As the Prime Minister basks in plaudits for saving the global economy, Mandy Rhodes interviews the First Minister, the Rt Hon Alex Salmond about what this could mean for independence.
With a global recession/depression being predicted and Western governments going into overdrive to find a solution to problems they have, in the main, been the architects of, Alex Salmond, as an economist, should be better placed than most to offer an expert opinion but as the UK stands on the edge of an economic precipice, not even he can say with certainty where this will take us.
“To some and dark and definite shore, probably,” he says with some degree of resignation. “As an economist and as a politician, the best thing I can do is work out how we get out of this rather than assume or predict because that would be difficult or nigh impossible.
“I am concentrating on what I can do, which is to contribute to moves
that will ensure stabilisation and then help proceed to a recovery. But
if you are asking me today what I think will happen in a week’s time
then all I can say, is that a week is a long time in politics but a
lifetime in the economy.”
For someone who is seen as a bit of a know it all, it is strangely
reassuring to find even Salmond stuck for an answer. He was, afterall,
very quick, some would say too quick, to join the chorus of
condemnation about aggressive short selling which ultimately led to the
collapse of two great Scottish institutions: HBOS and RBS, but almost
as soon as he had termed the phrase ‘spivs and speculators’ he was
rounded upon for perhaps allowing patriotism to get in the way of cool,
hard, economic facts. The facts are that banks, even banks with
Scottish in their title, had been complicit in acts of financial
cannibalism which brought them to the edge of extinction. Prime
Minister Brown may now make oblique references to the problem having
somehow seeped over here from America and Alex Salmond may assert, with
some force, that you would not find the venerable name of the Royal
Bank of Scotland on one single sub-prime loan but the fact is that no
one could be sure where their money ended up or that their savings were
safe. Greed is what motivated risk and risk is what allowed billions of
pounds worth of savings and investments to be put in places that were
hard to determine and this has now led to a situation where obscene
European government bail-outs, exceeding £1.3 trillion or the
equivalent of £200+ per person in the world, have been pumped into
bankrupt banks to keep the global economy afloat. Should these
well-paid investors have known what they were doing? Should hedge fund
managers have been able to exploit exposed institutions by short
selling on their shares and causing their collapse? Should savers have
asked more questions and should governments have been more prescriptive
about their
citizens’ savings? In effect, should we have been
protected from our own greed? The answer to all of this is, probably,
yes but we are where we are and Salmond is keen that we move on. For
him, it has meant an abrupt end to an SNP
honeymoon that saw a
floundering Labour Party in Scotland failing to prick his minority
government bubble. Yesterday, independence may have seemed a tangible
prospect but tomorrow now seems a very long way away and with the local
being eclipsed by the global, commentators are predicting that
ironically, the Union has been saved by a failing world economy and
with Brown asserting that an independent Scotland could not have dealt
with the problem in the same way as he has managed with the backing and
strength of the Union behind him.
Salmond, typically, dismisses this claim as ‘ridiculous’. But does he
think his quest for independence has been harmed by the economic
meltdown?
“The economic situation matters towards everything but I think
it accentuates why we need independence and control in
Scotland.
“The economic situation matters towards everything but I think
it accentuates why we need independence and control in
Scotland. 
You need to have control of as many levers of
financial responsibility as you possibly can have. Does that mean you
would be protected from a world financial crisis? No, of course not but
you would at least have the ability, more than we have at the moment,
to do something about it.
“I think it’s worth reiterating that this economic crisis did not
happen in an independent Scotland, it happened within the framework of
the United Kingdom. Being in the Union did not protect anyone from this
gathering economic storm.”
But where does that put his argument about the so-called ‘Arc of
Prosperity’, which described the success of small, independent
countries which included, Ireland, Iceland and Norway? They are all
hurting now.
“Yes, Iceland is well suited to the Unionist argument at the moment but
Iceland was not the first country with failing banks. The first country
with failing banks was the USA, the most powerful economy in the world
and it set the pace for having failing banks elsewhere and we can point
to other countries where their ability to act quickly and independently
has helped them in these difficult circumstances. For instance, the
Irish were very quick to guarantee their banks’ deposits to consolidate
the position of banks that had extreme difficulties, more difficulties,
incidentally, than HBOS. And likewise, the Norwegian government has
been able to act within an economy backed by an oil fund which, at the
present moment, is a relative sea of tranquillity as the waves rage
around the rest of us.
“There is certainly no evidence that the Union has made people secure
over the last wee while and I would argue that the more determination,
the more self-determination, the more control, the more economic levers
we have
control of, the better in an uncertain world. I am not
claiming that an independent Scotland would be immune from the
financial pressures because no country is but the more powers we have,
the better placed we would be to deal with it.
“I think as we come out of this, there will be an emphasis and an
acceleration of the argument that you need as a country to take control
of as much as you can within an interdependent world so if we (the SNP)
argue the case correctly then it will accelerate the need for us having
a determination over our own economic destiny.”
Perhaps because he has so few of those economic levers to hand, the FM
has, so far, adopted a conciliatory tone and emphasised that the
imperative is to inject confidence back into the marketplace and he
has, if not praised, then at least supported the Westminster Government
for its actions to date.
