In deciding whether we want to be part of the EU we should ask ourselves whether or not it is advantageous to the UK to be part of that trading bloc. A trading bloc is advantageous if it enables us to access a larger free market for our goods and services. Economic theory from Adam Smith to David Ricardo shows that our prosperity is enhanced when we are able to focus on those goods and services that we are best at, and trade them with others who have different skills.
How is that going with our EU partners? Not very well judging by last year’s Office for National Statistics figures. We have a negative balance of trade of £55.7bn with our EU partners: they sold us far more than we sold them. And it is clear from their actions in terms of regulation that they would like to snaffle and/or stifle our biggest industry – financial services – as the proposed curbs on bankers’ bonuses demonstrates. For all its faults, this is our biggest sector for employment, exports and tax revenues, and the suggested curbs will place us at a disadvantage when competing with US and Asian banks and financial institutions.
And if we are part of a trading bloc, shouldn’t we want to be part of a thriving trading bloc? The EU is hardly thriving. Leaving aside the obvious and overwhelming anecdotal evidence, the fact is the EU is the least competitive trading bloc in the world. If you look at the World Economic Forum’s global competitiveness report for 2012-13 for labour market efficiency you see the following rankings out of 144 countries surveyed: UK, 5th; Netherlands, 17th; Germany, 53rd; France, 66th; Spain, 108th; Italy, 127th; Greece, 133rd.
You get similar results for other measures, such as pay and productivity, in which the UK is ranked 13th; Germany 41st; Italy 128th; and so on. The impact of the EU’s dire performance shows in the fact that in 1980 it represented 31% of world GDP but in 2012 it was down to 19%, and by 2017 is forecast to fall to 17%.
Binding ourselves to the EU is like trying to run a race with a ball and chain as we are forced to import the labour practices and business regulation of countries that are the losers in global competitiveness. Given the choice, you would surely ally yourself to countries that are doing better, such as Singapore, which is second in the table of labour market efficiency; or the US, which is sixth. Do not be fooled into thinking that this is impossible, or that we have to be in a trading bloc with Europe because of our geographical proximity to it. Britain had successful trading relationships that spanned the globe over a century ago, when distance was a real obstacle to doing business. In a world increasingly dominated by the internet, digital business, and near universal access to jet travel, distance is irrelevant.
You will of course hear from the pro- EU lobby that we cannot separate from the EU as it will then cease to trade with us on favourable terms. Remember that our EU partners sell us £56bn more than we sell them. Will they risk losing this?
The prominent members of this lobby, such as Ken Clarke, Peter Mandelson and Richard Branson, are the same cast of characters who campaigned for the UK to join the euro and who forecast disaster for the UK in general and the City in particular if we did not. How do their predictions look now?
Perhaps we should ask the people of Greece, Ireland, Italy, Portugal, Spain and soon France what they think of the merits of euro membership as they struggle with unemployment of over 25% in some cases and youth unemployment of over 50%. In fact, the Italian electorate was asked last weekend and the EU appointee Mario Monti came fourth behind a retired comedian and Silvio Berlusconi, which takes some doing. In any other walk of life, anyone with the pro-euro lobby’s abysmal record of forecasting would be ignored – or be so ashamed that they would withdraw from the debate.
Terry Smith is chief executive of Tullett Prebon and Fundsmith.