Governor: Currency Union Yes

I am writing this on Wednesday morning ahead of Mark Carney’s speech in Edinburgh. I will listen to it and judge it against his words made before he left his last post as Canada’s banker which, as I explain below, sound at times remarkably similar to what the Scottish government is proposing in monetary union.

Whatever you read into his words today, as Britain’s Bank Governor, Mark Carney is historically and by repute, a great believer in monetary union, citing it as one of the pillars of Canada’s economic success.

In his last speech as Canada’s central banker he said: “Canada’s monetary union has the essential elements of an effective currency union: an integrated economy, fiscal federalism and labour market flexibility.”

Scotland and the rUK have developed a closely aligned economy built up throughout the modern era and while, like Canadian provinces, output varies, the economy is highly integrated. Carney also points out that during the recession and its aftermath, the importance of interprovincial (think Scotland-England) trade was clear. For example, the increased demand from other provinces for Quebec’s goods and services significantly offset international exports lost as overseas business dried up.

Although there is one exchange rate for Canada as a whole (as there would be in a UK sterling zone), price differentials across the country yield different real provincial exchange rates. When higher energy prices stimulate production and investment in mineral-rich Alberta, extraction, construction and labour costs there rise. This increases the real Alberta exchange rate, making goods and services from the other provinces, including Quebec, more competitive. As a result they are better value and interprovincial trade (again Scotland-England) is boosted, spreading benefits throughout the economy. If you read Scotland for Alberta, he signals that a second oil boom for example would bring benefits consequential for England.

He was even then focused on the differences between a successful union with integrated economies (Scotland and the UK) and the fragmented Eurozone experience, cited by Unionist critics as a downside of the SNP plan. He pointed out how different productivity and national debt in Mediterranean countries contrasted with the more fiscally prudent north and created imbalance.

“Since the euro was introduced, Spanish competitiveness (as measured by GDP) has fallen by about 30 per cent relative to Germany. During the same period, the Alberta exchange rate moved even more dramatically, rising 40 per cent relative to Quebec. Spain is experiencing a balance of payments crisis with large current account deficits, funded in part by foreign purchases of real estate and inflows to the Spanish banking system. When these dried up, domestic activity collapsed. There are few institutional mechanisms within the Economic and Monetary Union (EMU) at present to offset the shock.”  But in Alberta’s case, a rising tide had lifted all boats. “That is because the Canadian monetary union has what Europe does not: a single financial market; a flexible, national labour market; and significant fiscal transfers. These smooth the adjustments brought about by the large shifts in relative prices.”

And, echoing his words, here’s what the SNP White Paper has to say. The UK is Scotland’s principal trading partner accounting for 2/3 of exports in 2011, whilst figures cited by HM Treasury suggest that Scotland is the UK’s second largest trading partner with exports to Scotland greater than to Brazil, South Africa, Russia, India, China and Japan put together

There is clear evidence of companies operating in Scotland and the UK with complex cross-border supply chains

A high degree of labour mobility – helped by transport links, culture and language

On key measurements of an optimal currency area, the Scottish and UK economies score well – for example, similar levels of productivity

Evidence of economic cycles shows that while there have been periods of temporary divergence, there is a relatively high degree of synchronicity in short-term economic trends. Sounds to me like Carney’s prescription for Canada can be applied to Scotland.

The White Paper goes on: Where financial resource was required to secure financial stability, there will be shared contributions from both the Scottish and Westminster Governments based on the principle that financial stability is of mutual benefit to consumers in both countries.

This will reflect the fact that financial institutions both in Scotland and the UK operate – and will continue to operate – with customers in Scotland, England, Wales and Northern Ireland and their stability will benefit all concerned.

Scotland will play our full part in protecting the financial system on these isles, taking responsibility for activity within Scotland as part of joint action across the Sterling Area.

The Scottish Government recognises that a sustainable fiscal framework is important no matter the currency arrangement. However, it is particularly important in a well-functioning monetary union to avoid significant divergences in fiscal balances.

That is why such a monetary framework will require a fiscal sustainability agreement between Scotland and the rest of the UK, which will apply to both governments and cover overall net borrowing and debt. Given Scotland’s healthier financial position we anticipate that Scotland will be in a strong position to deliver this.

