Brexit will break Britain

Brexit will break Britain March 10, 2019

I had an exchange with a hardcore leaver type on Twitter the other day. When pressed for support for his views, he produced this report, from Civitas, attacking the ‘”Insider Advantage” myth for remaining in the EU. The subheading of the report should make it clear what the argument being made is: “A comparative study of UK exports to EU and non-EU nations between 1960 and 2012”.

He claimed, and I quote, “…civitas [sic] report was based upon non biased, non political independent factual work over 20 years in 27 countries.” He has not, as of yet, responded to my question about who Civitas’ donors are, and why Civitas have been so prominently mentioned with respect to Brexit, opposition to immigration, and far right activism in the education arena (to protect British culture, apparently). I’m not holding my breath on a response.

The Civitas report, including the notes at the end, is 83 pages long. I am not going to engage in a lengthy dissection of it, indeed, I don’t need to, as you will see, but I do want to use it to illustrate some points, and raise the point that gave rise to the contentious title of this blog post.

PDF available

 

Civitas: Where’s The Insider Advantage?

Pages five through 31 of the Civitas report are a break down of how the UK’s exports have fared against other non-EU countries exporting to the EU. Whilst this is interesting, its point is partially negated by the very first paragraph on page 32:

All the preceding tables refer only to the export of goods, but these now constitute only two-thirds of all UK exports, so it would be helpful to conduct the same kind of analysis for the export of services, especially as the UK enjoys greater comparative advantages for the export of services than for goods.

The paragraph finishes by pointing to this footnote:

The proportion of UK goods exports to 14 current EU members can be measured as a proportion of the exports to the 22 OECD countries for which we have data since 1960. While the proportion increased markedly in the years before UK entry to the EEC from 50 per cent in 1960 to 62 per cent in 1972, it fluctuated around that level through the two decades of the Common Market (1973–1992) and the two decades of the Single Market (1993–2012), with a high point of 70 per cent in 1986. In 2012 it was once again 62 per cent. By this measure, membership of both the EU and the Single Market has had no discernible impact on UK exports of goods to other member countries (p.12)

(It’s worth noting that last year goods accounted for around 55% of the UK’s total exports[i] – a drop of around 10% in the five years since the Civitas report was published.)

I can complete the negation of Civitas’ focus on exports of goods, by pointing out that under Thatcher the UK underwent forced tertiarisation, which is to say, the emphasis moved heavily towards services (tertiary industry), and away from raw materials such as coal and steel (primary industry) and manufacture such as ships and cars (secondary industry). Since the late 1980s manufacturing in the UK has declined by two-thirds[ii]. This is not a purely partisan problem, as Blair continued Thatcher’s work, albeit with a sunnier disposition, and greater emphasis on the positive future (and less austerity).

An extra nail can be out into the coffin of Civitas’ argument by noting their comparison between the US and the UK on page 25:

The United States is an especially illuminating example of the difference between the two eras [the common market and then the single market]. Over the 20 years of the Common Market, UK exports had … grown faster than American exports and by 1992 were 50 per cent higher in value. That was, however, their high point relative to US exports, and they have never reached it since. Instead, the differential has declined, fairly steadily throughout the 19 years of the Single Market, and in 2011, for the first time since 1972, the value of US exports of goods to the EU 11 exceeded the value of UK exports. There cannot, therefore, be much doubt that the growth of UK exports has declined under the Single Market, and that it has failed, thus far, to live up to its promise.

And what happened in 2011? The iPhone 4S was released in September, and Apple shipped 37 million units in the first quarter of 2012, and a further 88 million over the rest of the year. The iPad was released in 2010, and had 40% of the tablet market by the first quarter of 2013[iii]. I’m not suggesting that Apple alone is responsible for the UKs relative demise, but does the UK have any equivalent mass-market export item to lead the charge? No.

Civitas are telling us that the UK has shown very little growth since being in the EU, however, to have any growth at all in a sector that has shrunk by two-thirds is pretty phenomenal, and makes a nonsense of the comparison.

In reality, the UK manufacturing sector is doing well, in that the UK is 8th largest by output[iv], despite having shrunk over the same years that the Civitas report is focusing on. Italy and South Korea had greater output from smaller populations, but most of those that put us into eighth spot are countries with much larger populations like China and the US, or at least slightly larger populations, like France and Germany.

