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You can find the current article at its original source at http://www.theguardian.com/politics/economics-blog/2014/sep/14/independent-scotland-economic-global-ireland-new-zealand-struggles
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| Version 1 | Version 2 |
|---|---|
| An independent Scotland and economic realities of size on global stage | An independent Scotland and economic realities of size on global stage |
| (1 day later) | |
| Alex Salmond says corporation tax is charged on "the economic activity in Scotland, not where the company is based". That interpretation allows the first minister to brush off concerns that a yes campaign victory in Scotland's independence referendum will trigger a flight of banks to London and their tax revenues with them. | Alex Salmond says corporation tax is charged on "the economic activity in Scotland, not where the company is based". That interpretation allows the first minister to brush off concerns that a yes campaign victory in Scotland's independence referendum will trigger a flight of banks to London and their tax revenues with them. |
| It was also a disingenuous answers that misleads. Corporate head offices charge their subsidiaries fees for using the brand, for benefiting from its top management and a host of other costs. It is these fees that would be levied by Royal Bank of Scotland in the event of a move south and would diminish the profits of its Edinburgh subsidiary. Why did Pfizer want to re-domicile in the UK (through the purchase of the pharmaceutical firm AstraZeneca) except to avoid US corporate taxes? | It was also a disingenuous answers that misleads. Corporate head offices charge their subsidiaries fees for using the brand, for benefiting from its top management and a host of other costs. It is these fees that would be levied by Royal Bank of Scotland in the event of a move south and would diminish the profits of its Edinburgh subsidiary. Why did Pfizer want to re-domicile in the UK (through the purchase of the pharmaceutical firm AstraZeneca) except to avoid US corporate taxes? |
| It is a game that lots of multinationals play and it matters. | It is a game that lots of multinationals play and it matters. |
| Unfortunately it matters even more for small independent countries that have little bargaining power in a global economy. And it raises the question, while there are plenty of small countries with high incomes, will an independent Scotland still be one of them in 10 years? A glance at similar-sized developed economies across the world shows life can be more difficult than it first appears, especially when your economy is relatively open, with a large proportion of national income dependent on trade with the rest of the world. | Unfortunately it matters even more for small independent countries that have little bargaining power in a global economy. And it raises the question, while there are plenty of small countries with high incomes, will an independent Scotland still be one of them in 10 years? A glance at similar-sized developed economies across the world shows life can be more difficult than it first appears, especially when your economy is relatively open, with a large proportion of national income dependent on trade with the rest of the world. |
| If there are also sizeable post-crash debts to pay, an ageing population and a hungry welfare state to feed, there must be some trepidation about joining the likes of New Zealand, Denmark, Ireland, Norway and the Baltic states in their daily joust with the international money markets. If those countries' experience is anything to go by, life will be even more of a rollercoaster ride. | If there are also sizeable post-crash debts to pay, an ageing population and a hungry welfare state to feed, there must be some trepidation about joining the likes of New Zealand, Denmark, Ireland, Norway and the Baltic states in their daily joust with the international money markets. If those countries' experience is anything to go by, life will be even more of a rollercoaster ride. |
| Then there is the cultural problem. Where Scotland was once an industrial and mining centre, diligently making things, in recent times it has shown itself capable of matching London's exuberance – allowing banks off the leash and property to rocket in value at many times the rate of inflation, and plodding wage rises. | Then there is the cultural problem. Where Scotland was once an industrial and mining centre, diligently making things, in recent times it has shown itself capable of matching London's exuberance – allowing banks off the leash and property to rocket in value at many times the rate of inflation, and plodding wage rises. |
| How then does Scotland measure up? | How then does Scotland measure up? |
| Here are a few examples: | Here are a few examples: |
| New Zealand | New Zealand |
| Currency New Zealand dollar | Currency New Zealand dollar |
| Central bank Reserve Bank of New Zealand | Central bank Reserve Bank of New Zealand |
| Population 4.4 million | Population 4.4 million |
