It’s NOT All about Pounds and Oil


“We shall not rebuild civilization on a large scale. It is no accident that on the whole there was more beauty and decency to be found in the life of small peoples, and that among the large ones there was more happiness and content in proportion as they had avoided the deadly blight of centralization. Least of all shall we preserve democracy or foster its growth if all the power and most of the important decisions rest with an organization far too big for the common man to survey or comprehend. Nowhere has democracy ever worked well without a great measure of local self-government, providing a school of political training for the people at large as much as for their future leaders. It is only where responsibility can be learned and practiced in affairs with which most people are familiar, where it is the awareness of one’s neighbor rather than some theoretical knowledge of the needs of other people which guides action, that the ordinary man can take a real part in public affairs because they concern the world he knows. Where the scope of the political measures becomes so large that the necessary knowledge is almost exclusively possessed by the bureaucracy, the creative impulses of the private person must flag. I believe that here the experience of the small countries like Holland and Switzerland contains much from which even the most fortunate larger countries like Great Britain can learn. We shall all be the gainers if we can create a world fit for small states to live in.”


Friedrich Hayek, The Road to Serfdom (1944), Chapter 15 (emphasis added)



Friedrich_Von_HayekAustrian economist and political philosopher Friedrich A. Hayek

(Photo credit: unknown)


 “Much of the reclaimed sovereignty would be purely notional, and some would be the sovereign power to mess things up”


Bill Emmott (former editor of The Economist writing on Scottish independence), Financial Times Comment, 8 August 2014


When we are asked why we support Scottish independence our immediate answer is that it is time to for Scots to take responsibility for their own affairs, quit moaning and break the notion of dependency with which generations have grown up. We never think purely in terms of an economic calculation – whether independence would make Scots in general better or worse off by a few pounds. That is to misunderstand the whole rationale for independence.

We rarely try to explain to questioners that it is also in keeping with our whole philosophy of economics, politics and society. As we have noted in bold in the quote from Friedrich Hayek, one of the truly great observers of political economy and social philosophy, “it is the awareness of one’s neighbor rather than some theoretical knowledge of the needs of other people which guides action, that the ordinary man can take a real part in public affairs because they concern the world he knows.

But equally – and this is the whole point – we agree with Bill Emmott: “…reclaimed sovereignty…would be the sovereign power to mess things up”. All countries have the right to make their own decisions even if that results in messing things up, at least in the first instance. In one of our country reports from 2013, Mongolia: Chaos In Action, we wrote that Mongolia, population of 2.9m, was a country in a hurry…


“…but, when combined with a traditional animosity towards foreigners, particularly Chinese and Russians, and the exuberance of Mongolian politics it is a backdrop which leads to lurches in policy positions as well as hasty decisions that produce more unintended consequences than results. In short, Mongolia’s economic immaturity is only matched by its political immaturity. It is a country in a hurry to go places but, like the traffic, it is stuck because of inadequate infrastructure, both physical and human. Not all resources are physical and, arguably, a country’s greatest resource is its people. That does not always go for its politicians and bureaucracy, as we are about to see.”


We likened Mongolia’s young, vibrant and chaotic democracy to a process of trial and error where hasty decisions were taken, often without thinking through the consequences, and then reversed a few months later. Having a small, concentrated population where political and economic policy decisions fed through quickly to the general public meant that the pressure to rectify mistakes was fast and intense.

We are not comparing Scotland to Mongolia. But we know one thing for sure though, Mongolians would fiercely defend their right to make those mistakes of their own accord. In fact, we know of no countries that we visit, or nations around the globe, that do not rejoice in the ability to make their own decisions and take responsibility for their own actions.

For example, we doubt if an independent Scottish government would voluntarily take the decision, as is the case today, to have the largest concentration of nuclear weapons in Europe stationed just 25 miles away from Glasgow, the country’s biggest center of population. Scottish independence is not all about economics.

But even if it were all about economics, the evidence is good that small units, such as Scotland, rank high in global terms. Figure 1 shows the 11 countries AAA-rated for sovereign debt by Fitch Ratings and their respective populations.


Fig-1-small-is-beautifulStandard & Poor’s ratings exclude Austria, the Netherlands and the United States from the AAA list but include Hong Kong (population 7.2m), Lichtenstein (37,000), Sweden (9.6m), Switzerland (8.0m) and the UK (63.9m). Moody’s includes the Isle of Man (87,000) and New Zealand (4.4m). It is otherwise the same as Fitch although it also rates Lichtenstein AAA.