 

I’m sure those with trained economic eyes will be able, as ever, to read different outcomes into all this. But I have to say, in reading the White Paper and the Carney speech, they chimed with me, even in the jargon of the market, as broadly similar, at times remarkable so. And it’s worth remembering as the SNP asks for representation on the Bank of England, that in Canada the provinces are all represented in the management of the Central Bank, although not in the interest-setting area. That is because they are recognized as having a share in the bank and its assets and with their own direct interest in the currency.

Two other thoughts. Carney points out that from the mid-1990s onwards, successive Ottawa governments ran more than a decade of surpluses, cutting the government debt-to-GDP ratio from almost 70 per cent in 1995 to 22 per cent in 2008. As a result, Canada’s net debt relative to GDP went from being the second-highest ratio among the G-7 countries in 1995 to the lowest. Britain has one of the highest. What were Gordon Brown and Alistair Darling doing at the Treasury?

Also I liked Carney’s view on where real investment should go – into human capital echoing I think the strong stand taken on education by the SNP, notably on free tuition. “In a rapidly shifting world, only sustained education, ingenuity and investment can maintain competitiveness. This means we must continuously invest in our workforce. With technology and trade transforming the workplace, the need to improve skills across the spectrum of work has never been greater.” I wonder if Mark’s a secret Yes man?

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Knees up, knees up…

Maybe its because I’m a scrounger, that I love London town…

“The Capital” is back in business, big time. Business is booming, mortgages are pouring out and debts are building, bubbles are forming and people are spending. Tax receipts are zinging into the Exchequer and without them, Britain would be in an even worse state than we are. So thank you, London. I think that is the expected response from those already accustomed to falling on their knees and imploring our benefactors for the hand-out. The gap between Them and Us is getting wider so we’d better practice doffing our cap as well as we kneel and proffer the begging bowl – not easy but we’ll manage.

It’s one thing to observe the surge and splurge in a place so feather-bedded that you’ll hear her professionals say they missed out on the bankers’ austerity-driven recession. “Never noticed it, mate.” But what I find galling is the coke-line of subsidy on which so much of this wealth is predicated. (What follows is a classic example of nationalist grudge and grievance).

There is famously £14.8billion for Crossrail with £4.7b directly from central government. While the Greater London Authority provides over £7b, the authority itself is 75 per cent funded by British taxpayers. Another investment arm, Transport for London, is also taxpayer-supported. There is business investment too but unscrabbling the Crossrail mosaic of partners reveals a hefty transfer of general taxation from all Britons to bankroll 21 kilometers of rail track for those travelling on an east-west axis in one British city. Crossrail is costing four times the annual budget of Birmingham. It is just under half of the entire government budget for the whole of Scotland…for a railway line.

This being London, the pathological obsession with property tracks the construction of each kilometre of rail. We read of houses near the line spiralling in value by 27, or 35 or even 57 per cent. London is a hub of economic activity, but it is also a hothouse of inflation because as costs increase, so demands for higher incomes produce another distortion – London Weighting.

Nothing characterises the disfigurement of Britain’s economy so crudely as a straight subsidy into the pockets of earners in one geographical area. Adding tax pounds raised by low earners in Glasgow or Huddersfield to the pay packets of higher earning professionals, many of them economic migrants to London, adds insult to injury to the North-South divide. To create an entrepot in one corner of the country and stand by as it draws in talent and resources from places in dire need of more not less energy is now a sad fact of non-metropolitan Britain. But to ask the rest of us to subsidise directly its excesses with a bank account bung is asking too much. The subsidy underwrites inflation, ensures that everything will be dearer and adds another notch on the ratchet easing Britain apart.

The public aspect of the subsidy to Londoners has been revealed as £110m a year, with a whopping £45m spent in the Department of Work and Pensions alone, this the department trying to save money for the nation from benefits claimants.

One of the highest recipients of the additional payments is the £6600 to each member of the Metropolitan Police, £4200 in the prison service and £2700 in the Ministry of Defence.  In the private sector it is less generous, ranging up to just under £5000. London derives huge benefit from the efforts of its people but it is a mistake to think it isn’t based on the collective foundation of general taxation provided by all.

Remember it is the Scots, in Daily Mail World, who are the scroungers, benefiting from taxes raised in England and sent north because we can’t provide for ourselves.

London has done imperiously well and every single taxpayer down there deserves to reap the benefits of their work. But they should pay for themselves as well as take top dollar in salary.

