Scotland as the Singapore of Europe?
9 April 2017
The aftershocks of Brexit continue. On 28 March, the day before the UK Government invoked Article 50, the Scottish Parliament voted to commence a process for a second independence referendum. This proposed referendum is motivated by a preference to remain part of the EU: Scotland voted strongly against Brexit (62% in favour of Remain). Some Brexit supporters claim that leaving the EU will enable the UK to become the ‘Singapore of Europe’. I have argued previously that this misreads the Singapore experience. If anything, Singapore – having recently celebrated 50 years of independence – provides more useful guidance in thinking about Scotland.
Brexit will have far-reaching implications for Scotland’s economic and political situation. However, independence in a post-Brexit world will also pose significant challenges. Almost two thirds of Scottish exports go to the rest of the UK, with about 15% going to the rest of the EU. And after over 300 years of union, Scotland is highly integrated into the UK.
The argument made against Scottish independence is that Scotland is better off in a larger economic unit, which can provide an economic and fiscal buffer against shocks that hit Scotland – such as lower oil prices – and which also provides a large accessible market. Independence, so the argument goes, would expose Scotland to substantial risk and compromise access to its largest market. Scotland’s weak Q4 GDP numbers reported this week (a quarterly contraction of 0.2%, for 0.0% growth over the year) would seem to support this view.
Of course, similar concerns were also held with respect to Singapore on its independence in 1965. The loss of Singapore’s economic hinterland (and strategic depth), the need to establish new currency arrangements, the risks to market access, and the need to develop new economic strengths were all immediate challenges. And this needed to be done in a difficult external environment, including tensions with Indonesia and Malaysia. In this context, it was not surprising that there were serious doubts about the economic viability of an independent Singapore. Singapore had some assets to work with: political institutions and leadership, a privileged geographic positon with well-established ports and trading relationships, and so on. But it had much to do.
Independence gave Singapore the flexibility to chart a distinctive policy course that was suited to its specific context as a new city state. Singapore adopted an innovative economic strategy that relied heavily on attracting FDI. This underpinned a strong process of learning and upgrading in key sectors, supported by well-crafted economic and social policies. At least some of these policies would have been more difficult to implement in a larger political unit.
Singapore’s subsequent success has required sustained seriousness and investment, and an ability to respond quickly to changing circumstances. But Singapore has been able to manage the exposures associated with small scale. Scotland in 2017 clearly has many differences from Singapore circa 1965. But even so, Singapore’s experience offers some general insights for Scotland.
First, Singapore reminds that doubts about the economic feasibility of independence are not unique to Scotland. And at a minimum, the Singapore experience should give pause to sceptics that say that Scotland cannot succeed as an independent state. There is precedent for independence succeeding under challenging circumstances.
Second, the easily identified risks of independence may not be as consequential as the risks of the status quo. Singapore’s remarkable economic success would likely not have been possible had it stayed with the pre-1965 set of arrangements. For Scotland, although being part of a larger economic and political unit like the UK brings advantages (fiscal transfers, for one), it can also constrain economic potential – and be a source of risk. The case that the UK is a source of stability and security for Scotland – a prominent claim in the 2014 independence referendum – is less persuasive now given the UK’s decision-making around Brexit.
Third, the economic success of a small independent economy rests heavily on the quality of the economic policies pursued. For Scotland, there is a need to develop a clear economic strategy that describes how Scotland will strengthen its economic potential and build resilience against risk exposures: there is much to learn from Singapore and other small advanced economies in this regard. Indeed, the strong performance of many small advanced economies over the past few decades provides a measure of confidence. Many small economies – including Scotland’s neighbours in the Nordics and Ireland – have taken advantage of globalisation to generate strong outcomes. Even former UK Prime Minister David Cameron allowed that Scotland has the intrinsics to make a success of independence.
Of course, not all small countries succeed (note Greece). Small advanced economies are more exposed to shocks and have limited margin for policy error. And sometimes luck is important. Singapore had the good fortune to begin independent life in a period of sustained global growth, intense globalisation, and in an advantaged geographic position for a rapidly growing Asia. Scotland faces a less positive international context, notably Brexit and risks to globalisation. However, even in a more challenging international environment, I continue to believe that small economies – well integrated into the global economy – will be a relatively high-performing organisational form.
In any case, Singapore’s subsequent good fortune was not clear in 1965; the key was being able to adapt to a changing world. Indeed, it may be easier for Scotland to respond to a challenging world as an independent country that can tailor policy to its specific circumstances. The implication from the Singapore experience is that successful independence is possible, but that sustained policy seriousness and creativity will be required in Scotland to deliver this.
Overall, my assessment is that the economic case for independence in Scotland should be taken seriously – and certainly not dismissed out of hand. Independence is quite possible, and – done right – could well be positive for Scotland, the UK, and Europe. In Scotland, as elsewhere around the world, institutional permanence should not be over-estimated.
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