Tuesday, 16 September 2014

European Debt Mutualisation and the Caledonian Curse

From 1956 to 1963, the UK was governed by Scottish High Tory Harold Macmillan, whose accession to Number Ten Downing Street heralded an extraordinary era which ended only with Gordon Brown's defeat in 2010, during which Scottish politicians dominated the Kingdom's politics. When doorstepped by a journalist and asked what forces tended to blow governments off course, he reputedly replied: "Events, dear boy, events." These haunting words should be kept in mind by the government as it now crows about its departure from the EU/IMF/ECB bailout mechanism and the early repayment of IMF loan tranches. Enda Kenny and Michael Noonan show every sign of intending to reprise the mid-2000s roles of Bertie Ahern and Brian Cowen, complacently boasting about the country's excellent fundamentals, whilst sailing inexorably into the squalls. The reality behind the mid-2000s Celtic Tiger (or, as an economist friend of mine aptly put it, "Celtic Garfield") was that behind the shiny veneer, the country's "growth" was the illusory function of an ECB-orchestrated debt supercycle, in which a manic binge in real estate development bought the ruinously expensive illusion of endless prosperity. Today, Michael Noonan and Simon Harris boast about how Ireland's "prudent" fiscal policies have driven the interest rates on Irish Gilts down to 2%.

The reality is that all this talk of the government's supposed "prudence" is self-serving Jabberwocky. The less glorious truth of the Irish experience is that at the tail end of the 2010-2013 Eurozone peripheries crisis, the ECB's MIT-educated governor Mario Draghi turned on his printing press and inflated a sovereign debt bubble which has spawned a global carry trade that bailed out fiscally incontinent European governments such as our own. Of course, Dr Draghi cut his teeth in central banking with the Bank of Italy, the former issuer of a currency which was routinely disparaged by financial market players as the Italian Peso, so the idea that the solution to the problem of the PIIGs was to give them unrestricted access to the trough presumably comes naturally to him. Back in the real world, however, whilst Italians make excellent sports cars, couture and wine, their record in Central Banking is a poor one, so the Draghi Put can only be seen as a temporary respite. As Herb Stein put it, when something can't go on forever, it will stop.

When or how the next Euro crisis will occur is a hard call to make. What I do not doubt, however, is that a terrible idea advocated in 2012-13 by such diverse figures as the Irish Trade Union leader David Begg, neoconservative propagandist Niall Ferguson and Paleo-Monetarist fanatic Ambrose Evans-Pritchard will be dusted off and repackaged: namely European debt-mutualisation. Stated simply, debt mutualisation involves the joint issuance of bonds by the governments of the Eurozone with collectivised repayment obligations and a blended interest rate. The theory behind this plan is that with the Germans having such a good credit rating, countries such as Ireland and Greece can simply piggyback off it. Of course, there would have to be a single treasury agency established in order to borrow the money and assume the legal obligations associated with the debt. National treasuries would in turn have to become subsidiaries of this agency, with their budgets approved by it, and this would, of course, mean that the Eurozone becomes a country - de facto if not necessarily de jure. This (in theory) entails automatic fiscal stabilisation of insolvent countries (or now regions). Paul Krugman in the New York Times cites the example of Florida, which suffered a massive real estate crash in 2008 but had no great fiscal crisis because its Social Security, Medicare, Medicaid, VA and military cheques kept flowing in from Washington. No ugly Greek or Irish style crisis. However, like all statist solutions which allow the fiscally profligate to have their cake and eat it, there is actually a rather big catch. I call it the Caledonian Curse, and to understand it, let's take a figurative boat from Larne to Stranraer and drop in on our Scottish neighbours. They've had a debt mutualisation system for more than 300 years - it's called the United Kingdom. So how ya doin' Sandy?

The long and the short of it is that Scotland prospered as part of the United Kingdom, with the economies of scale associated with military and diplomatic merger. Of even greater benefit was the ability to trade across borders without currency conversion. Glasgow became Scotland's centre of heavy industry and Edinburgh became the centre of Scotland's formidable banking, finance and insurance sector. A fair summation of the Scotland of 1900 was that it was poorer than England and wealthier than Ireland - indeed a great deal wealthier than the (still yet to be established) Irish Free State. A century later, the Southern Irish laggard had come from far behind to overtake the Scots. What happened? In a word: 1945. That was the year that Clement Attlee stormed to power in Westminster. Within six years, Attlee had established a welfare state and nationalised coal and steel. Within a few years, Scotland was transformed into a heavily subsidised region, as Attlee and his Chancellor Herbert Morrison pumped fiscal transfers out of the rich Home Counties and Midlands and into the poorer Northern UK (including Scotland). The idea behind this so-called Morrisonian Socialism was that by making government entitlements and services universal, such that what was available anywhere was available everywhere, fiscal transfers from rich to poor households would be paralleled by transfers from rich to poor regions. The theory was that the fiscal transfers would build long term value in the poorer regions, allowing them to compete on high quality rather than low cost, the gap between the rich and poor regions would shrink and the newly enriched poor regions would in turn further enrich the wealthier regions by buying more of their produce - hence a benign cycle would be initiated. It sounded (and was) too good to be true. 

