ANDREW HUGHES HALLETT
When I left Scotland nearly six years ago, the political debate concerned itself with the economy, and parliament's or the executive's ability to steer the economy. It was focused on public expenditures and the state of public-sector finances in particular. At that time, those who studied Scotland's financial position said the fiscal account was roughly in balance, or possibly 1%-2% of national income in deficit. I was told by those responsible for managing public expenditures that this was nonsense - the deficit was larger than that, around 3%-4% of national income based on a formula that attributed 10% of all spending on English projects (at the time, subsidies to the Rover car plant) to the Scottish deficit. But none the other way since no-one was calculating the English deficit.

Now, six years later, I read that those who study the Scottish economy think that the country's finances are still roughly in balance (or, if a deficit does exist, it is small, at 2%-3% of GDP, below the UK's deficit), while those who actually manage the budget say the deficit may be as large as 12% of GDP. And that appears to be the debate. If so, it is remarkable for two reasons.

First, since no-one actually keeps national accounts for Scotland, no-one can ever know for sure what the true fiscal deficit is. The best we can do is estimate the deficit on the basis of estimates of revenues and expenditures made in the General Expenditures and Revenues (Gers) framework. But those estimates must depend on the assumptions and conventions adopted by those who made them. They cannot, therefore, be free of the preferences and agendas of their authors. For example, opposing errors of just 10% in calculating the revenues and expenditures attributable to Scotland at current levels of public expenditure would change the quoted deficit figure by 8% or 9%; that is, between two-thirds and three-quarters of the 12% figure. But we will never know for sure, so the debate is as futile as it is frustrating.

Secondly, if the deficit really has jumped from 2%-3% to 12% in six years, as the authorities say, then they are admitting to economic mismanagement of truly Zimbabwean proportions. Yet the same authorities are using this achievement as their main argument for continuing in power. Why? Were you not the people who created these alleged deficits in the first place?

In my view, this is a singularly unproductive form of debate, unbecoming of consenting adults in private (let alone in public). You might think that some things never change. But they do. On official data, over the next 30 years the Scottish population is projected to fall below five million, with the only growth area being pensioners. Clearly, the young and more productive are leaving.

Similarly, unemployment has fallen in the past 10 years from 1.35 times higher than the UK average, to 0.95 times (below) that average. The shrinking population cannot account for that: if it had happened evenly across the population it would have left unemployment at 1.25 times the UK average now.

No, the explanation has to be the economy and emigration. If the young and skilled cannot vote for an administration with a coherent set of economic objectives and the instruments necessary to achieve those goals, but have to listen instead to programmes that offer a genteel retirement into deficits, then the only way they can vote is with their feet. Recent evidence shows the majority of Scotland's graduates go to jobs outside Scotland. Of my 20 PhD students in Scotland, many stayed on, but none is there now.

Scotland's growth performance tells the same story. She is a rich country with potential. Yet her average growth rates over the past 25 and 10 years have been 22% below the UK average; while the small countries in the EU have grown twice as fast on average over the same period. The opportunity cost of this in money terms is enormous, let alone in personal or cultural terms.

It reminds me of Ireland stagnating and falling behind in the 1970s. What was necessary then was a change of regime. In Ireland's case, it was joining Europe's single market and membership of the European Monetary System. For Scotland, it would be an administration with a clear set of goals for growth, employment, productivity, competitiveness and regulation guided by the real exchange rate, population growth, taxation changes, modern infrastructure which includes education and health, and (being a small country subject to external shocks) a wealth fund to smooth out the bad times with the good. And an administration with the means to achieve those goals: again, tax, location, skills/education/infrastructure for productivity, the regulation and incidence of costs for competitiveness, an investment strategy, and so on.

Setting such explicit goals does not guarantee that they will be achieved. But it does give a focus to the policies, and show what needs to be done and how it can be done. And it sends a signal of competence. It suggests the policy-makers have actually thought about what they are going to do and are prepared to discuss it with the electorate. I would have thought any politician worth his/her salary would want to show that degree of professionalism and positive leadership, and that the voters would demand it of them. And if Scotland doesn't currently have the powers to achieve her goals, then we, through parliament, must create, appropriate or invent them.

Is there reason to believe that any of this is achievable? We are often told that Scotland is too small to operate her own policies. But here is a curious thing about Europe. It is the small countries that have been able to operate their own policies successfully, and the big ones that have not. Often, that is because a small country has a smaller and more cohesive political process. It is easier to get consensus, it is more obvious who is being uncooperative in favour of some particular interest (and it is more obvious to them what the costs of doing so will be), and there are fewer vetoes wielded by special interests.

To go back to my fiscal examples, OECD data shows that the large countries in Europe had increases in their public debt ratios that were six times larger than the small countries in the 1990s; and that the small countries had fiscal deficits that were 2.5% of national income smaller than the large countries. Since 2000 it is the large countries that violated the Stability Pact, and the small ones that have satisfied it. Fiscal restraint may be more effective in small countries because they know they are more vulnerable, peer pressure and sanctions in the markets being more severe if things go wrong. Larger countries often think they are too large to fail, while small countries are conscious of the adverse effects if the large ones are pushed into recession.

This, even in the case of fiscal policy, suggests that the "too small to look after herself" argument is being used exactly the wrong way round. Scotland could look after herself better with her own policy programme. Whether she chooses to do so is another matter. Should she not at least have that choice?

Andrew Hughes Hallett holds the chair of economics and public policy at George Mason University in Virginia. Until 2001 he held the chair in economics at the University of Strathclyde