Post-Brexit UK-European Union (EU) trading relations will take one of three forms:
(1) The UK will remain part of the EU customs union
(2) UK-EU trade will be governed by World Trade Organisation (WTO) rules
(3) The UK and EU will enter a free trade pact.
Option (1) is economically optimal but has been declared politically unfeasible because it requires the UK to commit to the free movement of labour between the EU and the UK. Such conditionality is essential because economies grow unevenly and, in the absence of independent currencies across Europe and/or a central European state to pool the risk of unemployment, free movement of labour is the mechanism for redistributing the gains from EU growth.
Economics (not history) is the best guide here.
Most parties agree that option (2) is the solution of last resort. Much has been made of its impact on complex cross-border trade in manufactured goods, but trade in services may be more problematic. The General Agreement on Trade in Services governs international trade, but can these rules handle disputes regarding trade in services across highly integrated economies subject to disintegration post-Brexit?
The law (not history) is the best guide here.
Britain’s economic history however is key to analysis of option (3).
On Brexit day (23 June 2016), The Guardian reminded its readers about the ‘Euro myth’ of how European metrication laws had criminalised the use of the Imperial inch such that even the Queen was forced to ‘obey Europe’. Since then, there have been several reports in the popular media about the need for Britain to abandon the ‘European’ metric system and return to its ‘traditional’ imperial measurement system. These reports are yet another reflection of the festering anti-Europe sentiments and the perception that joining the EU led to the ‘loss’ of British sovereignty. Such popular sentiments may be traced to the EEC Directives aimed at harmonisation of ‘technical’ standards such as measurement units (e.g. 71/354/EEC). Harmonisation was one of the key principles of economic integration established by the Rome Treaty in 1957, primarily aimed at eliminating trade restrictions within the European communities. The case of the metrication policy in the 1970s clearly demonstrates how conflicting ‘framing’ of the pro- and anti-metrication arguments in popular politics led to the abandonment of the metrication policy, exacerbated the uncompetitiveness of British industry, and crystallised the popular perception that Brussels was imposing European laws that the British parliament had no choice but to implement.
The metric system was not imposed on Britain upon joining the European Communities between 1973 and 1975. This decision was made almost a decade earlier by Wilson’s government in 1965, when he promised at an EFTA meeting that the UK will adopt the metric system as its primary system of weights and measures. No doubt Wilson’s commitment to inch closer to Europe by giving up the imperial inch was made in anticipation of Britain’s application to join the EEC. The British industry had lobbied fervently between 1955 and 1965 for the adoption of international measurement standards. Most major associations such as the Confederation of British Industries, British Association for Advancement of Science, and the Trade Unions Congress (TUC) supported the policy of complete metrication.
In the early 1970s, even as political opposition to creeping metrication was crystallising, much of the popular literature on the subject conveyed a sense of inevitability concerning metrication in everyday lives. People did not like the change to metric measures – just as they had not liked currency decimalisation in 1971. However, most were prepared to go along with it. Popular opinion against the metric system really hardened following the high inflation in the mid-1970s. Opinion polls between 1972 and 1975 suggest that between a third and a quarter of those surveyed blamed currency decimalisation for high inflation (almost as high as those who blamed inflation on the decision to join the EEC). This view was exploited by several politicians who claimed that metric change was not in the interests of the consumers. In this period of ‘collective puzzlement’, when even experts were divided about the causes of inflation and how to tackle it, the linking of price increases to change of measurement units provided yet another reason to attack metric change. Media reports that EEC directives were compelling the British government to effect this change by 1978-79 added to the popular view that Europe was imposing its laws on Britain. The fact that Brussels had threatened to take the British government to court if it did not complete the metrication programme added fuel to this fire. The British government negotiated with EEC and secured a way of retaining the most popular Imperial units such as the pint and the mile in an amendment to the original EEC directive. The anti-metric lobby claimed this as a victory of how the principle of ‘free choice’ had triumphed over the ‘compulsory metrication’ that was being imposed upon Britain.
