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IS BRITAIN’S ECONOMY FATED TO FAIL?


At the end of 2015, less than a year before the fateful date of 23rd June 2016, the OECD was projecting that the UK economy would overtake Europe’s largest, Germany, by 2032. This would make the UK the 4th largest in the world. Then the British public voted to leave the European Union and we experienced an event at first hand, about which much will be written in the history e-books for generations to come.


There is now a continuing debate on what the British economy may look like in a post Brexit world, with many predicting a very bleak future. Yet many of the older generation, who were a significant element in the demographic who voted for the UK to leave, hold a memory of a Britain which they argue functioned perfectly well prior to membership the EU. So why are we all so worried about the future of the British economy outside of the EU?


In 1972, when the decision was made for the UK to finally join the EEC, Britain was known as the sick man of Europe. The UK lagged far behind its German and French peers whose GDP per capita had risen 95% (compared with just 50% in the UK). The UK also had very high inflation, topping out at an unhealthy 20% twice during the 70’s. Looking at these facts it is easy to see why in 1975 when the British public was asked if they wanted to stay in the ‘Common Market’, the result was ‘yes’. From these poor beginnings, Britain had risen by 2013 to become more prosperous than its peers. In GDP per capita, the UK economy grew 103% from 1972, edging out Germany at 99%, and well ahead of France at 74%. On this basis the EU appears to have been an economically positive factor. Professor Nauro Campos of Brunel University estimated what the British economy would be today had it not joined the Common Market. His best approximation would be a combination of New Zealand and Argentina, economies that the UK outperformed by 23%. However this does not necessarily of itself prove the theory that EU membership made Britain more productive.


IN 1972, WHEN THE DECISION WAS MADE FOR THE UK TO FINALLY JOIN THE EEC, BRITAIN WAS KNOWN AS THE SICK MAN OF EUROPE.


In 1972 the UK was not the only economy that lagged its peers. Italy’s economy also suffered, but it was a founding member of the EEC. But while the UK began to show a small recovery in the latter half of 1972, Italy saw no business recovery, something that could be attributed to the continued recurrence of labour unrest in the country. The UK also struggled with labour unrest during the 70’s, and days lost to trade union strikes were at all-time highs. Like its Italian peer, it is believed that poor industrial relations were a key factor in holding back British industry. British manufacturing profitability had been in a slow decline since the late 1880’s hence the boom in financial services with Britain being home to 50% of the world’s capital investment by 1913. However there is a strong correlation between a noticeable dip at the end of World War II and a peak in trade union membership in the post war era. Economic advisors such as Ruth Lea of Arbuthnot Securities believe the change in the UK’s fortunes was in fact due to ‘a certain lady from Finchley’. Margaret Thatcher deliberately reduced the power of the trade unions in the UK during her time in power, and it has not recovered ever since. Many years after Maggie’s time in office the principle features of Thatcher’s economics still remain and are still viewed by many as positive attributes of the UK’s current economic structure: privatisation, deregulation of monopolies, and deregulation of the financial sector. One of the key impacts of this was the strong growth in the UK’s services sector.


14 | ADMISI - The Ghost In The Machine | September/October 2018


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