Sunday, February 28, 2016
Inside the EU, we whistled a happier tune
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

robin.jpg

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

History does not necessarily repeat itself, but it is a long way from being “more or less bunk” as Henry Ford famously put it. History looms large in the politics of the EU referendum. Now, as 40 years ago, we have a prime minister trying to sell his renegotiation to voters, while presiding over a divided cabinet. For David Cameron, read Harold Wilson.

There is also useful history in the economics of Britain’s relationship with Europe. Campaigners for Brexit look to a future in which Britain is disentangled from the constraints of the EU and free to forge new and stronger economic relationships with the rest of the world. I shall have a look in more detail what this might mean between now and June 23rd.

Before that it is worth reminding ourselves of that tangle-free world, because Britain has been there before. In the 1950s and 1960s, while the original six members of the EU were forging ever closer economic relationships, beginning with the coal and steel community and then the European Economic Community (EEC), Britain ploughed a very different furrow.

By staying out of the talks leading to the establishment of the coal and steel community in the early 1950s because, in the words of Herbert Morrison, Labour’s deputy prime minister (and Peter Mandelson’s grandfather), “the Durham miners won’t wear it”, Britain had already demonstrated a hostility to European integration. It was no great surprise when the EEC, created as a result of the Treaty of Rome of 1957, and starting in 1958, did not include Britain among its original members (Germany, France, Italy, Belgium, the Netherlands and Luxembourg).

While Europe was busy integrating, the world was Britain’s oyster. Where there had once been the Empire, on which the sun never set, now there was the Commonwealth. There was the special relationship with America. There were opportunities well beyond the narrow confines of the EEC.

The world, however, was not enough. Commonwealth countries such as Australia and South Africa, far from being happy to be easy markets for British exports, wanted to develop their own industries and imposed tariff barriers against the mother country. India was heavily protectionist from the time of independence in 1947.

As a result of this and other factors, Europe’s grass started to look a lot greener. Britain’s economic performance in the 1950s and 1960s, while reasonable in comparison with later decades, was poor in relation to the EEC pioneers. Germany and France had a lot more catching up to do after the devastation of the war but, even allowing for this, achieved growth well in excess of Britain.

In the period 1950-73, sometimes known as the golden age, gross domestic product per head rose by an average of 2.4% a year in Britain, 4% in France and 5% in Germany. By 1960, Germany was once again producing more cars than Britain and had secured a bigger share of world trade.

Having sampled life outside, successive British governments wanted in, and desperately. Having tried a smaller alternative to the EEC, the European Free Trade Association (EFTA), established in 1960, Britain applied, and was rejected for EEC membership, in 1963 and 1967, before being finally admitted at the start of 1973. Envy of Europe went deep. The 1964-70 Labour government, under Wilson, consciously and unsuccessfully tried to imitate France’s successful experiment with economic planning.

The politicians of the 1960s and early 1970s were not daft. Having lagged behind growth in the EEC prior to membership, Britain caught up and then overhauled the original six. Their growth became no longer a cause for envy. Growth rates slowed everywhere after the golden age, but Britain’s relative performance improved. Plainly not all of this was due to being in the EEC. Clearly, some of it was.

Joining the EEC was a considerable economic success, according to a new paper The Growth Effects of EU Membership for the UK: A Review of the Evidence, by the noted economic historian Professor Nick Crafts of Warwick University.

“Membership has raised UK income levels appreciably and by much more than 1970s’ proponents of EU entry predicted,” he writes. “Joining the EU raised the level of real GDP per person in the UK compared with the alternative of staying in EFTA. The deeper economic integration EU membership entailed increased trade substantially and this had positive effects on income.” His calculations suggest that the positive economic effects of membership have outweighed the cost of Britain’s EU contributions and red tape by a factor of about seven to one.

The world was different in 1973 when Britain joined the EEC, and 1975, when we had a referendum, comfortably won, on whether to remain in. Many people who did have a vote in 1975, and some who did not, claim that the country was conned, that we voted to join a common market and ended up with ever closer union, migration and a single currency on our doorstep.

It is true that at the time of the 1975 referendum the government chose to emphasise the trade aspects of membership to the exclusion of almost everything else. But freedom of movement and equal treatment of people were part of the Treaty of Rome, though in the 1970s most people expected the flows to be from Britain to Europe, not the other way around. The subsequent TV series Auf Wiedersehn Pet was about British migrant workers in Germany.

As for the single currency, when Ted Heath began his successful entry negotiations, the EEC was still officially on course for monetary union, the Werner Report of October 1970 having set the target of achieving it by 1980. It took a further two decades but Europe’s intentions were pretty clear.

A stronger point is that Europe has changed in 40 years. No longer do we envy our European partners their growth, although I find that many people I talk to still have a lot of envy for Germany, and even France. The world has changed too, with the rise of China and other emerging economies. Trade is freer, for goods, if not yet enough for services, though Britain is making great strides: service-sector exports doubled between 2006 and 2014.

The question which I will address in the coming weeks is whether things have changed enough for life to be better outside. Does our EU membership prevent us taking full advantage of the wider world, or is that an escapist fantasy? Germany has been a notable success, from within the EU, in selling to the world. Only China and America, with much larger populations, export more. A few decades ago we found that life outside Europe was cold. The question is whether it would be any warmer now.