Small is Beautiful: Scotland

December 5th, 2008

Last week Greenland voted its way toward independence from Denmark. This must have been an encouraging sign for nearby Scotland. There are several examples of peaceful and democratic independence in Eastern Europe: Montenegro, Slovakia, the Czech Republic, Slovenia, Lithuania, Latvia and Estonia. But this is the first case in Western Europe, and it will pave the way for Scottish self-determination.

Actually, Greenland is the most recent, but not the first case of modern-day independence in Western Europe. Ireland, for instance, gained its independence in 1922. The Scots have for centuries observed their Celtic cousins struggle economically: under the British Empire as during the 19th century’s Irish Famine, but also since independence for most part of the 20th century.

In fact, up to the 1980’s, Ireland was the poorest country in Western Europe, and for decades Scotland was a prominent place where Irish would migrate in search of work and a better life. But for the past couple of decades things have changed, and the Scots have noticed.

Ireland vs Scotland

Ireland vs Scotland

Since the late ‘80s Ireland was able to take advantage of globalization. They lowered drastically corporate taxes, which attracted Foreign Direct Investments (FDI). New firms (mostly American) invested in Ireland, and created new jobs. Unemployment went from a peak of 17% to now the lowest levels in Europe. After 20 years of unprecedented growth, today an Irish is on average richer than a Swiss.

For sure the fiscal reform was at the heart of Irish success, but it is wrong to believe that Ireland took advantage of unique circumstances. The argument goes that American companies were attracted by low corporate taxes, but they also preferred Ireland, because it gave them access to the newly formed European Union, and they spoke English as well.

This might justify why the same cannot be repeated in, say, Austria. Ireland was able to exploit its particular comparative advantage. But why shouldn’t the Scots do the same? They speak English, they are part of the European Union, they have a similar culture, and they have even better numbers in human capital and natural resources. Why not Scotland?

The Scots cannot apply the same reforms and exploit their comparative advantage because they do not have the power to. Despite devolution and generous government transfers, the Scots have no fiscal authority and cannot independently choose what’s best for them. Unlike Ireland, they are not a sovereign state. That’s what explains the growing gap between Ireland and Scotland.

In a time of free trade and global markets, the size of a country does not matter. Estonian, Slovenian, and Irish companies have access to the world market just as much as a German or British company does. But Estonia, Slovenia and Ireland provide policies better tailored for the needs of their citizens. Scotland must have the right to do the same for its people.

Lodovico Pizzati
PNV – Partito Nasional Veneto – Venetian National Party

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