Reality and romanticism

The Scottish people go to the polls today to elect their parliament. Undeniably there is the the most pressure to vote in such a way as to open the path for choosing Scottish independence, since the Act of Union was signed 300 years ago.

What is the form that dissolution of a federal state might take? The most recent dissolution of a European federated state was in 1991.

When Yeltsin decided to disband the Soviet Union he did so constitutionally. Russia and the governments of Ukraine and Belarus were parties to the Treaty of the Union of 1922 and, on 8 December 1991, the leaders of the Russian, Ukrainian, and Belarusian republics met in Belavezhskaya Pushcha near Minsk and signed the Belavezha Accords ‘declaring the Soviet Union dissolved and replaced by the Commonwealth of Independent States (CIS).’ Gorbachev described this as an unconstitutional coup, but this was rejected, and anyway it could not be halted.
On 12 December 1991 the legislature of the Russian Soviet Republic formally accepted the secession of Russia from the Soviet Union by ratifying the Belavezha Accords and denouncing the 1922 Treaty on the creation of the Soviet Union.
On 17 December ‘twelve of the fifteen soviet republics signed the European Energy Charter in the Hague as if they were sovereign states, along with 28 other European countries, the European Community and four non-European countries.’

On 21 December 1991 ‘representatives of all Soviet Republics, except Georgia, signed the Alma Ata Protocol, confirming the dissolution of the Union ‘ .. 'all former Soviet republics, except the three Baltic States, agreed to join the CIS.’ Russia was authorised to succeed to the UN membership of the USSR, and take the USSR seat in the Security Council. Russia was accepted as the successor state to the USSR on 31 December 1991.

All powers still vested in the presidency of the USSR were ceded to the president of Russia , Yeltsin, and on 26 Decembe 1991, the Supreme Soviet ‘recognized the extinction of the Union and dissolved itself. By 31 December 1991 all official Soviet institutions had ceased operations and individual republics assumed the central government's role.’ (this is an extensively edited and shortened version from Wikipedia’s excellent entry, and from other sources).

The plainness of this account belies the knife-edge avoidance of descent into open violence and armed repression, involving tanks on the streets, the courage of the White House defenders, military mutiny, and attempts at re -seizing power by Soviet elites.

This is the dissolution of a much larger federated state, it faced different problems and was motivated by only some of the forces driving the desire for Scottish independence; furthermore it was the principal state of the Union, Russia, that sought the dissolution.

The United Kingdom does not face economic collapse, despite the doomsayers; England has no major political force seeking dissolution of the Union, quite the contrary, all parties want its maintenance; Scotland will achieve no economic benefits from secession - pace models of celtic tiger and oil-fired growth - indeed the economic evidence points to relative impoverishment; there will be no ready acceptance of its independent status by supra national states or organisations, other member states of the European Union have no desire for such an example to make good , and the EU policy of regionalism is designed to avoid this kind of member- state fragmentation. Losing a Security Council seat (which would surely happen if the UK broke up) flies in the face of the current UK administration’s entire foreign policy and, presumably that of any opposition party. There is no other part of the UK with which Scotland could ally against the Westminster administration - mutatis mutandis the Supreme Soviet - for Wales and Northern Ireland are no Ukraine and Belarus.

To break up a federated Union, then, requires constitutional routes, external overpowering threat of the order of economic collapse, cultural and historical links and memories, powerful allies , and international acquiesence if not encouragement. Scotland has the third of these requirements, and may have the first.

Independence may require also the facing down of physical threat by the Union state, and there has been a lot of practice in just this - ask the people of Northern Ireland.

Video Killed the Radio Star

You were the first one...
Globalisation killed Soviet -type socialism because the system as it was could not benefit from the international division of labour. It insulated producers and consumers from international prices, due to the state monopoly of foreign trade conducted by large Foreign Trade Organisations implementing government plans, with a domestic currency which was not convertible into goods internally, as a result of shortages and queues, let alone into a foreign currency. This led to extreme inefficiency. By the 1980s Japan was buying Soviet machinery for scrap, between a fourth and a fifth of manufacturing output in Poland, Hungary and Czechoslovakia had negative value added at international prices. Production actually destroyed GDP. Either the system had to be radically reformed, or was doomed to collapse. For unwillingness to let repressed inflation surface into open inflation, and for the even greater fear that reform would reduce party grip on power it was not reformed enough. It collapsed, leading to the restoration of capitalism and its global connections.

You were the last one...
Forms of socialism (and non-socialist statism) under social democratic regimes, whether left or right leaning, were killed by globalisation in a different way. Through competition from cheaper labour - whether from immigration, the delocalisation of production and employment to emerging countries, or by foreign trade; and by cheaper welfare systems, and lower labour -employment -protection competition, by social dumping as well as environmental dumping, between countries seeking to attract internationally mobile capital. There was competition to offer an environment friendlier to business, through lower taxes, tax evasion and avoidance by multinational corporations, and through the monetary and fiscal constraints required for a stable exchange rate in the global economy.

