I would never want it any other way and I think it’s a big part of what the UK is.

From my perspective, without any one of the four countries, it just wouldn’t be the UK any more. If Scotland receives a tiny bit more money one year and then pays a tiny bit more money the next year, should we really be talking about splitting up over it? I don’t think so.

I think we’re pretty good at the moment.

Besides which, when Andy Murray wins Wimbledon next year I want to claim some of the glory for myself.

RedEaredRabbit