The ensuing Postwar boom seemed to vindicate Morrison's position, however. Scotland, by virtue of English subsidies, enjoyed a disproportionate slice of the UK's growth pie. Living standards rose. Slum dwellers in places like Govan in Glasgow and Leith in Edinburgh received social housing. Scottish children got free Grammar School and University education. Scottish GDP soared. By 1970, Scotland (about to discover oil) had kept its place ahead of the independent but backwatered Ireland. However, behind the illusion, the Scottish economy was rotten to the core. Its apparent wealth was a function of nothing more than Ponzi-Keynesianism and  crude Export Mercantilism. In South Eastern England, Attlee and Morrison's redistributive contraption had the effect of incinerating the economic value of the bottom 20% of the labour force. With regulations and unions wiping out low-end jobs and with the employers of unskilled labour unable to compete with social welfare, working age people who didn't have the skills to compete for the higher quality jobs were, effectively, cajoled out of the labour market altogether or nudged into dead-end employment, whose low remuneration was supplemented by taxpayer subvention. However, the cumulative damage to the English economy arising from the loss of shoe shines and petrol pump attendants was small and manageable whereas, subsidies pouring into a poorer region devalue not merely the lowest skills cohorts, but the entire population - whole cloth.

Thanks to the UK's highly centralised system of government, welfare rates and public sector pay were set to the private sector pay rates and costs of living in London and the Home Counties. The rich South of the UK specialised in high value, high margin industries like banking, finance, insurance, pharmaceuticals, medical devices, biotech, electronics, precision engineering, telecommunications technology, ICT and luxury cars. However, Northern England, Scotland, Wales and Northern Ireland specialised in commoditised, low-margin products like coal, steel, chemicals and textiles. Having welfare and public sector pay rates set to the incomes of the rich south generated a tug-of-war for land, labour and capital in Scotland, which the public sector always won. This blighted every sector of the Scottish economy. Local government and NHS workers' pay put pressure on the coal and steel industries. The foundries and shipyards, when hiring managers, had to compete with a well-paid, civil service, local government and education industry pool. Instead of Scottish earnings being reflective of Scottish productivity, they were increasingly priced to English productivity - which the Scots, sadly, did not have. Whitehall papered over the cracks in the Scottish economy by making Scotland's industrial base increasingly reliant on nationalised industries. The Scottish operations of the Coal Board and British Steel became notorious loss makers, as English subsidy was required to sustain this export economy. Even with the subsidies, the British government frequently needed to stand in as end-buyer of Scotland's exports - directly through government departments like the Ministry of Defence or indirectly, through nationalised industries.

Scotland got away with this because, unlike Ireland, the subsidies necessary to sustain their industry and welfare state were external. Had she been an independent country, the generous welfare state that Scotland voted herself and the massive subsidies demanded by her hollow industrial base would have manifested themselves in the form of punitive taxes, mountains of public debt, inflationary debt monetisation and regular currency and bond market crises. When De Valera's disastrous policy of economic self-sufficiency resulted in stagnation and misery, Irish voters did not have to be well-schooled in the finer points of Adam Smith's invisible hand, Ricardian Equivalence, Say's Law, Bastiat's parable of the seen and the unseen, Schumpeterian Creative Destruction or Austrian Business Cycle Theory to understand through painful experience the true nature of the Great Helmsman's folly. However, with the cost of Scotland's economic illness manifesting itself in line items on Whitehall's capacious books, the Scots simply received none of the ordinary financial signals that should have gradually nudged them onto a more viable economic path. In the Postwar boom years, the English taxpayer could afford to subsidise Scotland (along with Wales, Northern Ireland and its own North), but as Scotland and the rest of the periphery entered into a secular pattern of industrial decline, and as the Swinging Sixties gave way to the Stagflationary Seventies, the weight of Scotland's welfare bill and industrial subsidies became too great to bear. Unfortunately, Scotland's moment for reflection was lost. By the seventies, the Scots had struck oil, the resulting bounty convincing them of their ability to become a Britannic Emirate, with the result that the strategic moment was lost and the Scots immersed themselves in a fantasy of independent Celtic socialism.

