Catalonia, Untangled

The climate in Catalonia is getting hotter every day, and not just because it is high summer here. The Generalitat, the Catalan government, is planning an October 1st referendum on independence and Carles Puigdemont, its President, has said that a Yes vote will mean a near-immediate declaration of independence. The conservative ('Partido Popular') party in Madrid is using the Constitutional Court ('Tribunal Constitutional') to overturn the decisions of the - supposedly - autonomous Generalitat, and is checking - each week - every payment made by the Catalan government to ensure that its funds are not being used for the plebiscite.

At any point over the next few weeks this could erupt into a real face-to-face confrontation. Puigdemont will reconvene the Generalitat two weeks earlier than normal, on August 15th, and the plan is then to pass the laws that would govern the referendum and its aftermath. It is likely that the Madrid government will intervene - the use of force is being talked about - while the Catalans will respond with mass protests of the sort seen each 11th of September.

11/9/14
Picture source: http://www.ara.cat/2014/09/11/videos/el-radar/11_setembre_2014-V_1210108985_16906799_987x555.png

Why is this happening? And what are the parallels with Scotland?

Three reasons stand out: bad governance, regional finance, and the wealth gap.

Bad Governance

The Spanish government in Madrid has consistently mis-read the signals from Catalonia. President Rajoy promised 'dialogue' but has offered none. Instead he and his conservative government have used the Constitutional Court to overturn, again and again, decisions made by the 'autonomous' government of Catalonia. The first, and for many Catalans the worst, of these decisions was to overturn the 2006 Statute for Catalonia, which had been passed first by the Generalitat and then approved by 74% of voters in a referendum. The process in the Court took four years - the decision was published in 2010 - and the result confirmed what many in Catalonia had suspected - that our government had no real power, and that at any moment Madrid could intervene to change a policy that it did not like.

The parallel for Scotland is the overturning of the 'Sewell Convention' in the Brexit case taken by Gina Miller et al to the UK Supreme Court. That decision demonstrated that the Scottish Parliament has no real powers and that Westminster is supreme.

Back in Spain, the conservative government continues to use the Constitutional Court to overturn the Generalitat's decisions - on everything from how we can pass laws to what we can call our ministries. This is simply bad governance. Instead of engaging with the Generalitat, the Spanish government is bashing it with a large legal hammer. It's law-law, not jaw-jaw.

Money

In a state made up of autonomous regions you'd expect a sensible system of financial transfers so that wealthy regions help to fund poorer regions. 

In Spain, this is a muddle hidden in a black box.

The Basque Country and Navarra are treated differently from other regions - allowed to gather and spend their own taxes and to pay the Spanish state an annual sum for shared services such as defence and foreign affairs. (This is called the 'Foral' system here.) The remaining regions either pay into the central pot (Catalonia and Madrid are the principal contributors) or receive from the pot (poor regions such as Andalucia and Extremadura are normally net recipients.) But it is not nearly as clear as that, and there is endless political horseplay with successive Spanish governments favouring regions that voted for the party in power, and pharaonic projects planted in some regions and not in others. It's a mess, but the Spanish government seems unable to sort it out.

The Catalans - consistently one of the regions paying out - are sick of it. Catalunya has been a net contributor for years, and yet sees very little benefit, or change, in the recipient regions.

The parallel for Scotland is, of course, our oil. Oil from Scotland's waters has been squandered by Westminster (the phrase comes from Kevin McKenna's article here). Scotland's poor have not benefited from the country's huge natural resource wealth - check the Scottish Index of Multiple Deprivation if you need confirmation. Like the system in Spain, the UK government has hidden from the Scots the extent of the squandering, and has favoured political friends in the City of London over the people who really need the money in Possil Park or Pilton. 

The Wealth Gap

Something has made more people in Catalonia, more discontented than they were. One possible explanation is the combination of the 2007 financial crisis, and the wealth gap.

The financial crisis forced millions of people across Spain into unemployment. Youth unemployment rose to over 50% and millions of families were left with no breadwinner in a country in which unemployment benefit is limited and short-term. During the crisis the Spanish government passed a series of laws to create more 'flexibility' in the workplace - meaning the same sorts of zero-hours, flimsy contracts that the Tories of Westminster favour. For their employees, not for themselves of course.

Spain, like the UK, has the dubious distinction of being in the top - worst - dozen countries in the OECD index of wealth inequality. Wealth is not being shared out and so, like other countries in the top 12 (Turkey, Mexico, the USA...) folk at the bottom of the wealth pile are increasingly discontented and are expressing that discontent in their votes and on the streets.



