My first awkward truth is one that both Remainers and Leavers can agree on, if they are honest with each other. It is that no-one really knows what will happen when the UK leaves the EU. It could be good, it could be bad, it could be neither. It could even be a bit of both.
An example of just how blind we are about the future is the election of Trump. In June 2016, when the Brexit referendum was held, very few foresaw that Trump would be in the White House only six months later.
In the absence of any reliable foresight, we must necessarily fall back on past experience. Yet, curiously, we are often just as blind about the past as we are about the future – and that brings me to my second awkward truth.
The primary argument for Remain is that, even with all its faults, staying with the EU at least means continued economic prosperity, while leaving could be risky and could mean we will be worse off financially. That leaving will mean losing a priceless national asset.
Now here’s the thing. Impossible as it may seem, during the entire time that Britain was a member of the single market – some 23 years – no British government, nor any official body, attempted to measure or calculate what economic benefit – if any –Britain derived from its EU membership. It was simply assumed that the theory must be correct – the absence of tariffs between us and our major trading partners must mean we’re better off than going it alone, and that UK exports to EU – the main aim – would thrive as a result.
This assumption continued, unquestioned, unchallenged and uninvestigated, right up until the Brexit referendum of 2016, when the Chancellor, George Osborne, instructed the Treasury to prepare a report depicting membership of the EU as an unqualified success and departure from it as a financial disaster. The Bank of England and the International Monetary Fund were also induced to write similar reports.
All three reports are now discredited and their authors have apologised and withdrawn or modified them. So where does that leave us in understanding the truth about our long EU membership? Is there anywhere we can turn for solid fact? It turns out that the real facts have been publicly available and staring us in the face all the time – if you know where to look.
Michael Burrage is a former lecturer at the London School of Economics, a research fellow at Harvard and visiting professor in Japan, at the universities of Kyoto, Hokkaido and Kansai and at Hosei University in Tokyo. He specialises in studying international markets. Burrage has called on data from respected independently maintained databases of financial and trading information that provide a detailed picture of the UK’s economic experience as part of the EU.1,3 And that picture is the very opposite of what we have been led to believe. Says Burrage:-
By comparison with the Common Market decades from 1973 to 1992, the Single Market years from 1993 to 2015 have been an era of declining UK export growth to the EU. When ranked among the top 40 fastest-growing exporters to the other founder members of the Single Market the UK comes 36th. It has been surpassed by numerous countries trading with the EU under WTO rules. Moreover, the growth of UK exports to the 111 countries, with which it has itself traded under WTO rules since 1993, has been four times greater than that of its exports to the EU. [Emphasis added].
Over the 43 years of EU membership, UK exports of goods to 11 long-standing members of the EU have grown just two per cent more, and at a compound annual growth rate (CAGR) just 0.02 percentage points higher, than 14 countries trading under WTO rules. EU12 exports to each other have grown just 1 per cent more than the exports of these 14 countries. In other words, the growth of goods exports of the UK to 11 long-standing members of the EU over these 43 years are barely distinguishable from those of 14 countries exporting under WTO rules, and they of course have not incurred any of the costs of EU membership.
Over the 23 years of the Single Market, however, exports from these same 14 countries have grown 27 per cent more than exports from the UK, at a CAGR that is 0.93 points higher. Norway and Iceland, members of the EEA, and Switzerland and Turkey, which have had bilateral agreements with EU over most of these years, have performed similarly and very much better than the EU members and the UK.
Overall, the cross-national data on goods exports lends strong support to the UK Government’s decision to leave the Single Market, and to seek a comprehensive bilateral free trade agreement. However, the experience of 14 countries that have been trading with the EU under WTO rules also offers reassurance to the UK negotiators who may have to decide that no deal is better than the bad deal they have been offered by the EU. 3
However, even this damning tale is not the awkward truth that I mentioned at the beginning. My second awkward truth is this: if the Remain argument for staying is not based in fact then it means that a large section of the educated UK population have been acting under a flawed perception of the single market and a baseless illusion about its effects on Britain.
1,3, Michael Burrage, It’s Quite OK to Walk Away: A review of the UK’s Brexit options with the help of seven international databases, Civitas, London, 2016. Downloadable here.
2, Databases called on include International Monetary Fund, Organisation of Economic Cooperation and Development, World Bank, United Nations, Primary sources include:-
Top 40 goods exporters to the EU14, 1993-2015, by real growth and value: IMF DOTS, data.imf.org
Real growth of goods exports to the EU15, 1993-2015, 15 long-term members of the Single Market compared with 15 non-EU members of the G20: IMF DOTS, data.imf.org
Real growth of goods exports to the EU15 of members to each other v. other comparator groups: IMF Direction of Trade Statistics, data.imf.org.
Real growth of goods exports to the founder members of the Single Market, 1993-2015: IMF DOTS, data.imf.org
Real growth of exports to the single market (EU12) Two EEA and 10 countries with bilateral agreements vs 94 countries trading under WTO rules : IMF Direction of Trade Statistics, data.imf.org
Real growth of goods exports to EU11 by 30 nations according to their trade relationship with the EU: IMF Direction of Trade Statistics, data.imf.org
Real growth of UK exports of goods, 1993-2015 to the EU14, to 62 countries with which the EU has bilateral treaties and to 111 countries to which it has exported under WTO rules: IMF Direction of Trade statistics, data.imf.org
Top 40 fastest growing services exporters to the EU, 2010 to 2014: : OECD EBOPS 2010, stats.oecd.org
Growth of service exports of 27 EU member & 27 non-member countries to 27 countries of the Single Market, 2004 to 2012: OECD Dataset: EBOPS 2002 – Trade in Services by Partner Country European Union (27 countries) Total Services Imports.
Real GDP growth of countries trading with the EU, 1973 to 2015: World Bank, World Development Indicators.
Percentage growth of GDP per capita, 1993-2015 in 22 OECD countries based on purchasing power parity in international dollars: World Bank, International Comparison Program database http://siteresources.worldbank.org/ICPEXT/Resources/ICP_2011.html
Real growth of GDP per person employed, 1993 to 2014: World Bank World DataBank World Development Indicators, http://databank.worldbank.org/data/reports
Are the members of the Single Market closing the productivity gap with the US? 1993 to 2013: OECD Dataset: GDP per capita and productivity levels, Gap in GDP per hour worked with respect to the USA 1993 and 2013, www.oecd.ilibrary.org/statistics
A Scorecard for FTA effectiveness, Export growth before & after agreements came into force in 5 countries: United Nations Commodity Trade Statistics Database, COMTRADE. www.comtrade.un.org