Is British being in the European Union better for the UK economy?

Guest Contribution – By Sebastian H

There is currently fevered debate as to whether Britain would be better or worse off as an independent nation. Much of this involves speculating about complex technicalities and possible outcomes, the various claims are then hotly disputed by both sides. This is exhausting for two reasons:

1, Speculation about what might happen is by it’s very nature unfalsifiable conjecture (guessing).
2, Arguing about economic predictions takes the decision from the general population, and puts it in the hands of a small number of technical experts who we trust to be clever and right.

We all want to choose a path that is generally benign, and we shouldn’t have to speculate about hypotheticals in order to do that, so perhaps we can get a clearer picture by flipping the question round and observing what actuallyhappened to countries which have already declared or sacrificed independence. This has two main advantages:

1, Anecdotal evidence is harder to dispute than speculation.
2, These are existing facts ordinary people can observe and weigh up for themselves.

Let’s start by comparing Britain’s GDP before and after Edward Heath took us into the EEC.

If we refer to these historical statistics we see Britain’s (average real per-capita) GDP from 1948-73 was 2.34% but from 1974-2001 it was just 1.87%. And these statistics from the World Bank show us Britain’s average GDP per capita from 2001-2015 was just 1.1%

So…Britain’s economy grew faster when we were independent. And that is not my opinion, it’s not what I think, it’s a cold fact. Furthermore over the last 15 years Britain’s growth has been less than half of what it was when we governed ourselves. Let me put that another way: growth was double when we were independent. Clear enough?

Now let’s observe the experiences of countries that declared independence.

The USA. The ‘Colonies’ declared independence and flourished to become the most prosperous and technologically advanced nation the world has ever seen. Their unemployment level is currently about half that of the Eurozone. Do Americans regret independence? No they celebrate it.

India. When India won independence in 1947, the country was shattered by war and 47% of the population lived in poverty. Did Gandhi quail? No, he knew that whatever the pitfalls of independence, it had to be better that external rule. Was he wrong? Did India collapse? No, instead India set up the world’s largest democracy.

In the first half of the 20th Century India’s agriculture sector grew at about 1% P/A, post independence it’s averaged 2.6%. At independence India’s literacy rate was 12.2% by 2011 it was 74.04%. In 1951 life expectancy was around 37, by 2011 it was 65. India has eradicated polio. Child mortality is about half what it was in the 1950s. In the 1960s the service sector accounted for 4.5% of the working population, by 2008 it was generating 63% of India’s GDP. From 1950-1980 the annual growth rate of the Indian economy averaged around 3.5%. Cold facts.

Canada. According to Nicholas Watt writing in the Guardian Canada has:

only partial access to the single market. Car manufacturers are obliged to comply with EU ‘rules of origin’ which lead to increased costs. Canada has no say in the drawing up of EU rules

Whilst struggling to actually name a Canadian car manufacturer, I would point out that trade tariffs are very low by historical standards, and the access Canada and the EU have to each other’s markets is steadily increasing. If Canada does have to pay a small tariff, big deal, they can just charge it back again on their imports till both sides agree a mutually enriching reduction. ‘Canada has no say in the drawing up of EU rules‘? Quite right! And I should think so too! It is absolutely not Canada’s job to write EU law any more than it’s the EU’s job to write rules for the people of Canada! Bottom line – is there any serious economist in the world who thinks Canada was wrong to declare independence? Maybe there are some…and maybe there are some Canadian car manufacturers too.

Australia and New Zealand. Since declaring independence these countries have made steady progress. Maybe there were initial short-term problems, possibly there were a couple of trade technicalities to iron out, but over the proceeding decades Australia and NewZealand have successfully developed their own cultures, economies and institutions. Furthermore they have approximately double the growth and half the unemployment of the Eurozone. They aren’t shut out of any markets, and if they have social problems they can pass laws to do something about it – unlike the EU.

Norway has held two referenda regarding joining the EU, one in 1972 and one in 1994, both times voting ‘Nei‘. This amounts to a de-facto declaration of independence. Did the sky fall down? Did the economy tank? No. Norway has no national debt and free higher education. It’s GDP per capita is 50% higher than the Eurozone’s. It’s unemployment rate is 3.6% (Eurozone unemployment is 10.5%) And debt? Well, while the Eurozone’s external debt is $16 trillion, Norway is a net external creditor.