“I will always stand up for Scotland and I take my marching orders from
the people and not from anyone else but I felt in the last few weeks,
the way for me to have influence of any kind, was to make my points in
a constructive manner.
“I think a number of things that have been done so far have substantial
elements to them but more has to be done and I have argued from the
immediate onset of this period of turbulence that you have to guarantee
deposits; that is the simple unambiguous certainty that people need.
You have to remove doubt and if you don’t then people will spend a lot
of time worrying about that, so these guarantees have to be explicit
and confidence and security has to be restored. Guaranteeing deposits
is also one of the financial measures that if it is done with
authority, doesn’t cost anything because there is already an implicit
guarantee on deposits but you just make it explicit and when it’s done
with authority and confidence and you command the situation and not
allow the situation to command you, then it is one of the measures that
is meaningful to people. People don’t understand things like: ‘we are
going to guarantee term lending’ – what does that mean? Or, ‘we are
going to recapitalise the banks’ – what does that mean? But they do
understand the guarantee of deposits so you just make it explicitly
understood. This is fundamental to how you combat the politics and
economics of fear.
“Also on term lending, the banks should have been led into lending as
opposed to just guaranteeing it. You have to get that lending started,
otherwise it’s not just capital projects that are not happening but it
is also companies, small businesses, not getting their facilities
renewed – that would be real high-impact stuff.
“I hope that people will also understand that one of the things that is
happening is that stock market uncertainty is continuing, despite these
government measures because there is a wakening up to the full range of
possible – possible – impacts on the real economy and you are not going
to get a recovering stock market if people think you are moving into a
deep recession and the answer to that is not to move into a deep
recession. 
“Once things are stabilised, you
need to plan for a substantial
reflation and that means much deeper cuts on interest rates that will
impact on the real economy. The real level of interest is sky high at
the moment. The real level of credit, the real renegotiation of terms
for any small business or anyone else for that matter, is much, much
higher than the declared interest rate and is causing huge difficulty
and beyond that, you have to accept that this is a classic case that we
will come out of this, if we are not careful, with a huge
overcorrection and banks will not lend when they should do, as opposed
to lending when they shouldn’t, and that causes a huge deflation in the
economy, so the best thing to do right now would be to cut taxes where
they are contributing to uncertainty. Energy costs, for example, would
be a key target for tax cuts so you can both inject demand into the
economy and you can impact on the headline rate of inflation. All of
these things must be done and it would be better if they were done on a
co-ordinated basis but it should happen.
“I think that there is an increasing understanding that after this
period of stabilisation has to come hard on it, a recovery plan and the
first indication of that was the co-ordinated interest rate cut. Now
it’s not enough, not nearly enough, but it’s the first signal that
unless we do something about demand and confidence, the real economy is
facing a very difficult time. So yes, I will be forceful about what
needs to be done and I will be critical when I need to be.”
Given his earlier comments about ‘spivs and speculators’, I ask him why
bad banks shouldn’t just be allowed to go to the wall and we just start
again.
“You can’t let them go under because it’s people’s savings and accounts
of the councils, it’s the money of the community organisations and the
third sector and it’s about the lady who is the treasurer of the
bowling club in Glenrothes who I met last week who spent a week of
sleepless nights worrying about transferring the accounts of the
bowling club into a safe haven, not quite knowing what that safe haven
would be. No, it’s not a good idea to let people lose their deposits
and when people lose their money, it causes all kinds of instability in
the system and makes it impossible for people to function properly.
“You can not allow a lack of confidence to seep in to the market and I
am sure if the Chancellor and the PM had their time again, they would
have dealt with Northern Rock quickly, instead of dithering and
indecision and allowing for pictures of people queuing outside banks
for their money, which is an image that did so much damage, and I am
sure if they had their time again, they would have taken the offer from
Lloyds TSB but that is with the benefit of hindsight. What we are
dealing with now is what needs to be dealt with.
“But if people think that the world that emerges from all of this will
be the same as the one that went in to it, they are quite wrong. There
will be huge changes arising from this and the question for Scotland
and any country is how do we anticipate and get ahead of these changes.”
To that end, Salmond and his Cabinet – which he describes as “totally
cohesive and self-disciplined” and rejects outright the notion of any
reshuffle – called a special meeting last week, and agreed a six-point
plan to respond to the growing economic crisis, designed, it said, to
help business and households through difficult times ahead. The plan
has two strands, to boost development and to help households. Critics
have said that this is a programme of the obvious and that it reveals
the SNP’s inability to respond or adapt its economic strategy for a
successful Scotland, to changed circumstance and that is the $64
million (or thereabouts) question for Salmond – how would an
independent Scotland have dealt with this crisis? There is no doubt
that Salmond’s optimistic outlook for a successful referendum on
independence will have been dented by the prospect of an economic
downturn but there is also the opportunity for him to remind the
electorate who was in power when the economy began to disintegrate, who
was the architect of the free market, who courted the Masters of the
Universe and to ask whether we should be thanking or blaming Gordon
Brown for the position in which we now find ourselves. As a former
Royal Bank of Scotland economist, Salmond believes we can and should
learn from our mistakes and says change needs to happen.
