Britain’s EU membership has been a mixed bag
We’re talking Brexit once again in today’s Money Morning.
I’ve been hearing the phrase: “Remain has won the economic argument” rather a lot.
I’m not sure about that one. Last week we looked at systems of rule. Today we consider the economic success.
How good – or bad – has the European Union’s record been?
The EU’s share of global GDP keeps on falling
When Britain joined the Common Market in 1973, the EU (as it is now) produced 38% of the world’s goods and services – 38% of global GDP.
In 1993, when the EU formally began, it produced just under 25%. Today the EU produces just 17%.
By comparison, the US’s share of global GDP stood at 30% in 1973, 27% in 1993, and stands at 22% today.
That’s a 55% drop for the EU versus a 27% drop for the US.
You can attach all sorts of narratives to this data, depending on your belief systems. You might argue that Europe’s share of global GDP was bound to fall because of the exponential growth of various Asian economies – growth which was easier to achieve because it came off a low base.
You might argue that European share of GDP has actually been falling since just before 1900, but you can also argue that Europeans are every bit as capable and competent as their Asian and American rivals, and any failure to keep up boils down to poor systems of rule: our leaders have failed to put the right framework in place for us to compete and thrive.
In reality, it is probably a bit of everything – from soaring Asian growth to poor governance structures within EU countries. But whatever the reason, the reality is that in a generation, the EU’s global economic share has more than halved.
Of course, there has been some growth – with the technological advances that have been made in the world, there could hardly not have been – but EU member state growth has been, on a relative basis, poor.
EU countries are slipping down the wealth list
Let’s look next at the EU’s record on wealth. We’ll use GDP per capita as our measure. (It has to be nominal as I couldn’t find complete purchasing power parity – PPP – data going back to 1973.)
In 1973, three EU nations were on the list of top ten wealthiest countries: Luxembourg (4th), Sweden (6th) and Denmark (8th). The UK was 29th.
In 1993, five of the richest ten were EU members: Luxembourg (1st), Denmark (5th), Germany (8th), Austria (9th) and Sweden (10th). The UK was 18th.
Today, again on a nominal basis, we are back to three: Luxembourg (1st), Denmark (7th) and Ireland (8th). Sweden and Austria have both dropped off the list. The UK is 13th, but this figure is misleading: on a PPP basis we’re much lower – 25th.
I’m well aware the inconsistencies in nominal GDP data make conclusions hard to draw. It seems EU membership has suited some countries – particularly Ireland – more than others. Ireland was 26th in 1993.
If I were a teacher marking the UK’s results, I would say the UK’s performance has been fairly good. We’ll give it a B plus, maybe an A minus. We appear to have benefited more from being in the EU than other member states.
Of course, we’re also talking about a period that covered Thatcherism, London’s revitalisation as a global centre of commerce, and an embrace of the “Anglo-Saxon” model so derided by the EU’s leading lights (at least until the eurozone plunged into its own crisis).
How much better would we have done had we not been part of the EU? That we will never know. But we can point to one very telling data point.
Look at the nations that border the EU but are not members. In 1973, just one of them – Switzerland – made the top ten richest countries. In 1993, two did – Switzerland and Norway. Last year a third nation joined them in the top ten (on a nominal basis) – Iceland. Given the bust it experienced in 2008, that is quite some achievement – though one should stress it ranks lower on a PPP basis.
Of course, the oil helped Norway, but it’s worth noting that it has overtaken and remained ahead of its Scandinavian neighbours, Denmark and Sweden.
In summary, the fringe nations have outperformed the member states. A fringe nation is exactly what Britain would become post Brexit.
EU nations are sliding down the GDP list too
Finally, we consider economies based on size alone. In 1973, there were four EU member states in the world’s largest ten economies – Germany (3rd), France (4th), the UK (5th) and Italy (7th).
In 1993, we had fallen behind Italy, and Spain had made it onto the list – overtaking China to move into 8th place. So there were five EU nations in the top ten at the inception of the EU in 1993.
Fast forward to today. There are now only four nations again. Spain has slid out of the charts from 8th to 14th. Italy has slid from 5th to 8th. (If anyone should be voting to leave the EU it is Spain and Italy, not to mention Greece and Portugal.) France has slid from 4th to 6th. The UK has risen from 6th to 5th. And Germany has slid from 3rd to 4th.
So in terms of size of economy – GDP – EU membership has not been the disaster for the UK that it has been for other EU members. Thank goodness we have the independence of not using the euro.
We have a better deal than most nations but we should still leave
It’s a shame we cannot measure how much better or worse would we might have done had we not been a member of the EU. We can only speculate.
We do have a better deal than other EU member states, and we’ve outperformed them. But I don’t buy the idea that just because we have a good deal, we should stay in. There’s no guarantee we will always have these arrangements. We keep having to fight for deals, often against the wishes of those in government (Tony Blair was keen to join the euro, regardless of how he tries to spin it today). Many of the gains that Britain has seen over the past 40 years or so are down to factors beyond the EU – such as globalisation and financialisation. London’s spectacular growth can be attributed, as much as anything, to its financial independence.
And none of this irons out the fact that the EU is a distant, inflexible, unaccountable bureaucratic body, which has suppressed the potential of many of its citizens. We should not be supporting it. Reforming such bodies from within is an impossible task. Better to hasten its demise, so we can start again. Such bodies don’t do anyone any favours – unless you happen to be working for them or receiving subsidy from them.
We can’t be sure of what we’ve gained from the EU – but there are a few areas where it’s clear that we’ve lost. Next week I want to look at one particular sacrifice we have had to make to the EU, an underreported sacrifice which has cost us dear – our waters.
There’s a lot of nonsense being thrown around in the run-up to the EU vote. But to find out the real reasons why Britain should vote to leave, click here to claim your free report and to start receiving Capital & Conflict.
• Dominic Frisby will be performing his show, Let’s Talk About Tax, at the Edinburgh Festival this August.