Switzerland. Economic basket case? Nope. It’s GDP per capita almost double that of the Eurozone and it has 3.2% unemployment. It is not for nothing that their national hero is William Tell – a man who risked his own son’s life to defy external rule.

Iceland.What happened in Iceland from 2007 to 2011 is regarded as one of the worst financial crises in history. It seems likely that never before had a country managed to amass such great sums of money per capita, only to lose it again in a short space of time. But Iceland with a population of just 320,000 has also staged what appears to be the fastest recovery on record. Since 2011, the gross domestic product has been on the rise once again, most recently at 2%. What’s more salaries are rising, the national debt is sinking and the government has paid off part of the billions of loans it received from the IMF ahead of schedule.Der Spiegel. 01.10.14

Iceland’s unemployment level is 2.5% and they jail corrupt bankers.

Greenland. An interesting example this one. In 1985 Greenland declared independence from Denmark and in-so-doing declared independence from the EEC. (Not a lot of people know that!) Did the country collapse? Again no, just like Iceland they have higher growth and lower unemployment than the Eurozone – not bad for a peripheral iceberg!

If Switzerland, Norway, Greenland or Iceland wanted to join the EU they would be welcomed with open arms. Why do you think they don’t? Self interest.

Conclusion
Generally declarations of independence have not been harbingers of doom, there may have been short term adjustments but the medium to long term trends are clear – independence results in steady benign economic growth and job creation. Conversely it is the sacrificing of independence that heralds economic decline, job losses and dysfunctional government, as we see in the Eurozone.

So to directly answer the original question, there is a mountain of empirical evidence to support the claim that independence is not only morally right but highly profitable too. So now a further question presents itself: if independence was the right choice for the USA, India, Canada, Australia, New Zealand, Norway, Switzerland, Greenland, and Iceland, then how could it be the wrong choice for Britain?

Post Script.
One criticism of an early draft of this essay was that I am comparing apples with oranges – that the experience of The Colonies was from a different age, India is a different culture, Australia, New Zealand, Iceland and Greenland have smaller populations, Switzerland is landlocked and Norway has a less mixed economy. But all the ways in which these countries differ from Britain merely serve to reinforce rather than undermine my point.

-When The Colonies declared independence they had to set up their own democratic institutions from scratch; government ‘of the people for the people by the people’ had never been tried before in history. Additionally they were separating from ruthless govenors which dominated world trade, and which didn’t just apply diplomatic pressure to bully territories but military force as well.
-Similarly when India declared independence they were taking a far bigger risk than we are today. India had high levels of illiteracy, poverty and corruption, as well as tensions between Hindus and Muslims in a different order to Britain’s tensions between Catholics and Protestants. Additionally they were separating from a Britain that had just won a world war and which was perfectly prepared to play hard ball to retain it’s ‘jewel in the crown’. If ever there was a declaration of independence that should have resulted in catastrophy this was it.
-So Australia, New Zealand, Greenland and Iceland have smaller populations than Britain? Well that simply demonstrates that if countries with small populations can make a decent fist of independence then for a country of 65 million it will be a stroll in the park!
-Ok so Switzerland isn’t an island like Britain, well if a land-locked country surrounded by Eurozone nations can trade its way to becoming twice as prosperous per capita as the Eurozone then imagine how much easier it would be for a country with ports and one common language!
-Norway, if a country with a low population which is more dependent on a smaller number of sectors can prosper independently then imagine how much easier it will be for Britain!

So if you think the examples I’ve given are incomparable, then, well you are right – Independence for the above countries was incomparably riskier, there was no historical president of independence within their cultures, they were poorer, less well educated, less well connected, their institutions less well established, they had smaller populations (except India of course) and they were defying more powerful governors in a more war-like age. So if you think my examples are incomparable then I agree – for Britain independence will be incomparably easier – it will just mean reverting to a system that worked pretty well until 1973.

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