The Referendum: should the UK leave the EU?

For British people the EU Referendum is the big decision in 2016 . Surely this important long term decision should be made on long term fundamentals? Yet nearly all the commentary is about whether In or Out will create or lose X thousand jobs in a year or two, make households £Y000 worse or better off etc. These are all short term consequences. You wouldn’t choose whether to marry someone – or more appropriately divorce someone – based on whether or not they were going to get a pay rise next week.

So let’s look at the long term issues for the UK. Here, essentially both parties should articulate their visions of the long term future of the UK In or Out of the EU, but we’ve seen almost no articulation of future visions. Another thing many people say is they are missing some basic facts. That’s hard to do for a long term vision of the future, but, as a starting point, let’s assume this occurs in a world where the global population rises to around 10 billion by 2050 and 11 billion by the end of the century (according to the UN’s Population Division 2015 central forecasts), and grinding poverty (living on less than $2 a day) affects fewer than 300m people by 2030 – a world in which the UN’s Sustainable Development Goals for 2030 are met as well as the original Millennium Development Goals for 2015 were met – at least as regards human development (the planet did less well).

Against this global backdrop we thought we should provide some basic facts about the UK. What is the starting point? The Outers say the UK should be free to make its own independent decisions, unencumbered by EU policies. Here are some basic starting facts about the UK’s size and potential influence in the world in 2015:

NUMBER OF PEOPLE

Rank Country Population in 2015 (millions)
1 China   1 376
2 India   1 311
3 USA    322
4 Indonesia    258
5 Brazil    208
6 Pakistan    189
7 Nigeria    182
8 Bangladesh    161
9 Russia    143
10 Mexico    127
11 Japan    127
12 Philippines    101
13 Ethiopia    99
14 Viet Nam    93
15 Egypt    92
16 Germany    81
17 Iran (IR)    79
18 Turkey    79
19 Congo DR    77
20 Thailand    68
21 United Kingdom    65
22 France    64
23 Italy    60
24 South Africa    54

Source: United Nations World Population Projections July 2015

SIZE OF ECONOMY in 2015

AT CURRENT EXCHANGE RATES

Rank Country GDP (US$BN)
1 USA 17,947
2 China 10,983
3 Japan 4,123
4 Germany 3,358
5 United Kingdom 2,849
6 France 2,422
7 India 2,091
8 Italy 1,816
9 Brazil 1,773
10 Korea 1,377

AT CURRENT PPPs

Rank Country GDP (US$BN)
1 China       19,392
2 USA       17,947
3 India        7,965
4 Japan        4,830
5 Germany        3,841
6 Russia        3,718
7 Brazil        3,192
8 Indonesia        2,842
9 United Kingdom        2,679
10 France 2,647

Source for both tables: IMF April 2016 World Economic Outlook Database

Development economists say Purchasing Power Parities (PPPs) allow better comparison of GDPs (e.g. China moves far more physical goods internally than the USA – source Eurostat Transport Pocketbook 2015 p.34), so the UK is probably closer to ninth than fifth in the current world economy, and likely to fall further as bigger but poorer countries overtake it. An illustration: with twenty times the population of the UK, India produces six times as much wheat, seven times as much steel and far more software by value added than the UK; it also produces and sells on its roads more cars than the UK. Using PPP exchange rates the Indian economy is plausibly measured to be three times the size of the UK’s economy, but using current exchange rates the Indian economy is 27% smaller than the UK’s! Current exchange rate comparisons cannot be right.

2015 MILITARY RANKINGS

A mix of active personnel, tanks, aircraft, helicopters, aircraft carriers & submarines

Rank Country e.g. Aircraft
1 USA 13,892
2 Russia 3,429
3 China 2.860
4 Japan 1,613
5 India 1,905
6 France 1,264
7 South Korea 1,412
8 Italy 760
9 United Kingdom 936
10 Turkey 1,020

Source: Credit Suisse Report 2015

INTERNET USERS IN 2016

Rank Country Millions
1 China 721
2 India 462
3 USA 286
4 Brazil 139
5 Japan 115
6 Russia 102
7 Nigeria 86
8 Germany 71
9 United Kingdom 60
10 Mexico 58

Source: Internetlivestats.com estimate for 2016
Note: Mexico, Indonesia, Vietnam, Turkey, Philippines will soon overtake the UK

Conclusion: the UK is at the bottom of second rank countries, and will fall into the third rank some time after 2020. To see how small the UK is in global terms look at its share of global GDP using the IMF’s Purchasing Power Parities:

Innie slides April

Using PPPs China overtook the USA and the EU as the world’s largest economy just before 2015, so even if its growth rate slows to 5% it will be growing twice as fast the richest countries. India is catching up, and if it can continue to grow at 6% will overtake the EU and USA in the 2020s. It is inevitable that Europe and America’s share of the global economy falls if the poorer countries in the world raise their living standards, as everyone wants them to. Individual European countries like France, Germany and the UK will stay well behind Japan, and will, in the longer run, fall well behind big countries like Indonesia, Brazil and Russia – although the latter two are struggling at the moment.

