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Wednesday, August 03, 2011

Voodoo Economics?

It was George H. W. Bush who derided Reaganomics as "voodoo economics" but I am not suggesting for one moment that Adam Price's report called 'The Flotilla Effect: Europe's small economies through the eye of the storm' has any resemblance to the supply side policies practised by the late President Reagan.

However, I do think that the former MP for Carmarthen East and Dinefwr's basic thesis that people in Wales would be about 39% richer had it achieved independence more than 20 years ago, is sufficiently flakey to deserve the same sort of derision.

This is serious research and deserves to be treated with respect, but my concern is that it is a piece of work that has set out to use facts to prove a thesis rather than allow its findings to be determined by the facts.

Mr. Price claims that Wales' economy would have grown by 2.5% a year if it had become independent around the time of the fall of the Berlin Wall in 1989. He has come to this conclusion by looking at the relationship between economic performance and country size. He contends that in general small countries do better.

What matters here is context. By all means look at Ireland and Iceland, but look too at their cost of living, look at the 50 or so years Ireland struggled after becoming independent to establish its economy and then ask whether either country can really be compared to Wales with its post industrial heritage, its structural problems and its levels of deprivation?

It is certainly true that a small country can be agile and can use taxation policy for example to stimulate its economy. However, as Gerry Holtam has pointed out Wales already starts with a substantial deficit in terms of tax raised against public expenditure.

And of course we do not start off as independent as many of the countries referred to. We would have to decouple. How many public sector jobs would disappear as part of that process as the DVLA for example is moved back across the border. Plaid Cymru cannot have it both ways.

As Professor David Blackaby, of Swansea University's School of Business and Economics, says, although some small countries have done well, their success is not necessarily due to their size.

"If you have got some natural advantage, human skills or physical resources, there's usually a reason why countries did well and it needn't necessarily be related to size."

It is a good attempt at making a case for independence and, despite my own negativity towards the report, it does make an important contribution to the debate. However, I remain unconvinced.
"It was George H. W. Bush who ... the supply side policies practised by the late President."

He died?

A Biden slip from Peter?

Well meant I'm sure.

have a look at Jean-Jacques Rousseau . Small is less bureaucratic (or supposedly) and can usually do better. Think of luxembourg. one of the world's highest living standards.
I have corrected it Chris. Thanks
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