Friday 9 September 2011

Would an independent Wales be better off than the status quo?

Excellent balanced piece by Sion Barry, Western Mail, Aug 12 2011

Sion BarryTHERE was some interesting research published recently by former Plaid Cymru MP Adam Price, who is keen to return to the political arena after time spent at Harvard in the US.

His research, entitled the Flotilla Effect – Europe’s small economies through the eye of the storm, claims that it has been smaller and more agile nations in the EU which have, on average, experienced higher economic growth rates than larger countries since 1990, while also being quicker to emerge out of recession.

Mr Price and his co-author Ben Levinger, also a Harvard researcher, claim that four key factors make small nations economically successful: openness to trade, social cohesion, adaptability, and big government in a small country.

Their headline figure is that Wales could be around 39% richer, and the Welsh economy could have grown by 2.5% a year, if it had achieved independence around the time of the fall of the Berlin Wall and had followed a similar pattern to other similar small nations.

In contrast, regions or countries which have rejected independence have performed poorly.

But could Wales really have achieved this average, or would it have been well down the rankings in the small nation growth table – or conversely even above?

While a hypothetical question, Mr Price has re-ignited the debate on how an independent Wales could perform economically.

Of course since 1990 the fastest growing economies have been those with some of the world’s biggest populations, notably China, India and Brazil.

But back to the issue of Welsh independence. Firstly, of course, there would need to be a democratic mandate with a majority of AMs and possibly of Welsh MPs in Westminster backing independence. And even if a referendum was called and turned out to back independence, it would also need endorsement from the UK Government.

Many argue that Wales is “too small” – although this is an economic strength according to Mr Price – and doesn’t generate enough tax receipts, both personal and corporate, to support itself. Coupled with current high economic inactivity levels, they believe that Wales would fall even further behind on key economic indicators if it broke away from England.

An independent Welsh government could also be faced with the need of having to strike a deal with the Treasury on what percentage of the UK’s national debt – currently running at an eye-watering £900bn – it would be liable for. On a population calculation that could leave Wales with a potential bill of £45bn, although no doubt it would look to negotiate a non-repayment position as with Wales receiving more per head in government spending than the UK average, independence would immediately generate savings for an English government.

An independent administration could also argue that it would be entitled to a share of any future assets sales by an English government, which it could use to offset any national debt repayment charge.

Critically, how would an independent Welsh Government generate sufficient income?

While there might be pain initially it should look to reduce personal and business taxes and promote itself to the world as western Europe’s most “friendly business location”.

There is evidence that lower taxes not only attract new investment into economies, but act as a spur for increased indigenous business inactivity, which in turn increases the overall tax take.

With a more competitive tax regime Wales could not just attract high-net-worth individuals, but, over time, leading head office operations from the south-east of England.

A lower tax regime would also help in attracting more investment from overseas.

Wales could look to continue to receive UK government-funded public services.

For example, a Welsh government could be happy to continue with a BBC licence fee to ensure it maintains public service broadcast output for Welsh viewers – although news content would have to feature more Welsh content.

With utilities and telecom providers long since private, it would be a case of business as usual for consumers in Wales – while retailers would also still trade in Wales, perhaps with the added incentive of a lower VAT regime.

International and UK banks, as well as mutuals, would continue to operate as they do now.

On currency Wales could opt to join the euro – providing it is still in existence – or potentially peg its currency to sterling.

From a global perspective there is a link between being resource rich and economic growth; just look at Australia and Canada.

Wales does have an abundance of natural resources which could be of great benefit to its balance of payments. There are still huge reserves of coal in South Wales, as well as methane gas. Advances in carbon storage and capture technology could see Wales emerging as a significant exporter of coal in the future.

It is also well placed to develop renewables in areas such as wind and tidal power.

There are many examples of new states created in Europe since the 1990s, to study how new nations go about running things for themselves, like the new countries of the Balkans and Slovakia following its decision to break away from what is now the Czech Republic.

