Scotland’s place in the “Library of Mistakes”

Travelling up to Edinburgh last week to test the waters ahead of this week’s referendum vote, I found myself kicking off my visit by calling in on the cannily named Library of Mistakes, a newly launched charitable venture that aspires to offer Scottish students of all ages the opportunity to learn from the mistakes of their forefathers. The library is the brainchild of the market historian and investment strategist Russell Napier and is funded by many of the great and the good of the so-called “financial mafia” in the Scottish capital.

Despite its attention-grabbing name, the library essentially aspires to become a go-to collection of primary and secondary source material for anyone interested in learning from (and about) business and financial history. There are success stories here, as well as tales of glorious and inglorious failure. Although it is still far from complete, the library represents an ambition of which the great 19th century benefactor Andrew Carnegie would surely have approved. The aim is to provide an alternative rich seam of study materials for anyone who feels the need for a pragmatic counterweight to the prevailing theoretical nonsense that continues to be taught, for want of a better alternative, in universities and business schools around the world.

In the real world, the study of great men (and great villains) is more important to those looking to make their way in business or finance than an understanding of the efficient markets hypothesis or the implausible assumption of rational expectations that underpins so many pages of the standard finance textbooks. (Mr Napier notes that most of the second hand copies of the books he has bought for the library appear to have been discarded by institutions of higher education for which theoretical orthodoxy now rules).

One particularly interesting section contains all the official Department of Trade and Industry reports into malfeasance, scandal and fraud that have appeared over the past half century. From personal experience, I can vouch for the fact that these official enquiries (Maxwell, Blue Arrow, Guinness, Barings and so on) often read like thrillers, and the pages of gruesome detail are cautionary tales that any aspiring businessman or investor would be well advised to read first, long before they go anywhere near an economics textbook or seminar room.

Without presuming to know the innermost thought processes of the majority of the Scottish population, whose country I admire and whose future is rightly a matter they alone can decide, this week’s referendum is a cause for concern. Judging by the calibre of public debate, few voters appear to have fully appraised themselves of what historical experience has to say about the risks that they will be embracing if they do opt for independence. To do so is clearly Scotland’s right: but there is a serious risk that to do so could prove a grievous mistake of a kind, and on a scale, that will earn them a prominent place in the Library of Mistakes for many years to come.

Amidst all the rhetoric and post hoc second guessing of how the Better Together campaign should have been run (most of the criticism entirely valid), one thing that is clear is that the SNP has brilliantly deflected debate away from the fundamental economic consequences of separation towards more ethereal issues of national identity and social idealism that history suggests have little chance of being realised any time soon.

Instead of harping on about the pound, one senior Edinburgh fund manager suggested to me last week, the No campaign should have concentrated instead on a simple alternative slogan, namely the “SNP’s Tax Bombshell”. Why? Because it is clear that there is no realistic prospect of any post-independence Scottish government being able to afford the many attractive promises it has dangled under the noses of its voters. Without a revolution in social and political attitudes, which currently looks improbable, Scotland is more likely to become a failed nation state than a new Singapore.

As I have observed more than once before, historical experience is clear that in politics, as in investment, you should judge policymakers not by their intentions, but by the results their policies are likely to produce in practice. On this count, the reality of an independent Scotland is certain to fall a long way short of what many of those campaigning for independence appear to think they can achieve. It is more a case of “divorce in haste, repent at leisure” than the reverse.

Of course the Yes vote may not happen. I have a decent bet that independence will be rejected, probably by a bigger margin than the consensus assumes. I would like to think that is because the lessons of history, deeply buried as they may be in the shelves of the Library of Mistakes, have somehow – by word of mouth, perhaps, or some mysterious process of cultural osmosis – permeated more widely among the Scottish population than a casual visitor might be led to think.

Mr Napier meanwhile says he has aspirations to fund similar libraries in London and the United States and is looking for benefactors to help his fledgling charitable initiative. Given that professional investment has become a “loser’s game”, this seems a more than creditable idea. Englishmen like myself who presume to pontificate about the risks in Scottish independence should humbly admit that we have more than our own share of corporate and financial disasters to learn from as well.