A model of Catalonian independence

by on January 30, 2014 at 1:57 pm in Current Affairs, Economics, Law, Uncategorized | Permalink

There is a September 2013 paper (pdf) on this topic by Ryan D. Griffiths,  Pablo Guillen, and Ferran Martinez i Coma:

We propose a game theoretical model to assess the capacity of Catalonia to become a recognized, independent country with at least a de facto European Union (EU) membership. Support for Catalan independence is increasing for reasons pertaining to identity and economics. Spain can avoid a vote for independence by effectively ‘buying-out’ a proportion of the Catalan electorate with a funding agreement favorable to Catalonia. If, given the current economic circumstances, the buying-out strategy is too expensive, a pro-independence vote is likely to pass. Our model predicts an agreement in which Spain and the European Union accommodate Catalan independence in exchange for Catalonia taking a share of the Spanish debt. If Spain and the EU do not accommodate, Spain becomes insolvent, which in turn destabilizes the EU. The current economic woes of Spain and the EU both contribute to the desire for Catalan independence and make it possible.

My worry however is this.  If Catalan took away its share of the Spanish debt, or even more than its share, I don’t think this would help the Spanish fiscal situation.  For similar reasons, I have never been convinced that the debt-to-gdp ratio is such an important variable.  I myself put greater stress on the ability of a government to rule its territory, command the wealth and allegiance of its subjects, and continue to generate a more or less stable political equilibrium.  Every developed country has the wealth to pay off its debts, if at least it has the political willingness to do so.  If you view fiscal stability in this kind of macro public choice framework, the unwilling loss of a major piece of wealthy, high status territory is a much, much bigger fiscal blow than can be offset by a marginal improvement in the debt-to-gdp ratio.  Besides, which part of Spain might be then next in line with demands for greater autonomy?

I am entirely fine with the idea of a Catalonian independence referendum in normal economic times, however, as I do not in general wish to maintain nation-states on those who are truly unwilling.  I am very happy for instance that Estonia is no longer part of Russia/USSR, and in turn one can see that an Estonian independence referendum would pass in either good economic states or bad.  If the same is true for Catalonia, we should all be willing to wait.

Anthony Alfidi January 30, 2014 at 2:15 pm

The debt-GDP ratio certainly matters to bankers who assess repayment probabilities and assess basis points beyond Libor when pricing sovereign debt. Strong nation-states may be able to hyperinflate their debt away if their population is sufficiently docile, but they will be shut out of the global capital markets nonetheless.

Colin January 30, 2014 at 2:20 pm

“If Catalan took away…”

Guessing you meant to say Catalonia. In any case, I think your point is well taken that the referendum should be held in more typical economic circumstances.

dearieme January 30, 2014 at 3:52 pm

The Principle of Unripe Time: Sir Humphrey would be proud.

Millian January 30, 2014 at 6:11 pm

The Americans know not Sir Humphrey. They have been brought up with public choice theory, which is the same but much more dull.

mofo. January 30, 2014 at 2:58 pm

I am very happy for instance that Estonia is no longer part of Russia/USSR, and in turn one can see that an Estonian independence referendum would pass in either good economic states or bad. If the same is true for Catalonia, we should all be willing to wait.

Why? Whats the value in waiting? Isnt at least part of the desire to break away from Spain based on Spain’s inability to get its economic house in order? Is there any reason to believe that Spain ever will?

IVV January 30, 2014 at 3:30 pm

Yes, that’s what I was thinking. Will there ever be “normal economic times”? Especially if we define it based on debt-to-gdp ratios in Spain?

happyjuggler0 January 30, 2014 at 3:39 pm

TC,

If Catalonia had happened to be part of Greece, either before it blew itself up or now, would you also in that instance think the “right thing” to do would be to condemn the Catalans to be impoverished with the Greeks until such decade that Greece managed to get its act together?

If not, then why is Spain different?

Czechoslovakia peacefully separated into two countries at a bad economic time and they (the Czechs and Slovaks) have since done very well indeed (compared to lots of former communist countries).

Peaceful separation is radically superior to separation by bloodshed (e.g. Yugoslavia), and small nation states and city states are amongst the world’s most prosperous countries and territories (e.g. Hong Kong, Singapore, Cayman Islands, Monaco, San Marino, Luxembourg). The notion that nation bigness or involuntary servitude are useful features in the post Cold War era and in the current era of FTA’s and the WTO is dubious.

dead serious January 30, 2014 at 5:02 pm

Catalonia benefited from whatever massive spending Spain undertook pre-crash.

