Report - Section 4
A Policy for Development
The situation described in the first part of this paper is indeed an astounding reversal of the problems which are usually considered in a Scottish or British context. But it could nonetheless give rise to some serious difficulties and would require careful handling if Scotland was really to derive maximum benefit from it. It is, of course, perfectly possible that these difficulties would not be overcome and that an independent Scotland despite its wealth would continue to have an unsatisfactory economic performance. It takes more than money to eliminate the traditional problems of the Scottish economy and nationalist movements, dependent as they are on strong emotional pressures, have not always been notable for their economic realism. In this respect the example of Ireland's poor economic performance between 1922 and 1956 comes immediately to mind and the SNP is already showing signs of making promises which could be an embarrassment to its economic management. Nevertheless it is obvious that the surpluses from North Sea oil would open up new opportunities for a nationalist Government. The purpose of this second part of the paper is therefore to consider in very brief outline some of the policies a nationalist Government could follow to try to bring about the development and prosperity of the country as a whole.
Scotland's central economic problem is to secure a faster rate of economic growth so that she can raise income levels and absorb the excess labour which presently appears as high unemployment and emigration. As has been explained, this is a situation which would normally point to devaluation as a possible remedy. North Sea oil, however, by giving the country a chronic balance of payments surplus, would rule out any possibility of devaluation. Indeed, it is hard to see how an upward valuation of the currency could be avoided. Obviously this pressure should be resisted as far as possible; but unless there was a remarkable change in the strength of sterling, it must be expected that the Scots pound would rise in relation to it fairly soon after independence, especially if the latter continues its downward slide. A revaluation would give rise to none of the difficulties which were argued earlier to apply to a Scottish devaluation. Since the effect would be to reduce prices and raise incomes there would not be the same resistance to making it effective in Scotland. An exchange rate of £1 Scots to 120p sterling within two years of independence therefore seems quite probable.
This exchange rate movement would improve Scottish real incomes; imports would all become cheaper, and GDP per head in Scotland, which would include the value of the oil produced, would rise smartly. The gap between Scottish income per head and English would probably soon be eliminated and might well be reversed. The danger is that with a rising currency Scotland's traditional economy would find it more and more difficult to compete; manufactured exports would be priced out of foreign markets and imports would become highly competitive at home; tourists would find that the rate of exchange made Scotland a very expensive country for holidays; and Scottish farmers would find that the EEC's Common Agricultural Policy gave them a much less satisfactory level of support than expected. Thus there would be grave risk that the economy would be driven more and more to depend on the oil industry and other activities would tend to wither. But while oil would give Scotland a good income, it could never be an adequate source of employment with the rest of the economy in decline. Scotland, therefore, could face the danger of prosperity coupled with continuing or even worsening unemployment and emigration.
To counteract this situation it would be essential to try to keep the surpluses on the balance of payments down and thereby reduce the upward pressure on the exchange rate. This could involve extensive lending abroad, whether to England, the EEC or under-developed countries. Such lending could well be in Scotland's interest rather than face the prospect of an intolerably high exchange rate; it might also do much to help cement relations with other EEC countries and, coupled with the supplies of oil for export, would make Scotland a highly desirable member of EEC with a strong bargaining position.