Meanwhile, British industry found themselves in an intractable position. Many firms had voluntarily converted to metric units anticipating economic gains in the long term. However, the political resistance to metrication of retail sectors meant that most industrial sectors could not entirely switch to metric units. This was a worst-of-both-worlds scenario. Using the imperial units for some operations in addition to using metric measurements meant firms had to carry extra inventory, incurred higher design costs, and added to the general confusion by operating on multiple standards.
The historical research shows that popular opinion was shaped by little factual information or over-simplification of quite complex economic issues. Framing of opposing arguments involved selecting particular bits of information to highlight, to the exclusion of other (often contradictory) information. The more that one group framed an issue in a particular way – such as EEC directives meant a loss of sovereign law-making powers for Britain – the more that particular bit of information gained salience over other information. Such historical analysis is useful in demonstrating how certain arguments dominated over others. The arguments that metrication of retail sectors was harmful for the consumer and that industry was exaggerating the consequences of dual measurement standards is an example of this. The argument that limiting metric conversion to industry was worse for Britain in economic terms received almost no traction. Analysing how people frame arguments potentially helps unpack why public opinion is shaped in ways that is contrary to ‘expert’ opinion. Certain frames, loaded with political rhetoric – such as metrication means giving up British tradition and heritage – can trump economic logic, as the Brexit debate has clearly demonstrated.
On referendum day in June last year, the 52-year old Nigel Farage expressed his satisfaction with being able to vote on the matter of Britain’s membership of the European Union (EU) for the first time. Brexiters like Farage have long claimed that membership of the EU/EEC (European Economic Community) lacked a democratic mandate.
This research argues that this notion is based on a ‘myth of 1975’. In fact, British public opinion was largely sympathetic towards EEC membership for much of the 1960s. During the first EEC application, Gallup polls demonstrate that approval of the idea of Britain joining the Community outstripped disapproval by a clear margin throughout the lifetime of the application, although there was an overall increase in disapproval rates too.
Gallup polls suggest enthusiasm for EEC membership grew in 1967 when Britain was dealing with the fall-out of a devaluation crisis. While there was some scepticism towards the original terms of entry in 1973 (a scepticism shared with the other new entrants, Denmark and Ireland), attitudes towards the EEC warmed thereafter and the renegotiation process was broadly popular.
Referendum claims that Britain’s first renegotiation relied purely on economic concerns are another example of the myth of 1975 (although the Common Market issue was undoubtedly prominent), which ignores the wider political and social appeals of EEC membership at the time.
Opinion polls produced in early 1975 suggested that the electorate was lukewarm in its support for the EEC. But the idea of renegotiating was popular, especially among Labour voters. The renegotiation process, however flimsy it may seem in hindsight, appeared to demonstrate that the EEC was willing to listen to Britain’s concerns and that Britain could lever authority within the Community.
The triumph of the Leave campaign in 2016 resulted from their ability to overhaul earlier perceptions that EU membership was vital to Britain’s economic future. Crucially, it was able to popularise a plausible rhetoric of EU failure.
Indeed, the Leave campaign’s ability to present Europe as a region of economic stagnation and a security threat on account of its porous borders would have seemed remarkable to audiences in 1975 (when the issue of free movement of labour barely featured and Britain was far from the healthiest of the EEC’s economies).
The Brexit vote requires us to produce new histories of Britain’s relations with Europe. Indeed, we should ask why references to this history in the public debate often turned to counterfactual discussions about what Winston Churchill or Margaret Thatcher would have done if they were alive in 2016, and why expert opinion was given short shrift in some quarters.
In much of the research literature on European integration, there seems to be an assumption that closer co-operation with Europe was the best course for post-war Britain and that in ‘missing the boat’ on several occasions, the country exacerbated its decline in world status.
Such an approach now seems problematic in light of the Brexit vote. As such, we need new histories of Euro-scepticism, but also of Euro-enthusiasm, aware of the differing experiences of the ‘four nations’, which can connect with a broad audience.
Of course, the EEC of 1975, which Britons voted two to one to remain a part of, was highly different in character to the EU of 2016 that the electorate narrowly voted to leave. In the post-Brexit world we need to develop a clearer understanding of how Euroscepticism has developed as a popular culture – its myths, conventional wisdoms, selective reading of history and, most importantly, how it has developed a plausible rhetoric of EU ‘failure’.