| Rapid expansion ahead of 2007, when the country tried to wean itself off agriculture and its dependence on the UK, came at a cost. Much of the investment in infrastructure, universities and hi-tech industries was fuelled by consumer borrowing and the sale of state assets. | Rapid expansion ahead of 2007, when the country tried to wean itself off agriculture and its dependence on the UK, came at a cost. Much of the investment in infrastructure, universities and hi-tech industries was fuelled by consumer borrowing and the sale of state assets. |
| Since the financial crash and the rescue of several small banks, New Zealand's rightwing government has wooed international investors by slashing public spending and promising a budget surplus in 2016. This kept its debt-to-GDP ratio from going above 40% but, unsurprisingly, poverty and inequality have jumped. | Since the financial crash and the rescue of several small banks, New Zealand's rightwing government has wooed international investors by slashing public spending and promising a budget surplus in 2016. This kept its debt-to-GDP ratio from going above 40% but, unsurprisingly, poverty and inequality have jumped. |
| The economy began growing in 2011 following a boom in demand for dairy products from Asia's middle class, a construction boom following a series of crippling earthquakes and an influx of migrants. Interest rates have climbed to 3.5%. It remains vulnerable to global dairy prices, which are down 45% since a peak earlier this year. A high Kiwi dollar has also weakened demand for manufacturing and timber. | The economy began growing in 2011 following a boom in demand for dairy products from Asia's middle class, a construction boom following a series of crippling earthquakes and an influx of migrants. Interest rates have climbed to 3.5%. It remains vulnerable to global dairy prices, which are down 45% since a peak earlier this year. A high Kiwi dollar has also weakened demand for manufacturing and timber. |
| A general election takes place two days after the Scottish referendum, and despite growing concern at the country's lack of fairness, the ruling National party, seeking a third term, looks like it will be the largest party in parliament. | A general election takes place two days after the Scottish referendum, and despite growing concern at the country's lack of fairness, the ruling National party, seeking a third term, looks like it will be the largest party in parliament. |
| Denmark | Denmark |
| Currency Krone | Currency Krone |
| Central bank Danish National bank | Central bank Danish National bank |
| Population 5.6 million | Population 5.6 million |
| Denmark is renowned for being one of the richest of European nations with a large welfare state. It regularly runs a trade surplus and is self-sufficient in energy. Like New Zealand, agriculture plays a big part in its exports. | Denmark is renowned for being one of the richest of European nations with a large welfare state. It regularly runs a trade surplus and is self-sufficient in energy. Like New Zealand, agriculture plays a big part in its exports. |
| Also like New Zealand, its riches are to a large degree born of huge consumer borrowing. Six years after the financial crisis, Denmark's households carry the biggest debt loads in the developed world at about three times disposable incomes, according to the Organisation for Economic Cooperation and Development. | Also like New Zealand, its riches are to a large degree born of huge consumer borrowing. Six years after the financial crisis, Denmark's households carry the biggest debt loads in the developed world at about three times disposable incomes, according to the Organisation for Economic Cooperation and Development. |
| The difference with countries like the US and the UK (and Scotland), is that Danes are also big savers. Yet unlike the Japanese, Danes don't lend to themselves. Much of their savings are invested abroad, making the country vulnerable when the financial crisis hit. A property boom turned into a severe property crash and as many as 62 community banks went bust. | The difference with countries like the US and the UK (and Scotland), is that Danes are also big savers. Yet unlike the Japanese, Danes don't lend to themselves. Much of their savings are invested abroad, making the country vulnerable when the financial crisis hit. A property boom turned into a severe property crash and as many as 62 community banks went bust. |
| Only the government's austerity programme (and relatively low government debt of 47%) has persuaded international investors that it qualifies as a safe haven. Denmark's decision to track the euro is another feature of the country's disciplined attitude to money, though it has forced the central bank to introduce negative interest rates and led to calls for caps and other measures to restrict still sky-high borrowing. | Only the government's austerity programme (and relatively low government debt of 47%) has persuaded international investors that it qualifies as a safe haven. Denmark's decision to track the euro is another feature of the country's disciplined attitude to money, though it has forced the central bank to introduce negative interest rates and led to calls for caps and other measures to restrict still sky-high borrowing. |