.. Rewritten by machine and new technology,
and now we understand the problems you can see.

But the Labour and its statist zealots cannot or will not see.

.. We hear the playback and it seems so long ago.
And you remember how the jingles used to go...

Brown and the zombies still sing the jingles - fraternal solidarity, redistribution, state investment, planned growth... But what we have is a corrupt administration sustaining itself in power by animating a corpse.

What is socialism? A guest post from Caronte

A socialist economy, i.e. characterised by dominating state ownership and state enterprises, necessarily is somewhat short of democratic institutions because of the threat of parties wishing to revert to private ownership and free enterprises. To some extent this is true of private ownership market systems, outlawing communist parties and indulging in McCarthyism and staging coups when communists win democratic elections, but by and large a private ownership system can cope with the communist threat maintaining a measure of democracy, for there is sufficient scope for debating issues other than the ownership regime, whereas invariably all socialist systems are more or less authoritarian, with the saving grace of often agreeing peacefully to an ownership changeover when the time comes (Ceaucescu resisted the changeover but was an exception).

A socialist economy as defined above could, in principle, be run as a market economy. Socialist values could be asserted by redistributing the incomes generated by markets, by funding public consumption and subsidising necessities and "merit goods", by following macroeconomic policies of high and stable employment.

Otherwise state enterprises could be made independent and managed by professional managers instructed to make profits in the domestic and global markets, reinvesting those profits where they wish once they have paid taxes, pay out dividends to the treasury and other shareholders if any. This was the kind of model that Oskar Lange had in mind (1936), with planners and managers simulating the functioning of markets; though he ignored the question of managerial incentives and their inclination to distort information to their advantage in relations with planners (making planned tasks easier, by concealing productive potential and demanding more resources than truly needed, etc.).

But you could have actual and not just virtual markets à la Lange; this is the kind of system that prevails today in China, Vietnam and Belarus - though China is no longer committed to equality (its income distribution is much more unequal than in Italy, and broadly as unequal as in the USA); Vietnam has been lucky, benefiting from oil coming on stream when they started reforming; and Belarus is highly dependent on cheap oil gas and material from Russia (and Putin is jeopardising its continued growth by raising the prices of Russian exports to Belarus). All three have unpleasant autoritarian regimes.

A socialist economy run not on markets but on central planning can be much more successful than a market economy in mobilising resources and achieving large scale single or related targets such as industrialisation, military might, space conquest. It is much less successful than a market economy in responding to changes in tastes and technology and foreign trade opportunities, and generally in coping with many competing objectives. Temporarily, multiple objectives can be handled by a priority system, but when there are several priorities the problem arises of how to trade-off one with another; under War Communism (1918-21) everything became a priority, including pen nibs at some point; when everything is priority nothing is, and all is chaos. Relative prices and specific budgetary allocations are a better way of expressing government preferences. Moreover, central planners have a tendency to overinvest with respect to labour available (bringing about over-full employment) and the population's willingness to sacrifice current for future consumption. They have a tendency to waste capital ( what Marx called dead labour, i.e. labour embodied in means of production) in producing objects unwanted or wanted less than others that could be produced. In the 1980s the USSR could go into space but was not able to produce enough soft drinks, pizza, hamburgers, shoes and jeans.

Markets have precisely the very great advantage of being automatic mechanisms for adjusting output to changing tastes, technology and foreign demand, and for adjusting actual to desired productive capacity. In the Soviet type system markets could have been easily introduced, except that 1) communist authorities feared that they would lose power by delegating economic decisions to markets; and above all 2) there was an endemic, permanent state of excess demand in those economies, visible under the guise of shortages (empty shops), queues, waiting lists, and black markets at which goods were re-traded at much higher prices than the official level. This state of excess demand had absolutely nothing to do with the original socialist blueprint, but was the necessary result of authorities keeping prices at artificially low levels for fear of inflation, lower than the level at which the planned and realised quantities of goods would have to be sold to balanced demand (of consumers and state enterprises) and supplies. Instead of fighting inflation by holding money incomes down, raising interest rates, producing more consumption goods, the authorities repressed inflation by decreeing lower than equilibrium prices. Instead of changing the world as Marx wanted, they simply pretended that they had changed it. And as a result 1) people spent inordinate amounts of time queueing and searching for goods, and were very unhappy as a result. "Do you often have queues as long as these?" "No, not often. Only when there are goods in the shops". 2) Markets could not be introduced unless prices were allowed to rise to find an equilibrium. Gorbachev - a great statesman - was a lawyer and neither he nor his hack economic advisors understood this.

In 1990 Nikolai Petrakov, Gorby's Chief Economic Advisor asked what was thought of their reforms and was told that to make them work they needed to raise prices to market-clearing level. He said that did not understand Russians’ hatred of inflation; higher prices were not politically possible. Prices were raised only a little bit, making imbalances greater because of inflationary expectations. Markets could not be introduced and the Soviet type system collapsed, with prices rising by about 1500% in 1992 the first year of the transition (in Poland it was 545% in 1990). The old system now exists only in Cuba and North Korea.

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