Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday 11 February 2020

The UK’s place in the world

As an economist, I naturally focus on the economic aspects of the EU. The EU is mostly about economics. To counterpoise sovereignty as an alternative perspective to economics misses an important point: most EU rules stem from the economics of free trade within the EU. The EU wants common regulations to make it easier to trade. The EU wants restrictions on state aid to prevent countries giving their own firms an advantage over others in the union. Much the same applies to labour market and environmental standards.

Economics is also involved in another aspect of being in or out of the EU, and that is how the UK sees its place in the world. Is the UK’s identity partly a European identity, or does the UK ‘stand alone’, independent of all multinational blocs. Anyone interested in this question should read an excellent and compact essay by the ‘Red Historian’, Robert Saunders.

Those who want us out of Europe need to address why the UK became part of Europe in the first place. After the war, the UK had tried a different strategy. After all, being part of Europe did not look very attractive in the aftermath of a war that had destroyed large parts of it. Instead the UK tried to forge its place in the world based on its history, a history of empire.

This involved three elements: the remains of Empire, the Commonwealth, and our special relationship with the US. Harold Macmillan spoke of Britain playing ‘Greece’ to America’s ‘Rome’, acting as a wise counselor to its idealistic but naive successor. But that strategy failed, because neither the Commonwealth or the US were particularly interested in playing their allotted roles in this scheme.

Two quotes from Saunders’ essay are indicative. The American Dean Acheson said ‘The attempt to play a separate power role’, he declared, ‘a role apart from Europe, a role based on a “special relationship” with the United States, a role based on being the head of a “commonwealth” which has no political structure, or unity, or strength … this role is about played out’. Privately, Harold Macmillan agreed: ‘all our policies at home and abroad’, he lamented, ‘are in ruins’.

This is why we became a part of the EU. The UK wanted to continue to play some significant role in the world, and our attempt to do so independently of Europe had failed. So now we have left the EU, is there any coherent vision of an alternative strategy?

In the Brexit debate you can hear an echo of the failed post-war strategy. No trade deal with the EU is now apparently called the Australian relationship, because that sounds better. We also hear an echo of an even earlier history, when appeals are made to the UK’s buccaneering spirit. However, as Adam Curtis explored in a 1999 documentary (HT Adam Tooze), there is a modern counterpart to this, which is the story of how we ended up selling weapons to Saudi Arabia. But as Robert Shrimsley points out, this vision conflicts with the government's new found need to worry about left behind regions with what some ministers call 'legacy industries'.

Yet stories and exceptions apart, the truth is UK industry is not particularly buccaneering. This has nothing to do with being constrained by the EU, as a comparison with Germany makes obvious. In fact the opposite is the case. One of my first jobs after I graduated was looking at the steady and significant decline in the UK’s share of exports in world trade, which was something of an obsession among UK policymakers.

The UK’s weakness is perhaps not surprising in a country where the middle classes regard an engineer as someone who fixes your washing machine. What the UK does well is produce financial, business and other services. But to successfully export these often requires pretty deep trade agreements, like the EU single market. Which is why our export share within the EU rose so substantially after the Single Market was formed. Which major economies are going to enter into the equivalent of the Single Market with the UK?

There is little sign that the current government, and particularly those who lead it, understand anything of this. Comic book stories substitute for solid evidence. They have shown us nothing to suggest that the UK can continue to have any voice among those of dominant players like the US, EU, China, India, Russia and Japan. As Robert Saunders writes
“In writing a history of Britain as a small power, it pretends that nothing has changed: that a nation stripped of its colonies, its industrial power and its control over global finance has the same options today as in the age of its pre-eminence. That means that we are not being serious about the choices in front of us.”

Does the UK need to have a special place in the world? Can we not accept that others will take the key decisions, and we will just have to do what we can in a world over which we have no control? As Saunders notes, in a benign world this might be tenable, but we no longer live in a benign world. This is where the economics of trade re-enters the equation. A UK with no big country or union to help protect it will be at the mercy of any big global player that wants to gain some trade advantage at our expense.

For many in the ERG the implicit answer to this problem is the United States. They are encouraged by Trump’s enthusiasm for Brexit. They fail to see that his enthusiasm is based on antagonism towards the EU and his desire to exploit our weakness. For those who have a nostalgia for days of glory that weakness will be hard to take, as it will be when our legacies of empire are gradually taken off our hands along with the trappings of international influence.