By 1979, when Thatcher came to power and the English snapped, the Scots were living in a seductive magical realm ruled by a sort of Coca Cola Communism - an economy with all of the superficial trappings of a free enterprise system, with commercialised high streets, a prosperous middle class and the media, entertainment and retail markers of a dynamic capitalist society, but which, underneath the glitz, was a command economy, dominated by social service employment, coal and steel monopolies and expensive turkeys like Upper Clyde Shipbuilders. As the daughter of a Wesleyan Methodist lay preacher and small businessman from Lincolnshire, who despised the clueless Metropolitan elites of London who derided her as a jumped-up hayseed and scoffed at her provincial middle name (Hilda), Margaret Thatcher should have been Scotland's great hope. Her enthusiasm for the decentralising power of the free market and her regional non-conformist background should have superbly equipped her for the role of reshaping and reforming Scotland. Alas, Thatcher's Gladstonian Liberal worldview did not extend to the configuration of government. It is the height of irony that a woman who believed in decentralising powers from government to the people never saw a problem in government that she didn't seek to solve by centralising more power to Whitehall. Her answer to Liverpool electing a Loony-Left Militant Labour Council was to impose budgetary caps on the city and then remove the councillors from office. Her response to Ken Livingstone's ridiculous antics on the Greater London Council was to abolish the authority. Her response to profligate local councils was the Poll Tax. Never did it occur to the Iron Lady to punish her opponents by giving them more responsibility and watching their idiotic experiments in governance fail.

This "My way or the Highway" approach served her well against the likes of Scargill and Galtieri, but in Scottish and Welsh (not to mention Northern Irish) affairs, it led to an intransigent form of centralist unionism that allowed for no regional autonomy. If Thatcher had had the political horsepower to reform the UK welfare state, the strategy might have worked despite its wrongheadedness, but the Iron Lady had no such political capital to spend. As a beleaguered Treasury on Threadneedle Street shut off the subsidy tap to Scotland's ailing foundries, collieries and shipyards, Scotland was sucked into an economic vortex from which even her new found oil wealth could not rescue her. The human tragedy that this inevitable economic catastrophe unleashed can hardly be gainsaid. This suffering should not have been in vain - but rather, the birth pangs of a better and more creative Scotland. But Thatcher's obduracy and Scotland's regression to political adolescence gave the Scots nothing in return for their humiliation.

To understand the catastrophe that unfolded, it is useful to envision what would have happened if Thatcher had followed-up the defunding of Scotland's moribund industry with a radical devolution of power, which put Edinburgh in charge of raising the taxes to pay for its own social security, healthcare, education and public services, leaving Westminster in charge of defence, foreign policy and monetary affairs. Scotland would have been forced into a painful but ultimately cathartic fiscal readjustment. However, not for the only time in her career, Thatcher allowed a lethal cocktail of romantic unionism and naked partisan consideration overrule any devolution plans. In 1959, the Scots had been amongst the most staunchly Tory voters in Great Britain, returning a delegation that was more than 75% Conservative. However, by the 1980s, Sensible Sandy had given way to Lavish McTavish, as the Scots had followed the rational incentive to vote for higher taxes in England to fund more spending in Scotland. Thatcher could have looked to Ireland, where the electorate had never once returned a left-led government as a potential poster child for a devolved Scotland's future. However, she was unwilling to contemplate even the temporary devolution of power to the Labour enemy north of Hadrian's Wall. The mistake was fatal.

Instead of a Scotland that had inflated in haste deflating in deliberation, fiscal transfers poured north of the border by automatic operation of law, with unemployed Scottish workers receiving Home Counties levels of unemployment benefit. Scotland's cost recalibration thus never happened. Without a local administration with no choice but to reform the economy, Scotland became even more reliant on the public sector than before. The economic transition forever forestalled, Scotland now faces an unenviable referendum choice: on the one hand, stay in the union and continue to stagnate, on the other, vote for independence and suffer an immediate economic meltdown. This is what Ireland will look like in a Eurozone fiscal union.

Of course, if you've been looking at our grossly overhyped GDP figures without applying a deflator for the repatriation of foreign multinational profits, you might think Ireland is an extremely wealthy country. If you've looked at our tax and spending burdens, expressed as a proportion of our inflated GDP number, you might think that we're a "low tax" country. Finally, if you read the pious reportage of TASC, the Nevin Institute and the Irish Times Op-Ed page, you might think that Ireland was some free market "Wild West". Needless to say, if you think these things, you're wrong. Firstly, Ireland's low levels of "social protection" spending are primarily a function of our having a younger population than most of our European neighbours. Secondly, our electricity, gas, postal services, airport, public transit and railway markets are amongst the most state-controlled in Europe. Thirdly, our minimum wage is one of the highest in Europe. Fourthly, by virtue of our ultra-restrictive planning laws, NAMA and our various bank recapitalisations, we have one of the most state-dominated banking and real estate sectors in Europe.

