Posturing over the pound

The debate about what currency Scotland could, would or should have has sprung into life now that the SNP's white paper proposal for 'keeping the pound' has been rejected by all of the major Westminster parties, and the Liberal Democrats too.

This represents a new stage in the debate, with the stakes ramped up for both sides. But if we sweep aside the political posturing, the debate over the last few days has revealed - to this disinterested observer - some interesting truths:

1. The establishment is worried by the prospect of a 'Yes' vote

The unity among the leaderships of the Tories, Labour and Liberal Democrats (and UKIP incidentally) reinforced by the unusual decision to publish the advice of a senior civil servant is a clear indication that the establishment is concerned about the prospect of Scotland seceding from the union.

You might argue that this consensus is a reflection that currency union is a bad idea (especially for Scotland), but Sir Nicholas MacPherson's letter and the statements of the three parties (working together for a No vote under the Better Together banner) go further than criticising currency union and contain some ridiculous scaremongering. The 'no' side - ahead in all the polls - is obviously worried though.

And it has good reason. If Scotland votes to leave and is refused currency union, it could quite legitimately reject the UK debt (a possibility acknowledged in MacPherson's paper). However, even if Scotland took a share of the national debt (based on population size) it would have a debt to GDP ratio of 81%, compared with 104% for the rest of the UK (according to an NIESR paper).

The Treasury paper implicitly acknowledges these possibilities but implicitly says the UK would get its way because "an extensive wrangle about [Scotland's] share of the debt would increase uncertainty and hence its funding costs". What it doesn't say is that is true too for the remaining UK ... and that's why they're worried.

2. HM Treasury believes the Euro is still bad for the UK

It believes that economic union is problematic without political union - and that economic independence is incompatible with currency union. In this it is right: witness how a technocrat was imposed in Italy and government policy imposed in Greece (and elsewhere) under Eurozone orthodoxy.

3. The SNP is economically bankrupt

The SNP clearly lacks the confidence to argue for an independent currency under a central bank of Scotland. Instead it wants a more familiar and convenient currency union with the UK, knowing that it will inevitably mean that Scotland would not be economically independent.

At best Scotland might get one seat on the Monetary Policy Committee of the Bank of England (given size of economy or population), and the interests of the Scottish economy would be totally marginalised (it is arguable that is the case now since the Bank of England largely operates in the interests of the City of London's square mile, but then why vote for independence only to accept the situation of pre-independence?)

As such an 'independent' Scotland under the SNP's vision would leave Scotland as a crown dependency, similar to the Isle of Man or Jersey. Given that Salmond's economic vision has previously been to turn Scotland into a tax haven, maybe that's the aim. Scotland as an outpost of the City of London?

4. The UK banks are still fragile, and if they crash again the establishment will bail them out again

The Treasury paper states "Scotland's banking sector is far too big in relation to its national income, which means that there is a very real risk that the continuing UK would end up bearing most of the liquidity and solvency risk". So the Westminster consensus still believes if banks fail they should be bailed out exactly as before. They have learned nothing from the greatest crash in over a century - their neoliberal ideology remains unshaken. The SNP does not demur from this, nor suggest the Icelandic route.

Conclusion

These points do not make the case for either a yes or no vote in the referendum. What they point out is that however Scotland votes, it will be governed by people unable to govern in their economic interests.

What is also reveals is that the referendum debate is likely to step up, with more vitriol and posturing, that will make independence negotiations more difficult if Scotland does vote yes.

Miliband also in denial

If Colonel Gaddafi is said to be “delusional”, believing that all Libyans love him when clearly they do not, where does that leave Ed Miliband? At best he is in denial about 13 years of New Labour. At worst he takes no responsibility for his actions and ought to seek help.

In a somewhat astonishing – for the wrong reasons – speech yesterday, he reeled off statistics that confirmed the growth of inequality in the period 1997 to 2010. Can any of us forget that this was the period of massive Labour majorities under Blair and Brown, and when Miliband was in the cabinet?

Yet, ultimately, Miliband, apparently Labour’s present leader, could only tell his audience: “The task is to create a more prosperous capitalism but also one that is fairer than we had before the financial crisis.” Excuse me?

In the period we are talking about, capitalism was indeed “prosperous”. It was just that it was at the expense of working people’s wages and conditions. Bankers and CEOs of transnational corporations did not go hungry or homeless in this period, in which inequality grew apace.

As the power of globalised capital to dictate to governments and trade unions grew, so the share of wealth going to those actually working fell. The wage share of annual national income (GDP) rose to a high of 64.5% in 1975, falling to a record post-war low of 51.7% in 1996. From then it recovered slightly to reach 55.2% in 2001 before slipping back to 53.2 per cent in 2008 – close to where it was more than a decade before. In the United States, by the end of 2006, the share of national income going to wages and salaries in 2006 was at its lowest level on record, with data going back to 1929.

As the 2009 TUC report Unfair to Middling explained:

The declining wage share has been driven by the introduction of flexible labour markets since the 1980s (with the paring back of employment protection rules); economic liberalisation (including privatisation); the increasing constraints on collective bargaining; a reduction in the demand for unskilled labour resulting from technical change; and the global transfer of jobs triggered by globalisation.

This is the new world order that New Labour embraced with enthusiasm. Instead of wages, workers could get easy credit in a modern version of living on tick. The whole growth system of capitalist production and finance became driven by debt until it went down in flames in 2008. Of this, Miliband had nothing to say.

No apology for giving the financial sector carte blanche, for restricting union rights, for allowing inequality to grow. Just platitudes about how “our economy has become progressively less fair and the losers have been those on middle and low incomes.

He warned,however, of an impending cost-of-living crisis as a result of rising food and fuel prices. These will further erode the wage share of GDP, which accelerated in the last two years of the previous government. This is how capitalism “solves” its crisis. It destroys jobs and living standards because that’s all it knows. With the global debt crisis still reverberating, the attack on living standards will intensify because that’s how the system functions.

Miliband did not contemplate how the soaring cost of living in Britain, alongside mass unemployment and short-time working, could easily turn into a movement for social change, much as it did in Tunisia and Egypt. Just as well, because Labour is a party of big business, making the cuts at town hall level, and will be just as
much in the firing line as the ConDem coalition when the working people of Britain decide that enough is enough.

Paul Feldman
Communications editor
www.aworldtowin.net