| Keeping interest rates and the exchange rates low is a common recipe for export-led growth. But Denmark's economy has flatlined before contracting in the second quarter of 2014. | Keeping interest rates and the exchange rates low is a common recipe for export-led growth. But Denmark's economy has flatlined before contracting in the second quarter of 2014. |
| Ireland | Ireland |
| Currency Euro | Currency Euro |
| Central bank Central Bank of Ireland/European Central Bank | Central bank Central Bank of Ireland/European Central Bank |
| Population 4.6 million | Population 4.6 million |
| Ireland's story is a familiar one. The crash brought down all its banks, more than halved property values and left debts that the country will still be paying in 30 years. | Ireland's story is a familiar one. The crash brought down all its banks, more than halved property values and left debts that the country will still be paying in 30 years. |
| The deal with Brussels – and backed by the International Monetary Fund – that ties Dublin to its debts for decades shows how currency unions work for small, weak countries. Germany, the EU's largest economy and a major holder of Irish bank debt, encouraged Dublin to prevent bondholders from losing their shirts. But Ireland didn't have the money, so Brussels – with Berlin its largest paymaster – said don't worry, we'll lend you the money. At almost 5% interest, the cost of the loan is running at more than double 2014's projected 2.1% GDP growth rate. | The deal with Brussels – and backed by the International Monetary Fund – that ties Dublin to its debts for decades shows how currency unions work for small, weak countries. Germany, the EU's largest economy and a major holder of Irish bank debt, encouraged Dublin to prevent bondholders from losing their shirts. But Ireland didn't have the money, so Brussels – with Berlin its largest paymaster – said don't worry, we'll lend you the money. At almost 5% interest, the cost of the loan is running at more than double 2014's projected 2.1% GDP growth rate. |
| Salmond is an admirer of Dublin's 12.5% corporation tax rate. His Scottish National party plans to cut corporation tax from the UK's 21% to 18% should the SNP hold Holyrood following independence. But investigations by the Irish Times have shown that most of the big US companies domiciled in Ireland barely pay 1%, let alone 12.5%. This situation has become common in countries seeking first-world status by attracting large multinationals to produce commoditised goods. These goods could be produced anywhere, leaving Ireland in a similar position to Turkey, which has effectively waived corporation tax on foreign companies and many others. | Salmond is an admirer of Dublin's 12.5% corporation tax rate. His Scottish National party plans to cut corporation tax from the UK's 21% to 18% should the SNP hold Holyrood following independence. But investigations by the Irish Times have shown that most of the big US companies domiciled in Ireland barely pay 1%, let alone 12.5%. This situation has become common in countries seeking first-world status by attracting large multinationals to produce commoditised goods. These goods could be produced anywhere, leaving Ireland in a similar position to Turkey, which has effectively waived corporation tax on foreign companies and many others. |
| By keeping their public debts low. And should their economy look tired or in need of nourishment, then low running costs and privatisations are the solution. | By keeping their public debts low. And should their economy look tired or in need of nourishment, then low running costs and privatisations are the solution. |
| Scots looking beyond the transition costs will tell themselves that prudence with a purpose, Gordon Brown's old mantra, can work. But these examples show everyone struggles to maintain a decent standard of living without spending beyond their means, consigning fairness to the bin or indulging in some reckless gambling. How they cope with the aftermath depends on how badly they lost and whether they are inside or outside a currency union. | Scots looking beyond the transition costs will tell themselves that prudence with a purpose, Gordon Brown's old mantra, can work. But these examples show everyone struggles to maintain a decent standard of living without spending beyond their means, consigning fairness to the bin or indulging in some reckless gambling. How they cope with the aftermath depends on how badly they lost and whether they are inside or outside a currency union. |
| The Nobel prize-winning economist Paul Krugman, who is no fan of austerity or free market thinking, cautioned that it was better to be Florida than Spain when the chips are down. It is easy to see why. | |
| The Guardian's online datablog has presented some comparisons to aid the debate . | The Guardian's online datablog has presented some comparisons to aid the debate . |
| • This article was amended on 15 September 2014. Paul Krugman cautioned that when the chips were down it was better to be Florida than Spain, not Canada as an earlier version said. |