A country with neither heft nor clout

The Civitas report then goes on to illustrate that the UK doesn’t need the clout that being part of the EU supposedly provides it, giving as counter-examples, Switzerland (low-clout) and the US (high-clout), and then goes into quite some detail on the number of FTAs (free trade agreements) that each country has, when they got them, and with whom.

Let me provide, as a counter-example, four comments from Professor Michael Dougan, specialist in EU Constutitional Law at Liverpool (and criminally under-appreciated voice in the Brexit debate):

(note: I’ve provided links to the point in his video where the quotes arise, but the whole video is worth 25 minutes of your time.)

The Swiss signed their first framework agreement with the EU back in 1972, and they are still negotiating… well, they’ve now done well over 100 bi-lateral treaties to deal with particular issues as they go along. It’s hardly comprehensive.

https://youtu.be/USTypBKEd8Y?t=935

 

…leaving the EU will also terminate all of the UK’s current trade agreements with third countries outside Europe. Because those agreements were negotiated with and through the EU, they WILL terminate if we leave. And that basically means that the UK will be back to square one in its trade relations with a whole host of other countries, other than through the WTO.

https://youtu.be/USTypBKEd8Y?t=1260

 

I’m sort of gob-smacked as a researcher in this field that … we’re told we’ll be free, we’ll be free to just trade with whoever we please, we’ll just enter into these new treaties with all of these other countries, just like that. … Logistically it’s difficult to imagine that the UK even has the internal diplomatic and civil service capacity to negotiate more than one or two agreements at a time, let alone 60 or 70.

https://youtu.be/USTypBKEd8Y?t=1286

 

…the UK’s trade policy, so far, has been very, very clever, in a very sort of entertaining way. We actually have not that much to offer, in terms of trade relations, because we’re a very open economy already. … And what the UK does as a trade strategy, is we bargain away access to other people’s markets, the Italians, the Spanish, the Portuguese, the Romanians, so as to win trade agreements with the rest of the world. … We bargain away the rest of the single market to get access to other people’s markets. If we’re not part of the single market any more, we actually don’t have an enormous amount of bargaining power

https://youtu.be/USTypBKEd8Y?t=1314

 

Blaming the EU for our economic woes

The entire Civitas report attempts to make the case that since being in the EU the UK’s trade portfolio has suffered. This is broadly true, when compared to other economies that rely more on manufacturing – and that is a fairly critical comparison to make – apples with apples, you might say. What is not true is that the UK’s involvement in the EU is the cause of this, and that is a post hoc ergo propter hoc fallacy. As noted above, our exports have grown, despite our manufacturing sector shrinking over the same time period. To complain that we do not have growth equivalent to other economies with a greater emphasis on manufacturing is either churlish or duplicitous, or quite possibly both.

In addition, the UK has not, to my knowledge, come out with an equivalent to the iPhone (as noted above), so we don’t have any single, key, runaway-success product that could lead the charge for our otherwise diminished manufacturing economy.

To give the final word on the EU, once again, to Professor Michael Dougan:

…the results of [The Balance of Competences] report were absolutely overwhelmingly, ‘What is the problem?’ Every major stakeholder, across every major sector of our economy and society, does not see a problem with our EU membership, on the contrary they think that it brings real added value to national policy making.

https://youtu.be/USTypBKEd8Y?t=533

 

The other problem with a service-led economy

Blair may not have coined the term ‘knowledge economy’, but he very definitely used it… a lot. But what he meant was ‘service economy’, and what he was doing was continuing the process started by Thatcher. This, in and of itself, is not necessarily a bad thing but, thanks to the influence of The City, we now have a problem.

Late last year, the SPERI (Sheffield Political Economy Research Institute) put out a paper entitled, The UK’s Finance Curse?[v] Following on from other work in the field, this paper attempted to quantify the impact of the UK’s financial services sector on the UK, specifically the idea that it is too large given the size of the economy. The sector draws talent away from other important fields leading to a “skewing of social relations, geography and politics”. The number that SPERI came up with was £4.5billion.

The financial services industry, and its relative inefficiency, cost the UK around one-eighth of its GDP between 1995 and 2015. If the sector was smaller and (presumably) if the government were less desperate to generate wealth from it, it would be more focused on supporting other industries rather than generating revenues in its own right, and the UK would have a more resilient and diversified economy.

 

Misdiagnosing the problem

The SPERI findings can be adequately attached to, and explanatory of, the Brexit debate. The press release for the report even provides us with the apt phrase…

…skewing of social relations, geography and politics.

