The Business View on Independence

There has been a flurry of recent activity around a question that followers of this Blog will know is close to my heart: Is Independence good for Business?

In the last couple of days we have seen;

• The Scotsman Published this List of  Businesses Backing a No Vote
• The Herald published this List of Entrepreneurs Backing a Yes Vote

This has to be added to

• The Yes campaigning body Business for Scotland
• The No campaigning body Working for Scotland
• The CBI in Scotland (1,900 members) who came out as No but were effectively silenced because there was not unanimous acceptance of that position from it's membership

And various pieces of research (this list is not exhaustive)

• Bibby SME research: "Over a quarter (26 per cent) of Scottish small and medium-sized businesses fear they will lose business if there is a ‘yes’ vote in the referendum and some 70 per cent have rejected the idea that independence would be a positive step for the nation"
• Federation of Small Business Survey: of 1,800 small Scottish Businesses (note the question was not directly asked): "In the comments section of this question, 134 members volunteered that they would consider or would definitely be relocating their business outside of an independent Scotland, while a further 51 stated that they would look to close, downsize, sell, or retire early. This totals 185 respondents (10%) who would consider withdrawing their business from the Scottish economy"
• Treasury Research: "Around one in ten Scottish jobs depend on trade with the UK and would be “in danger” after a referendum Yes vote,according to Treasury analysis. Among the 270,000 jobs on the line are 40,000 in financial services and 180,000 people in the services industry like tourism and hospitality."

The point is not that there will be many businesses who aren't harmed by independence but that there are many who will be.  Just because one business won't have to move employment out of Scotland doesn't mean it "cancels out" another that does.  Jobs will still be lost to the Scottish economy

So to be clear:  I don't doubt that from the small (hairdressers, corner-shop owners, architects, marketing consultants) to the large (local care-home groups or social-housing builders) there will be plenty of parochial Scottish businesses who will favour independence - some of them will see independence as a good thing, few of them will see direct harm to their business.

I have tackled this issue before when I asked the question: Who do Business For Scotland Represent - my research was painfully thorough and showed (at that time at least);

• Their claimed membership figure is not backed up by any evidence and it appears (at best) it is simply people who register with an email on their website.  I tested it - my dog's a member and gets regular emails from them
• As I've said elsewhere on this blog: "one of their founding Directors (Jim Mather) is the former SNP Minister for Enterprise, their CEO (Gordon MacIntyre-Kemp) is a failed SNP local council candidate and the First Minister is fond of using them for photo-opportunities and is attending their annual fund-raising dinner - but I don't think one can necessarily conclude from that that they're some sort of poorly disguised SNP campaigning vehicle designed to give the Independence case a veneer of business credibility."
• Their named members at that time (June 17th 2014) could be summarised as: 
• 30 "business professionals"
• 28 people who have Small Company directorships; businesses with no declared turnover or employee figures.  These are predominantly consultancies, property companies and service companies; I can't identify any material trading links with rUK and none can be considered major employers
• 6 People who have or have had larger scale business experience: A one-time retail entrepreneur; the founder of a £5.6m turnover domestic Scottish property preservation company (with no declared employee figures); the founder of an £8.7m voice and data solutions company  focused on the domestic Scottish market (with no declared employee figures); a Director of a £6.6m turnover software business that employs 75 staff but has only £443k turnover in the UK (including Scotland) ; the founder of an (exclusively Scottish) property development company with a turnover of £47m and 233 employees, the founder of an (exclusively Scottish) care home group with £22.1m turnover and 879 employees

I don't have the time to run through the latest list of businesses for Yes and frankly profiling them probably misses the broader point.  I am confident from a quick scan that my conclusion when profiling Business for Scotland is likely to still stand - they will not be representative of the Scottish businesses who rely on trade with the rest of the UK (and who are responsible for roughly 1/3 of all employment in Scotland).  For what it's worth I also doubt very much that the businesses arguing for Yes employ anything like as many Scots as those arguing for No - but I'm not going to waste my time proving it this time.  Because: 

Even if the businesses - and I mean the businesses, not the retired or ex-pat business people who may have founded businesses that they no longer own or run - who were arguing for Yes employed as many people in Scotland as those arguing for No that doesn't mean they would "cancel each other out".  

If business A says independence means they will shed Scottish jobs, that isn't cancelled out by business B saying they won't.  The net effect is still for jobs to be lost, for households to suffer and for the economy to be severely damaged. 

So I would argue strongly that it's not about "how many are for and how many are against". The issue is that in absolute terms there are a very large number - representing huge swathes of Scottish employment - who see independence as a genuine threat.

They should be listened to by any voter who is genuinely trying to understand the implications of a Yes vote.

Response to "Independence and the Economy - The Facts"

You have probably been directed to this post because you have watched a rather slick video from "Business for Scotland" rather hilariously titled "Independence and the Economy - The Facts".  I'd provide a link but they block even the most mildly critical comments so I'd rather not boost their traffic figures. All of the exhibits used are captured below.

For those who are unaware, I have discussed this (self)interest group at length here > Who are Business for Scotland - this video represents a new low in their attempts to mislead the public.

Let me take each of their exhibits in turn

Notice how only tax take is mentioned not public spend?  This is because public spending was of course also higher over that period - if they showed expenditure as well it would be more informative and show a far more balanced picture¹ (which is of course why they don't). This carefully selected 33 year time period includes the 80's when the main surge of Oil revenues was experienced.  The Union has been around for over 300 years; imagine what these figures might look like if we went back 60 years? (unfortunately we can't as such stats don't exist because reporting that splits Scotland from UK only starts at the point of "it's our oil").