While a great deal of attention has been paid to Britain’s applications to join the EEC it is imperative that we get a clearer understanding of how Europe’s influence was understood in everyday popular culture and business life in the years after 1973, and in particular how this relationship (and its earlier history) has been reconceptualised through processes of globalisation, the eastern enlargement of the EU and experiences of mass immigration.
Finally, the result of the referendum is a useful reminder that we need to pay attention to the ‘cultural throw’ of economic theories, how they were articulated in everyday debate and received by the public.
We are now faced with a curious situation where Theresa May’s government appears likely to encourage aspects of globalisation through an economically liberal agenda (revivifying links with established and emerging markets through trade treaties and encouraging investment through a low corporation tax) while also promoting a populist agenda, which may be associated with anti-globalisation (curbing free movement of labour and presumably leaving the Single Market).
Britain now faces a period of profound uncertainty as we wait to see whether the (often conflicting) promises of Brexit campaigners can be made real.
In seeking to understand the economic basis of the Brexit vote, we should concentrate not on globalisation but on the long-term impact of de-industrialisation.
The evidence is certainly strong that economic disadvantage played a significant part in the patterns of voting in the referendum (though age and educational qualifications seem to have played a large, independent role). But this disadvantage seems best linked to de-industrialisation, which has left a legacy of a much more polarised service sector labour market, with large numbers of people condemned to poorly paid and insecure jobs.
Globalisation has contributed to de-industrialisation, but it is only one contributor, and historically not the most important. De-industrialisation began in Britain in the 1950s. It was driven by shifts in patterns of demand and technological change, most strikingly in increasing the growth of productivity (and lowering the relative price) of manufactured goods. (Total industrial output has not fallen, but grown slowly on trend.)
These broad trends have affected all industrial countries, so that industrial employment has fallen substantially even in successful industrial countries with a manufacturing trade surplus, such as Germany. Industrial employment as a share of the total has more than halved in that country since its peak in 1970.
The long-run nature of these trends is illustrated by the fact that many more coal-mining jobs were lost in Britain under Harold Wilson’s government of the 1960s than under Margaret Thatcher’s government of the 1980s.
Similarly, the big collapse of industrial jobs in Lancashire began in the 1950s and accelerated in the 1960s; across the country, textiles and clothing lost 123,000 jobs between 1964 and 1969.
Proportion of workers in industrial employment in the UK
Serious errors of policy have undoubtedly accelerated this process, and compressed it into short time periods (most obviously, the extraordinary appreciation of the pound in 1979-81 as a result of the Thatcher government’s policies). But overall the process has not mainly been policy-driven.
In responding to the economic problems that underpinned the Brexit vote, it is important to be clear that globalisation is only one part of the story. To put it crudely, if globalisation were somehow reversed, it would not return Britain to having anything like the number of industrial jobs that existed in the 1950s.
While there are certainly powerful arguments for seeking to offset the impact that globalisation has had on particular groups of workers, the biggest challenge is how to make a service-dominated economy deliver much better outcomes for those who currently occupy the lousy jobs in the service sector.
David Clayton (University of York) and David Higgins (Newcastle University)
Campaigns to promote the purchase of domestic manufactures feature prominently during national economic crises. The key triggers of such schemes include growing import penetration and concern that consumers have been misled into purchasing foreign products instead of domestic ones. Early examples of such initiatives occurred in the United States in 1890 and 1930, with the introduction of the McKinley tariff and the ‘Buy American’ Act, respectively.
In Britain, similar schemes were launched during the interwar years and in the post-1945 period. For the latter, Britain’s share of world trade in manufactures declined from 25% to 10%, and between 1955 and 1980, import penetration in the manufacturing sector increased from 8% to 30%.
Simultaneously, there were numerous government public policy interventions designed to improve productivity, for example, the National Economic Development Council and the Industrial Relations Commission. Both Labour and Conservative governments were much more interventionist than today.