What that adds up to is a middle-income economy with a bloated public sector - in other words, exactly the type of economy that gets completely hollowed out by fiscal unions. In one fell swoop, fiscal union keeps our public sector frozen at its present size. In order to compensate them for their costs, the Germans will insist that our taxes rise. Thus, a flush public sector will buy up all of the resources that a starving private sector can't afford. Ireland's competitive export base disappears and is replaced with a middle class completely reliant on public sector jobs. Our private sector will shrink into a hollow service economy which provides outlets for the state and its charges to spend their German money - just like Scotland. Needless to say, this might seem attractive to the Irish public sector, which will enjoy kingly buying power in a depressed economy and an increasingly left wing electorate. In simple terms, this is our future as Germany's Scotland.

Of course, even this grim outcome is an optimistic one. The likelihood is that with Germany's fiscal wagon hitched to such profligate governments as Italy's and Greece's, the opposite effect to the intended one will ensue. In this scenario, the new fiscal union will collapse, its bond yields soaring under the burden of the PIIGs. Far from Ireland being able to borrow at just above German levels, Germany may face the prospect of borrowing at just below Irish levels. If this happens, the resulting Eurozone crash will be monumental. In this case, Ireland can look forward not to a Scottish future but something more akin to what we see today in Ukraine, with failed states abounding, manic departure of country after country from the European Union, and civil disturbance and chaos reigning on the streets. We may even see Ireland plaintively seeking readmittance to the United Kingdom. What's most disturbing is that the establishments both here and in Brussels seem blithely ignorant of all the dangers. Methinks that Frau Merkel may live to regret her exhortation of "More Europe, not less". Time will tell.  

Saturday, 13 September 2014

Ian Paisley: A Complicated Man - An Ambiguous Legacy

An era of Irish and UK politics came to a quiet and unceremonious close yesterday with the death of the Reverend and Right Honourable Dr. Ian Richard Kyle Paisley, the Lord Bannside of North Antrim yesterday, at the age of 88. Once again, politics in the island's northernmost province has lost one of its last living connections to its often less than glorious past. His wife, Baroness Paisley of St George's released a statement characterised by both dignity and distinction, remarking upon her and her family's devastation at his death and announcing that the funeral would be a private affair for family only. This low-key family announcement was entirely appropriate, given the number of people whose reflections on her husband's political legacy will be less than generous. The lack of pomp in his funeral arrangements is refreshing in a profession known for its often nauseating grandiloquence. It is also entirely appropriate for a man whose religious vocation was characterised by a steadfast (and some would argue, fanatical) opposition to idolatry.

In Paisley the man, there seems to have been much to like and admire. He had energy and vision. He didn't like the political party (the Ulster Unionists) that represented his community's interests, so he founded a new one and eventually supplanted the incumbent party of Carson and Craig as the principal representative of Northern Protestants. He had theological disagreements with the religious communion in which he grew up, so he founded a new one - the Free Presbyterian Church. Unlike many of the American Evangelical preachers on whose careers he modelled his own, his private life appears to have been an exemplary one, with his wife and children at the front and centre of it. During the tawdry Iris Robinson scandal in 2010, journalist Suzanne Breen commented that in contrast to the manifest dysfunctionality of the Robinson duo's relationship, Dr. Paisley still referred to his wife with great affection as "the Boss". By all accounts, he was a man of voluble humour and great warmth and charm and whatever one thought of the uses to which he put it, his charisma was undeniable.

Of Paisley the preacher, I am qualified to say little, beyond the trite observation that his theology was, to put it mildly, not my cup of tea. This leaves the third Ian Paisley - and, frankly, the Paisley which fifty years' worth of political observers got to know, love and loathe - Paisley the politician - or, as his unauthorised biographer Patrick Marrinan dubbed him in the eponymously titled book, "Paisley - Man of Wrath". Marrinan's book was written a full 34 years before Paisley's most significant political achievement, when he emerged from Stormont Castle as First Minister of Northern Ireland in a power sharing arrangement with Catholics that he had once ruled unthinkable. The historic 2007 deal which Paisley made possible represented the culmination of a nine year process during which Paisley's obdurate refusal to support the 1998 Good Friday Agreement ultimately proved to have a much needed leavening effect on the Panglossian (and sometimes disturbingly authoritarian) optimism of that agreement's supporters, whose simplistic equation of the agreement with "peace" generated a fanaticism that often led them to smear as bigots those who expressed even the slightest hint of scepticism at GFA's mechanics.