The wealth gap is not the only reason for discontent, but it seems to be a catalyst for anyone who feels that injustice is being done. Catalonia hardly needs a catalyst - enough injustice is being done to this nation to ensure that, come 1st October, Yes will win outright in the referendum. The big question then is - what will Spain do next?

Pain in Spain

A report just published by the Valencian Institute of Economic Research and funded, ironically, by a bank foundation shows the horrible results of the 2007-15 economic crisis.

Francisco José Goerlich Gisbert, Professor of Economic Analysis at the University of Valencia has studied the share of income for households in Spain, and the policies that the various governments (national and regional) have applied to income distribution. The results make interesting, and often awful, reading.

His report shows that:

• Household income in Spain has dropped since 2007
• Income inequality (the 'wealth gap') in 2013 (the latest figure available) is greater than it has been since records began. The principal cause has been the worsening situation of the job market.
• 'The challenge for the next few years is to encourage growth and at the same time to reduce inequalities'. Professor Goerlich refers to research by various authors demonstrating that inequalities in income slow down economic growth
• New technology is creating jobs, but only for people who are trained and qualified. Many miss out
• State pension payments are the main route through which money is redistributed from rich to poor. Professor Goerlich underlines the vital importance of the state pension...and then reminds us that Spain will find it increasingly difficult to pay the pension as our population ages
• Unemployment payments (benefits) are the second most important means of redistributing income.
• The 'supply of public services in kind (education and health) is the third [most important] means by which the public sector can improve the distribution of household incomes'

That last point is important here in Catalonia and in Scotland. Both countries offer free state-paid education, and both offer free or almost free higher education. It turns out that this is an important means for redistributing money - in this case in kind - from the rich to the poor. Professor Goerlich demonstrates that including the monetary value of the public services of health 'appreciably reduces inequality' in household incomes. Drawing the parallel with my home country, Scotland's health service and its free or nearly free education are worth fighting for.


We need a 'paradigm shift in economic policy to focus on the quality of life and the wellbeing of citizens, rather than on GDP per head.' In other words we need to move to an economy that shares out the wealth and the growth more fairly; 'Growth is not social sustainable if it is not inclusive,' concludes Professor Goerlich.

Reference:

Goerlich Gisbert, F.J., 2016. Distribución de la renta, crisis económica y políticas redistributivas 1st Edition., Bilbao: Fundación BBVA. Available at: http://www.ivie.es/en/actividades/noticias/2016/libro-distribucion-de-la-renta-crisis-economica-y-politicas-redistributivas.php [Accessed May 17, 2016].

Fun with numbers

Here's an Easter story.

Imagine that Scotland had been given full powers over income tax back in 1985. Imagine that Holyrood had introduced a package of measures designed to reduce the wealth gap;

• A 60p top rate of tax
• A cap on top salaries in the public sector, and amongst firms bidding for government contracts
• A wages top-up for the lowest paid

These measures had changed the discourse, so that company bosses talked about their social responsibility in boardroom salaries. Fergus Ewing  chaired an annual conference with the Scottish CBI and the unions, and gave a prize for the most innovative way of making pay fairer in companies.

While in the rest of the UK the wealth gap continued to grow (you don't have to imagine that bit. It did), in Scotland the wealth gap was static or mebbe even shrunk a little.

What would have been the effect on the Scottish economy?

The OECD has calculated that the growth in the wealth gap in the UK slowed down the growth of the economy. When you leave the poor to get poorer then they miss out on schooling and the result is that the economy does not benefit from their talents. The UK economy was slowed down by 0.35% per year because Westminster allowed the wealth gap to grow. The OECD figures are based on the growth of the wealth gap 1985-2005, and the subsequent effect on the growth of GDP 1990-2010.

Back to our Easter story. If the wealth gap had not grown in Scotland, our economy would have grown faster.

Now let's do the maths. We will use the same time period as the OECD;

In 1990 Scotland's GDP was £90.9 billion (Source: calculated from Scottish Government)

By 2010 it was £131.8 billion, excluding offshore oil share (Source: Scottish Government)

If we had stopped the growth in the wealth gap, the economy would have grown 0.35% more per year.

By 2010 it would have been £140.9 billion

That would have been an extra £9.1 billion, thanks to the three measures introduced in 1985, that stopped the growth in the wealth gap.

It was a package of measures, so we'll assume that each measure had an equal effect. The 60p tax rate was responsible for one third of the effect, as was the salary cap and the wage top-up.

So one third of the £9 billion in extra GDP is due to the 60p tax band; that's £3 billion extra, as the result of the tax band.

