Thanks to Malc Harvey, much-missed editor of this site (pictured below, right), for this guest post about his forthcoming book.

MalcIn a little over four months’ time, Scotland will be offered the option to become an independent country or to remain as a component nation of the United Kingdom. The constitutional arrangement is the only outcome which will be decided by September’s referendum. However, the constitutional options are only one part of the story. For neither a Yes vote nor a No vote will be a panacea, an answer to any and all economic, social or political issues Scotland faces.

There are, broadly speaking, two distinct model types which inform how states operate on a global stage, and each entails their own internal logic. The market liberal model accepts the reality of global markets, keeping their state small, de-regulating labour markets, keeping taxes low to attract inward investment, with a result that social spending is limited and inequality tends to be high. The Baltics, after independence, moved towards this type of system.

The social investment model sees public spending as part of the productive economy, levying high levels of taxation to pay for investment in education, research and infrastructure. Combined with social democracy, universal services, high levels of social solidarity and low levels of social inequality tend to be the result – as evidenced by the Nordic states.

These are, of course, ideal-types, and no state fits snugly into either model. The Baltics provided some (albeit limited) welfare spending in the aftermath of the global financial crisis, while the Nordics (particularly Sweden) have scaled back the breadth of their spending. Ireland operated something of a hybrid model, though this ran into some difficulties for various reasons – even prior to the crash, this combination of models proved unstable.

While the market liberal model has appeal for some, Scotland appears to be much more inclined towards the social investment model. The SNP, Labour and the Greens are all – to various degrees – promoting variations on social democratic themes, while the Jimmy Reid Foundation has designed the Common Weal programme to stimulate thinking about a fundamental shift in Scottish political thinking.

However, the Scottish Government’s White Paper on independence lays out spending plans consistent with a social investment model – but without the taxation levels to support it. Indeed, plans are to reduce corporation tax and air passenger duty – encouragement for business investment, to be sure, but without asking for anything in return. Herein, a lack of a bargaining system – which in the Nordics includes business, trade unions and the government – is apparent. Bargaining helps build social cohesion and trust between those institutions, and between institutions and the public. This is one basis for public acceptance of higher tax levels – and without such a system it is difficult to see how the public might be persuaded of its benefits.

Irrespective of the referendum outcome, the social investment model could be pursued. If independence is the outcome, a lot of internal change would be required (particularly with regards to wage bargaining, as alluded to above) and hard policy choices would follow. If (extended) devolution prevails, social investment could be achieved, dependent on the mechanisms made available to the Scottish Parliament. However, in either case, a social democratic social investment model is not cheap, and Scotland would have to pay the cost in order to recoup the benefits. Institutional as well as attitudinal change would be required – would Scotland be ready for such change? Time will tell.

Small Nations in A Big World. What Scotland Can Learn, by Michael Keating and Malcolm Harvey, is published by Luath Press and is available from next week. You can come along to the launch event (featuring Henry McLeish, Robin McAlpine, Juliet Swann and David Torrance) on 20 May.