A sizable chunk of the UK population, are affected by the loss of primary and secondary industrial jobs, are disaffected by the loss of services and support due to austerity, and are disgusted by the massive sums of money passing through the financial services industry. They are painfully aware that they are not benefitting from this money, despite their jobs having been sacrificed to achieve that income (and outcome).

Many people have been convinced that the EU is the source of their problem, whether by the tabloids, or by reports like the Civitas one. London is also a focal point for this rage. To an extent that is fair, but it misses a lot, and misdiagnoses the problem.

London returned very few Tory MPs to parliament, and it is mainly the Tories that place so much faith in large multi-nationals and the financial services industry, *cough* Jacob Rees-Mogg *cough*, all the while turning a blind eye to the tax evasion practices that deprive the UK of billions a year in revenues.

Speaking of tax, London generates 45% of the UK’s urban tax take[vi]. It certainly doesn’t see the benefit of all of that, but, to the casual observer seeing how much money is spent in London, and not knowing how much of what London generates is spent elsewhere, it is reasonable to express concern. But that concern, unanswered, has turned to rage for many people. People who feel as though the Brexit vote is one of the few things that their diminished “social, geographic and political” power has achieved in recent years, and that (the other part of) “London” is trying to derail this.

Image credit: ssilver on 123RF.com – European union and United Kingdom flags breaking apart

 

Brexit will break Britain

As we saw with the Civitas report the desire is to return Britain to the way it was in (or before) the Common Market and, as we repeatedly see with analyses of Brexit voters, the desire is to return to a time before the closing of the mines and the steel works and such like. But these two things are not the same. Since Britain entered the Common Market, now the EU, two things have happened that make rolling back to the last known “good” version impossible.

  • Contrary to the claims in the Civitas report, the UK has been propped up by its involvement in the EU, rather than hobbled. How else to explain our continued, and actually quite creditable growth in exporting goods when, over the same period, our manufacturing sector has reduced in size by two-thirds?
  • As noted by Professor Michael Dougan, the UK has very cannily parlayed its EU-member status for trade deals. Without that member status (and with the loss of the trade deals gained by that means). With the inability to offer anything but financial services (because so much of our status in education and scientific research was also reliant on the EU for funding and the sharing of people and materials) the UK will very quickly become an also-ran tax haven. “Also-ran” because who wants to park up their yacht in the Thames when they can do so in Monte Carlo or the Bahamas? Billionaires have been fleeing the UK in droves since the financial crisis[vii], and there’s every reason to believe that Brexit will precipitate another, much more localised financial crisis.

The disaffected people of Britain, and particularly Wales and the North, have been sold on a promise of a return to the time when there were jobs in their local area. What they’ll be getting is a rolling back to a time when there were fewer consumer protections and less information-sharing between international law enforcement bodies[viii], less funding for areas of outstanding natural beauty and world heritage sites (i.e. sources of tourist income and therefore jobs – can you hear me, Cornwall?) and less protection from issues of water quality and air quality (sulphur dioxide, nitrogen oxides, and sewage emissions), and so on, and so on[ix]. In other words, they’ve been sold on one set of features, but are receiving another set by the same name. Or, to put it another way, Brexit means “Brexit”, and that latter should maybe be pronounced ‘breaks it’.

 

References

[i] https://www.gov.uk/government/news/uk-exports-remain-at-record-high-in-the-year-to-june-2018

[ii] https://www.theguardian.com/business/2011/nov/16/why-britain-doesnt-make-things-manufacturing

[iii] https://eu.usatoday.com/story/money/business/2014/05/18/24-7-wall-st-the-best-selling-products-of-all-time/9223465/

[iv] https://www.themanufacturer.com/uk-manufacturing-statistics/

[v] http://speri.dept.shef.ac.uk/2018/10/05/uk-finance-curse-report/

[vi] https://blogs.lse.ac.uk/politicsandpolicy/brexit-epicentre-london-financial-services/

[vii] https://www.thetimes.co.uk/article/a-third-of-british-billionaires-have-moved-to-a-tax-haven-zk6q53rtd

[viii] https://www.independent.co.uk/news/uk/politics/eu-what-has-european-union-done-for-us-david-cameron-brexit-a6850626.html

[ix] https://smallbusinessprices.co.uk/remain-eu/

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