Beyond the Union: a new economic model for Scotland and Wales

William Thomson, Founder, Scotonomics, Mark Hooper, Plaid Cymru Cllr in Barry, Kairin van Sweeden, SNP Cllr in Tillydrone/ Seaton/ Old Aberdeen.

If our nations adopt a new economic approach that prioritises building monetary sovereignty gradually, and place wellbeing above mere material consumption, we can expect greater prosperity than remaining part of a State whose institutions undermine the values driving both the Welsh and Scottish independence movements.

The Scottish and Welsh independence movements have lots of things in common. Principally, the obvious fact that we both seek to gain independence from the same Union.

Both nations have a history of colonial conquest and resource extraction. Progressive ideals underpin both movements. A recent poll reported a figure as high as 40% in support of Welsh independence (from 17% in 2014).

Polls in Scotland still regularly suggest a figure around 50%. Slowly but steadily, the size of our movements is coalescing.

In both Scotland and Wales, Independence is a social movement, and by becoming independent, both movements aim to create a more prosperous, fair, and just society.

Shared vision

With the shared vision for a new society, there are many areas which individual supporters would highlight. Some would see a society that has more respect for our environment. A greater role for the native language. Others would see a nation that better understands its place in the world. Within the myriad of differences that motivate independence supporters, we suggest that three areas stand out: independence is a cultural, democratic and economic project.

Independent nations tend to value and invest greater resources in their unique culture and cultural heritage. It would be hard to imagine that a cultural outpouring would not follow after independence for Scotland and Wales.

The very act of independence boosts democracy. With the end of devolved settlements, power would be returned closer to the people.

In sum, improving the standing of culture and democratic accountability after independence is more of an evidence-backed statement than an argument. But the case for the economy is quite different.

Can we actually define our economy?

Firstly, what do we mean by a better economy? How do we measure prosperity? Does fairness and justice define or simply influence the way we structure production, consumption and the disposal of resources? And the most important question for both those inside and outside of the independence movement: will we be better off as an independent nation or as part of the UK?

One way to approach this question is to examine our current standard of living as part of the UK. In 2022, Welsh GDP per person was around 25% lower than the UK average, while Scotland’s GDP per capita was closer to the UK average. This shows the starting positions of our economies as we consider independence. However, it says little about our daily lives or wellbeing.

Reflecting on the 2014 Scottish independence referendum, the case for a wealthier society through independence rested largely on hope. At the time, the UK economy was in a phase of fiscal austerity—later linked to as many as 300,000 premature deaths. Yet, despite the obvious pain, the broader UK economy still appeared relatively stable.

How wrong we were. The economic story of the UK in the last forty years is one of decline. There are now close to five times as many working families below the poverty line as in the 1970s. Young people need to raise nine times their average earnings to afford a home when, in the mid-1990s, it was only four times.

Class divide

There is also a growing class divide. During a ‘cost of living crisis, energy companies and banks—Barclays Bank has made £2.7 billion profit so far this year—have seen historic profits. Homeowners pay only 18% of their income on their homes, while private renters pay 32%. We see boarded-up shops in even the wealthiest parts of our nations. From vast tracts of rural land to small urban community spaces, our land is used to house products and services that are only consumed by the wealthiest in society.

Over the last decade, the UK economy and society have begun to buckle under the strain of increasing inequality. Both are structurally unsound due to the resources drained into London and the South East, primarily to support an extractive financial services sector. We lack economic resilience, relying as we do on a limited number of service sectors.

We have an economy that relies on poverty wages (at best) and a precarious workforce. Bullshit jobs, as economic anthropologist David Greaber terms them, deplete our natural resources while adding little to our economic or personal wellbeing. Over-financialisation has created a society that knows the cost of everything but the value of nothing. To quote David Greaber, we live in a society where “the more one’s work is seen as socially useful….the less one is likely be to be paid for it.” 