Currently, the rise of protectionist sentiment in the United States and across Europe may well generate new campaigns to persuade consumers to boycott foreign products and give their preference to those made at home. Indeed, President Trump has vowed to ‘Make America Great Again’: to preserve US jobs he has threatened to tax US companies that import components from abroad.
Using a case study of the ‘Buy British’ campaigns of the 1960s and 1980s, our research, to be presented at the Economic History Society’s 2017 annual conference in London, considers what general lessons can be learned from such initiatives and why, in Britain, they failed.
Our central arguments can be summarised as follows. In the 1960s, before Britain acceded to the European Economic Community, there was considerable scope for a government initiative to promote ‘British’ products. But a variety of political and economic obstacles blocked a ‘Buy British’ campaign. During the 1980s, there was less freedom of manoeuvre to enact an official policy of ‘Buy British’ because by then Britain had to abide by the terms of the Treaty of Rome.
In the 1960s, efforts to promote ‘Buy British’ were hindered by the reluctance of British governments to lead on this initiative because of Treasury constraints on national advertising campaigns and a general belief that such a campaign would be ineffective.
For example, the nationalised industries, which were a large proportion of the economy at this time, could not be used to spearhead any campaign because they relied on industrial and intermediate inputs, not consumer durables; and in any case, the ability of these industries to direct more of their purchases to domestic sources was severely constrained: total purchases by all nationalised industries in the early 1970s were around £2,000 million, of which over 90% went to domestic suppliers.
Efforts to nudge private organisations into running these campaigns were also ineffective. The CBI refused to take the lead on a point of principle, arguing that ‘A general campaign would… conflict with [our] view that commercial freedom should be as complete as possible. British goods must sell on their merits and their price in relation to those of our competitors, not because they happen to be British’.
During the 1980s, government intervention to promote ‘Buy British’ would have contravened Britain’s new international treaty obligations. The Treaty of Rome (1957) required the liberalisation of trade between members, the reduction and eventual abolition of tariffs and the elimination of measures, such as promotion of ‘British’ products, ‘having equivalent effect’. Attempts by the French and Irish governments to persuade their consumers to give preference to domestic goods were declared illegal.
The only way to overcome this legislative restriction was if domestic companies chose to mark their products as ‘British’ voluntarily. This was not a rational strategy for individual firms to follow. Consumers generally prefer domestic to foreign products.
But when price, quality and product-country images are taken into account, rather than origin per se, the country of origin effect is weakened considerably. From the perspective of individual firms promoting their products, using a ‘British’ mark risked devaluing their pre-existing brands by associating then with inferior products.
Our conclusions are that in both periods, firms acting individual or collectively (via industry-wide bodies) did not want to promote their products using ‘British’ marks. Action required top-down pressure from government to persuade consumers to ‘Buy British’. In the 1960s, there was no consensus within government in favour of this position, and, by the 1980s, government intervention was illegal due to international treaty obligation.
In a post-Brexit Britain, with a much weakened manufacturing capacity compared even with the 1960s and 1980s, the case for the government to nudge consumers to ‘Buy British’ is weak.
The House of Commons has voted overwhelmingly to trigger Article 50, on the explicit basis that this process will be irrevocable and that, at the end of the negotiations, Parliament will have a choice between a hard Brexit (leaving the Single Market and the EEA) and an ultra-hard Brexit (WTO terms, if available).
It follows that arguments about whether the UK should remain in the EU, or should stay in all but name (the so called Norwegian option) are now otiose. What role can economic historians play as the terms of exit unfold? I think that there is an important role for scholars in seeking to analyse the promises of the Brexiteers and how feasible these appear in the light of previous experience.
Thus far, the economic debate over Brexit has been conducted on a very general basis. Remainers have argued that leaving the EU spells disaster, whereas Leavers have dismissed such concerns and promised a golden economic future. But what exactly will this future consist of? Doing the best one can, the Brexit proposition must surely be that the rate of economic growth per capita will be significantly higher in the future than it would have been if the UK had retained its EU membership. Since, at the same time, there was to be a massive and permanent reduction in EU and non-EU immigration (from c.330,000 p.a. net immigration to ‘tens of thousands’), it is per capita improvements that will have to be achieved.
