Monday, 22 September 2014

A strategist's take on the aftermath of the Scottish Referendum

Unsurprisingly, I tend to look at many issues through the eyes of a strategist. The aftermath of the Scottish referendum is no exception.

I think there are fundamentally two issues here: decentralization and transfer pricing.

Decentralization is the issue that tends to get most peoples' attention first. In my experience, organisations exist in a state of perpetual flux - they're either centralising or they're decentralising - much like a living organism is constantly breathing in or out. Whilst this state of flux is a constant source of frustration for most employees, I suspect it is necessary in order to retain some vitality in otherwise petrifying organisations. Political systems exist in a similar state of flux with success Conservative and Labour (or Republican and Democrat) governments either decentralising, privatising and dismantling big government or or centralising control and increasing the public sector. Although the referendum did manage to avoid complete decentralization (secession aka a demerger), of Scotland, it did so by securing agreement to some further decentralization on the eve of the referendum.

If the underlying principle of this agreement is that decisions should be made closer to the people that they impact, then considering to allow Scottish MPs to make decisions that impact people in England but not in Scotland would seem to be a direct contravention of the agreement reached on the eve of the referendum. To act surprised at this fact, as some politicians have done, demonstrates either an extreme naïveté, or a willingness to mislead the electorate for political gain. Either possibility is plausible, but nether is comforting.

It is somewhat ironic that it is the Scottish Nationalists and Labour party who now oppose English devolution. Certainly, in the case of the Labour party, one might wonder if Scottish Nationalism is not more of a convenience than a deeply held belief in the benefits of decentralisation. It seems that as far as devolution is concerned, the Scottish Nationalists and Labour party want their cake and to eat it!

The second issue is that of transfer pricing - the costs that business units and their corporate centres charge each other for the provision of goods and services within the organisation. Transfer pricing is notoriously difficult to work out. I've never come across a business division that did not feel that it was being overcharged for the services it receives from its corporate centre, whether the organisation was strongly centralised, strongly decentralised or any where in between. In the case of British politics, the basis for calculating the equivalent of transfer pricing between the central government and the devolved regions is known as the Barnett Formula. It has been controversial since its inception. However, what does follow, as it does when responsibilities are shifted within corporates, is that any further devolution of power to Scotland must be accompanied by an adjustment in the Barnett Formula, if not by the adoption of a completely new transfer pricing basis. That is likely to prove even more difficult to negotiate than the devolution itself. However, as with organisations, an unsuitable transfer pricing mechanism, if not addressed, can lead to significant inefficiencies (an is unlikely to be tolerated by the electorate for long).

The next 6 months are sure to be interesting!

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photo credit: Jesus Belzunce via photopin cc