Everyone accepts that a currency union would constrain the economic power and sovereignty of an independent Scotland. The Scottish Government’s own Fiscal Commission says handing national monetary policy back to the UK would mean “the Scottish Government would have no input into the governance of that monetary framework.” Economic shocks would have to be absorbed using fiscal policy, there would likely be no-one to stand behind Scotland’s financial institutions during the next crisis, and Scotland would lack powers over inflation and interest rates.
Despite these trappings, such pseudo-independence would grant Alex Salmond his life-long goal, the dominion of Scotland. So the SNP, the Scottish Government and even Yes Scotland battle on with their demand for currency union. And given these forces’ dominance of the campaign for a Yes vote, they hardly pay other alternatives any attention – objections and assaults from the likes of Sillars and Canavan just glance off the Scottish Government’s armour. It is a forerun of one post-independent scenario, where Salmond and his knights knock aside the arguments against them to the left and right with a swing of their governmental broadswords.
But though currency union sceptics and radicals have been ignored, we now watch our older enemy, Britain, insisting that the gradualist tendency of a currency union will not be an acceptable truce. The coming fight risks damaging the only leg that the main bodies of the Yes campaign have agreed to stand on. But it also exposes them to an attack from radicals who seek economic sovereignty. Our strategy is to rally a demand for economic power.
The Trouble with Gradualism
Even leaving aside the obvious fact that Britain does not want Scotland to secede, the more direct reason for their assault is simple. As Tomkins argues, the trouble with gradualism is that independence can be seamless only if others sacrifice their own interests to the advantage of the new state. The British state is unwilling to cede a degree of its national sovereignty to a newly independent Scottish state. The House of Commons are reluctant to cede sovereignty to anyone, never mind ceding it to “a newly foreign power that had just decided to leave the jurisdiction.” Of course, gradual self-determination, if done properly, could amount to federalism of the kind desired by some in Labour. But it is not likely to be the approach of a Tory or One Nation Labour government.
The SNP will not admit Britain’s reluctance to cede sovereignty, so holds its ground and insists that the currency union is going to happen. It does this by insisting a) that it is economically the best and most viable option b) that because it is economically viable and advantageous, it will be chosen by the UK government. Again as Tomkins says, the SNP, by reading the Governor’s “we could make this work” speech as an endorsement of the idea that “it will happen”, blurs over the basic distinction between economics and politics. Economically it could work, but it would require the rUK ceding a degree of national sovereignty. The SNP’s implication is that if a Westminster government doesn’t agree to a currency union, they will be acting against their own economic interests.
The SNP’s economism – that the economic interests of a government will determine its political choices – is supremely out of line with the politics of Toryism and One Nation Labourism. It also rests on an ideology against which Left-wing forces are ranging. And the SNP wants economic control to be separate from the people’s political and sovereign power, and they are content to allow the forces of monetary policy, banks and currency to rule the Scottish economy. This is unacceptable for those who seek real economic power for people in Scotland
The Left’s demand for economic sovereignty
Much of the pro-independence left present the demand for economic sovereignty instead of the SNP’s gradualism. They mostly favour the Fiscal Commission’s ‘second best’ currency option, an independent currency, giving policy makers “maximum policy flexibility” representing a “significant increase in economic sovereignty”. Jim Sillars, Dennis Canavan, Patrick Harvie and Colin Fox have demanded an independent currency, pegged to the pound for the short-to medium term – but this has not been developed or thought through.
We have the basic line and a principle, but these are not powerful weapons, nor do they solve the problems with an independent currency. It would be very expensive, as everything would have to be redenominated: every contract, mortgage, salary, wage packet.These changes would likely lead to capital flight – causing another contraction in investment. It would also be uncertain: the new currency might fly, or might sink, starting a currency crisis. Even if we were able to reduce the costs of exports and increase our balance of trade, economic stability would rest on increasing our supply of manufactures. Raising tax on the rich, creating productive work, and boosting social investment (an expensive option for a newly sovereign country) would not be enough to cover these costs, which would have to be borne by the people and the economy probably through another bout of austerity, causing an inevitable downturn for which Scottish people and capital are unprepared and unwilling.
These risks are huge and unattractive to a risk-averse electorate. We need a strategy, a negotiating position, and a plan. Our demand is electorally risky, economically radical, and potentially disruptive for a stagnant and undynamic economy, and we have yet to suggest any kind of timescale for transition.
The best answer for the Left is therefore a dishonest one: to keep supporting a currency union, or at least to tacitly accept the SNP’s negotiating position and posturing. We should not be under any illusion that this outcome is viable – because the rUK are unlikely to cede sovereignty – or desirable – because the conditions and constraints would undermine the case for independence. So while we accept electoral pragmatism, we can prepare for a quick transition in the period that follows a Yes vote, so that a left-wing party or coalition of parties will win the 2016 elections and quickly introduce an independent currency, without an electoral mandate.
A Left alliance for an independent currency
If negotiating with a Miliband government, this coalition could pick one of two options. Either an amicable Home Rule, quasi-federal settlement where monetary policy is reconstituted as a joint agreement – yet this option has been ruled out by Ed Balls, and the above arguments as well as a recent poll suggest it would be unviable. The other option is a quick and UK-government supported shift to a new currency, with some joint UK and Scottish control of capital for a period of time, to establish the new currency in the optimal way with the least political or economic disruption.
This latter plan may be costly, and given the costs of transition to a new currency for Scotland it may well inhibit other policy options for this Scottish government, as well as harming the interests of the coalition parties in the short run. But it may also raise opportunities for innovative direct economic involvement of the new Scottish state in the economy, because it would require the state to provide new forms of work in place of the flown capital as well as extending support to those who will lose in the short term. Oil revenues could underpin this transition and pay for the welfare and economic investment that would make this approach socially constructive and humane.
One positive result of this economic strategy is that the priority of this government will have to become the real people, and production of the economy itself. Work will have to be done well and efficiently, to ensure that even if the currency is unstable, the economy itself is stable and productive – the state will have to support this, and capital and companies will have to be made to work in the common interest rather than for profit, at least for the transitional phase. This seems a difficult and ambitious challenge especially given the downbeat condition of our economy. But there appears to be no other option. And so long as we are prepared for it, the state intervention, investment control, turmoil of capital and economic reconstruction that will follow can be used to the people’s advantage.