For all these reasons, Brexit is not tenable in the long term, as those who tried and failed to make it work after the war finally understood. Their conclusion will be our conclusion after Brexit: for the UK to flourish in a secure environment it has to be part of the EU. The only question is how long this realisation takes and the manner of our rejoining.


  1. Although you end with the conclusion that Brexit is not tenable in the long term you could say the same about the EU.

    The Euro was a major mistake as many economists agree and is the Sword of Damocles hanging over the whole edifice. In broad terms there appears to be two ways of resolving this: an orderly dismemberment (Joesph Stiglitz) or a full federal union.

    If this came about the first would mean there is nothing to rejoin and in the second we would probably not want to rejoin - and others would see a federal state as a real problem.

    The invariable contrast between a delinquent anachronistic UK with the shining edifice on the hill that is the UK is not merely simplistic but completely disingenuous. My belief is that Brexit is a sideshow and it will be subsumed under much larger issues such as demography; climate change; energy costs and AI/ automation.

  2. Excellent. Brexit is a best a waste of time.

  3. According to the Office of National Statistics, the UK has now experienced 45 consecutive months of annual export growth on a rolling annual basis. UK companies exported £689.0 billion worth of goods and services across the globe – up by 5.0% on 2018. Goods exports to non-EU countries grew by 13.6%.

    UK GDP growth was the third highest in the G7;- surprisingly strong given the political uncertainty that prevailed last year.

    1. The referendum caused a large depreciation of sterling because, when Brexit happens (we are still in transition), exports to the EU will be hit. So we would expect export growth after this depreciation before we actually leave.

  4. " ..for the UK to flourish in a secure environment it has to be part of the EU. The only question is how long this realisation takes and the manner of our rejoining."

    Substitute the word 'Euro' for 'EU' and you have failed reasoning of 30 years ago.

  5. Your arguments are sound, but we need to take account of the evolving political economy of the EU.

    Various strains of populist, illiberal economic nationalism are driving the political agenda throughout Europe – and in the US. Their emergence is both a signal and a result of the total failure of the progressive left and of the hubris of this mislabeled neoliberalism. Social democracy is close to being a busted flush in Europe and the US. In the few countries where social democrats are in power there are often burgeoning populist, illiberal economic nationalist parties. The latter run the show in Poland and Hungary and in Italy, France, Belgium and the Netherlands they are in strong, if not pole, positions. Elsewhere centre-right and right-wing parties are conflicted between seeking to absorb their supporters or trying to keep them at arm’s length. The Tories, characteristically, have absorbed their supporters. In contrast Germany’s CDU/CSU is struggling to keep them at arm’s length.

    This virus of populist illiberal economic nationalism takes hold and strengthens only when economic and social conditions are so dire for a sufficient number of citizens that their expression of justified disgust and anger registers strongly at the ballot box. And we shouldn't be confused by the recent surge in support for Sinn Féin (SF) in Ireland. This virus isn't confined to the right. The opportunistic pseudo left-wing economic nationalism of SF is an example of how it presents on the left. Corbynism is another variant that is defined by rigid adherence to out-dated ideology and democratic centralism.

    The abaility of the EU to sustain itself and develop is in doubt. The secret ballot in the European Parliament to elect the centre-right nominee for Commission President required votes from the previously potent left, centre and centre-right blocs to secure a bare majority.

    When we look at the G20 (which generates 85% of global GDP) the major quasi-democratic and authoritarian regimes exhibit the defining features of populist illiberal economic nationalism. These regimes (ably aided by the current US administration) are bent on weakening the EU's global role.

    None of this invalidates the argument that the UK would be better off as a member of the EU rules-based club, but one needs to be clear-eyed about how the political economy of the EU is unfolding and about the global context. I deeply dislike the term neoliberalism, because the only liberalism in it is the freedom it confers on the powerful and wealthy to rip-off every once else, but, as it enters its death throes in the developed economies, its legacy has been to provoke the emergence of populist illiberal economic nationalism. The risk is that we will see a further even nastier mutation of capitalism as the international rules-based order breaks down.


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