The idea that you’re part of the larger entity when times are good, but when times are bad it’s time to head for the hills – is bullshit and sets all kinds of bad precedents.

So yes, Greece or wherever, secession should include your assumption of a portion of the national debt.

That said, I agree with you on questioning why some sort of time boundary is necessary.

CC January 30, 2014 at 9:07 pm

“Catalonia benefited from whatever massive spending Spain undertook pre-crash.”

oh, you mean the one that didn’t happen?

dead serious January 31, 2014 at 9:50 am

I don’t understand what that’s supposed to mean. A crash didn’t happen?

Art Deco January 31, 2014 at 2:20 pm

IIRC, Spain’s debt to gdp ratio prior to the fall of 2008 was something on the order of 0.38; quite unlike Greece or Italy

Spain had a bubblicious real-estate market, distressed local banks, and a wretched labor market, however.

dead serious January 31, 2014 at 4:22 pm

It also went hog-wild building airports that nobody uses.

msgkings January 31, 2014 at 4:58 pm

So at the very least there was a major property crash in Spain, which led to a sharp recession they are only now climbing out of. Hence the term ‘pre crash’

Da January 30, 2014 at 3:42 pm

The way Spain and Europe handle this secession will show wether or not we truly still are above the likes of Syria and Congo in terms of political acumen.

I for one am looking forward to this new nation and hope they will have an easier start than for example the ex-Yugoslavien countries.

dead serious January 30, 2014 at 4:33 pm

I think Catalonia shouldn’t be forced to wait to secede, but it should be responsible for assuming a portion of the Spanish debt.

Yancey Ward January 30, 2014 at 6:12 pm

And if they don’t? Tanks roll?

David Wright January 30, 2014 at 7:28 pm

If they refused to assume a share of Spain’s debt, the other European nations would probably agree to shut them out of the EU, the Euro, and Schengen. That’s probably enough to scare them off that route even without tanks.

mulp January 31, 2014 at 1:58 am

That’s what Congress did to Rhode Island.

Which, because it was the original Tea Party, forced the drafting of the US Constitution which made the first power of Congress the power to tax. The Continental Congress required 13 votes to tax, and RI refused to vote for a tax. Then after the Constitution was ratified by 12 States, RI refused to because of the first power of Congress to tax.

Finally, Congress told RI that it would be treated as any foreign nation with tariffs and such levied on all trade, and RI would be responsible for its own defense.

RI agreed to be taxed.

Dan S January 30, 2014 at 5:10 pm

I think a basic issue when it comes to all of these “should this or that country split up” questions is that there are perfectly legitimate reasons for the parent country to want to keep them around, and there are perfectly legitimate reasons why a region might want to break off and be independent. The point is that there really is no “right” or “wrong” here. Should a state be able to secede from the US? Maybe you think so morally, but the US gov’t would be darn fools to simply allow it.

Reasons to stick together that come to mind:

-Less expensive to provide certain public goods, most importantly national defense (the presence of a hegemon changes this calculus).
-Helps prevent warfare between the parent and potential breakaway.
-There are certain “economies of scale” with respect to laws and regulation. You don’t need to have two law firms learning two different sets of laws and regulations for your business.
-It’s easier to have one currency when one country (the euro has demonstrated that sometimes having one currency with multiple countries can be…problematic).
-It’s much easier for a big country to be a great power than to be a small one. This affects security, negotiating power, and a whole host of other things (I’m reading Mearsheimer’s The Tragedy of Great Power Politics right now so this is on my mind).

Reasons to split up that come to mind:

-Competition between smaller governments for people and capital produces better governance than one big less flexible entity (Tiebout, feet voting, etc. etc.)
-Culture, language, religion, etc. (I’ve come to appreciate that this one is huge, way bigger than most mainstream writers and thinkers are willing to admit. Culturally heterogeneity is associated with more corruption and lower trust, cohesion, and civic-mindedness.)

Dan S January 30, 2014 at 6:05 pm

Darn my new lines didn’t take. If you see a hyphen, pretend it’s a new line with a bullet point.

Millian January 30, 2014 at 6:10 pm

So you think Estonia should have waited until the Russian economy was doing pretty well? I thought we liked to mock Samuelson around here for his confidence in USSR TFP?

Spain is currently wealthier than it has been for most of its history excluding the last 7-8 years, thanks to very strong growth before the crisis. If not now, when?

