During WWII, the UK was in fact one of the few European economies that grew and with the exception of the USA it was the only other country at war that grew.
The measure of economic growth is GDP (Gross Domestic Product) Per Capita, which takes the value of goods and services that a country produces and divides it by how many people live there. In other words, the higher the GDP Per Capita, the better the standard of living and prosperity.
Following WWII, the speed of economic recovery within the continent was remarkable considering the extent of the destruction and was coined the Golden Age (1950-1970). The UK also grew however, the ratio of its growth compared to the 6 EU founding members declined steadily, from 90% higher in 1945 to 7% lower in 1973. This was one of the driving factors in the UK joining the EU in 1973, to stop our relative economic decline and it has seemed to have worked with growth being comparatively stable ever since.
Today, advocates of Britain leaving the EU parade two economic alternatives, one based on the Commonwealth and another on bilateral free trade treaties. These for various reasons (which you can read more about at Vox.eu) did not work as hoped in the past, so it is unclear why they or alternatives in other forms would be superior to EU membership now. Although I’m aware the reasons for leaving the EU are numerous and are not necessarily always driven by the economics.
However, when we wave goodbye to our far out remainer friends off to seek a better life in Europe because their future has been ruined, I will wonder where they are headed to settle. After all, France, Germany, Italy, Spain and many of the other European Union countries for that matter have nothing really special to shout about economically. The ones that might do, Norway, Iceland or Switzerland are not in the EU themselves.
In fact, if the EU (currently comprised of 28 nations) were an individual state in the United States, the Gross Domestic Product (GDP) Per Capita of 33,120 would rank 49th out of 50, only beating its poorest state of Mississippi at 31,881.
Source: List of US States by GDP per capita – Wikipedia - 2017
What is also interesting, is that within the Top 10 Countries in Europe in terms of GDP Per Capita, the main powerhouses of the EU such as Germany, Belgium or France don’t even feature and in addition to this, out of the Top 5 European countries, only two are in the European Union (Luxembourg and Ireland).
Productivity and growth are not the only measures where EU member states have fallen behind over the decades, Investment performance has too. Over the period from 1991 to 2018, a £10,000 investment into the various major indices would have yielded the following returns:
Source: Yahoo Finance
Regardless of other external factors and world events, it is easy to see the link between taxes, regulation and red tape and productivity, growth and investment performance.
Instead of recognising and addressing this fatal link between taxation increases and economic prosperity, EU governments, under the auspices of the Organisation for Economic Cooperation and Development (OECD) began a program in 1998 called The Harmful Tax Competition Initiative. It targeted nations with low-tax policies including those in the Caribbean, Eastern Europe and the Pacific region. Many of these nations were poor and desperate to attract international investment but have now been singled out and blacklisted in an effort to stop “unfair tax competition”.
This is ironic as the Competition Commissioner at the European Commission is tasked with seeking out monopolistic practices and enforcing competition among corporations within the EU. A contradiction if, on one hand, competition between corporations is desirable and corporate cartels are undesirable but on the other hand, competition among states to offer more attractive tax rates is wrong and a tax cartel is considered beneficial.
So, while the EU may bring many other benefits to the continent and leaving it may have a negative impact on the UK, certainly in the short term, it does bring to question the effectiveness of the EU’s own economic policies and the overall financial benefits such a cartel brings, as well as challenges the belief that the social safety net provided by the EU through higher taxes mean EU citizens are financially better off.
Either way, the grass will always be greener…
Mark Harrison, "The Economics of World War II: an Overview," in Mark Harrison, ed.,
Economic Growth – Max Roser – www.ourworldindata.org
How International Tax Rates Impact your Investments – Matt Blackman
The 28 Member Countries of the EU – www.europa.eu
Sovereign States in Europe by GDP (nominal) per capita – Wikipedia
List of US States by GDP per capita – Wikipedia
Why did Britain join the EU? A new insight into economic history – Nauro Campos, Fabrizio Coricelli – www.vox.eu
About the Author: Alex Johnston DipFA MLIBF is an FCA authorised financial adviser at Domus Financial Services and advises clients all across the UK.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Domus Financial Services or Intrinsic cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.