In part I the common heritage of the Scots and Irish was explored. Part II explored the comparative performance of the two economies over the past few hundred years. In part III the current situation is examined.
Has independence been a success for Ireland? Should Scotland look at Ireland with envy or pity? Ireland does seem to be doing well but is it all smoke and mirrors? How does it compare to Scotland economically, politically and culturally? Which is the best country to live in? Such comparisons are always difficult to make and can be entirely subjective. I will confine myself largely to economic indicators, the Human Development Index, the response to the banking crisis and the response to Brexit.
With economic indicators the difficulty is further compounded by the fact that these are produced by the Government Expenditure and Revenue Scotland (GERS). This uses methodology which is not fit for purpose and according to Prof Richard Murphy GERS is CRAP – ‘Completely Rubbish APproximations’. There are major suspicions that the figures produced are distorted to make Scotland appear more dependent on England than in reality.
Throughout this article Ireland will refer to the 26 country republic, rather than the 32 county island. Northern Ireland is worthy of a separate article and will not be discussed here, apart from stating the NI economy is about 1/6th the size of the Republic and leaving it out hopefully will not distort matters greatly.
Gross Domestic Product GDP
Whilst there are caveats regarding using GDP for both the Scottish and Irish economies it is still the most widely used international measure for determining the size of an economy.
The GDP of both Ireland and Scotland are plotted from 2000 in Fig 1. In raw GDP terms Ireland overtook Scotland in 2001. In GDP per capita terms this happened about a decade earlier, as, for example in 2001, the Irish population at 3.8m was only 76% of that of Scotland (5m at the time).
The Scottish figures plotted are non-oil ones. The oil-sector figures tend to be more international and have less of a contribution to the Scottish economy than might be expected, though of course a major one on the Aberdeen region.
The Irish figures are generally also considered distorted, because of the heavy multinational footprint. GNP, which is about 20% lower, is often considered a better measure of the real Irish economy. Nevertheless it is certainly true that in GDP terms Ireland is ahead of Scotland and further ahead in GDP per capita terms.
The other interesting feature of the graph is the Irish peak at 2008 and the dramatic subsequent fall in GDP. This was of course due to the Global Financial Crisis (GFC). Both Ireland and Scotland have large banking sectors which were overexposed in 2008. The comparative responses of the Scottish and Irish economies through the GFC, has major implications for independence and will be discussed in detail later.
Exports are a good measure of economic health, particularly for smaller economies. Large economies like the US can be far more closed.
It normally takes a while to crunch the figures and the latest year with reliable data is 2016. For the independence case, over-dependence on England is a weakness.
The Scottish figures include both goods and services to a total of £75.6bn (97bn$) in 2016 as illustrated in Fig. 2.
These export figures are very healthy. The ONS has the total exports of goods and services for the entire UK at £547.5bn for 2016. On these figures Scotland therefore exports c 1.8 times more per head than the UK average, though the measurement procedure is not perfect. The worrying thing from an independence point of view however is the fact that 61% of exports go to rUK and only 17% to the EU.
The Irish figures are much higher. In Fig. 3 the export destinations for goods in 2016 are shown, to a total of $161bn. In addition services exports are very similar in value to goods and from the Irish Central Statistics Office (CSO) amounted to c €141bn ($158bn) in 2016. In total therefore goods and services exports come to $319bn which is over three times that of Scotland.
In addition to the overall volume of trade Ireland is much less dependent on the UK. In good terms the UK was in 3rd place in 2016, well behind the US and marginally behind Belgium-Luxembourg. Some 55% of Irish exports go to the EU. Preliminary figures indicate that in terms of goods, the UK will fall below 10% of the total for the first time this year. This has been a gradual process. When Ireland joined the EU about 55% of total goods went to the UK. Indeed in 1922 it is estimated that something like 90% of Irish exports went to the UK.
Exported goods can be explored at the MIT Observatory of Economic Complexity (OEC) and for Ireland the three highest categories are chemicals/pharmaceuticals, electronics and medical instruments.
Exports however are dominated by large multinationals and certain sectors such as agribusiness are far more dependent on the UK, with about 40% of total exports. Services are also more dependent on the UK and if they are included total exports to the UK go up to about 15% of the total.