To be fair, the Mayor is on the case and is seeking improved tax powers so he can raise and keep more of London’s revenue. Good for Boris. I hope he succeeds and to help him Mr Salmond should be pointing out how this is exactly how Britain should operate with a series of powerful regions and city states setting their own standards and taxing accordingly, just as Scotland should if there should be a No vote. Salmond should seek common ground with the Mayor for a re-writing of the tax and spend rules of the UK and instead of allowing the screw-tighteners at the Treasury to dictate our fiscal policy, set the new units free to compete for investment and jobs through their own different tax structures. As part of the alliance Salmond should demand the phasing out of London Weighting to bring prices down and force realistic pay rates. If pay needs to rise let London’s own taxes fund it, not ours. Is Boris the free marketeer he likes to pretend or is he the scraggy-haired scrounger reliant on shovelfuls of Olympic gold and Crossrail subsidy? We could find out.

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We’ll Win Yet for A’ That

I spent last night at the Hydro by the Clyde at the Celtic Connections Burns Night concert and as we heard artists from Africa, South America, Australasia, Greece -and Dunkeld – I looked up at the great man’s face on the big screen and wondered how it was that the words and ideas of a boy from rural Ayrshire all those years ago could capture the imagination and the hearts of millions in all corners of the earth, defying time, fashion and technology to still wring our emotions today. One man. One pen. One world.

It is the achievement of a single talented person who has taken his place in the history of the world and it serves to me as a kind of metaphor for Scotland’s movement – that one small country should never be afraid of making its mark on the world. It can be done. The proof is there among our own people, the Scots, that we are as good as anyone. We have a song in Selkirk which has a line about holding our head high because we come from nothing small. Small country, but big history, big heart.

I suspect that it is in the thinking space where ideas and belief form that the real movement in the polls comes from. It isn’t just the thought that we might be economically safe or richer, it is the spreading realisation and belief that these things are within our grasp and it is fear that prevents us from seizing them. If you think about Scotland’s position long enough, you start asking: Why not? What’s stopping me?

Part of that answer lies in collective behaviour. If you live a privately-owned, well-off area with your life sorted, you recoil that anything might upset it all. Everybody else, pretty much, in your area is of the same mind and there is collective security. You don’t even have to defend voting No, nobody would bother to challenge you. Easier to write it off as irrelevant, naïve, unnecessary, romantic and dangerous.

But isn’t there a sense now that it ain’t quite so far-fetched? The British government is in danger of appearing ridiculous as it’s claims and assertions are destroyed from within. The debt issue has torn away the camouflage over the reality of currency and debt post independence revealing that London will have to invite us to take a share of debt rather than Scotland automatically inheriting it. It has shown how Scotland’s capacity to repay will best be served by an economy closely linked to England’s – in their own interests – making a currency union logical. The foreigners argument has been destroyed by the admission that dual nationality will be available and, as I wrote at the time it was announced, the cowardice of their own leader Cameron is having a deflating effect on a campaign with too many leaders, none of them strong enough. I don’t object to Britain using its diplomatic muscle to get international support – although it is depressingly familiar that they would use a devolved organisation as a front for their campaign – but I do object to the cant and hypocrisy of telling us it is for the Scots alone as they do so. The Herald’s leader today reads to me like a breakthrough in the debate saying it isn’t sustainable for Cameron. I urged editors collectively to challenge Cameron to debate with Salmond, well,  at least one is now on the case.

I think it is getting harder for Unionists to hold the line, a point reinforced by the admission that the parties will not be able to stand behind a united package of reform. That would have been their ace. All three, even the Tories, with a worked out scheme of Devo Max endorsed by the London leaderships so it would be implemented whichever configuration of parties runs the UK. Now that has disappeared and even if Labour produce a stonking settlement in March, we know it will be irrelevant unless Miliband commits to implementing which he can’t do in a coalition. It will hinge entirely on guaranteeing a Labour victory at Westminster and I’m not sure Scots will view that as a guarantee. Maybe it’s coming yet for a’ that.

*Can I recommend a piece in the Scottish news section of the Sunday Times which is unsurpassed for a glimpse into the smug, self-regarding, snooty world of the Britnat middle classes…It is a column by Jenny Hjul built on so many outdated Fear assumptions that I wondered if the Rev Stu had been invited to produce some satire by Murdoch’s men. It has border guards, your papers being checked on the train, immigrants – they won’t even stay in Scotland it’s so ghastly – and the kind of high decibel outrage that only the middle classes and their epic sense of entitlement can generate. Priceless…and all the more enjoyable for the SoS opinion poll.