With hindsight, it is easy to forget just what an awful agreement GFA was. Firstly, in rewarding three decades of criminality with a legally codified seat in government, GFA sent a message to every malcontent section of society that its best strategy was to sidestep the political process and bomb their way to the negotiating table, whereupon power could be traded for legal compliance. Secondly, it sent a message to Sinn Fein that its so-called "armalite and ballot box" strategy was not just a "one-time-only" affair but a permanent negotiating strategy, with their every desire and whim being expressed subject to the unspoken blackmail that a refusal could beget a paramilitary response. Thirdly, it sent a message to Northern Protestants that the best manner in which to pursue their own political ends was to start voting for parties like the PUP and the UDP, which had their own paramilitary wings, on the principle of "if you can't beat 'em, join 'em".

On the other hand, the opponents of GFA were a motley crew of fanatics and idealists, whose scepticism about the agreement's wisdom was neither practical nor realistic. In order to reconcile the most benign version of their alternative vision with reality, what was necessary was not dialogue but time travel. It would have been necessary for every British administration from 1969 onwards to have reacted to the outbreak of that year's hostility with calm and reflection. To put it at its mildest, this did not happen. Of all of the many Northern Ireland Secretaries appointed to oversee the wayward province, only Roy Mason showed any fundamental understanding of what needed to happen, with the concerns of Northern Catholics being taken seriously and being dealt with in a practical way, decoupled from paramilitarism and security policy, and the IRA and other (Nationalist and Loyalist) terror groups being treated as criminals - not as politicians (as the sociologically fixated left advocated) nor as a military threat (as the securocratically obsessed right insisted), but as a manageable criminal nuisance to be dealt with by high quality, civil liberty-friendly policing and judicial methods. After all, bad and all as the violence was, not once between 1969 and 1994 did Ulster's annual murder rate exceed that of New York City.

However, the British security establishment went on a veritable orgy of martyr manufacturing, with such dark chapters as Bloody Sunday, the Guildford Four, the Birmingham Six and the Maguire Seven. The knee-jerk militarisation of policing, internment and the Diplock Courts represented another potent recruiting tool for Sinn Fein and the IRA. At the same time, the likes of William Whitelaw, Merlyn Rees and Jim Prior ignored the advice of consecutive Irish governments (of both Green and Blue hue) not to reward the IRA/Sinn Fein complex with the legitimation associated with direct back-channel negotiation. Whatever the motivations, Sinn Fein/IRA went from having minimal political support in 1968 to having huge support thirty years later. By 1998, there was no point in taking measures to stop Sinn Fein from becoming legitimate political representatives of Northern Catholics. In the rolling plebiscite of election after election after election, Catholics had, rightly or wrongly (and I think wrongly) baked Sinn Fein into Northern Ireland's political cake.

The result seemed untenable. The peace settlement contained in the GFA was hardly worthy of such a lofty monicker. However, the viable alternatives had been eliminated one-by-one. After decades of demagogy, Dr Paisley came into his own. He mobilised into a coherent political movement the opponents of GFA with a presence that wasn't big enough to destroy it but which was big enough to stymie implementation until real trust was established. He ruthlessly exploited the dark (and not entirely unjustified) suspicion amongst Protestants that UUP Leader David Trimble enjoyed the glory of Nobel Committee "statesmanship" more than representing his own community's legitimate concerns. He correctly highlighted the fact that outside patrons of the Peace Process like Bill Clinton, Tony Blair, Bertie Ahern and George Mitchell would bank their "peace-maker" status into wealth and comfort and people without their fame and fortune would be left to suffer from the shortcomings of the institutions on the ground. Much to the annoyance of Sinn Fein, power was denied to them pending the gradual degradation of their exhausted human resource infrastructure over nine long years. At the same time, as UUP seats fell like ninepins in the 2001 and 2005 elections, it gradually dawned on Sinn Fein that even if its military function could be preserved at full operational capacity without an ongoing war and even if it could convince its own communities to put up with the privations of a return to hostilities, the appeasement of them that the GFA represented had taken unionists as far as they were realistically going to go. It is thus that the egregiously flawed Good Friday Agreement was made into a workable political settlement by the very people who said it could never work. Nobody deserves more credit for that outcome than Dr Paisley.