 As with every society, the economic direction of the nation has been constructed by an establishment through its large and powerful institutions. In the United Kingdom, the City of London, much of the foreign-owned media, the Bank of England, ‘elite’ public schools and universities, the Treasury, UK-based multinationals and the UK Government have created these dire economic conditions. The UK is an anachronism, institutionally designed to suck wealth from Scotland, Wales, Northern Ireland and much of the periphery of England. It is designed to reward the already wealthy by capturing our common wealth. It survives by using austerity—fiscal, industrial and monetary—to keep the majority in check. It undermines our social cohesion by othering minorities.

There is now ample evidence that independence for both nations would result in a stronger economy than remaining in the UK.

The economics of independence

Central to the economic success of both nations—underpinned by each country’s sovereign currency—will be an increase in public expenditure.

In his book Shattered Nation, Economic Geographer, Danny Dorling, highlights the state we are in, “Overall, UK public spending as a percentage of GDP fell below that of Spain in the 1980s, and below that of Greece in the 1990s. By 2005, it was already lower than almost every other Western European nation”. Scotland and Wales must redress this decline. Both nations are in desperate need of significant public expenditure, especially in transportation, telecommunications, housing stock and infrastructure to support electrification. Both governments will embark on their independent journey, looking out over a stock of public resources that need reshaping and reengineering. The call on the public purse will be significant without question, stretching beyond any similar deficit rules currently curtailing expenditure in the UK.

Where does the money come from?

For many who oppose independence, their argument stops right there—they claim that Scotland and Wales would lack the tax base to generate enough revenue to fund such large-scale spending. They would add that no financial institutions will lend them the money they require. However, an understanding of money, debt, the role of taxes, and borrowing that delves beneath the surface of most commentators’ economic understanding paints a very different picture for small and medium-sized wealthy European nations, such as Scotland and Wales.

Insights from Modern Monetary Theory (MMT) can empower two progressive governments in Cardiff and Edinburgh. These new monetary sovereign governments, issuing their own currency on the day of independence, can utilise the power of the public purse to create an infrastructure for prosperity by engaging in deficit spending to offset decades of low public expenditure. Spending can be mission-led, focusing on eliminating poverty, achieving low emissions and material consumption, creating a care economy, or building local, regional and national resilience. Meaningful targets that challenge and define our society, instead of the artificial fiscal targets that stymie much-needed spending by the UK government.

After independence, both governments will regulate their own financial services sectors, which can be designed for public purpose rather than profit.  Bonds do not fund government spending in a monetary sovereign state, and both nations will likely release their own debt to ensure that the private sector has safe investments in both Welsh and Scottish currencies.

Their central banks can decide what rate of interest to reward their few commercial banks that hold central bank reserves or government bonds. Taxes can fulfil their true purpose by reducing inequality, controlling production and consumption habits, creating space for public expenditure, and underpinning the value of the currency. For a monetary sovereign government, taxes do not fund government spending.

Paradigm-shifting insights from MMT open up a progressive route for our two new States. The current ‘austerity paradigm’ that controls the UK will never support the progressive agenda that drives both independence movements. If our movements are to achieve a progressive destination, they must embrace a new economic framework.

Armed with real-world knowledge, the answer to that all-important question: will we be better off than we are as part of the UK? It is simple to answer. Yes, we will. However, our economic journey is by no means a simple or painless one.

Challenging

The decades in which we grow up as independent nations will be among the most challenging for every single nation. The GDP of many nations will likely decline over those decades as the impact of centuries of economic and ecological mismanagement takes hold. It will take time to build nations that are self-sufficient and can withstand wide price swings in international commodity markets. Years to build our own energy, food and technological sovereignty.

Both new nations will be bound to a moribund larger nation to Scotland’s south and Wales’ east, a nation that will likely find a progressive path harder to follow. The amount of debt held by the Scottish and Welsh private sectors in Sterling may slow our progress towards prosperity. With a desire to avoid fiscal austerity, our currencies may have to be devalued. Tough decisions lie ahead. However, with independence, it is sovereign Welsh and Scottish citizens who make those decisions.

Supported by Yes Cymru, Scotonomics is running two events that will explain how monetary sovereignty must be at the centre of our economic visions for independence: Glasgow on 11 July and Cardiff on 18 July.