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The British economy has long outperformed the EU.

uk finance
Written by Robert Tombs

This simple and demonstrable fact is something that many people find very hard to accept. Why? Because it contradicts a widely accepted narrative, and undermines the anti-Brexit mindset.

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A recent on-line remark from a frequent (and opinionated) anti-Brexit commenter made me think.  Referring to a review I wrote recently of a history of Britain’s relationship with the EU, this gentlemen (apparently a former World Bank official) rather patronizingly remarked that as a historian I had no expertise in economics, and asserted that statistics I had quoted were ‘distortions verging on falsehoods’.  One does not expect good manners in on-line comments, and in itself this would be too trivial a matter to bring to the attention of readers.  But as I say, it made me think.

The statistics I quoted were making a simple point: that UK GDP growth has been faster than that of the Eurozone for over two decades, being on average 1.4% to 1.1%.  These are the ‘falsehoods’, which I understand as implying deliberate untruth.  Now, I readily admit that I have limited expertise in these matters, which is why I would not have dreamt of committing myself to print without consulting BfB’s resident economists, Graham Gudgin and Harry Western.

Why do I think this is worth writing a blog about?  Because it struck me that the fact that the UK economy has since the mid-1980s been out-performing those of Continental Europe surprises many people—Remainers of course but many Leavers too—and some find it very difficult to believe.  The notion that the UK has long been economically weak and in decline is something that we have been brought up on for well over half a century, and it seems to have entered our subconscious.  It is one of the pillars of the whole Remainer/Rejoiner mindset: for them practically an article of faith.

The story we grew up with goes something like this.  The Industrial Revolution made Britain ‘the workshop of the world’, dominating global trade and finance.  But during the second half of the 19th century, it was overtaken as an industrial power first by America and then by Germany.  It managed to cling on with increasing difficulty until after the First World War, when it experienced the disaster of the Great Depression, with mass unemployment and poverty.  Somehow it survived the Second World War (bailed out by America of course), but then its old-fashioned infrastructure and outdated attitudes meant that it was left behind by the Continent.  It was despised as the ‘Sick Man of Europe’, and pleaded to join the European Community (the ‘lifeboat’ for Britain’s ‘Titanic’, as one of Edward Heath’s advisors put it), and thus managed to save itself for a time.  But Brexit now means that we have foolishly clambered back on to the Titanic, sailing off towards inevitable disaster.  This narrative, at some level, explains why those who opposed Brexit (both British and non-British) confidently expect not only some temporary disruption and adjustment, but long term economic decline—condign punishment, as they see it, for a country that has the nerve to want to govern itself.

However, serious economic history is very different from this ‘declinist’ story.  Britain has at least since the Middle Ages been remarkably prosperous, and from the 16th century onwards among the richest parts of the world.  Dynamic commerce and consumer demand (and lots of coal) enabled a historically unprecedented burst of growth in the late 18th and 19th centuries, putting Britain ahead of every other country for a brief period.  After a time, a few started catching up, as inevitably happens.  The USA, because of its huge natural resources and booming labour-force, was the first to do so.  Germany, with its bigger population, produced more than Britain by the end of the 19th century, though its standard of living remained far lower.  After the Second World War, Italy, Germany and France experienced a unique period of rapid growth as they recovered from the war and shifted labour from agriculture to industry—something Britain had done in the previous century.  This is when British commentators panicked at what they thought was Britain’s decline; and it was a major reason why Macmillan, Heath and Wilson were desperate to join the EEC.  However, there was no overall long-term decline, as a now considerable academic literature has established.[1]  The British economy (like most mature economies) was shifting away from manufacture towards services, and growing steadily.

Ironically, just as we joined the EEC, its postwar ‘economic miracle’ ended in a long stagnation.  The least that can be said is that Britain in the 1970s derived few of the promised benefits of membership.  Some historians have argued that joining actually caused damage, and even contributed to the ‘stagflation’ and social conflict of the next few years.  As a major history of the EU put it in 2003, ‘The United Kingdom has gained the least from membership . . . The economic case for British membership is probably the weakest of any member-state.’[2]

Nevertheless, people seem to retain the basics of the ‘declinist’ narrative.  Even many Leavers believe that somehow the British economy was rescued in the 1970s by the European lifeboat—a common refrain being that the ‘Common Market’ we joined was fine, and only spoilt later by politics.  It follows from this that we are bound to pay a considerable price for Brexit, which they feel is worth paying for political autonomy.

But again, the record gives a less pessimistic picture.  Since the 1990s, the British economy has grown faster than the European average.  Hard statistics from the OECD and the Office of National Statistics show this plainly.  The UK’s annual growth rate—whether we measure it over the whole period from 1991-2019, or from 1999-2019 (since the Euro) or 2004-2019 (since enlargement of the EU)—has been 0.3-0.4% per year higher than the average of Eurozone countries.  This may not sound a lot, but of course it mounts up.  It means that from 1990-2019 the UK economy grew 78% in total, compared with the Eurozone countries’ 56%.

Why is this?  First, because of the fundamental strengths of the British economy, including a good level of education, social cohesion, efficient markets, moderate taxation, a globally leading financial sector, and political stability (all of which need constant improvement, but which nevertheless represent a historic accumulation of advantages).  Second, because the EU has proved disappointing as an economic system.  Seriously misguided decisions—most damagingly the adoption of a single currency combined with a restrictive fiscal policy—stem from an absence of democratic accountability and a lack of political and social cohesion.  Consequently, overall fiscal and monetary policy in the Eurozone has a deflationary effect, most painfully felt across southern Europe.

There are many people who judge Brexit and EU membership solely in economic terms.  They should at least get their basic facts right.  As Britain has been economically more successful than the EU for decades, leaving is unlikely to cause lasting economic damage, even if it causes short-term difficulties.  On the contrary, with sensible policies leaving should enable Britain’s relative advantages to operate more effectively.

[1]           An excellent summary of the debate is Jim Tomlinson, ‘Thrice denied: “declinism” as a recurrent theme in British history in the long twentieth century’, Twentieth Century British History 20, 2009.

[2]           John Gillingham, European Integration, 1950–2003: Superstate or New Market Economy? (Cambridge, Cambridge University Press, 2003), p 501

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Robert Tombs