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Boris Johnson wrong that EU single market hurts growth

by Jack Schickler | 18.05.2016

Boris Johnson last week called into question the UK’s membership of the EU’s single market. In a speech on 9 May and in a BBC interview two days later, Johnson asserted that “the claims made for the Single Market are looking increasingly fraudulent” and denounced the “vast empire of EU legislation and regulation” that serve as “one of the drag anchors” on EU growth. To back his claim that the single market is bad for Britain’s economy, he said trade within the bloc grew more slowly after the single market was created in 1992. He added that non-EU countries’ trade with the EU grew faster than Britain’s – implying non-EU countries benefited by staying out of the single market.

Johnson is dissenting from the consensus among economists, which holds that EU membership boosts UK growth because membership of the single market expands trade. The LSE’s Centre for Economic Performance reports Brexit “would lower trade between the UK and the EU because of higher tariff and non-tariff barriers to trade.” The LSE study reckons that, as a result of reduced trade, Britain’s GDP would be between 6.3% and 9.5% lower if we left.

What leads Johnson to the opposite view? He refers to a report prepared for the Civitas think tank by sociologist Michael Burrage, which looks at exports among the 12 countries that belonged to the EU at the single market’s launch in 1992. Burrage finds that intra-European exports grew an average 4.71% a year in the 20 years before 1992, measured in real terms. In the next 20 years they grew by only 3.05%, a slowdown of about a third. He concludes that the single market has not achieved its aim of boosting trade.

Unfortunately for Johnson, Burrage’s approach is dubious. The rate of growth of exports before 1992 is not the appropriate benchmark against which to measure the single market’s impact after that date, because exports before then grew faster for reasons that had nothing to do with the single market. Indeed, at one point in his analysis, Burrage cheerfully concedes that his extrapolation from the two decades before the single market’s launch is “a wholly improbable and imaginary reconstruction.”

A basic demographic comparison shows why the Johnson-Burrage benchmark is flawed. Using OECD data, InFacts calculates that the total labour force in Europe’s Big Four economies (West Germany, France, Britain and Italy) jumped by 15.9% in the twenty years to 1990. During the first twenty years after the launch of the single market, the total labour force in the big four (now including a unified Germany) rose by only 8.6%. (To prevent German unification from distorting the comparison, we avoided 1991, when the data show a big jump in labour force.) This demographic slowdown inevitably hurt GDP growth, since GDP growth equals growth in worker numbers multiplied by how productive each worker is – and, the lower GDP is, the less consumers have to spend on traded goods. In other words, the slowdown of trade growth after 1993 was driven partly by demography.

Moreover, as Burrage acknowledges, EU growth was also clobbered by the financial crisis of 2008 and the ensuing euro crisis. Again, it is hardly surprising that exports contracted sharply between 2008 and 2012, skewing the comparison with the pre-1992 period. As Burrage’s report concedes, if you exclude the post-2008 period, you find intra-EU exports actually grew faster after 1992 than before (see Figure 2 of Burrage’s report) – in spite of the demographic slowdown. That might have led Burrage to conclude that the single market had a remarkably positive effect on trade.

Burrage also compares UK exports to the EU with non-EU countries’ exports to the EU. Likewise, Johnson claimed on May 9 that, “in the period of existence of this vaunted single market, from 1992 to 2011, there were 27 non-EU countries whose exports of goods to the rest of the EU grew faster than the UK’s.” In his BBC interview, Johnson reiterated this argument, citing in particular the success of the US and Switzerland in exporting to the EU.

Burrage’s report does not provide support for Johnson’s claim of 27 non-EU outperformers. It does list 15 countries whose exports to the EU single market grew faster than Britain’s (see Table 6). Many of these outperformers are hardly a shock: the table is led by China, and includes export powerhouses such as South Korea and Singapore as well as commodity-rich economies such as Russia. In nearly all cases, these countries were growing their exports to the EU rapidly, but from a low base. At the end of Burrage’s period, in 2012, Korea’s exports to the EU were only a quarter of Britain’s in dollar terms, despite the fact that Korea’s had grown faster.

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    The most relevant UK comparisons in Burrage’s table are the ones that Johnson cited to the BBC: the US and Switzerland. It is true that both countries expanded their exports to the EU faster than Britain did over the period 1973 to 2012, which may reflect the fact that, before 1973, their economies were less integrated with those that would later form the EU. But again, choosing a different period produces a different result. Between 1995 and 2003, UK exports to the EU grew by a factor of 1.64, while American exports to the bloc grew slightly less, by 1.57. For Switzerland, figures are only available for goods, for which the number is 1.3.

    In sum, Johnson has no basis for his claim that the Single Market has failed to boost Britain’s trade or its prosperity. Common sense suggests that removing barriers to trade tends to increase trade. The data fail to show that common sense should be suspended.

    Boris Johnson and Michael Burrage did not respond to our request for comment.

    Edited by Sebastian Mallaby

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