Plaid’s report claiming that Wales would be 40% richer if it were independent has received considerable coverage. Even the UK media’s picked up on it. It’s likely to be a base for the party’s belief in independent so it’s worth looking at it in detail.
The first thing to acknowledge is that the report isn’t really about Wales at all, at least not directly. The first 62 pages out of 70 merely make the case that smaller countries can be just as prosperous as larger ones. Essentially, what they lose from economies of scale and an extensive domestic market, they benefit from having closer relationship between state and business, and from that, greater nimbleness and responsiveness.
On the whole, it’s a largely convincing argument, though the need for near-autarky model of a corporatist state, rather than a more pure ‘free-market’ model relying on international capital should have been made more explicit. Ireland and Scotland used to be Plaid’s models. Their over-reliance on finance meant that Ireland (and Iceland) crashed harder than almost any country. Had Scotland been independent, the bailouts of Royal Bank of Scotland and HBOS would have buried its economy. This implicit mea culpa on Plaid’s behalf goes unacknowledged.
However, the headline story – and the political purpose of the report – that Wales would be much richer being independent is on far shakier ground.
Firstly, no mention is made of the fiscal subsidy that Wales has effectively received over the past generation (and more), whereby it’s received considerably more government spending than it’s contributed in tax. This gap remains extensive in relative terms even if you account for deficit expenditure.
The claim that Wales would be 40% richer is derived from higher growth from 1990. For it to be credible, it should subtract this subsidy from the running baseline from 1990 onwards. In other words, a credible ‘40% richer from independence’ claim would have to add this subsidy. It does not. I don’t know how much it is, though over the past 21 years, it could easily amount to an extra 20% on GDP – especially it you include the multiplier effect – and it could very well be more.
That this hasn’t been factored in, or at least acknowledged, is either exceptionally sloppy, or deliberately misleading.
Even if we accept their 40% figure however, the question then comes to how have they achieved it. Remember, most of the report makes the case that smallness has advantages that cancel out the disadvantages. Assuming this is credible, is there clear evidence that smallness is actually much more advantageous? Here the evidence in far thinner.
One graph (p12) does show that the highest performing economies in Europe are predominantly smaller countries, though to the authors’ credit, they accept that Luxemburg should be ignored as a peculiar outlier due to its special circumstances. They also point out that smaller countries are predominantly amongst the ‘misery index’ (p14) as well. It explains this by the fact that 2 out of three countries could be described as small, so being the majority in any category isn’t particularly surprising. The argument that there isn’t a clear intrinsic cost to smallness is credible. The argument that there is a clear advantage to it however, isn’t even made, let alone proven.
So where does the 40% comes from? It only comes in at the very end of the report, and its logic is pretty astonishing. It says that there is ‘hard empirical data’ that there is a smallness premium, and this evidence is the comparison between Luxemburg and Saarland, as the former chose to be independent and the latter did not. (p63)
Here, objective inquiry seems to go out of the window. One case obviously does not prove a general trend. Particularly if that case is not only a clear outlier to be removed from the equation, but is accepted as such in the very same report.
Luxemburg is virtually a city-state of only 200,000 people, with many of its economic elites working in ‘foreign’ countries across the border. Every such job is essentially an import into the economy. Wales, with a population fifteen times greater, is to Luxemburg what Italy is to Wales. In short, very, very different. Certainly far too different to extrapolate a replicable trend, and assume Wales would have received an equal growth differential had it been independent in 1990.
Aside from the frankly absurd replication, there is the key point that if Wales was to receive the benefits of being a small corporatist state, the report would have to prove that Wales would have had both the corporations, and the effective governance, to provide this growth – not only if, but because – it was independent. Needless to say, Wales has not seen an explosion of home-made multinational corporations created since devolution, nor is the Assembly widely seen as the most efficient, effective nor dynamic of governing bodies. The assumption that independence in 1990 would have created these things is ludicrously shaky. (As an aside, one wonders what George Monbiot – one of the party’s highest-profile supporters – makes of this urge for corporatism).
Furthermore, Plaid’s economic policy for the past two decades has not been based on turning Wales into a small corporatist state, but trying to emulate Ireland – a model this report disowns. If they had been in charge on an independent Wales since 1990, it’s clear that they would not have provided the type of economic management that this report assumes would have taken place. Neither Plaid, nor the report, comes out well from this.
Conclusion
The Welsh economy clearly needs to be rethought – radically so. There is no intrinsic reason why it cannot be a much wealthier country, and it is also clear that the prevailing thinking has failed over the past generation. This report may well spark others from different perspectives; if so, that would not only be welcomed but be its primary achievement. In its aim of proving that Wales would have been much wealthier if it was independent, it clearly doesn’t have the intellectual coherence or consistency. If Plaid – let alone Wales – was to try and build the Welsh economy on the back of it, it will surely collapse.
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