Scotland is GRI’s 2014 Country of the Year in political risk. The debate over Scottish independence showed the vote was not just about nationalism but also political risk. Scottish voters felt this risk most of all.
In the year leading up to the September vote for independence from the United Kingdom, Scotland’s population debated whether its nationalist inclination outweighed the risks that would come with independence. The potential risks featured in political debates and in business discussions but also in Scottish civil society. When the results were announced the next day, it became clear that the Scottish voters valued avoiding those risks more than full-on independence. What were the risks?
1. Scotland avoided a currency crisis. At the very top of the list was uncertainty over an independent Scotland’s currency. All authorities in England – from Prime Minister Cameron and Labour leader Ed Milliband to the Bank of England’s Mark Carney – insisted that an independent Scotland would not be able continue using the Pound. Independence campaign leader and Scottish First Minister Alex Salmond insisted just the opposite. Neither side had very much substance to back their claims, since of course Scotland could have used the Pound without Britain’s permission, albeit not a very advantageous one.
That would have subjected a more leftist Scotland with an oil-based economy to the whims of a more conservative country’s monetary policy. A decision to leave the UK but still subscribe to its monetary policy and currency would have been the largest economic blunder of the year, especially with oil currently selling for less than $60 per barrel.
2. Scotland prevented businesses moving south. The other largest risk facing Scotland was what would happen to a handful of the world’s largest banks and insurance companies based in Edinburgh, but with most of their British operations south of the border in London. RBS, with a Scottish history that began just twenty years after the United Kingdom was formed, was still 80% owned by the British government after its bailout. The legal hurdles of separating their businesses across a genuine border looked to be too much, so many of the companies announced their Scottish offices would close if Scotland became independent. Whether or not that was a bluff was for the voters to decide, but the threat was real enough.
Perhaps the most unique aspect of the Scottish referendum was it was decided and debated so publicly. Scotland was given the chance to decide on the fate of the 300-year-old union – a decision with complex consequences. The faith paid off and a mostly constructive debate ensued (in fact, the least constructive parts might have been from the elected officials and campaign leaders).
In times of volatile financial markets, investors begin a predictable flight to safety. When Scottish voters weighed the risks and rewards of independence, they chose a flight to safety as well. The uncertainties of independence and the certainty of losing major employers in transition were too much for a country already with its own parliament and significant devolved powers. That is why Scotland is the 2014 GRI Country of the Year: it’s the country that most fully absorbed political risk in its national dialogue.
