Are small European countries as prosperous as they used to be?
Are they perhaps growing more slowly? Data for 18 Western European countries suggests smaller nations remain better-off than larger ones. But while small size may not affect a country's economic performance, sovereignty does. It means a seat at the top table where major economic decisions are made.
Sovereignty instils confidence and it makes it possible to design and implement appropriate policies. Confidence is the most important link between sovereignty and growth. The main driver of a market economy is the amount and quality of its private-sector investment. And, as Keynes emphasised, the principal determinant of that is confidence. A culture of dependence undermines investor confidence.
Scotland enjoys many of the elements conducive to economic growth but our low level of confidence is deep-rooted. None of the post-war unionist administrations had any vision for the Scottish economy. Instead, industrial plants were distributed with subsidy from London without regard to their appropriateness or their prospects for long-term survival. When the subsidies disappeared, so did the jobs. Thus car factories and electronics plants came and went. It was the policy of the begging bowl, further undermining self-esteem.
Achieving growth depends on having the "right" business environment. If the environment is attractive enough, entrepreneurs will come. This has been the lesson of Ireland.
For 16 years, between 1990 and 2006, the Irish economy grew at an average annual rate of almost 7% in real terms. Then between 2007 and 2010 output fell by about 3.5% per annum. Only this year has the economy returned to growth.
Intermittent periods of boom and bust have not altered the fundamental factors driving the long-run growth of the Irish economy. Irish growth is neither a "miracle" nor an accident. It is the result of a deliberate economic policy whose main elements have remained unchanged for 50 years: access to foreign markets, a supply of young and talented people, use of the English language and a low rate of corporation tax. Success has been self-reinforcing and as a result, foreign direct investment has remained largely unaffected by cyclical downturns.
Professor David Simpson is a former economic adviser to Standard Life and deputy chairman of the Water Industry Commission for Scotland
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