This is true if you take a crude GDP/Capita measure.  There's a problem with this measure as has been widely commented (e.g. see this Guardian article): because so much of our GDP is owned by overseas firms (Oil & Gas, Whisky, Banking, etc.) the benefit doesn't fall to Scottish citizens.  Per the link above GNP (which factors in where the "production" is owned) is accepted by economists as a better measure. On a GNP/Capita basis (see the primary research)  iScot is behind the UK (probably - it's hard to work out).  The weakness of GDP/Capita as a measure is illustrated by the fact that Ireland ranks above Scotland on that basis (while suffering high unemployment, declining domestic demand, record business closures etc.) - hardly a "wealthy country" in any meaningful sense.

BfS have been throwing this £8.3bn figure around for a while now. They claim GERS as the source but the number doesn't appear anywhere in GERS.  They provide no further justification and have ignored several requests to explain it. Given the BfS track-record it's hard to take this number seriously. Update: since writing this post BfS have been shamed into explaining this number - and it's palpable nonsense.  Their "argument" is that we should have incurred a further £8.3bn of debt and that would have made us "better off". This is like saying I would have been better off if I'd been allowed to run up a bigger credit card debt. Full explanation here > £8.3bn Better Off? 

Can you spot the "per term" small print?  So presumably this means £875m pa.  There is no back-up for this figure of course and the White Paper doesn't help.  The IFS concluded: "The White Paper outlined specific tax raising measures and spending cuts that would together save just under £500 million a year. On top of this there is an aspiration to raise a further £235 million through, as yet unspecified, measures to remove exemptions and reduce tax avoidance".  So £875m is a stretch.  For context: Nuclear is 5% of the UK defence budget and supports thousands of jobs in Scotland; scrap it and we'll be "anti-nuclear" so it's hard to see how we'll gain membership of Nato ("anti" is not the same as "non"). The House of Lords costs Scotland about £9m p.a. so is irrelevant in these figures. Every manifesto claims it will "reduce waste"; let's see how much waste Holyrood generates.  And what about the spending side of the equation?  The IFS go on to say "The spending increases and tax cuts described in the White Paper are more numerous and more costly – around £1.2 billion a year in the short term and potentially considerably more in the longer term if full aspirations for childcare and state pensions are met". So the IFS estimate that an independent Scotland would in fact be £500m to 700m worse off. This would at least help explain why John Swinney recently had to admit that in the first 3 years of independence an iScotland would actually be increasing borrowing by billions (£2.4bn in 2018-19 alone).

Developing renewable energy capacity requires massive investment; this currently comes from rUK subsidies.  If Scotland becomes independent the rUK would look to invest in their own renewable capacity (eg. offshore wind-farms) rather than those of a foreign country.  In addition the rUK would look to source cheaper renewable energy from eg. Iceland or Norway which offer a cheaper option than subsidising Scottish renewables (and the inter-connect capacity is coming on-stream to enable this). It's a downside of independence, a downside of breaking the single UK energy market.

Looks like they were running out of ideas by this stage.  This exhibit says *if* we increase exports by 50% then we'd create jobs. Hold the front page! What will drive this theoretical growth in exports is a mystery: the White Paper mentions that we will have a "a streamlined system of overseas representation focused on Scottish citizens and priority business sectors".  That means we will only partially replace the existing international diplomatic and trade network infrastructure. *If* indeed.

Cutting Air Passenger Duty? Hardly the most "green" policy I've heard of.  Lower VAT on tourism? That's a new one (not aware of it being Scot Gov policy) - wonder how that will fit with EU membership conditions around VAT harmonisation?

Well there are a lot of small independent nations and plenty of them are struggling too so not really sure what the point of this exhibit is.  And where's Ireland? It has an even better GDP/Capita than Scotland so following the logic of these exhibits it's "wealthier" ... there again we can't really say it's thriving can we?  And are we really comparing the Scottish Economy to that of Switzerland?

This entire video insults the intelligence of the viewer.

*****

1. This is the net fiscal balance over that period sourced from the Fiscal Commission Working Group; as you can see there was a burst of net contribution from Scotland to the rUK in the 80's (we were in a Union, we shared our Oil & Gas windfall as we should have done) but since then in fact we have effectively "kept our oil" in terms of higher expenditure. Let me restate that: for the last 25 years Scotland have effectively "kept our oil" despite being in a Union with rUK.

Be lucky

My mate Chris (@vcmoulin) has an approach to cycling that I admire, partly because he can fair spin the pedals but mainly because he has a refreshingly laid-back approach to the whole affair. Before setting out for a long ride recently - having studied the skies and perused weather forecasts - I was unsure if I should carry a waterproof so I asked Chris what his plan was. "Stay lucky" he responded with a shrug, patting his empty rear pockets and smiling broadly.

Which brings me to the role of luck in business. It's clearly important in many walks of life: Napolean said "Give me lucky generals" and most successful entrepreneurs will admit to the role good luck has played at some point in their journey.

But is this just a bland observation? Do we sit back and passively wait to "get lucky"?

Arnold Palmer said "the more I practice the luckier I get" -- being lucky can in part be about an attitude of mind. We should never rely on luck for success, but we can make sure we engineer situations where we at least give ourselves the chance to "get lucky". So strike a bold pose and put yourself out there; be willing to take some chances and remain "in the game" even after a run of bad luck; have the patience, persistence and belief to wait for a lucky break -- and critically retain the awareness to recognise it and make the most of it when it happens (and don't mistake good luck for strategic brilliance on your part).

Having said all that ... if in doubt, always carry a waterproof. Chris got soaked; the man's a bloody idiot.

;o)