The path to this goal will, it is said, be clear once the UK leaves. In particular:
the UK will be able to make its own trade deals and become a great global trading nation;
the UK can develop a less restrictive regulatory framework than that imposed by the EU;
industries such as manufacturing, fisheries and agriculture will revive once the country is no longer ‘tethered to the corpse’ of the EU;
the post-referendum devaluation will provide a boost for exporters.
In relation to each of these claims, there is plenty of helpful evidence from economic history. After all, the UK was the first nation to embrace a global trading role. As Keynes pointed out in a famous passage, in 1914:
The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages…
Yet, despite this background, and despite the economically advantageous legacies of Empire, the UK spent the period between 1961 and 1973 making increasingly desperate attempts to join a (then much smaller) Common Market. British policymakers were initially dismissive of the European Community. Exports to the Six were thought less important than trade with the Commonwealth. Britain’s initial response was to establish EFTA as a rival free trade area. However, it soon became apparent that this arrangement was lopsided: Britain was part of a free trade area with a population of 89m (including its own 51m), but stood outside the EEC’s tariff walls and population of 170m. Will the 2020s be different from the 1960s? In any event, ‘free trade’ is an elusive concept. As John Biffen, a Tory Trade Minister in the Thatcher government (and no friend of the EU), acknowledged, free trade has never existed ‘outside a textbook’.
As regards to decoupling from EU regulations, the UK was, of course, completely free to devise its own regulatory framework prior to accession to the EU in 1973. Nonetheless, in this period, much of the current labour market structure, such as protection against unfair dismissal and redundancy, was enacted. EU regulations, such as the Social Chapter, have complemented, not undermined, this domestic framework. In any event, does the evidence suggest that a mature economy, such as the UK, will be able to establish a more rapid rate of growth with a looser regulatory framework? The obvious comparisons in this respect are the developed North American and Japanese economies. The data suggests that the UK has performed extremely well within the EU framework.
Table: GDP per capita (current US $, source: World Bank
Of course, much higher rates of growth have recently been achieved in developing economies such as China and India. But it cannot seriously be argued that an economy like the UK, which underwent an industrial revolution in the eighteenth century, can achieve rates of progress comparable to economies that are industrialising now. The whole course of economic history shows that mature economies have much slower rates of growth and that the increases achieved by the USA and the UK over the last few decades are close to optimum performance.
The maturity of the UK economy is also germane to arguments suggesting that it will be possible to revive industries that have suffered long term decline, such as manufacturing, agriculture and fisheries. After all, one consequence of the UK’s early start in manufacturing is that primary industries declined first and most rapidly here. Economic historians have been pointing out since the 1950s that in advanced economies the working population inevitably drifts from agriculture to manufacturing and then from manufacturing to services. In 1973, the American sociologist Daniel Bell greeted the arrival of the post-industrial society. He pointed out that the American economy was the first in the world in which more than 60% of the population were engaged in services, and that this trend was deepening in the USA and elsewhere. Brexit is scarcely likely to reverse these very long-term developments.
The British economy has also had considerable past experience of enforced devaluation (for example in 1931, 1949 and 1967). Research following the 1967 devaluation suggested that a falling pound gave only a temporary fillip to the trade balance, whilst delivering a permanent increase in inflation. Over the same period the West German economy performed extremely strongly, despite a constantly appreciating currency.
Finally, one may question whether the UK can achieve an economic miracle whilst, at the same time, pursuing a very restrictive approach to immigration. Successful economies tend to be extremely open to outsiders, who are both a cause and a consequence of growth. After all, in the pre-1914 golden age to which Keynes referred, there were no controls at all, and the British businessman ‘could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality…and could then proceed abroad to foreign quarters…and would consider himself greatly aggrieved and much surprised at the least interference’. Our putative partners in trade deals are not likely to be offering such access and, if they do, they will want substantial concessions in return.
Of course, past performance is no guarantee of future prosperity. Historic failure does not preclude future success. And sections of British public opinion have, it appears, ‘had enough of experts’. Even so, economic historians can hold up to scrutiny some of the more extravagant claims of the Brexiteers.