Sunday, 12 June 2016


David Smith's article in today's Sunday Times is an excellent read, as usual. He makes the point that the UK has done very well within the single market since its creation in the early 1990s. The numbers seem to be nailed on. In his words, we would be daft to quit the single market now, as we are still in the shadow of the Big Crash.

David Smith is one of my favourite economic commentators, and I have praised his books which explain the big issues in ways that non-technical people can understand. And his arguments are compelling in today's article. He says that Britain has done so well we ought to keep very quiet about it, lest the other EU countries want to take our success away...

But the bald statistic his argument rests on, appearing as it does to end the economic argument for Brexit in a simple and easy-to-understand set of numbers, does not bear much scrutiny.

For example, when the single market started in 1993, the UK had just suffered a huge crash from the heady boom of the late 1980s into the ERM disaster. In 1993, Sterling had only recently crashed out of the ERM; so at least some of the 62% GDP growth that Smith quotes can be derived from the post-ERM recovery. As we all know, Black Wednesday turned out to be one of the biggest post-war blessings for the UK economy. Afterwards, the pound was able to find its own level in the market, interest rates and inflation slumped, we enjoyed the longest period of continuous growth in recorded history. Some of that was thanks to the single market, no doubt, but cyclical factors are definitely at play.

In contrast Germany, which recorded a comparatively sluggish 35% growth in the same time period, had different domestic issues to contend with. Germany, as I am sure David Smith will remember, had recently expanded to take on the formerly-Communist eastern states. Re-unification was (and still is, to an extent) extremely tough for Germany: the Ostmark was converted at far too high an exchange rate; wages in the East crippled its dilapidated and over-staffed industries; populations shifted, and an unsustainable boom turned to bust. Germany was for many of the years between 1993 and 2016 regarded as the sick man of Europe. Only once the Hartz reforms took hold did the economic miracle get going again. Not mentioned in Smith's article.

Meanwhile France. Well, France: what does one need to say? France always somehow managed to keep up with other big European economies, but it has suffered a massive loss of competitiveness (compared with especially Germany) since locking itself into the Euro. The same goes for Italy, whose economy is smaller now than it was before the global financial crisis. Britain beats Italy and France? Big deal.

Smith's article does not mention the disaster of the Euro which has crippled two of the three economies his chart benchmarks. He also compares us with Japan and the US. We come in slightly slower than the US (albeit from a much lower base) and much quicker than Japan, which has suffered from twenty years of stagnation over the period concerned.

This post is not to suggest that the UK could have done significantly better over the same period had we been outside the single market. My point is simply that the simple numbers used by Smith to argue that leaving the EU would be "daft" do not actually tell us anything. The early 90s to the early 2000s were the heyday of the single market. We got a lot of sensible deregulation such as the open skies and simplified product markets. When Brussels was clearing away protectionism in our target markets, Britain and the rest of the EU probably did much better than they might otherwise have done.

But these numbers offered by Smith offer no counter-factual (for example, there is plenty of evidence that plenty of countries outside the EU have done better at selling into the single market than the UK has done) and, crucially, they offer absolutely no evidence that the single market works for us now and will continue to do so in the future.


david morris said...

The least edifying aspect of what seems to be the longest tennis match ever played is the assumption made at great length by the Remainers that the UK would be foolish to even consider leaving such a well run ggod intentioned organisation as the EU. The Leavers must be currently blinking in disbelief that even after all the Great & Good (term used advisedly) have done to inform & instruct the unwashed about the benefits (& there are some) of remaining in the EU, it seems that after all the deciding game is just going to be too close to call.(*) The widespread assumption of the MSM is that a Vote2Leave will result in the UK being left shivering outside in the cold whilst the forward looking Remainders within will press on towards the broad sunlit uplands of ever closer Union & everlasting happiness. Shurely the Leavers must now use the few days before trooping down the ballot station to emphasise that the Vote is the last chance in the last chance saloon to ensure that the EU reverts to its original form of customs union, for if the UK votes to leave the existing form of union, other like minded countries will be sure to follow ?

(*) Pending verification of postal vote & ballot box stuffing (**)
(**)Copyright (in the UK) Labour Party.

L fairfax said...

For young people trying to buy a home life was much better in 93 also what caused the recession?

Elby the Beserk said...

Sovereignty - this is what this is about. Economics one of the components, but the choice is, do we return to being a sovereign nation, or do we go down with the EU.

Simple really.

Elby the Beserk said...

L fairfax said...
For young people trying to buy a home life was much better in 93 also what caused the recession?


Sorted. Georgie Boy said house prices will fall on Brexit. All prospective first time buyers immediately became Brexit voters. Business bod says Brexit will raise wages. All low paid workers immediately became Brexit voters.

Leave don't need to do any campaigning - they can let Cameron do it for them. Finally, he's batting for Britain, and showing himself to be a true leader ;-)

APL said...

We don't need to leave the EEA ( AKA single market ) it is a distinct organisation to the EU.

Blue Eyes said...

Thanks APL

andrew said...

DM: "... god intentioned organisation as the EU"

Some misspellings do indeed provide wisdom.

On that theme I am still waiting for the Pope's view.

Electro-Kevin said...

The EU isn't a risk free option. The Remainers never mention this.

They have their supporters believing it is the status quo. It isn't. It's in a dangerous state of economic and social flux with huge movements of population and political change ahead.

There are many bailouts and transfers of wealth ahead if we remain. As well as the importation of poverty as people flee economic disaster zones through the borderless EU.

Electro-Kevin said...
This comment has been removed by the author.
Electro-Kevin said...

Forcasters against Brexit (as recently noted by the IFS, 2016, in their Brexit survey) assume that Brexit extinguishes the limited free trade in goods we have within the EU while maintaining all the current trade barriers the EU has in place.

They never give the optimal version of Brexit and always show a drop in trade - unsurprisingly.

Blue Eyes said...

Ek that is true; the forecasts made by Cameron and Osborne assume that they will be awful at running the country after a Brexit vote. Seems lole we should choose someone else in that event.

Interesting comments, all. Any actually related to the post??!

Electro-Kevin said...

Fair comment Blue (and a good post that deserved better)

He claims we've done very well in the single market but I'd say we've done very well being OUT of the euro.

It seems that our best advantages are those which we don't share with the EU - including a land border.

So I'm agreeing with you on the economic point.

Much of our present fortune is from rich escapees of the euro calamity. Unfortunately much of our present misfortune is too.

L fairfax said...

My point was that I don't think
"He makes the point that the UK has done very well within the single market since its creation in the early 1990s. "
Is true. I don't think things are better than in early 90s. I was alive then and apart from electronic goods and the internet.
(I don't think Microsoft, Canon, Samsung etc are from the EU) many things are not better.

mike fowle said...

Never had much time for Smith. He seems so often to present a view of history which is shaped to his particular agenda. Thought that for years. (Apart from one or two notable exceptions, the coverage by the Times and the Sunday Times of the arguments has been completely one sided.)

Anonymous said...

"Japan, which has suffered from twenty years of stagnation over the period concerned"

Japan, to a Japanese person, is still the same country it was 20 or indeed 50 years ago, it's just much better off.

The average UK worker is not better off than 20 years ago, and his country is being changed by mass immigration.