Independence as a “Real Option”: Explaining the campaign so far

A common refrain from pro-union campaigners has been for the SNP to provide detail around “what independence would look like”. To the extent that a vision of an independent Scotland has been provided by the SNP (not necessarily by Yes Scotland), differences with the status quo have been minimised.

The vision that the SNP have articulated has suggested a great deal of continuity: the Common Travel Area between the UK and the Republic of Ireland provides a model of continuing open borders; maintenance of the monarchy; continued membership of the EU and NATO; an emphasised “Social Union”; evidence that maintenance of the level of tax-and-spend is affordable; and, especially, the favoured option of a Sterling Union. This vision has led to the response from some on the pro-independence side that this does not optimally use the levers of independence, but it has also seemingly provoked the pro-union side (who might be expected to view this vision of continuity as second-best after their preferred union option) who also argue against this vision partially on the grounds that it would fail to deliver “genuine freedom”! Can we economically rationalise these positions?

Assume that, unless explicitly changed, “things” (by which I mean essentially everything) will continue to be the “same” after independence. What then is the value of independence? Independence could be viewed under the lens of real option theory: a real option is “the right — but not the obligation — to undertake certain … initiatives”. Under union, the Scottish Parliament cannot award itself new powers and “things” will of course continue to be the “same”. Under independence, “things” are the “same” until such time as, presumably, we don’t like this “same” path for “things” and the Parliament exercises this option and decide to change these “things”. Options are always valuable (since they represent a right but not an obligation). This means that if the SNP can make the case that “things” will continue to be the “same” after independence, and that independence represents an “option” to change things then, by this logic, independence is objectively optimal.

This is a potential explanation for the Independence-lite vision of the SNP which essentially points to how similar “things” will be after independence. It presents a scenario under which independence is almost objectively optimal. This is also a potential explanation for the vociferous objections to this vision from those opposed to independence. To counter the SNP vision, the pro-union campaign has to convince voters that “things” will not be the “same” after independence and they essentially have three channels in which to do this:

  1. the first is to assert that “things” will not be the “same” even under the SNP’s vision because of, for example, transition costs or risk exposures;
  2. the second is to claim that the SNP’s vision is impossible to implement, and so we cannot keep “things” the “same” (as in the HM Treasury paper on a Sterling Union);
  3. and the third channel is to argue that “things” won’t be the “same” because the option will be exercised immediately: an independent Scotland will choose “genuine freedom” instead of keeping “things” the “same”.

This sums up many of the campaign dynamics so far: the logical optimality of independence under the assumption of keeping “things” the “same” perhaps explains the SNP’s Independence-lite vision; And the third channel available to the pro-union campaigners perhaps explains the enthusiasm with which they point out that constrained independence does not represent real independence.

About David Comerford

Post-doctoral researcher in economics
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