“There will be the time for picking over why these things happened and
apportioning blame but, of course, banking mishaps have happened
through the ages – in my period in banking, Lloyds, Nat West…certainly
were in a worse position in many of the ratios than HBOS were, but they
were saved by collective action and went on to prosper. We had the
secondary banking crisis in the 1970s, the international lending crisis
in the 1980s – but the problem now is that everything happens on a
bigger, faster scale and affects more institutions because they are
such interrelated players. The Royal Bank, for instance, has not made
one sub-prime direct loan, its name is not on one single one, but they,
of course, lent to institutions whose name is on the subprime. The
German banks that have come under pressure don’t even have property
exposure but they have lent to banks that do have property exposure.
“When there was the flood, apart from Noah and his crew of righteous
and his animals two by two, there were probably plenty of good people
that got submerged as well as all the bad ones and this banking
financial flood is submerging plenty of good, soundly-based
institutions as well as the reckless, the incoherent and the spivs and
speculators. It all got too complex, too big and lacking in
transparency and, of course, that needs to now change.”
He points to Scotland’s need to diversify and not have all its
‘economic eggs in one basket’. He says renewable energy “is an industry
of the future and one where Scotland has a telling comparative
advantage”. He says that Scotland’s financial services industry is by
no means finished and points to expertise in the insurance sectors that
have so far not been damaged by the current situation and says that
Scotland’s skill in long-term fund management will be at a premium as
people look for more strategic, low risk, investment vehicles. A return
perhaps to the good old days when financiers knew their customers and
customers knew their limits?
“I think that it’s important that financial institutions are directed
at what they are best at. I have never been comfortable with clearing
banks becoming investment banks, for instance. Investment banks are
high return, high-risk businesses. Clearing banking should be a steady
return, low-risk business, that’s what it is. Many businesses that have
combined a range of activities maybe should not have done so and I have
never been comfortable with this banking conglomerate idea and a long
time ago, informally, and off the record at the time because I was
working for the Royal Bank, I did my best to oppose the privatisation
of the Trustee Savings Bank. I thought it was bad idea then and a bad
idea now. Obviously, the TSB did not thrive as a privatised bank and it
made some difficult and bad decisions, in terms of what it paid for
various investments which, traditionally, it wouldn’t have been in.
There was nothing wrong with the TSB as a banking model. It was a good
banking model. It was a savings bank; it wasn’t a high-flying merchant
bank, it wasn’t an investment bank, it wasn’t a high risk, high return
bank. It was a savings bank and what is wrong with having a savings
bank? Big is not always better.
“I remember a civil servant, Kitty that worked all her life for the
civil service and on her retirement received a special bonus payment
reserved for single women. Kitty went to the bank and withdrew all her
savings and decided that she would go on a world cruise. As she walked
up the high street in West Lothian, she was chased from behind by the
bank manager, trying to persuade her to be more prudent. I’m not saying
we should return to those days but there is nothing wrong with a bank
manager worrying on behalf of his customers, worrying about the Kittys
of this world.”
In the same spirit of prudence, he rejects the notion from Labour that
he now needs to rethink funding mechanisms like PFI to kick start
Scotland’s construction industry and says, “PFI? It’s part of the age
of irresponsibility, it’s part of the problem, not the solution” or
similarly, on demands by Labour to drop the plan to provide free school
meals, he says, “I’m not going to do that; it’s in the Concordat, it’s
the right policy, it’s something the public support and incidentally,
something that will be very much needed in the next few years if times
get tough. Families will be grateful for it.”
And it is this emphasis on the personal, the more human and on the
micro economy; what’s in people’s pockets and how government can play a
paternal role in their affairs that could be the key to the SNP
stealing back some thunder. At a time when only the UK Government, with
all the economic levers at its disposal, can make a real impact on a
desperate macro situation, Salmond might be canny enough to throw his
hat in the ring with the individual, those ordinary Scots, who may
already be feeling that economic pain.
So where’s his money?
“My money is in the Royal Bank of Scotland and there it shall
remain…
“My money is in the Royal Bank of Scotland and there it shall
remain…
as far as my wife’s money, well, that’s more of a
secret…”
He laughs and then says: “What I do know is that during tough times,
people do not need to be constantly told how tough things are – they
know how tough they are. There is no point in going around like the
Reverend Jolly being a real misery guts, saying, ‘this is all awful and
we’re all doomed’. In government, you have to explain what you are
doing to help and show there is hope and optimism and a feeling of
control so that people can believe that their circumstances are not
dictated by things beyond their comprehension, that there is a means of
self-government and responsibility. Irresponsibility may sum up the
last 20 years but responsibility may sum up the next 20.”
No one has commented on this article.
Related news items:
|
Holyrood magazine is the fortnightly insiders guide to understanding the complexity of Scottish politics and policy developments and is widely regarded as being the leading publication for political news and information in Scotland.