So if the UK were on its own, its influence on the world will decline into the negligible category soon after 2020 – which is one reason why President Obama and other friends of the UK have said Stay In. Is it us, or were the intellectuals advocating Brexit all educated in the 1950s (we mean the likes of Nigel Lawson, not careerists like Boris Johnson)? Some good long term reasons to stay in include:

The European Union has

  • 505 million relatively affluent people (2015)
  • the largest internal market on Earth using current exchange rates
  • the second largest economy on the planet using PPPs (rich countries’ shares must decline as the poor get richer)
  • improving – though not equally effective – security and police networks across 28 European countries
  • over 400 million internet users (2016), and
  • successfully prosecuted Microsoft for abusing its dominant position in global computer operating systems (Windows). The EU fined Microsoft €899m and got it to change its policies. The UK cannot attempt such measures against global companies who abuse their dominant position: the UK can only take action for abuse within UK markets, which for giant steel, oil, IT, electronics, aerospace and car firms is just 2-4% of their global sales.

This is to say nothing of the EU’s record of

  1. removing sewage from the Mediterranean Sea through a thirty year programme of treating sewage inside and outside the EU
  2. preserving fish stocks in the seas around Europe (far out into the North Atlantic, as well as the Mediterranean, North and Baltic Seas)
  3. improving the water quality of rivers and lakes across the continent from Poland to Portugal, Italy to Ireland
  4. establishing continental-wide carbon trading schemes to reduce Europe’s contribution to global warming
  5. strengthening democracy in dozens of countries with no long history of democratic traditions – countries that are both inside and outside the EU
  6. helping to establish peace in the Ukraine without using any arms, or threat of arms
  7. funding millions of Middle Eastern people living in refugee camps who have been forced from their homes by war
  8. providing the biggest and lowest tariff market on the planet for developing countries’ exports – excluding oil and gas, the EU imports more from developing countries than the USA, Canada, China and Japan combined
  9. creating the world’s biggest daily currency, the euro, which constitutes 20% of the world’s official currency reserves (the £ constitutes 4%)
  10. sending humankind’s first spacecraft to touch down on a comet going round the sun.

The glaring weakness in the European Union is the total lack of democratic control and public accountability of its central organ – the European Commission. The Commissioners are the most powerful people on the Continent, yet they are neither democratically elected nor publicly accountable. Direct elections for Commissioners will require Treaty change and take ten years. So we should start on it this year!  Making the Commissioners and the head of the European Central Bank publicly account for their actions to a relevant Committee of the European Parliament might not require Treaty change and so could be done much more quickly. One thing is sure: if the UK leaves the EU British people won’t have any influence on this. Yet the British have generally had a strongly benevolent influence on EU policies: since entering the EU in 1973 successive British governments fought consistently to reduce the grossest subsidies of the Common Agricultural Policy – and after thirty years they had largely won. Yes, it wasn’t done in weeks, months, or even the five-year life of a British Parliament, but persistence, logic and being in the right did eventually work. Rome wasn’t built in a day.

Discuss: “The Referendum: should the UK leave the EU?”

  1. March 21, 2016 at 09:43 #

    How many of the trade agreements currently in place would be maintained if Britain were to leave the EU? Is it likely that the majority of international/European trade relationships will stay the same, or will these all have to be re-negotiated (for better or worse)?

    Posted by Laura
    • March 30, 2016 at 14:30 #

      We haven’t had any British trade agreements with anyone since 1972 or before, because under EU rules we gave the right to make trade deals with people outside Europe to the EU’s Commission from 1973. So the only International Treaties we would have to undo are the two 2009 Treaties of Lisbon – the Treaty on European Union itself, and the Treaty on the Functioning of the European Union. One of these has an Article 50 which specifies what countries must do if they wish to leave, and former Cabinet Secretary Sir Gus O’Donnell said that that specifies that we must leave the EU within two years. However, he said, we’d be fighting against the German and French governments who wouldn’t want to give us anything generous because they’re fighting against their own nationalist political movements in Germany and France. Greenland is the only area to have left the EU, they only had one issue – fish – and it still took them three years to negotiate their exit – for fewer people than fit into Wembley stadium. Canada sought to renegotiate its trade with the EU and got a very poor deal, O’Donnell said. So we’d have to offer the EU very generous tariffs and financial contributions (just as Norway and Switzerland pay) to conclude a deal inside two years. We would then have to negotiate trade deals with every other trade bloc, or country that is not in a trade bloc, on the planet (around 200 countries on the planet), and most of the big players are not desperate to do a deal with a small country like the UK, so they could string out signing (and ratifying) the deals for years. After all, what attractions does the UK hold for MERCOSUR in South America or ASEAN in Asia? Apart from Downton and Bake-Off we have nothing that they can’t get from someone else in the world. In the meantime we would face their default trade barriers (typically 3-10%?) and (probably far more of a hindrance to most British exporters) the Non-Tariff Barriers (form-filling and red tape delays) which really can hinder exporters, losing us jobs and vital foreign currency for years.

      Posted by mark

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