Roy January 30, 2014 at 10:36 pm

Of course Estonia should have waited until the USSR was booming. Just like it was really unfair of Latin America to revolt on Spain, what with the chaos of the Napoleonic Wars. It just wasn’t sporting. I mean Mexico had been part of Spain for 300 years and just tossed away all that historical connection, and for what? And then those imprudent Dutch, revolting on Spain in its hour of need, look what good it has done them.

Clearly there is some irrational emotional investment here, Tyler may be right, but he seems really bothered by it.

Adrian Ratnapala January 30, 2014 at 11:22 pm

And of course we can confidently say that if the USSR ever had boomed, Estonia would have been allowed to peacefully withdraw.

Steve McLeod January 30, 2014 at 7:00 pm

There is a sizeable ethnic-Russian minority in Estonia who generally feel to be an oppressed minority.

I live in Catalonia. A large minority of us there are not ethnic-Catalan. I wonder how a new Catalan nation-state would consider us, who are do not have Catalan as a mother-tongue, or even as a fluent second language. Will we be economically, politically, or socially oppressed? Will we be forced to learn and speak Catalan, the way that Catalans were once forced to speak only Castellano in the public sphere?

Jan January 30, 2014 at 9:51 pm

The Russians are primarily oppressed in the sense that they are expected to speak Estonian. This I admit is a challenge for people who grew up in the USSR period when Russian was dominant in education, work and culturally. But it is not unreasonable to ask people to learn the national language. Ethnic Russians also had the option to take Russian citizenship and emigrate if they desired.

charlie January 30, 2014 at 10:35 pm

I think the problem is he is referring to non spanish nationals who live in Catalonia. Either EU or non-eu citizens. A large chunk of the population, and they don’t like their kids learning Cataloony instead of Spanish.

In fact I’d predict an independent Cataloony would either revert to speaking Spanish in a generation (as Ireland did) or adopt English.

Adrian Ratnapala January 30, 2014 at 11:26 pm

I might be wrong, but I thought, Irish was almost dead before independence and has seen a revival since — mostly as a second language. Catalan seems to be in a stronger starting position.

Tere January 31, 2014 at 2:32 am

There isn’t such a thing as people learning Catalan ‘instead’ of Spanish. There is not one single person in Catalonia who does not speak Spanish and speaks Catalan. The whole idea is to get as many spanish speakers as possible to learn and use Catalan.

Alex G January 31, 2014 at 7:27 am

Plenty of kids in villages do not speak Spanish. How can they – schools are in Catalan, Spanish is not allowed. In Barcelona most people speak Spanish. But LaVanguardia employs journalists from all over Spain as level of written Spanish of young Barcelonians is not good enough….

Axa January 31, 2014 at 2:14 am

That’s the challenge of living in a foreign country and not talking the local language. If you’re an investor or a tourist, people will talk your language. If you don’t, expect social oppression.

Tere January 31, 2014 at 2:34 am

Sorry, have to disagree again from Catalonia. A lot of people live and do very well in Catalonia without speaking Catalan. Oppression caused by language is something which only happens in the political discourse, not in the society

Axa January 31, 2014 at 5:57 am

Don’t mistake your skills, wealth or physical attractiveness for local population acceptance or good integration as a foreigner. I have to acknowledge the term “oppression” is a stretch, but Catalonians are also flesh and blood humans. So, if you pursue a high status career expect some disadvantages for not talking the preferred (high status) language, if not relax and be happy.

Amelanchier January 30, 2014 at 7:33 pm

In good times Catalonia would have nothing to bribe Spain with to let them go. (The Spanish government has taken a very hard line.) Taking on a disproportionate share of the debt could well be a Coasean bargain; it would be foolish to rule it out from the start.

Steve Sailer January 30, 2014 at 8:41 pm

Quebec has done surprisingly well for itself playing the game of threatening secession. It has used nationalism to wrestle some of the economic power in Quebec away from the Montreal Scots and Jews who used to own most of the business enterprises.

Quebec has not, contrary to predictions in the English-speaking press, turned into Zimbabwe.

Jan January 30, 2014 at 9:55 pm

Quebec’s economic strength derives largely from the ingenuity and industriousness of their immigrant population, nearly 40% of which in recent years has come from Africa, though that share is decreasing.

Art Deco January 31, 2014 at 2:30 pm

Rubbish.

Around about 12% of the population have a mother tongue other than French or English and the province’s per capita income is only about 15% below Canada’s high mean.

Jan January 31, 2014 at 8:32 pm

I don’t see how what you said addresses what I said, but I just baiting Sailer anyway.

