Businesses should listen to Corporal Jones – don’t panic!

The scare stories about Scotland voting ‘Yes’ are as misplaced as the indifference that preceded them

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The Independent Online

Business is bad at coping with political risk. One example of a sharp reaction to a potential political shock is of course what may happen in Scotland this week. But there are many others. Look at the difficulty it has had with thinking through the consequences for European companies of Russia’s aggressive stance on Ukraine. Or the way in which perceptions of the debt of eurozone fringe countries have swung from confidence, to terror of default, and back to confidence again.

In the case of the Scottish referendum it is as though a fire alarm has suddenly gone off. We have had the extraordinary transformation from a business and financial community on both sides of the border that was almost silent on this issue, to one that is racing about, shouting how grave the consequences of independence might be. The trigger was the narrowing of the polls, but that narrowing had been evident for several months. In any case the final few days of a referendum are always critical.

We will see what we will see. But just as the initial indifference was misguided, so surely is the panic. Whatever happens on Thursday, the economic infrastructure on both sides of the border will be the same on Friday. The shops will be the same, the businesses the same, the banks the same, the schools and hospitals the same, the money, at least for the time being, the same. Financial markets can move suddenly but big political events shape economies in the medium and long term, not the short.

From a London point of view (and I should say that I straddle the two cultures, being part-Scottish and part-English and living mostly in London, but also in Galloway), it is hard to see the outcome having more than a marginal effect. Whatever way the vote goes the whole issue could be marginally negative or marginally positive. Negative if the Scottish economy were to tank, but I don’t think it would; and positive if the uncertainties that are likely to persist whatever the outcome nudges business south.

In the event of independence, a home market becomes an export market, but you have to remember that Scotland is only 8 per cent of UK GDP. That is three years’ good growth – or put another way, the rest of the UK can create the equivalent of another Scottish economy every three years.

From the standpoint of Scotland there would be much more disruption in the event of a “Yes”, but there will be some disruption anyway. The reason for that – which also explains the silence of most businesses until a few days ago – has been the apparent hostility of the Yes camp towards business in general. Any company that voiced concerns was jumped on, sometimes unpleasantly. Instead of trying to reassure a worried business community, the Yes campaigners attacked it. It was only when the Scottish banks started to see their deposits heading south that they felt that had to say they would move their headquarters to London.

So from a business viewpoint the campaign has carried costs. Irrespective of the outcome a lot of reassurance will be needed. The future of the Scottish economy in the medium and longer term will depend on its ability to attract inward investment, some from Europe and the United States but much of it from south of the border. So the challenge for the Scottish government, again whatever the outcome, will be to rebuild a business-friendly image. My own guess is that it will, and fast – because it has to.

If that turns out to be right, then the medium-term economic outlook for Scotland is pretty bright. It has the inherent strength of a reasonably well-educated English-speaking workforce. It has excellent universities and a competent professional skill base. It has a land border with a fast-growing market, for the UK looks set to have several more years of decent growth. And so on. To pick up on the phrase of Alex Salmond, most countries would give their eye-teeth not just for North Sea oil, which was his point, but for the wider competitive advantages of the Scottish economy as a whole.

And that is surely the key. “There is,” Adam Smith remarked, “a great deal of ruin in a nation.” This is oft quoted as a lament about national incompetence. Actually it was a wry response to an alarmed friend who said the country was ruined when he brought him the news of the surrender of the British forces at Saratoga in 1777 during the American War of Independence. In the event the English- speaking world has surely benefited from that loss, and England and Scotland did not do too badly over the next century either. The task now for Scottish businesses will be to get on with servicing their customers, providing jobs and making profits. And the task of the Scottish government, whatever happens on Thursday, will be to support them as they do so.

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