We cannot be fooled by the myth of EU economic success
There have been umpteen studies of the immediate net cost or benefit of staying in the European Union. Important though such calculations are, we also need to look at how such a balance of costs and benefits is likely to evolve over future decades, including in relation to opportunities and threats that we cannot, at present, clearly foresee.
Is the EU likely to make good decisions about these threats and opportunities? This issue turns on the quality of governance in the EU. And the conclusion is not favourable.
It is not widely recognised among the public that the EU is a comparative economic failure. Not in its initial years, of course, when its members grew strongly, thanks to recovery from the war and the transfer of large numbers of people from agriculture to industry. And not so much during 2017, when the EU’S relative performance compared to the US, for instance, picked up.
But this is likely to be a flash in the pan. Over the last two decades, its record has been poor, not only against the emerging markets – which is a misleading comparison – but also against other developed countries such as the US, Australia and Canada. Moreover, over this period, most members of the EU have decidedly under-performed against the UK.
Why is this? Over the last decade and a half, the answer is mostly “the euro”, which has been an unmitigated disaster. But poor relative performance predates the euro. I think that the reason for this earlier underperformance, which has carried through to the euro era, is a series of bad decisions which have reduced efficiency.
The widely acknowledged misuse of the EU’S funds has not helped. But more important than this has been the EU’S excessive regulatory zeal which has placed countless unnecessary burdens on business. And probably more important still has been the absorption of the time and attention of politicians, officials and business leaders with barmy plans for the harmonisation, integration and Europeanisation of something or other. While the leaders of the rapidly growing countries of Asia were busying themselves with the fundamentals of economic growth, in Europe their equivalents were obsessed with unnecessary and damaging integrations.
The most serious of these was undoubtedly the formation of the euro, which was an unforced error. But it was not a one-off. It followed a host of other bad decisions.
The most serious of these is the Common Agricultural Policy, which has caused a massive waste from which we all lose. In addition, the EU continues to operate a protectionist trade policy which has brought about a huge misallocation of resources with a consequent loss of real incomes for European consumers.
Why does the EU make such bad decisions? Because its institutions are badly structured and don’t work well, and because its essential ethos – the drive towards “ever closer union” – is misguided. The EU operates through an unelected commission, supported by an army of bureaucrats, and the European Council, where the horsetrading of individual country interests dominates. In practice, things used to be run by the dominant pair, France and Germany. More recently, France has faded and Germany now dominates. Meanwhile, the European Parliament is a weak institution with little democratic legitimacy and limited powers.
I do not know what the predominant issues of the next few decades are going to be. But I do know this: on the basis of its record, the EU is likely to make cack-handed decisions about them, whatever they are. Two candidates for disastrous policy decisions readily suggest themselves: a move to “harmonise” pension arrangements across the union; and the restriction, including possible taxation, of robots and the employment of advances in artificial intelligence.
Yet aren’t the EU’S cack-handed decisions likely to be outweighed by the benefits of the single market? The short answer is no. These benefits have been greatly oversold.
People talk about Britain “having access” to the single market, as though it were some sort of room, with a door through which you may or may not be admitted, depending upon your membership.
But this is nonsense. All countries in the world have access to the single market. It is simply that in order to sell goods into it they have to agree to meet its standards. Yet that is true wherever you try to sell goods. As it happens, plenty of countries around the world have had great success selling into the single market without themselves being members of it. The United States is the largest exporter to the EU, followed by China.
As for the importance of being able to influence its rules, which has supposedly been a strong argument for the UK to remain a member of the EU, exporters from these other countries have not been able to influence them either. Nor do these countries have a single MEP or representative at any European meeting.
By contrast, the downside to the single market is that you have to apply all its rules and regulations throughout the whole economy. In the UK’S case, about 12pc of our GDP is directly accounted for by exports to the EU. This means that some 88pc is not. Yet that 88pc must also obey all the EU’S rules. Moreover, whatever advantages there are from single market membership are set to fade as the EU falls rapidly in relative importance as it is outgrown by the rest of the world. For the same reason, the costs of having to impose its regulations on the whole economy are set to rise. This is a club of which we should not want to be a member.
Unshackled from the EU and its destructive policies, there is every chance that the UK will enjoy a faster rate of economic growth – faster than it enjoyed in the past while a member, and faster than the remaining members in the future.
Roger Bootle is the chairman of Capital Economics
‘While Asia busied itself with economic growth, Europe was obsessed with unnecessary integration’