You can see where I am going with this maths now; the Scottish Government has said that it will not introduce a 50p tax band for fear that it might lose £30m in tax receipts (I'm paraphrasing, so do read the full report to see the details.)

But a 50p or 60p tax band as part of a series of measures designed to tackle the wealth gap, could have grown GDP by much more. If you follow the maths, the potential benefit is £3 billion more, against a risk of losing £30m in tax revenues. A 100:1 opportunity. Too good to miss.

This is the upside; by tackling the wealth gap, using tax as one of a range of measures designed to change the discourse about incomes and wealth, you make your country richer.

Let's hope that the new Scottish Government  does the maths.

Disclaimer: So's we're all clear, I am not an economist and I live in Catalonia, not Scotland. So this is just a wee grain of grit for the debate that you are having, and voting on, in Scotland.

References:

Anon, 2014. Focus on Inequality and Growth, Paris, France: OECD Directorate for Employment, Labour and Social Affairs. Available at: https://www.oecd.org/social/Focus-Inequality-and-Growth-2014.pdf [Accessed March 29, 2016].

50:1 Poor

It's dry statistics, and stuff that we all know, but if you think about the women, children and families behind the numbers it is a horrible way to run a society.

It's Tuesday's report from the Scottish Government - Wealth and Assets in Scotland 2006-2012 - and it is packed with 59 pages of data. The sentence that stands out is:

"The least wealthy half of households owned less than 1% of financial wealth, less than 3% of pension wealth, 6% of property wealth, and 20% of physical wealth."

Yes, you read that right. The least wealthy HALF. 50% of the people of Scotland hold 1% of financial wealth. Half of the population have virtually nothing saved in the bank. Half of the people of Scotland hold just 6% of property wealth. Most of that half are working, most live in houses...and those houses are right at the bottom of the ladder. Half. So the person sitting next to you on the 94 bus is likely to be in that half. So is the woman behind the counter in WH Smiths. And the guy who cleans your office. And the bus driver, her husband and kids. This issue is an epidemic. Not just a question of a few folk at the top and the bottom of the pile. Half the folk in the pile.

And Westminster knows this. And yet its policies keep on squeezing the poor.

It is immoral, stupid, and expensive. 

Time, past time, for Scotland to show the world that another model is possible. That redistribution of wealth is possible (just as possible in Scotland as it is in Scandinavia). That the neoliberalism, the neo-Thatcherism of the three old political parties has to be stopped.

Time for Scotland to care for the people of Scotland.

Britain in a Bubble

Britain appears to be living in a bubble. It is a State of hypnosis.

How else can one explain the situation there?

One Mile, Two Worlds

Muirhouse is a housing estate in north west Edinburgh. I spent time there during the Scottish Referendum, knocking on doors and talking to the people who live there. Some of the people living in the Muirhouse estate are very, very poor. 

About one mile away is Fettes College. It's a private school - Tony Blair is an alumnus - where fees are currently just over £30,000 per year, per pupil.

That one mile represents the wealth gap in Scotland. On the one hand, people living in grinding, inescapable poverty. On the other, wealth. These two bubbles - poor and rich - never touch. People living in poverty see the rich in their smart cars as they whizz past the bus stop, or on the TV. The wealthy rarely if ever see the poor, failing to realise that the woman cleaning the downstairs washroom is living on a tenth or a hundredth of their income. Or failing at the least to understand the implications of living on so little.

This is the consequence of the neo-liberal policies that all three main Westminster parties now pursue. The disingenuous idea that wealth will "trickle down" to the poor. 

One large man in a kilt told me a while before the Referendum that by allowing the wealthy to get richer and encouraging philanthropy, charities would balance society's books.

Many charities do phenomenal work. But they are not the solution.

Total charitable expenditure in the UK is £38 bn. That is less than a quarter of total UK Government spend on welfare, £160 bn in 2011-12. Governments, not charities, must be the conduit by which wealth is transferred by taxation from the comfortably-off to people living in poverty.

The wealth gap is morally wrong. It is also bad for the economy, as Martin Wolf, Chief Economist at the Financial Times pointed out yesterday. 


But to read the political news you would think that the wealth gap did not exist. The Conservative Party, the likely winners of the 2015 General Election in the UK, have announced a benefits freeze for the poor and no tax increase for the rich. 

Britain seems to be caught in the neo-liberal hypnosis. We had our one opportunity to wake up with the Referendum, but a majority in Scotland decided to sleep on.

Which Prince will wake slumbering Scotland with a kiss of life?