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Didn’t He Do Well?

Dr John Robertson of UWS acquitted himself rather well on Radio Scotland this morning in defending his Fairness in the First Year report on broadcasting and in the process made the BBC look small.

After listening to Dr Robertson, whom I’ve never met, I was left wondering what the BBC was afraid of. He didn’t rant. He didn’t accuse. He appreciated the pressures of newsgathering. He isn’t a Nat. He sounded surprised at his own findings and had expected them to be viewed as helpful. Not a bit of it. As we saw, his work, according to Newsnet, was first ignored by the Herald, then by BBC news and finally lambasted by the corporation’s management who overplayed their weak hand and have been left looking like bullies.

How could a massive taxpayer-funded organisation with, in Scotland, people earning at executive level from £100,000 a year up to nearly £200,000 make such elementary mistakes? My only answer is that, as I have pointed out from the outset when I began blogging last September, the quality of the senior managers at Pacific Quay simply isn’t good enough. They each have individual skills but collectively they amount to less than the sum of their parts. There is weak leadership, poor appointments, ill-considered decision-making, lack of communication with staff and audiences and they have developed an anti-news mentality where journalism is viewed as an expensive luxury when London is really interested in television production for the UK network.

With such endemic shortcomings, BBC Scotland badly needs a public-facing strategy to alleviate its declining credibility. If you run a business strategy company, start pitching today.

They could start by redefining what a separate BBC is for in Scotland because the tenor of executive utterings on this front are ambivalent. My view is that it exists to serve the Scots with news, current affairs, sport, culture, education, childrens, topical issues and drama designed by and aimed at the Scots. On top of that they earn extra income and kudos by producing programmes for London – as an extra. Instead what has happened in recent years is that Scotland has concentrated on producing output for London and diverted its energies into that sector which I think should come secondary to Scottish programming. The management have taken their eye off the ball and instead of breaking sweat to make sure the Scots are serviced first, they take domestic output for granted. By so doing, they allow the standard to reduce even when the staff – and especially the journalists – are screaming at them that the quality is suffering. This is dismissed as yet more moaning from the feather-bedded journalists so they miss what the audiences are experiencing which is questionable quality.

Ruthless budget pruning in news has had a deleterious impact. Newsnight is an example. It used to have two presenters over four nights, it had an editor and a team of programme producers, a film archivist, dedicated correspondents as well as programme director, a full-scale editing suit with editor and its own assigned film crew with a budget allowing for two-day shoots. Today, there is a single presenter, the editor doubles up as output producer, also doing Scottish Questions, there is no archivist, no dedicated correspondents, just staff off the reporter’s rota, the cameraman doubles up as editor in a news cupboard edit suite and almost every film is pulled together on the day. To cap it all, the last editor was so scunnered, he walked. The editorial chief of a top BBC brand news programme months before the biggest story of a journalist’s life and he slung his hook and left. Are you getting the message? Meanwhile, if you ask McQuarrie he will tell you there has been no impact on the quality of BBC journalism.

Kenny McQuarrie argues with me about this emphasis. When I say: You are making too many programmes for London, he retorts: No, we are making programmes for the BBC. In that answer lies the problem. He pretends that doing London’s bidding and making programmes for them is fine as it is one BBC, but the reality is that more money is spent on network (London) productions than Scottish ones, often the staff are flown up to make them – the joke is Made in Scotland, Wrap party in Islington –and the whole purpose of a BBC Scotland is to make programming for…well, think about it…the clue’s in the name. They have lost their focus on their core business – Scottish quality programming.

Another example is Jeff Zycinski as head of radio addressing a roomful of presenters (and pretending to tell them how to do their job) and showing a graph of how Radio Four’s Today programme is running neck-and-neck for audience with Radio Scotland’s GMS when everybody knows GMS should be miles ahead of London-based news output.  He then says it’s alright that so many Scots are listening to Radio Four so long as they are all listening to the BBC! No, no, no. If Scots start listening as much to Radio Four as they do to Radio Scotland, it begs the obvious question – what is a separate BBC Scotland for? Up until he was appointed head of radio we lived by the credo that GMS commanded a much larger audience in Scotland than Today and we had a higher share of AB’s, the decision-makers. His attempts at “popularising” the programme I believe drove listeners away to what they regard as a genuine BBC sound – that is the quality tone of Radio Four. In the endless search for new and younger audiences, they sacrificed the bedrock which is professionals aged over 50 interested in their own country and its place in the world. They were weaned on a quality BBC radio experience which many of them feel they don’t get any more in Scotland at crucial news junctures.