In summary, if there is one thing you want to be in order to get AAA rated it is small. That fits much more closely with Hayek’s optimistic vision of the world than Emmott’s downbeat pessimism.


Eilean Donan Castle, Scotland

Eilean Donan Castle, Scotland

(Photo credit: unknown, via


Having said that, a number of large companies have voiced open concerns about Scottish independence and their own future, or at least some of their assets and investment if not the future of the company as a whole, in an independent Scotland. This has frightened many people away from the independence camp. These companies include multinationals such as BP and Shell and finance giants such as Standard Life and the Royal Bank of Scotland (both of which are headquartered in Scotland).

The American-born CEO of BP is on record as warning that Scottish independence represented a “question mark” for the firm because of the “uncertainty” that it involves (he was speaking in a personal capacity but that was never reported by the anti-independence media i.e., almost every single newspaper and broadcaster, in Scotland. BP’s Chairman, subsequently, was at pains to reaffirm the company’s investment schedule even in the wake of a ‘Yes’ vote).

But just think about the CEO’s comments for a moment. The head of a multinational oil company which has investments in countries like Russia, Indonesia and Egypt is kept awake at night by the prospect of Scottish independence. It would appear that Alex Salmond, who runs a perfectly competent, business friendly devolved government already, is scarier than Vladimir Putin, retrospective taxes and contractual changes in Indonesia and revolution and political upheaval in Egypt. Could something else be at play here?

Financial service company executives have talked about relocating from Scotland before even seeing what the financial services regime would be like after independence. Not a single thought for shareholders as regards the massive costs of relocation or for staff well-being and quality of life (the lifestyle in Edinburgh, we can assure you, is quite superb for well-paid financial services staff).

Their objections do not stack up but perhaps there is a different agenda: large corporations like to deal with large states. It is in these states that they can exert most behind-the-scenes influence on technocrats, regulators and civil servants (admittedly, some large companies have committed to investing more in Scotland regardless of the referendum outcome). Let us return to Hayek:


“Where the scope of the political measures becomes so large that the necessary knowledge is almost exclusively possessed by the bureaucracy, the creative impulses of the private person must flag.”


He could easily have added ‘and the interests and influence of the large corporation can be maximized’. In small countries the effort involved by large companies to buy relatively small influence is just too expensive. No wonder oil majors are wary of an independent Scotland and the prospect of a new North Sea tax regime; all the sunk lobbying costs from years of London activity would count for nothing. Likewise the influence the financial sector has on the Bank of England and other financial regulators. What these executives really mean is that Scottish independence would be inconvenient for them, regardless of the benefits (and costs) it might bring to everyone else.

But let us turn from the philosophical case for independence and concentrate on the economic issues which have become central to the referendum and outline our take on them.


To be continued tomorrow in Part 2: “The Currency – Sterling or Not?”


Dr. Jim Walker is the founder and chief economist of Asianomics Limited, an economic research and consultancy company formed in late 2007 and serving the fund management industry. He is also the owner of Forensic Asia, a bottom-up corporate research company which concentrates on financial stress and balance sheet health, and Chart Asia, a technical analysis unit which primarily focuses on trends in Asian stocks and markets. Prior to establishing Asianomics in December 2007 he was the chief economist at CLSA Asia-Pacific Markets. He joined CLSA in late 1991. Over the years Dr Jim achieved numerous ‘best economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers. Before coming to Asia, he worked in his native Scotland as a research fellow at the Fraser of Allander Institute for Research on the Scottish Economy, and then at The Royal Bank of Scotland’s Edinburgh headquarters. He holds a Bachelor of Arts Honours degree and a doctorate in economics from the University of Strathclyde, Glasgow.




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2 Responses to “Scottish Independence, Part 1”

  • finny:

    Kreditanstalt; yes, Scotland is indeed filled with a demographic that differs considerably on the majority of views with rUK. But we also have an exceptionally diverse range of politics expressed in our local elections. Autonomy is what we are after, division is what WM tries to derisively dismiss that ambition as. And if you were paying attention, you would know that labour don’t support independence: in fact they have actually paid for Labour members to come up from Newcastle and Liverpool to help the floundering BetterTogether bunch. Every Scottish political party fully supports independence. Guess which three don’t?

  • Kreditanstalt:

    Problem is, the Scottish ‘independence’ crowd is filled not with lovers of liberty but with loads of erstwhile Labour supporters who want and expect a Scottish social welfare state…

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