Will a Brexit Lead to a “Scotxit” (Scotland leaving the UK)?

By Dr Anders Poulsen

I believe this is likely, in part because of the simple calculus of cost benefit analysis that may favour Scotland leaving the United Kingdom, but in part also because the EU may offer such favourable terms to Scotland to join them, not necessarily because it makes economic sense for the EU to do so, but because punishment is a behavioural phenomenon that we often see in our experiments.  I explain these below.

First, let’s get the cost-benefit argument out of the way.  If we get a Brexit, fewer Scots are likely to see an economic point in staying in the UK, because the UK would, as most economists believe, be seen as having less economic growth potential. Also, the English may become less able or willing to transfer money to the Scots. So post Brexit, the perceived net economic benefits from Scottish independence are bigger.

Similarly, it is likely that a Brexit would make the EU more likely to give an independent Scotland easier and better terms for entering as a new member, compared to the case where Scotland wanted to leave the UK and join the EU as a new member. The reason is that a Brexit will make the EU core keen (or desperate) to show that the EU is still a popular club that countries want to join. There would be less need for this if the UK remained in the EU.

Next, we should not ignore the possibility that the EU may want to punish the English for leaving. The EU may decide to be very tough in the negotiations that would follow a Brexit. The resulting delays in reaching an agreement will be costly to both sides, but much costlier for the UK, since 45% of UK’s exports go to the EU, but only 10% of the EU’s go to UK. Moreover, the EU might want to punish the English by luring Scotland away from them. This might also be expensive to the EU. The Scots may come to the negotiation table with their own demands; and without the block grant from London and with North Sea oil reserves shrinking and oil prices low, the Scottish economy will shrink and hence may cease to be an EU net contributor. Would EU members nevertheless be willing to do this in order to punish and spite the English, cutting off the nose to spite the face? Economics experiments have shown that individuals are often willing to incur a personal cost in order to punish and sanction others for their behaviour when the latter is seen as unfair, unjust, or selfish (see for instance Camerer, 2003, or Fehr and Gaechter, 2000).

Is the same true for politicians, their voters, and entire nation states? We currently do not know, but there is some recent evidence from Switzerland. The Swiss’ recent decision to impose immigration quotas on EU workers led to a swift and retaliatory response by the EU: they kicked the Swiss out of two important student exchange and academic collaboration programmes that, presumably, the EU itself benefitted from (otherwise the EU would have terminated the agreements earlier)[1]. This suggests that the EU would indeed be willing to take a punitive and retaliatory stance towards the UK in case of a Brexit, and regardless of the exact form it takes it invariably increases the net economic benefits to the Scots from leaving the UK. Given that the result of the first Scottish independence referendum was already pretty close (45% voted Yes and 55% No to independence), it does not take much movement among the voters to get a majority for independence next time. So Scottish First Minister Nicola Sturgeon and the Scottish National Party would find it hard to resist calling a second referendum after a Brexit.

So, all in all it seems plausible that a Brexit will lead to second referendum which will produce a Scotxit, and hence to an internal combustion of the UK. Of course, some people may want both a Brexit and a Scotxit. The analysis above will provide them with an even stronger reason for voting Leave. On the other hand, there may be many people who want a Brexit but prefer that the UK remains intact. They may decide that it is on balance best to vote Remain on the 23rd

References:

Camerer, C. (1993). Behavioral Game Theory, Princeton University Press.

Fehr, E. and Gaechter, S. (2000). Fairness and Retaliation: The Economics of Reciprocity, Journal of Economic Perspectives.

[1] See  http://infacts.org/dont-envy-switzerland/

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