Ireland is well ahead of Scotland both in terms of total volumes and in terms of being less dependent on England. However at the time of Irish independence the dependence on England was much higher. Improving and diversifying Scotland’s export performance would be worth considering on the road to independence and is indeed being actively targeted by the Scottish Government.
Balance of Trade
A positive balance of trade, exporting more in goods and services is also a good measure of the strength of an economy. Goods however are much easier to track than services. Indeed the UK as a whole has a substantial trade deficit in goods ($235bn in 2016 – OEC data) but this is supposedly offset by a substantial surplus in services. As discussed in my early PP article this trade surplus in services may be illusory.
For example, in 2012, each of the UK’s three top services trading partners (US, NL and IE) think they are in surplus with the UK, whereas the UK thinks it is in surplus with all three. The UK thinks it in surplus with the US to the tune of c $45bn, whereas the US thinks it has a surplus c $13bn with the UK. For NL and IE, the UK thinks it has surpluses of c $12bn and $7.5bn respectively, but NL and IE think they are in surplus to c $4.5bn and $12bn with the UK.
For this reason I will limit the discussion to goods.
The situation regarding goods in Scotland is very positive. According to Business for Scotland in 2017 a £4.6bn surplus was recorded for Scotland and a massive massive £128.2bn defecit for England as shown in Fig 3. The small print at the bottom of the Fig. is very important: “Scottish oil and gas piped to the rest of the world/UK directly… are not counted as a Scottish export..”
This loophole has now changed and as discussed in the Wings over Scotland site (Fig. 5) and Prof R Murphy’s TRUK blog, it is likely that the figures are even more in Scotland’s favour. In 2016 for example as illustrated in Fig. 5 there should be over £6bn added to Scottish exports.
One caveat is that Scotland supposedly runs a defect in services, but given the difficulty of measuring services, even with the best efforts of sovereign statistics offices, it is difficult to be certain.
Of Ireland’s economic strengths, exporting power is paramount. Ireland has had a positive balance of trade in each and every month since 1985. Ireland has excelled in attracting high value FDI, particularly from American companies and has used its position in the Single Market to excellent advantage. To say it is an exporting powerhouse would be no exaggeration. Exports are estimated to be over 100% of GDP, putting it in the same category as Hong Kong and Singapore.
Ireland exports dramatically more than it imports. The CIA Factbook for 2016 for example has the five top countries in terms of net exports as: China $495bn, Germany $300bn, South Korea $120bn, Ireland $114bn and the Netherlands $92.5bn – putting Ireland in 4th place. The UK for comparison is in 193rd place.
Ireland has a positive trade balance with nearly every country and, after many years of hard work, has a positive trade balance with China. Indeed one of the few countries with which Ireland has a substantial trade deficit is the UK.
Exports in the multinational sector were hardly affected by the global financial crisis, which is the main reason Ireland was able to recover so rapidly.
Scotland seems to be doing very well in terms of balance of trade, though the GERS methodology etc. used is not fit for purpose. Whether you are a Nationalist or Unionist there should be agreement that better data is needed. Nevertheless it seems that Scotland more than pays its way in the Union.
Ireland is very secure in terms of balance of trade, but looks on with some bemusement to the Brexiters’ desire to abandon the EU and Single Market and strike trade deals of its own. Rather than the EU holding Ireland back internationally, it has done the exact opposite, enabling Ireland to vastly amplify its power as a small nation.
Human Development Index (HDI)
The United Nations HDI looks across a range of measures to determine the wellbeing of a country. According to the UN:
The HDI was created to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone.
The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living. The HDI is the geometric mean of normalized indices for each of the three dimensions.
This is therefore a useful measure that goes beyond raw economic data.
Again there is a difficulty here in dis-aggregating Scottish data from UK data. Even the simple question as to whether Scottish HDI is better or worse than the UK average is unclear. Some sources state An independent Scotland’s HDI would be higher than the UK’s, while others such as that of Rabound University (NL) say it is lower (quick summary here). Possibly it is best to assume that the Scottish HDI is close to the UK average in which case the 2018 HDI 0.922 placing it in 14th place internationally.
Ireland is more straight forward and as a Sovereign nation is listed independently. The 2018 HDI is 0.938 placing it in 4th place intentionally behind Norway, Switzerland and Australia.
Ireland is ahead of Scotland but it is difficult to say by how much.
