A FRUSTRATING aspect of debates about the economics of independence is their tendency to be insular. The popularity of different party policies, Scotland’s current implied fiscal position or the latest economic indicators, dominate commentary. Rarely does the debate look beyond the UK.
In many ways, this is unsurprising. There are few precedents among modern advanced economies to match the scale of change independence would bring. But it is nevertheless important that we try to broaden our outlook. Last week, some colleagues from across the Irish Sea did just that.
This month is the centenary of the political entity known as Northern Ireland. To mark this, the ESRC’s Economic Observatory published a series of articles from economists across the island of Ireland on the fortunes of Northern Ireland and the Republic of Ireland.
Alongside a fascinating account of the history of both economies, the authors provide reflections on what the Irish experience might mean for Scotland.
Caveats obviously apply. Irish economic history is uniquely intertwined with wider historical events from the 19th-century Great Famine through to the establishment of the Irish Free State and The Troubles. Current global economic and financial conditions are also unrecognisable compared to 1921. That being said, and while it is impossible to do justice to these articles here, some useful insights can be garnered.
First, constitutional change is not a guaranteed quick fix. On many measures, average Irish levels of economic prosperity today are higher than in the UK. But Irish living standards fell far below those in the UK during the first few decades of independence. Indeed, they only returned to their pre-independence position relative to the UK around 1980.
Second, currency involves hard choices. From independence and for nearly 60 years, the Irish pound was pegged to sterling. This brought stability, something of value in the early years. But it also brought challenges, including monetary policies not aligned with conditions across the Irish Sea. While the link with sterling was ultimately broken, Ireland continues to trade off an independent monetary policy for closer economic links with a large neighbour, albeit that neighbour is now the EU.
Third, while correct to argue that fiscal policy choices will differ under independence, the initial starting position matters too. The new government in Dublin initially had to make cutbacks because it could not afford the same levels of spend enjoyed while part of the UK. At the same time, early Irish governments were reluctant to put up taxes for fear of driving out business. But in time, faster growth helped support growing public expenditure. The key conclusion is that while independence brought the principle of greater policy autonomy, all governments operate under constraints which limit options.
Fourth, it is possible to shift the balance of a country’s trade. In the 1970s, 50 per cent of Irish exports were to the UK. Today, it is less than 10%. But this did not happen overnight and there were winners and losers from this shift in trade patterns. Even now, the UK remains the main destination for Irish agricultural products, with thousands of jobs at risk because of Brexit.
A final reflection is that success or failure cannot be judged simply by looking at a scorecard of economic metrics. In Ireland, for example, the first few decades of independence were marked by weak economic growth. But many historians argue that it was during this phase that the institutions and capacity to enable Ireland to direct its own destiny and subsequent success were built. Equally, recent successes have not come without costs, as the 2010 financial bailout showed. The read across from Ireland 100 years ago to modern Scotland has its limitations. But even these tentative reflections offer subtleties that challenge many of the claims we hear today from both sides. If we are to embark on a further round of constitutional debate, we would do well to learn from the experiences of elsewhere, and the cautions they offer against simplistic narratives.
Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School
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