And if Scotland went independent first – the SNP has far wider support than Plaid Cymru – then there would be an even better model to work off.

However, current prospects of an independent Wales remain extremely unlikely, with the only show in town being more devolved powers – but taking a pragmatic view you should never rule anything in or out.

Follow Sion Barry on Twitter

3 comments:

Si├┤nnyn said...

The reaction to adam's work from the unionists has been instructive. Most have dismissed it as being only what you'd expect from a nationalist. A few have dismissed it for misusing or inventing statistics (despite the fact that it went out under the imprint of probably the most prestigious university in the world) and others have just ignored it.

The only valid criticism I have seen came from Dylan Jones Evans, who, while welcoming it in general (surprisingly), did suggest that it would be more complete it if it had included other stateless nations economies for comparison. He has a point. Catalunya and Euskadi have prospered since becoming autonomous regions within Spain. How much that is due to their autonomy, and how much is due to their continued attachment to Spain would be an interesting extension to Adam's report - but he still has nearly a year left to include this in his analysis.

There appears to me to be a new, and sudden tide in Europe - and indeed all over the world, sweeping small nations towards freedom. I just hope that the Labour party's Cnut pretensions is unable to stem it in Wales.

margarethildaroberts said...

There are a few poimts with which I would disagree. Mr Barry says-"..even if a referendum was called and turned out to back independence, it would also need endorsement from the UK Government.". What? We certainly would not need England's approval once a referendum endorsed freedom. Of course England's cooperation is preferable to its opposition but with or without it once Wales says Yes, then Yes it is. They have no veto on our freedom.
"..what percentage of the UK’s national debt – currently running at an eye-watering £900bn – it would be liable for. ". Nonsense!. We must start with the presumption that all debts incurred on England's watch are England's responsibility. eg England sets the defence budget and expects Wales to pay it, though most Welsh believe UK is overarmed and overkeen to undertake foreign military engagements merely to satisfy England's instinct to conquer & rule. Whatever debts England can attribute specifically and unambiguously to Wales then so be it, but Wales's marginality in UK economic thinking must reflect equally in marginality of indebtedness. We are not accountable, merely on a demographic headcount.

A said...

'Nonsense!. We must start with the presumption that all debts incurred on England's watch are England's responsibility.'

Oh yeah, just shift the blame to occupied England which doesn't even have a voice of its own!

Wales has been part of the UK, it's MPs have voted in Westminster and Wales has received a hell of a lot of money to maintain it's bloated public sector.
You'll take your fair share of the debt whether you like it or not!

England would be in the position where it could essentially turn Wales into a third world country at will should it try and weasel it's way out of it's obligations.
Most Welsh trade is with England and a ban on trade with Wales would hurt few in England whereas it would be devastating for a Welsh economy at the initial stages of independence, not yet lost the dependence on England.

'eg England sets the defence budget and expects Wales to pay it, though most Welsh believe UK is overarmed and overkeen to undertake foreign military engagements merely to satisfy England's instinct to conquer & rule.'

So that's why 2 million people marched in London at the start of the Iraq war is it?
May I remind you that the last three prime ministers have all had Scottish genealogy and that the UK is a "joint effort", or joint failure, whatever.

'Whatever debts England can attribute specifically and unambiguously to Wales then so be it, but Wales's marginality in UK economic thinking must reflect equally in marginality of indebtedness. We are not accountable, merely on a demographic headcount.'

Oh yes you are! A large amount of the national debt is due to the public sector on which Scotland, Wales and Northern England rely on.
Wales especially.
The national debt was created by these areas, the national debt will be paid by these countries. There is no running away from the bailiffs, fail to pay and Wales' will be screwed as the rest of the UK - England, Scotland, NI get fed up with it.

All former UK nations would probably formulate a deal whereby they support each other in paying anyway or where the larger economies of England and Scotland help the weaker economies of Wales and NI spread the burden over more time.