Response to The Global Financial Crisis (GFC)
This is a very interesting stress test of the two economies. Both Scotland and Ireland had large and over-leveraged financial sectors and were hit very badly. Scotland was able to initially ride out the GFC better as being part of the UK vast resources were provided centrally. Ireland as a sovereign nation was left to its own devices and had to ask for an international bailout, something that the UK had not done since 1976.
Two of Scotland’s largest banks HBOS and RBS were badly affected by the GFC. These had historically been large banks in the Scottish sense, but from the 1990s were determined to expand rapidly and become major international players. Ultimately they became “too big to fail” with disastrous consequences.
RBS expanded explosively in the 2000’s and bought Nat West for £10 billion – which was three times its size – and 7 year later it announced the £49 billion acquisition of ABN Amro, the biggest bank in the Netherlands. Sir Fred Goodwin, the RBS chief executive who earned the moniker Fred the Shred for cutting 18,000 jobs after the Nat West takeover, could seemingly do no wrong. RBS was very briefly the largest bank in the world and the world’s largest company by both assets (£1.9 trillion) and liabilities (£1.8 trillion). Then the GFC hit.
HBOS was smaller with total group assets of c £680bn but more heavily leveraged in the mortgage market and reliant on external finding from American bodies such as Bear Stearns and Lehman Brothers, both of which failed spectacularly. There was an immediate liquidity problem and HBOS was taken over by Lloyds in an attempt to save it.
Ultimately HM Treasury injected £37 billion ($64 billion, €47 billion, equivalent to £617 per citizen of the UK) of new capital into Royal Bank of Scotland Group plc, Lloyds TSB and HBOS plc, to avert financial sector collapse. Other measures was a devaluation of Stirling by about 20% and the injection of £435bn through quantitative easing into the economy.
The financial crisis in Scotland was helped greatly by the fact the injection was UK wide – with a population of c 62m as opposed to c 5m. The subsequent recession was shallow and short lived, however the economy has never really recovered, with endemic low productivity and low growth rate seemingly baked in.
Many economists believe the financial crisis was used as a smokescreen in the UK to shrink the state and the Tories have been successful in blaming the previous Labour government for the mess. They embarked a programme of austerity which was doomed to fail.
The roots of the Irish financial crisis were a bit different. From 1990 the country had undergone over a decade of explosive expansion in manufacturing which was largely export led – the right sort of growth. In the early 2000’s however there was a construction boom fueled by easy money and low interest rates. Building was on an extraordinary scale – by the mid 2000s the number of houses built in Ireland was approaching that of the UK, with less than 10% of the population. Construction accounted for about 25% of GDP.
The country appeared well placed to cope with any economic slowdown as it had a gross debt-GDP ratio in 2007 of 25% and a sovereign wealth fund worth about €5,000 a head. Things however went disastrously wrong. After the GFC in 2008 the supply of money dried up, there was a property crash. The banks were in serious trouble. The Fianna Fail government was assured that the problem was a liquidity crisis rather than a solvency crisis. They gave a copper bottomed guarantee to underwrite the bank debt, assuming that this would never be used.
The banks: Bank of Ireland, Allied Irish Bank, Ulster Bank and particularly Anglo Irish Bank were in fact insolvent and on a monumental scale. The chain of events was tragic. The Government tried to prop up the banks domestically. Money dried up, the economy crashed, losing about 10% of GDP in 2009, public finances nose-divided from surplus to a 25% deficit. Massive cuts were made including salary cuts for nearly everyone in the public sector, loss of free University education and massive budget tightening across the board.
It only became clear years later as to how much the Irish banks were in debt and the cost to the taxpayer: €46.7bn (£41.7bn). This is only a bit more than the Scottish figure, but rather than being spread over a population of c 66m it was over a population of c4.5m. In addition the strain of bailing out the banks was so great that it eventually led to an international bailout loan of €67.5bn of which about 5% was provided by the UK. The debt to GDP ratio rose to about 125%.
The UK loan was provided largely because Ulster Bank was a RBS subsidiary and heavily exposed. All the other loans have been paid up, but the UK loan came with a heavy early payment penalty clause and will run till 2021 and is still proving an excellent investment for the UK taxpayer.