And yet my mind is cast back to a different power-sharing agreement, where no positive gloss could be put on the Good Doctor's legacy - Sunningdale. The Sunningdale Agreement of 1974 envisioned d'Hondt-style power sharing on much the same lines as the later Good Friday Agreement, with political power being divvied out by the UUP's Brian Faulkner, the SDLP's Gerry Fitt and the Alliance Party's Oliver Napier. It was not for nothing that Seamus Mallon dubbed GFA "Sunningdale for slow learners". The only salient operational difference between Sunningdale and GFA was that Sunningdale gave no executive power to Sinn Fein and the IRA. And yet Paisley and his party were a pivotal force behind the Ulster Workers' Council strike of 1974 which killed Sunningdale. The ensuing two decades of renewed violence that this disaster entailed resulted in the inexorable growth of first the Republican Clubs and then Sinn Fein, which catalysed a veritable cottage industry of Provo-apologists in the Dublin media, academic and political establishments who constructed a protective wall around Sinn Fein, which equated opposition to that party with opposition to peace. This had two principal results. The first was to make the instinctively anti-Sinn Fein middle Ireland leery of the motives of anyone who attacked Sinn Fein/IRA's campaign of violence. The Irish Times reading, RTE watching cohorts of the professional class became increasingly susceptible to the Paisley bogeyman, whose face they saw superimposed onto that of any person who sought to confront the bestial facts of Sinn Fein/IRA's behaviour head-on. The second result was that rebellious younger voters in the border counties and the inner cities projected Sinn Fein's protected status into a sort of "Shinner-chic", the result of which can be seen in the burgeoning Sinn Fein parliamentary party in Dail Eireann today. This, as well as the iniquitous agreement which emerged on Good Friday, 1998, are as much a part of Dr Paisley's legacy as his later efforts for peace.

So does Paisley deserve to be judged on 2007 or on 1974? That depends. On the one hand, perhaps the intervening 34 years encompassed an intellectual evolution, wherein he genuinely changed his mind about key aspects of public policy, in which case, he deserves to be judged on his final accession to power sharing. On the other hand, when one looks at the personal consequences for Dr Paisley and his family and associates, one sees a pattern which is reflected, quite frankly, in all of the operations of his party, with its penchant for nepotism and pork barreling. Paisley himself parlayed the ensuing troubles into a lucrative career. At one stage, he simultaneously held paid positions in Westminster, Stormont and the European Parliament, whilst holding the Chief Moderatorship of his Church. His wife has received a peerage. His son inherited his Westminster and Stormont seats. His Euro-seat went to the wife of another DUP MP, Nigel Dodds. As for his longtime deputy and successor in the leadership, Peter Robinson, his family made so much money off politics (at one stage, the Robinsons had combined political salaries of nearly £600,000 per year), that they were disparagingly referred to as the "Swish Family Robinson". That's before we even consider the scandals. Remember that Ian Paisley Jr was forced to resign from the Stormont Executive after he was found to have questionable links with a property developer and Iris Robinson's affair with a nineteen year old, whose business career she convinced two local developers to finance. While Paisley's motto was "For God and Ulster", the actual dealings of the DUP indicate that for them, the bottom line was always the bottom line. In this context, the most glaring distinction between 1974 and 2007 was that under Sunningdale, Ian Paisley did not get a cut of the loot. Cynical as it is, I have to ask whether this was the real motivation.

If Paisley was motivated by opportunism and greed, not principle, then his 2007 legacy is forever tarnished and he deserves to be remembered for destroying the Faulkner-Fitt-Napier government in 1974, not for any subsequent (well rewarded) efforts to mitigate the damage he caused. Ultimately, whether Paisley was the hardened fanatic of 1974 who mellowed with the heuristic passage of time and the serenity of old age, or whether he was an opportunistic pork hustler for whom it was all a case of "nothing personal, just business", is knowledge he took with him.

Being, as I am, ultimately ignorant of his true motivation, I am happy to offer my condolences to his family and his many friends and admirers, and my hope that their faith gives them consolation in their time of grief. However, given the ambiguity of his legacy, on which he never chose to shed any meaningful light in his twilight years, I shall not be raising a glass to him tonight - and, come to think of it, as a life-long campaigner against the "devil's buttermilk", he probably wouldn't want me to.

Sunday, 7 September 2014

Scotland, Please Say Yes - England Deserves Independence

No political phenomenon mystifies me as much as the debate on Scottish independence and the variety of subsidiary narratives which it has catalysed, from Tam Dalyell's West Lothian Question in 1977, to Jim Callaghan's first devolution referendum in 1979, to the successful second referendum in 1998, to the first ScotNat election victory in 2007, all the way to the independence referendum being held on September the 18th. Today's Sunday Times reports that a political earthquake has taken place and the "Yes" side is narrowly ahead in the polls. Even if this development is merely transitory (as I suspect it will be), it is, of itself, an  almost unfathomable development. For the twenty years I have spent watching this debate, Scotch behaviour has always struck me as being rather akin to that of an angst-ridden teenager who keeps threatening to run away - "All the previous times I said I'd do it but didn't were different. This time I'm really going to do it - and then you'll all be sorry." "Okay" comes the response, "Let me know whether you're running away before or after dinner, so I know how much to cook." We are now seeing the first tangible sign that on the morning of September 19th, the English and Welsh parents may be opening the bedroom door to find that the bed is empty and the bags are gone. 

