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.