The letters and emails I received over those years confirmed this with listeners bemused as to what had gone wrong. One stat I recall was that in the final year of the GMS team I belonged to, we had the highest audience ever recorded over 12 months, according to Blair Jenkins, head of news. (What happened to him?) That has never been repeated since to my knowledge after Zycinski took over. But, like the ditching of Newsweek, this is a management which doesn’t listen to critics, internal or external, and doesn’t recant when found out to be wrong.

This week’s sordid little tale about the reaction to some academic research is part of a long-term trend in dismal decision-making. Don’t expect it to end soon.

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BBC Bias Update

A quick word about where we are on the BBC Bias row. Your emails to the main players in this little BBC drama have all been received with interesting results. Stewart Maxwell MSP who chairs the culture committee, the nearest thing we have to a broadcast monitor, got dozens of messages, according to his office and he is conscientiously answering them individually. Good for him, although I suspect he hates my guts now. But here is a man focussed on meeting public aspiration – needing votes, if you will – and working his socks off.

Contrast that with another public servant, Mr Ian Small, public policy chief of BBC Scotland, who is, in the absence of a Director or a Deputy Director able and willing to front up for a great institution, the nearest thing there is to a public face and voice of BBC Scotland. He has sent round an automated response, according to those of you who have contacted me. That tells you they are already in their bunker at PQ on the management floor, desperately deflecting and unable to find the words to defend their over-the-top reaction to a piece of critical research. When they don’t have an answer, they throw the automated response button which is the BBC corporate equivalent of saying F**k Off.

Yet again, they have misjudged the licence-fee paying public and opted to treat them with contempt. They have observed, rightly, that this is a piece of campaigning and decided to dismiss each and every one of you as worthless. But why is a campaigning individual worthless?  Isn’t commitment to engage exactly what the BBC is constantly urging everyone to do… “Do text in and tell us what you think…here’s our email address…contact the programme…” To which they should add…”unless you’re complaining about something in which case, you’re a worthless loser.”

Small didn’t even deign to answer a single point, just put people off with an address where they can complain.  And of course, we know what happens then…they take a year to respond, as they did over the Science Tower row, lie to the complainant and lose the case when the Trust find them guilty. But no one is reprimanded, no one loses their job and no one takes the blame. Brilliant! Why would they respond with grace and alacrity like Stewart Maxwell when there is no sanction, no penalty except a generalised embarrassment which bounces off the rhino skins at PQ.

It reminds me of a listener-led campaign to save Newsweek, a programme  I presented. It was the third highest audience for any programme on Radio Scotland, after weekly GMS and seasonal football which trumps them all and through which the BBC buys an audience because they pay the SPFL for the rights. The Head of Radio Jeff Zycinski forced through the Saturday morning changes against public and internal opposition and later issued a message that “real listeners” backed the changes. In other words, all those hundreds of people, many of whom had been loyal listeners for decades who took the trouble to support the programme by writing in, were dismissed as what? Trouble-makers? Non-listeners? Just contemptible individuals not worthy of concern, obviously.

The BBC gets this so wrong. There must be PR and marketing people out there who immediately spot the glaring mistakes they keep making, notably the utter inability to communicate…and this is the world’s biggest communications organisation.

They erred in writing an intemperate letter to the researcher, shouldn’t  have ostentatiously copied in his boss and should have taken care to reply to each complaint individually. If Stewart Maxwell can do it with one assistant, why can’t the BBC with hundreds of admin staff?

I don’t know what the truth is about this research – if it’s accurate or robust – but I do know the BBC has blundered badly in its response and has already lost any high ground it could have claimed. Thank God there is still some journalistic guts among my old mates at PQ. I hear Dr Robertson will appear on GMS in the morning explaining his work and it will be intriguing to hear what the BBC management response is. At least they haven’t been able to bully Radio Scotland into avoiding what has become a very tricky and unedifying episode for the BBC, thanks to all your efforts.

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