Margaret Thatcher didn’t halt the UK’s post-war decline, economists argue, but what really got Britain back on its feet was joining Europe.
Thatcher’s 1980s ‘big-bang’ reforms to the financial sector are widely credited with saving British fortunes which tanked after the second world war compared with other major players in Europe.
As the UK prepares to be the first country to leave the EU, new research shatters the Maggie myth and finds what actually kick-started post-war Britain is joining the EU.
The study also finds joining sooner would have made latecomer Britain better off and that we risk underestimating the true cost of Brexit.
“Our results provide scant support for the notion Mrs Thatcher and her structural reforms were the main reason for the reversal in British relative economic decline,” said Professor Nauro Campos at Brunel University London. “Instead, they point to EU membership as a more powerful explanation.”
The UK started talks to enter the EEC in 1961 when it started to find Commonwealth trade limiting. But it was blocked by French President Charles de Gaulle in 1963 after drawn-out negotiations.
The joint study by Brunel and the Paris School of Economics also suggests the UK joined the EEC “too late, in a bad period of time and at a high price.” The UK could have been a founding member in the late 1950s, while instead it joined the year of a major oil price shock.
Researchers weighed Britain’s GDP against the six EU founding members (EU6), Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands.
In 1950, UK per capita GDP was a third bigger than the EU6 average. In 1973, it was 10 per cent below and has stayed stable since. So joining the EU put the brakes on Britain’s post-war economic decline compared with the EU6. If the UK didn’t join in 1973, its per capita GDP would be 4.8 and then 8.5 per cent lower five and ten years after joining, the study shows. And across four key economic measures – trade, foreign direct investment (FDI), finance and Economic Monetary Union – ‘the UK gained significantly from EU integration’.
This counts as a warning on Brexit, says Prof Campos: “A Brexit will likely result in heavy losses and we expect them to compound once the consequences on intra-industry trade, FDI and financial integration are accounted for.
“With so much foreign investment in banking, the link between financial integration and FDI is key and Brexit will hit the financial industry hardest,” Prof Campos highlights. “These areas urgently require greater attention because current economic analysis on the potential effects of Brexit almost exclusively focuses on the UK-EU import-export relationship and underestimates the true cost of Brexit.”
(Image: CC by flickr/rahul3)
Hayley Jarvis, Media Relations