Despite the severe depression, Ireland recovered strongly powered by export led growth. Indeed in the past five year the economy has been the fastest growing in Europe and the debt to GDP ratio is now lower than that of the UK.
Despite the fact that the Irish recession was much deeper than that of Scotland, sensible (though painful) economic decisions were made and it is now in a very strong position. Scotland remains stuck in the slow lane, through ideologically driven central Government policies.
Brexit, the EU UK and Sovereignty
In my Humpty Dumpty World of Schrödinger’s Cats article I discussed sovereignty and nationalism and asked the question is the UK a genuine federation of its constituent nations or a camouflage for greater England? One acid test of this is to look at how Scotland’s concerns have been treated regarding the Brexit referendum. This will be contrasted to Ireland’s treatment as a small member state within the EU.
Scotland voted by a super-majority to stay in the EU by 62% to 38% – with all 32 areas backing Remain. During the Indi. campaign “The Vow” promised more devolution and not less. As the eminent constitution lawyer, Prof B O’Leary states: “The United Kingdom is a multi – national state, a partnership of peoples, a country of countries, a nation of nations. It is neither an English nation – state nor a British nation – state. It is a union – state, not a unitary state”. O’Leary was very worried about the potential treatment of both Scotland and Northern Ireland and at the time of writing (July 2016) was worried that Westminster would ride roughshod over Scotland. He said that: “this will emphatically confirm the claims of those who have maintained that the UK is mere camouflage for what has always really been Greater England (or Greater England & Wales).”
I had hoped that in terms of Brexit, that Scotland would be considered an equal or at least junior partner. This would have been a great opportunity to show true leadership and form a grand coalition for the interest of the UK. The opposite seems to have happen and I believe O’Leary was right. Despite warm words about “Our precious Union” by Theresa May, it seems HMG is only concerned about England.
I fear O’Leary was absolutely correct. Is this a relationship, If I were a Scot, I would be comfortable with? – emphatically not. It has been a miserable few years with the Scots and Scottish politicians being consistently ignored.
If there is any such thing as a good Brexit, Ireland has had one. The Irish think Brexit is an idiotic idea, fueled by English nationalism, nostalgia and a complete misunderstanding as to how the modern world operates. There was a steely determination to preserve the Good Friday agreement, peace on the Island and keeping the IE/NI border totally open. This eventually led to the idea of the Backstop – a term attributed to Leo Varadkar.
The Irish had many things in their favour, a crop of very able politicians, a coherent plan and a deep understanding as to how the European Union operates. It had two killer arguments. Firstly the EU is primerally a peace project and peace on the island of Ireland is threatened by the reintroduction of a hard border. The reintroduction of such a border would strike at the very heart of the European project. Secondly if the UK is allowed to bully Ireland then what is the point of being a member? The EU consists largely of small states and might fall apart if membership is not seen as valuable to small nations. Ireland was backed to the hilt.
The result is that even though the Withdrawal Agreement is decided in EU terms under Qualified Majority Voting (QMV), Ireland was given an effective veto. As Coveney has repeatedly said “no backstop, no withdrawal agreement.” Despite the best efforts of the UK, ultimately it was in a much weaker position than Ireland and had to cave in.
On a lighter note there has been much debate about the AG’s legal advice on the backstop. However for those who follow twitter there is an @borderirish account who published her own legal advice (Fig. 6):
It seems as if in 2018 Ireland has had the microscope focussed on it like never before. In a world which seems to moving towards right wing totalitarianism, through the abortion referendum, the presidential election and the blasphemy referendum, Ireland has shown itself to be a bastion of stability and a democratic safe haven. Economically also Brexit seems to have turbocharged the economy. The 2017 growth rate was 7.8% and it might be even higher this year – as high as 8.9% according to one prediction.
The contrast sadly is very stark. I believe Scotland has been treated disgracefully by Westminster. The treatment of Ireland by the EU was everything I could have hoped for and more.
From the Irish perspective it is difficult to see why Scotland would want to stay in the UK politically. The economic problems are substantial and Scotland would need to maintain frictionless trade with rUK. To be convinced that straying in the UK is a good idea, a proper federal structure would need to be put in place: major constitutional would be essential.
If Scotland does decide to leave, I will petition to have the border moved south to Hadrian’s Wall – I live north of the wall in Northumberland and would be far more comfortable living in Scotland than England.