Ghost of Christmas Past January 30, 2014 at 8:47 pm

I dislike the notion that “every advanced country has enough wealth to pay off its debts.” That’s short-run true only if you assume that all the wealth of a country’s residents is available to pay off debts run up by a profligate government– very likely without the consent of a large fraction of said residents. I realize we commonly impute some level of responsibility for government debts to mere subjects. Without settling whether that is entirely wrong, at least we ought to agree that no government is entitled to more than, say, the wealth it can confiscate annually from residents by taxes amounting to 20% of private-sector gross product maximum. Governments which have run up debts they cannot service, much less retire, by “reasonable” levels of taxation should be regarded as having defrauded their creditors. We should not speak as though creditors have proper claims on the private wealth of everyone subject to a deadbeat government. Sovereign debts run up by dictators are sometimes repudiated as “odious.” Debts run up by dysfunctional “democracies” may be odious too, and also ought to be repudiated, or at least rescheduled whether or not that inconveniences creditors who ought to have known better than to lend to deadbeat governments.

dan1111 January 31, 2014 at 1:17 am

+1

mulp January 31, 2014 at 2:18 am

Well, given a republican government, the government running up debt is the republic running up debt is the public running up debt is the people running up debt.

The people run up debt collectively for exactly the same reason individuals run up debt.

No one is willing to sacrifice for what they want.

Reagan told Americans that they did not need to sacrifice like Jimmy Carter called on them to do.

Thus, since 1981, no one sacrifices if they can run up debt, and unlike before 1981, almost everyone started seeing going into debt as the way to become wealthy.

And the bankers spread that ideology globally – you do not need to be a 3rd world dictator who is a pawn in the global game to run up debt you can never repay to pay to live like you are wealthy, *and even sock enough away in Swiss banks to be wealthy when you flee the coup).

I was born in 1947, so I grew up when debt was bad unless building something of value that would pay the debt by the ROIC. Debt to buy a house made sense only if the imputed rent paid all the bills and paid off the debt. NO ONE BELIEVED REAL ESTATE INCREASED IN VALUE because it was no different than cars and trucks.

Spain’s problem is the “government” let the “people” borrow more than they could afford, to buy real estate in the expectation, need, that the price go up exponentially as the value depreciated in order to get out from under the debt.

Marian Kechlibar January 31, 2014 at 4:18 am

Do you notice the three degrees of separation in your first sentence? Although there is some transfer of responsibility in each step, it is very far from absolute.

It is quite clear in other circumstances: not even radical peace activists would advocate life imprisonment (the theoretical punishment for crimes against peace) for all members of “the people” when it was the (albeit elected) government who started an illegal war.

Should the personal responsibility for state debts be greater than the personal responsibility for state wars?

Ricardo January 31, 2014 at 5:15 pm

Precisely! Jefferson was exactly right when said the “earth belongs … to the living; that the dead have neither powers nor rights over it.” I have no obligation to pay debts incurred in my name but without my consent.

GC January 31, 2014 at 6:48 am

I’d agree, but I suspect every single democracy except, maybe, the US tax their private sector GDP share way north of 20%.
Just saying.

Careless February 2, 2014 at 1:40 pm

And the US does, too.

dead serious January 31, 2014 at 9:57 am

I’m presuming he means that the government could sell off (government-owned) land, treasures, the royal family as pets, etc. Not confiscate private wealth – beyond normal taxation for you right-wing nutjobs.

Art Deco January 31, 2014 at 2:48 pm

Well, about 25% of the land area of the United States is owned by the federal government. That’s fairly high by the standards of most occidental countries. Since it is largely forest and ranch land, the per acre price will likely be such as to enable us to retire only a little debt; agricultural pursuits in toto account for 2% of national income and the proportion of that attributable to ranching and forestry is even lower. I tend to doubt you can retire a great deal of debt from land sales and such (not that land sales are a bad idea).

Numeracy. It’s great stuff, Mr. Non-right-wing Non-nut job.

Careless February 2, 2014 at 1:41 pm

But wouldn’t you pay in the high 12 figures to have your own Bush or Kennedy as a pet?

Filípides January 31, 2014 at 6:34 am

It’s not about economy, it’s about citizen’s rights:
1. If Catalonia becomes independent, then all the regions, cities and communities should have the right to secede (all citizens should have same rights, ok?), so even a piece of Catalonia should have the right to get independence
2. Catalonia independence would influence all Spain, so all Spaniards should vote (as the Spanish constitution stats and which was massively voted for by Catalans)

mofo. January 31, 2014 at 8:53 am

I really dont see how any of that follows.