When it comes to runaways, there can be no better illustration of Scotland's political adolescence than the Dandy's Beryl the Peril. In one of her thousands of strips published between 1953 and 2012, the eponymous anti-heroine Beryl announces to her parents that she is running away from home. What unfolds is the classically wholesome American-type arc, wherein Beryl's preparations to flee teach her the many blessings with which her family life has endowed her, causing her to think the better of her flight of fancy. However, in a deliciously British "twisted" ending, which no American editor would ever sign off on, Beryl's long-suffering parents, who have been treated to an ongoing commentary from their daughter announce to her: "If you're not running away, Beryl, then we are." The story ends with the parents packing their bags and leaving a chastened Beryl to plaintively ask the reader what would now become of her. Herein lies the key to my mystified state. In this debate, Scotland is Beryl and England is the long suffering parent. An analysis of the debit and credit columns of the present union all indicate that the referendum should not be taking place in Scotland, but in England, should not entail Scotland seeking independence from the union but England kicking her out of it and that the Scots should have no further say in the event of a "Yes" vote.   

However, by and large, the people who should support independence (the right) are almost uniformly opposed, while those who should be most bitterly opposed to it (the hard left) support it. Of the four main national parties in the UK (the Tories, Labour, the Liberals and UKIP), all support a no vote. Even Nigel Farage, who is, in many ways, the only rational party leader left in Britain, opposes Scottish independence (or, as I would see it, English independence). Only Robin Tilbrook's tiny English Democrat party supports setting the Scots adrift - what the Neanderthalish, semi-criminal British National Party and English Defence League think, I don't know, and frankly, I don't care. However, the fiscal and political facts underlying the Scotch state, indicate that the entire political debate is upside down.

David Smith in the Sunday Times provides an excellent analysis in today's edition of the extent of the economic crisis in Scotland that independence would unleash. First, Smith gives a lie to the Scottish National Party's wheeze about North Sea oil powering an independent Scotland:

"This year the North Sea will produce about 830,000 barrels a day of oil, just 28% of the peak of 2.92m barrels in 1999. Oil and gas production together will be some 75m tons of oil equivalent, 31% of the 1999 peak of 243.7m... 

The result is that oil is ceasing to be a significant revenue raiser for Scotland. In 2012-13, the North Sea brought in £5.6 billion (€7.05m (sic)) of revenues for Scotland, assuming that Scotland would get a "geographic" 90% share of revenues. This was less than half of the £11.6bn of 2008-9.

For last year, 2013-14, Scotland's oil and gas revenues appear to have dropped further to £4.2bn...."  

Smith could have added but didn't that since 2000, there has been a consistent bull market in commodities only briefly interrupted in 2008-9, meaning that the long term value of Scotland's oil and gas may, if anything, be overstated. This pours cold water over Alex Salmond's economic case for independence. However, it makes an excellent case that Scotland's hydrocarbon bounty offers little to England - a mere rounding error on English GDP. Call this Exhibit A in the case for English independence.

Smith then moves to the fiscal gap, saying as follows:

"In 2012-13, the latest Scottish government figures, public spending in Scotland was £65.2bn. Taxation, excluding North Sea revenues, was £47.6bn. The gap was equivalent to 14% of GDP; bigger than the UK deficit at the height of the crisis."

So it would seem that Scotland needs more subvention from the English taxpayer than it gives Whitehall in return by way of its oil and gas revenue. To put that in less polite terms, while Scotland makes the UK richer in aggregate terms, they consume all of that additional wealth themselves, and then some. If Smith is right on the oil and gas revenue, this will only get worse. Call this Exhibit B.

