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What would have happened to UK exports if there had been no Single Market?

‘What ifs’ are usually intuitive, speculative games, where no two people who play get the same answer. In this case, however, there is a simple, robust method of finding out what would have happened in the absence of the Single Market which any Microsoft Excel user can perform and where everyone will always arrive at exactly the same answer. [1]

It makes only one assumption, that absolutely nothing changed in 1986 or 1993, and that the Single Market had not been thought of. Therefore, there has been no EU directives or regulations regarding the Single Market, and UK exports to the EU have continued to grow between 1993 and 2012 as they had done over the preceding two Common Market decades (1973-1992).

Needless to say, this gives a wholly imaginary reconstruction, though for analytical purposes, when placed alongside what really happened to exports from 1993 to 2012, it is illuminating. It allows us to see how far actual export growth differed from this imaginary export growth curve when all the factors that are known to affect exports such as variations in tariff and exchange rates, raw material, capital, labour and transport costs, and production technologies, continued to operate exactly as they had done over the preceding decades.

For the sake of this exercise we have taken 1 January 1993 as the formal start date of the Single Market programme, though we know some elements of the programme began to be phased in after the Single European Act came into force in 1987. And to make meaningful comparisons we have also held constant the number of member countries. Three of the founding members of the Single Market, Greece, Portugal and Spain, were not members of the EU in 1973. So we have backdated their entry to 1973.

The blue line in Figure 20.1 shows the actual growth of UK exports to the EU over the 40 years 1973 to 2012 in constant US(1973)$. The red line is the exponential trend line of UK export growth over the first two decades, and as the R2 indicates, it is quite a close fit with the recorded figures from which it is drawn.

The striking feature of this imaginary extrapolation is the extent to which real UK goods exports to other founding members of the Single Market have fallen short of what they would have been had they continued to grow as they had done under the Common Market. It represents a shortfall of 22.6 per cent in value.

Chapter 20 - graph 1

If UK exports to other members had continued to grow at the CAGR of 5.38 per cent as they had during the Common Market years, they would have been just short of US(1973)$8bn per month by 2012. In reality, they grew at a CAGR of 3.09 per cent over the Single Market years, and were US(1973)$4.6bn per month by 2012, equating to $23.4bn in 2012 US dollars.

This large shortfall is due in part to the financial crisis. We can calculate their growth up to their peak pre-crisis year in 2007 and assume that the pre-crisis boom was part of the normal growth path of the Single Market. The CAGR from 1993 to 2007 was 5.3 per cent, and therefore only 0.08 per cent below that of the Common Market years. Over the first 15 years of the Single Market, UK exports to other members were almost keeping pace with the growth during the Common Market years. The shortfall in the exports to other members up to 2007 is only 14.6 per cent. This increased to a shortfall of 22.6 per cent over the following five years to 2012.

The UK in a portrait of the Single Market’s failure

This analysis is part of a larger study which also compared UK exports to OECD members over the Common Market and Single Market decades, the exports of EU members to one another and to the other OECD members, and the exports of OECD members to EU members.[2] The results are summarized in the chart below.

The dark columns show the growth in the total value of exports over the 20 years of the Single Market. The lighter columns show the same for growth up to the peak year as a percentage of growth under 20 years of the Common Market before the financial crisis, this being 2008 in all cases except for the UK when it is 2007. The figures in the columns give the CAGR over the same periods, and the yellow figures at the base of the dark blue column give the CAGR over the Common Market decades.

Chapter 20 - graph 2

The line at 100 per cent represents the exports of all the five exporters analysed if they had continued at the same rate under the Single Market as they had done under the Common Market years.

The exports of every group has grown less than expected had they grown as much as they did over the 20 Common Market years. However, if we eliminate the impact of the financial crisis of 2008, by measuring export growth only to that year (or in the UK case to 2007), they all performed rather better. However, only the exports of the 8 independent OECD countries grew more than they did over the Common Market years. As one might expect, the CAGR in the value of exports after eliminating the impact of the financial crisis is higher in every case than the CAGR over the 20 years of the Single Market from 1993-2012.

The peculiarities of the UK emerge more clearly in this composite comparative profile. Whilst it had the highest rate of export growth under the 20 years of the Common Market, at a rate of 5.38 per cent, growth under the Single Market has fallen further than any other group, whether measured to 2012 or to 2008. UK exports to the EU are therefore also unique in having a CAGR in the pre-crisis years – in the years when the Single Market was working as it was supposed to work and undisturbed by a financial crisis – that is less than that of the Common Market years. Its exports to the EU also appear to have suffered more from the financial crisis than any other, as indicated both by differences between the total value of exports over the 20 years and the pre-crisis years and by the CAGRs over the two periods.

For the UK the Single Market years have been vastly disappointing in terms of the growth of the exports of its goods to other members. It compares unfavourably not only with the growth of its exports during the Common Market decades and with the growth of UK exports to non-member countries, but also with growth of exports to the Single Market of many OECD countries that are not members of the EU.

This final conclusion, that non-members’ exports of goods to the Single Market have grown faster than those of the UK or other members, is counter-intuitive, and profoundly paradoxical. It flies in the face of the claims about the advantages of the Single Market for UK trade that have been made over many years by Britain’s political leaders.

Notes 

[1] Which means that, as we have used publicly available OECD data, anyone can verify or correct the conclusions of the analysis with a few clicks of their mouse. The calculations make use of the Excel growth function which instantly calculates the exponential growth curve through a given set of export values over a given set of years, in this case from 1973-1992. This can then be extended year by year to calculate additional export values, in this case for the 20 years 1993-2012. In all the cases considered below, the linear growth curve differs only marginally from the exponential, usually with a lower best fit R2 measure.

[2] M. Burrage, Myth and Paradox of the Single Market, Civitas, London, 2016, Available from: http://www.civitas.org.uk/content/files/mythandparadox.pdf


 

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