Filipides January 31, 2014 at 2:44 pm

Well I think it´s pretty clear: why should only Catalans have the right to secede?, shouldn´t also other regions?, why should all Spaniards feel the potential economical downturn for the vote of a fraction of them?

Art Deco January 31, 2014 at 2:43 pm

Always a problem. How can you enumerate the rights of the people if you do not know who are the people?

Filipides January 31, 2014 at 4:00 pm

Those who pay taxes

Balearic February 6, 2014 at 5:19 am

Nonsense, Do you recall the URRS voting on the Baltic republics independence? Following your stream of thought, then Spain should still be part of the Napoleonic Empire, because the whole empire should have voted on Spain’s independence.

chuck martel January 31, 2014 at 8:27 am

Catalan independence? Maybe consideration should be given to the configuration of Spain when it was a going concern, restoration might be better. Put most of Latin America, Mexico, the Philippines, Cuba and Belgium back under Spanish political and economic control. Gibraltar, too. Probably wouldn’t make much difference to the hombre en la calle but it would give the Spanish politicians and bankers something to tinker with.

Chris H January 31, 2014 at 12:09 pm

Spain’s central government really doesn’t want Catalonia to go independent. Thus setting up the condition that Catalonia wait for good economic times seems like a bad incentive structure on the margins. Sure I doubt the Spanish central government would deliberately tank a strong recovery to keep Catalonia, but it might make it more reluctant to perform some structural reforms that would make that recovery (and thus Catalonia’s separation) happen soon rather than later. If Catalonia IS going to wait for better economic times to leave, then it better do so in a way that prevents the Spanish government from realizes that’s what’s happening.

Art Deco January 31, 2014 at 2:42 pm

The majority of Catalonia’s population lives in metropolitan Barcelona. You have pure city states in this world, but you would be hard put to find a place demographically dominated by the key city therein. Uruguay would be one example, Israel might be another. I would be interested to know how people in more provincial areas of Catalonia react to that prospect.

dead serious January 31, 2014 at 4:28 pm

Israel has two major cities one hour apart so your comment makes no sense.

Art Deco January 31, 2014 at 6:47 pm

The slab of territory in between the cores of Tel Aviv and Jerusalem has densities which exceed 500 persons per square mile. That aside, it was stated tentatively. Pity you go out of your way to be a rude piece of work.

dead serious February 1, 2014 at 10:38 am

Pot calling kettle black, old chap?

Might want to scroll up, reread your “contributions” to this thread, and do a bit of self-reflection.

Balearic February 6, 2014 at 5:13 am

So according to you, all south America, the Netherlands and all the European Territories once belonging to the Aragon crown/Castillian crown would still be part of it because when they became independent, it was “bad timing” for spanish economy (not to mention all those irresponsible nations who lent Spain money) Great, then the USSR should also still exist, oh and the USA should also be part of the UK because it was also a bad timing.

Natalia February 27, 2014 at 7:35 pm

Dear Tyler,

I think there is a simplification about Spanish attitude towards a fiscal/tax agreement. It is not because the current crisis that Spain does not offer an agreement, is because the lack of democracy culture in Spain. If not, what would impede the Spanish government to recognize that Catalonia pays much more than receives and promise to take care of that in the future instead of denying the facts? They have been denying it for 30 years, so is not because of the current crisis. I even found an article from the NY times dating from 1900 about catalan expoliation!!!

The major parties in Spain use anticatalan arguments to gain support among the population. For instance, that we are selfish because we don’t want to share and we are always asking for more. How are now going to sell a tax agreement with catalonia? For them, every region has to be the same (except the bascs…) and a tax agreement would be a privilege impossible to sell…

So, they don’t offer it because it is against the core of Spanish politics.

Another example: Why the Spanish governmnt keeps passing laws against catalan ilanguage n this context? It is because there is no interest in negotiation. This kind of arrogant attitude is very common in Spanish politicians, specially the right.

Spain is the second country in the world with the larger number of dead people that have not been identified because of the war (after Camboia) . Baltasar Garzon, a well know judge, triedto investigate on this and now has been “dismissed” as a judge in spain. The right party has nowadays prominent members with were in the dictatorship regime or their sons and close relatives. A minister of Franco ruled Galicia, an autonomous region, for 20 years while in democracy.

So, Spain might not be Russia but it is not the UK or Switzerland either.

I’m a Catalan independentist and for me is a matter of democracy and dignity, basically.

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