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FionaK
view post Posted on 12/7/2014, 12:40




http://www.royalsoced.org.uk/cms/files/eve...ordonHughes.pdf

Not sure if this is a summary of the argument this is based on, or something else. However it is written in plain language and therefore accessible. It is likely that the full paper is more comprehensive and so it might be wrong to judge what Mr Hughes has to say when he lays his argument out in full: but this is out there and so we can at least comment on it.

First: he is correct to say that

In thinking about the role of the energy sector in an independent Scotland it is essential to
put aside preconceptions based on the current situation in which Scotland is part of the much larger
economic unit that comprises the United Kingdom.


It is a shame that he appears to go on to do exactly that, however

His first questionable assertion in the paper is that Scotland has a "poor location". He says that this poor location will mean that the "rents" which can derive from natural resources may be lower than would be the case for other european countries. That would be countries like Finland or Iceland or Ireland or Norway, would it? They are far better placed geographically than Scotland is, and that must account for how they manage outside the "larger economic unit" which is the UK, presumably.

Mr Hughes then says that the energy sector is highly capital intensive: no quarrel with that. Much of the revenue goes to providing a return on investment, he says: again no quarrel with that. And he says that any "energy dependent economy" must assume volatility of price and the need to maintain investment. Fair enough.

This is, of course, quite different from a "financial services dependent economy": no volatility there at all. No need to maintain a supply of foreign money either.

He reinforces that position in the following paragraph, when he states that this volatility has caused problems in every country which relies on energy, including Norway. It is interesting to see that he calls this Dutch Disease, because it suits his argument to pretend that this phenomenon is directly related to reliance on natural resources. Basically the argument is that the discovery of natural resources leads to a decline in manufacturing because it strengthens the currency, making exports more expensive; and an investment boom drives up wages and prices. Manufacturing closes down or relocates. Then when the price falls so does the investment and we are all on the broo. Mr Hughes contends that an independent Scotland would suffer more from this because at present this problem is diffused over a much larger economy: the costs would fall wholly on Scotland if we vote yes. And that is an unassailable point, is it not? Because nothing like that has happened at all in Scotland due to the protections we have from being part of the UK. Has it?

The fact is that the "dutch disease" has no necessary relationship to dependence on natural resources at all: it can happen in any economy where there is a large inflow of foreign direct investment or even of foreign aid to developing countries. Doesn't matter what the reason for that inflow is: and as we all know, the UK does not depend on attracting foreign capital to any extent at all, if you exclude oil.

Even if we accept this somewhat partial analysis, Mr Hughes acknowledges that sovereign states can take steps to mitigate the adverse effects of dutch disease. One common response is to build up a sovereign wealth fund, as many countries have done when they have discovered oil or any other valuable resource. But the UK has not done that: and so, as he rightly says, we are in a much worse position now than we would be if we had made a proper policy response at the outset. Mr Hughes considers that we are now unable to do it because we don't have the money. Norway, he says, self funded the investment: we can't do that because the revenue is already committed to finance investment and current spending.

This is where Mr Hughes does not follow his own advice in paragraph 1: he is assuming that nothing important will change after independence: and that is not logical.

As a consequence, the prospect for energy-based growth in the Scottish economy depends on a continuation of high – and probably rising - energy prices plus an investment climate that is strongly favourable for net capital inflows..

Personally I do not think it is wise to rely on energy based growth at all: that is the essence of a resource based version of the dutch disease and I see no reason why we would wish to continue on that path. The Westminster government talks a lot about "rebalancing the economy" in favour of manufacturing. They don't actually do it, but it is a good idea! A policy of full employment would transform the Scottish economy in the longer term: no one pretends that will be easy whether we are in or out of the union: but then we wouldn't have chosen to start from here. What is certainly true is that the problem does not arise solely from dependence on oil: it arises it just as much from dependence on debt and the volatile financial sector: but that is not mentioned. Perhaps it is unfair to expect that it would be because that is not what he is talking about: but I get tired of hearing about Scottish problems as if the UK were hunky dory and did not face the same apocalyptic outcomes albeit from the different (and even less secure) reliance on financial services: which have exactly the same effects but have less "reality" than oil does.

Mr Hughes goes on to say that

Protecting the non-energy sector from the effects of energy investment booms in an economy with the features of an independent Scotland is practically impossible. Sadly, this means that the vision of a Scotland with a revitalised manufacturing sector comes down to a choice about whether to forego the rents and capital flows generated by energy and other natural resources.Fiscally, Scotland is sufficiently dependent on these rents and capital flows that foregoing them would require a very painful adjustment in public spending, so that this seems to be an unlikely prospect. The best that can be expected is that manufacturing and services directly linked to the energy sector can thrive in both the domestic and international market. Still, it must be borne in mind that these markets may be almost as volatile as the energy sector itself.

There are a lot of sweeping assertions in there which he may or may not be able to justify in a longer paper. For now all I will say is it is not like we will be facing any cuts in public services if we stay in the union, of course. It is not like this accurately describes the situation which faces the UK if the mainstream economists are to be believed: with the difference that dependence on the financial sector does not even generate many jobs, in the scheme of things. Once again we are faced with threats which are already certain to come to fruition if we stay in the union.

Finally Mr Hughes warns that we may not have access to the rUK market to sell our energy to. I do not disagree that it is likely that rUK will reduce dependence on our energy resources over the long term: indeed I would hope that ALL countries will be doing that over the long term. Which gives us time to adjust the economy if we have the political will to do it: the UK has no such will, and so the prospect within the UK are likely to be worse for Scotland over time: or so it seems to me
 
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Helena Brown
view post Posted on 12/7/2014, 12:51




I have to say that all of those who argue the case never seem to come to the conclusion that things will change in the event of Scotland voting YES. I would argue that things may change and not in a good way if we vote No.
I see that Scotland will be able to make it's own decisions in how its resources are used and not left in the hands of those who quite frankly care little. Scotland has seen much improvement with the SNP Government, because it cares about the country and it's people. Given time and money I see Scotland as a democratic forward looking place where people will want to live.
 
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FionaK
view post Posted on 12/7/2014, 12:57




You are forgetting that there is no alternative, Helena Brown ;)
 
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2 replies since 12/7/2014, 12:40   118 views
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