However, where the rubber really hits the road is the effect that Scotland has on England's political system. Thanks to Scotland's oil and gas wealth and its ability to live off England's fiscal largesse, its voters have settled into the classic modern pattern of subsidised regions of electing a very left wing parliamentary delegation, so as to bring home welfare benefits, subsidised services and public sector jobs, whilst sticking the hard pressed English taxpayer with the bill. Of Scotland's 59 Westminster constituencies, a staggering 41 returned Labour MPs in 2010, with David Mundell in Dumfrieshire being the sole Tory to be elected north of Hadrian's Wall - and this was on a bad day for Labour. Subtract that one seat from the Tory total and the Tories have a parliamentary majority in a new UK minus Scotland and no Labour government which refuses to water its socialism down to the lightest shade of pink ever gets elected again. The Liberal Democrats, with eleven Scotch seats also rely disproportionately on that region to staff their parliamentary delegation. As for UKIP, while it has destroyed the Lib Dems in the South of England and is now, effectively, the main opposition to Labour in the North, it barely registers at all in the Scottish polls - in fact, on Nigel Farage's last visit to Scotland, police had to be called to protect him from an assemblage of far left thugs. Surely it must have dawned on the Tories and the Kippers that cutting Scotland loose allows England to chart its own, much more politically conservative path.

To put this another way, England's government is best understood as an elaborate Quisling effort, whereby that country's Labour minority has teamed up with a foreign power to impose on its population a government that its people do not want. Even in 1997, when Tony Blair blazed to victory, the lush English county of Surrey did not elect a single Labour or Liberal MP, returning only Tories. Since then, this trend has only amplified. By 2005, the South East of England was virtually Labour-free outside London, and yet governed by that party by virtue of its support in the most taxpayer subsidised regions in the country - how does this materially differ from a colonial administration, with voters north of the Wash voting for other people to pay higher taxes, so that the money can be spent on them? Seen in this context, the question isn't whether or not Scotland should be allowed to break off from the union, but rather, whether they should be told to take Wales with them. Call that Exhibit C.

Most importantly though, Exhibit D is Scotland herself. In centuries past, Scotland has produced wonderful things. In finance, it has produced some of the leading names in banking and insurance like Bank of Scotland, RBS, Scottish Widows and (before the clan Barclay de-camped to London) Barclays Bank. Scotland has produced some of the world's greatest political and religious thinkers , like John Knox, David Hume and Adam Smith.  It has produced pioneering inventors like Alexander Graham Bell and John Logie Baird. Moreover, Scots have achieved great things outside Scotland, for instance, in the US, where Scottish Americans founded the McDonnell and Douglas aircraft corporations and Andrew Carnegie revolutionised the steel industry, in Sweden, where William Chalmers founded the Swedish East India Company or in Imperial Russia, where Prince Barclay de Tolly served as a general in Tsar Alexander I's army. And who could forget the many varieties of excellent whiskies (both blended and single malt) that this great little country has produced.

However, since the welfare state era, Scotland's main contributions to western culture have consisted of Trainspotting, Deep Fried Mars Bars and Irn-Bru. The two facts are not unrelated. The wholesale subvention of an entire region by its wealthier neighbour creates a bidding war for land, labour and capital that the state always wins. The Scottish economy cannot create the next Johnny Walker or Royal Bank of Scotland while its welfare rates and public sector pay are set to the average wages, salaries and costs of living in London and the Home Counties. Gradually, public subsidy turns the economy into a giant public sector make-work programme where labour is increasingly deployed to produce no tradeable wealth. Bluntly, the Scottish economy has become like the heroin addicted Ewan McGregor in Trainspotting, needing a new fix of Whitehall subsidy to keep from sending its economy into cold turkey. The problem with reforming the system within the existing framework, as the Tories favour, is that there is never a good time to initiate free market reforms. Those will only come with a crisis. Scottish independence will trigger an immediate economic crisis, which will expose the Labour/Lib Dem/ScotNat establishment for the dissembling charlatans they are. Only when this happens, can Scotland chart a viable path back to its former glory.

For Ireland, the implications of Scottish independence will be significant. It will constitute a timely message to Northern Unionists that their current economy (which makes Scotland's look positively Swiss) exists on borrowed time and that Northern Ireland is just one national crisis away from a complete economic meltdown. It will also serve to dampen Sinn Fein's enthusiasm for a united Ireland - the rich(er) south of which cannot afford to take on Whitehall's subsidy burden. Moreover, if the long term consequences of Scottish independence consist of an economically viable Scotland and a wealthier England, it may teach our Euro Federalist elites the folly of the European superstate project, which seeks to take countries which are already too big to be viable and put them into even larger and less viable political blocs.

One way or the other, the left wing Scottish Nationalists and the country's revolting bien pensant cultural elites like the noxiously intolerable Frankie Boyle, who currently toot the horn for independence, are signing their political death warrants. Their statist dreams need cheques that Holyrood's treasury will never be able to cash. There is no doubt that (as unionists correctly argue), Alex Salmond has punched a tar baby. The question is what reason there is to rescue him from the consequences of his foolishness. In my humble submission, there isn't one. In the words of Dirty Harry Callahan: "Go ahead, make my day."