Has the Single Market helped Britain grow?
In order to understand if the Single Market has helped Britain grow, I first want to understand how Britain ended up within the now called, Single Market.
Did Britain join the Single Market to experience growth?
Britain joined the European Economic Community (EEC) which grew into the EU. Britain’s growth rate did at times outperform the EEC, so its reasons for joining can’t be explained purely by looking at economics (Sked, 2015). Sked (2015) argues that Britain didn’t join the EEC to help the economy or put itself at the heart of Europe. The EEC at the time was in no position to aid a countries economy. Britain joined the EEC because of Harold Macmillan, who was close friends with Jean Monnet. Together with other senior officials, they backed Monnet’s united Europe plans. Macmillan acted as a lobbyist in the House of Commons, pushing first for the European Coal & Steel Community, then EEC membership, by 1973 all of the establishment believed EEC membership was beneficial to Britain’s prosperity (Sked, 2015). Over time the relationship has become increasingly transactional.
Has the Single Market helped Britain grow?
Before Britain joined the European Economic Community (EEC), the EEC countries closest in population size (France, West Germany, and Italy) all produced more than the UK with the gap increasing yearly (Giles, 2017). When the UK joined the EEC its annual national growth rate was 7.4%. Much higher than the International Monetary Funds (IMF) 2017 projection of 1.7% (BBC, 2017; Sked, 2015). After becoming a member in 1973, Britain caught up closing the annual production gap (Giles, 2017). In the 1980’s Britain was trailing behind economically but has since gone on to prosper (Grant, 2008). If EEA membership is the only thing that is taken into consideration then it would seem it helped the UK become more competitive amongst its European rivals.
But in post-World War 2 Europe there was widespread growth due to many factors, a release of stored up demand, huge reservoirs of available cheap labour, Marshall aid and, massive technological advances that could be put to civilian use (Kershaw, 2015, p. 177). After 1945, individual governments made supply-side reforms in France, West Germany, Scandinavia, and the UK which have all done more to stimulate growth than any EU policy (Sked, 2015). With growth not directly linked to Single Market participation, leaving the EU gains greater credibility. According to a study by the Bertelsmann Stiflung, the Danish and German economies benefited most from the 1992-2012 single market expansion. This same study placed the UK in 7th, place. In 7th place, it’s still one of the countries which have experienced GDP growth, and an increase in standard of living. Greece, on the other hand, was found to have fared better had it remained out of the EU (Pop, 2014). These benefits were however reaped in an EU where the UK could influence the shape of the Single Market.
Members of the EU also benefit from EU investment which in turn attracts foreign investment (Bruno et al, 2016). In 2015, Foreign Direct Investment (FDI) accounted for 55% of the UK’s GDP (OECD, 2016a). When the UK’s FDI is closely examined it becomes clear that the EU is the most important source of FDI to the UK, even with investments from other parts of the world, the importance of the EU is not diminishing (Bruno et al, 2016, p. 11). Bruno et al (2016) set to discover the impact of EU membership on FDI, they also considered how the flow of FDI would differ had the UK not joined the EU. The results suggest that the Single Market played a role in mobilising FDI to and from the UK. It suggests the UK would have received 30% less FDI had it not been in the EU (Bruno et al, 2016, p. 17). This is a significant amount of investment. In regard to Brexit, Bruno et al (2016) predicted leaving the EU would reduce the UK’s FDI by, 12%, 25% or 28%. Whilst it is difficult to measure how much EEA membership was a key factor in Britain’s growth since 1973. EU membership has a positive correlation with FDI (Bruno et al, 2016). Britain’s high level of reliance on FDI and the EU’s large role as an investor have inevitably played a role in British growth. FDI triggers technology spillovers, assist human capital formation, contribute to international trade integration etc (OECD, 2002, p. 5).
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BBC, 2017. UK economic growth rate edges slightly higher. BBC, [online] 26 July. Available at: <http://www.bbc.co.uk/news/business-40726833> [Accessed 3 August. 2017].
Bruno, R., Campos, N., Estrin, S., and Tian, M, 2016. Foreign Direct Investment and the Relationship Between the United Kingdom and the European Union. [pdf]. London: Centre for Economic Performance. Available at: <http://cep.lse.ac.uk/pubs/download/dp1453.pdf> [Accessed 21 August. 2017].
Giles, C, 2017. What has the EU done for the UK? The Financial Times [online] 31 March. Available at: <https://www.ft.com/content/202a60c0-cfd8-11e5-831d-09f7778e7377> [Accessed 25 August. 2017].
Kershaw, I, 2015. Out of the ashes: Europe’s rebirth after the Second World War, 1945-1949. Journal of the British Academy, [e-journal] 3, pp.167-183. http://dx.doi:10.5871/jba/003.167.
OECD, 2002. Foreign Direct Investment for Development. [pdf]. Available at: <https://www.oecd.org/investment/investmentfordevelopment/1959815.pdf> [Accessed 6 September. 2017].
Pop, V. (2014). Denmark, Germany benefit most from EU market. [online]. EU Observer. Available at: <https://euobserver.com/economic/125125>
Sked, A, 2015. Why Britain really joined the EEC (and why it had nothing to do with helping our economy). London School of Economics [online]. Available at: <http://blogs.lse.ac.uk/brexit/2015/11/26/why-britain-really-joined-the-eec-and-why-it-had-nothing-to-do-with-helping-our-economy/> [Accessed 9 August. 2017].