Michael Burrage is the author of It’s Quite OK to Walk Away: A review of the UK’s Brexit options with the help of seven international databases, published by the think tank Civitas.
As Theresa May prepares to embark on negotiations over Britain’s future relationship with the EU, we can expect to hear a regular drumbeat of warnings about the economic disaster that will ensue once the UK leaves the Single Market. It has become a popular meme in British political life over recent decades that the Single Market is the greatest achievement of the EU, and far outweighs any of the costs and other disadvantages of EU membership.
This idea has been so widely accepted that none of the four UK prime ministers who have been enthusiastic supporters of the Single Market over its 23 years ever thought it necessary to invite the Treasury or anyone else to monitor and measure its benefits for the UK. Their enthusiasm could only have been based on hearsay, or opinion, or perhaps on some recollection of trade theory. It could not have been based on evidence, since HM Treasury had none to offer when it presented its widely, and justly, discredited predictions about various post-Brexit options during the referendum.
The European Commission was similarly persuaded, for it too never thought it necessary to measure the performance of its great project until 2014, and it still has not decided on the best criteria by which its success should be measured, though it has ruled out ‘economic indicators for a country-based annual assessment’.
There have been, of course, plenty of enthusiastic word of mouth endorsements from businesses and trade associations about the convenience of trading freely across the member states, but these are not substitutes for systematic and comprehensive analyses which demonstrate, by comparison with non-member countries, how membership of the Single Market has helped to increase UK exports, or productivity, or employment, or FDI, or – by virtue of the EU’s supposed negotiating ‘clout’ – trade with the rest of the world over the past 23 years.
The basic raw data for such an evaluation is to be found in the databases of international agencies like the OECD, IMF, World Bank, UN Comtrade, UNCTAD and International Trade Centre. Some of it is presented in my new Civitas report It’s Quite OK to Walk Away, published today. Much of the data is startling and counter-intuitive, especially that which shows that the growth of exports to the EU of countries trading under WTO rules has often exceeded those of the UK to other members, and not infrequently those of all founder members of the Single Market to each other.
The UK is now the third largest exporter of goods to the other founder members of the Single Market, having been overtaken by both China and the US in the past 23 years, during which the growth of UK exports to other members has been extremely slow. When ranked among the top 40 fastest growing exporters to the EU over the years 1993-2015, it lies in 36th position.
The compound annual growth rate of the goods exports to the EU11 of 14 countries trading under WTO rules (not including China), over the years 1993-2015, was 1.93 per cent, whereas that of the UK was just one per cent. If we go further back, and measure over the 43 years, the UK has a marginally higher rate of growth of 2.65 per cent, and its exports have grown by exactly 200 per cent, whereas that of 14 countries trading under WTO rules was 2.63 per cent, and their exports have grown by 198 per cent. In terms of export growth, therefore, the UK has little to show for the costs, constraints and obligations of 43 years of EU membership: about two per cent more total export growth than 14 countries who have borne none of them.
Of course, the UK itself exports to many countries under WTO rules, and its goods exports to 111 of these countries over the years 1993-2015 have grown far more rapidly than its exports to the EU, at a compound annual growth rate of 2.88 per cent, whereas to the EU14 over these same years it was just 0.91 per cent. The UK has an export problem, but it is especially severe within the EU, not outside it.
Cross-national data for services exports is more limited and uneven, but it shows a rather better UK performance. In a ranking of the top 40 fastest growing exporters to the EU over the five years 2010-2014 it ranks 25th, with a growth rate just below that of the mean for the EU28. The exports of many countries trading under WTO rules have therefore again grown faster than those of the UK and of other members to each other. The services exports of 27 of them to the EU27 grew over the years 2004-2012 at a compound annual growth rate of 3.7 per cent, whereas those of 27 members to each other grew at 3.2 per cent.
This evidence, along with a great deal more on productivity, on employment, on trade agreements, and on FDI, vindicates the observation of the FT columnist Wolfgang Münchau that “the Single Market is a giant economic non-event”. It therefore also strongly supports Mrs May’s decision to withdraw from it.
The benefits of Single Market membership have been wildly exaggerated, along with the disadvantages of WTO membership. Cheerleaders for the EU intend to go on doing so. But the experience of 14 countries trading with the EU under WTO rules, and the UK’s own experience trading with 111 countries under those same rules, should reassure UK negotiators. Obviously, they will be seeking as much free trade possible, but if the EU chooses to impose unacceptable conditions, the hard, incontrovertible evidence in international databases is telling them that it is quite OK to walk away.