Otherwise than many had expected, the British government did not respond hastily to the decision of the voters to withdraw from the EU. Article 50, which officially announces the exit and marks the beginning of the exit negotiations, has still not been activated. After the initial shock of both remainers and leavers, it seems the government wants to conscientiously explore the available options in order to maximise the outcome for the country (see here for my analysis).

In order to assess the chances of the best possible outcome, it is necessary to analyse the economic situation in the United Kingdom. Only when strengths and weaknesses are being identified does it become possible to determine whether an exit will bring advantages or disadvantages. Let us therefore look at the UK’s economic performance over a longer period of time. For this article, I used a three-part series on the United Kingdom that I wrote up together with Friederike Spiecker in 2013 (see here the first part).

Left Labour under constant fire in the media

Economics is one thing, politics is another. There is another very interesting aspect, which is specific to the situation in the UK, the evolution of the Labour Party. In the 1990s, the Labour Party was one of the first European social democratic parties to radically move towards much more conservative positions. It is called New Labour of Blairism, after the long-time Labour Prime Minister Tony Blair. This new orientation went together with a fierce internal power struggle. It is a question of vital importance whether Labour will remain on its ‘a path on the centre,’ as Blair and his successor Gordon Brown had done, or whether Labour will move to the left again. The latter course is being favoured by the new party leader Jeremy Corbyn, who has just been re-elected in a leadership contest, very much against the will of the party establishment.

Jeremy Corbyn is being mercilessly criticised in much of the British press, mainly because he is not afraid to propose taboos, such as the re-nationalisation of public utilities, working towards social justice and international peace policies (see here and here). The way is which Corbyn is being attacked by the “free press” is reminiscent of the media campaign of 1998 against the German Finance Minister Oskar Lafontaine. It shows the degree of brutal mudslinging that the media are capable of when someone who wants to initiate real policy change comes along. These media are, in effect, and for a long time already, no longer institutions of mediation, education and objective fact providing. They are, simply, ideological instruments in the hand of some few publishers who all favour conservative policies or, at the least, the status quo. Image is more important than facts and honest analysis. And so public discourse suffers.

Why the UK has been relatively successful 

To demonstrate why the UK has been successful, we will examine the country in an extensive empirical analysis. It consists of three parts. We will look at the economic development since the beginning of the eighties. These were years in which Margaret Thatcher started her conservative revolution and made the UK economy more ‘flexible.’ The results of her policies and of successive governments will be compared with German and French policy outcomes. To do justice to the different phases within these 35 years and in order to compare the results optimally, we spit the period in two shorter phases, from 1980 until 1999, before the currency union, and from 1999 until today.

In terms of growth (measured by GDP), the UK did better than either Germany and France during the first period, from 1980 until 1999, as figure 1 shows.

Figure 1

Using the same criterion from the start of EMU, i.e. from 1999 onwards, the United Kingdom was significantly more successful than either France or Germany in this phase (see figure 2). It is striking that the UK handled the deep financial crisis of 2008/2009 much better than the countries on the continent. The difference becomes especially outspoken since 2012.

Figure 2

Among the expenditure components, i.e. the demand side of GDP, the biggest aggregate, private consumption, rose above France and Germany (see figures 3 and 4). Consumption was relatively modest, but not problematic, during the 1980s in the UK, but it was better than in France or in Germany. The UK managed to continue to pull away since 2012.

Figure 3

Figure 4

Figure 4 depicts very clearly that it was increased consumption which is to a large degree responsible for the growth that has been realised. The difference with Germany is striking. France, being a euro zone member with its multitude of dysfunctions, also lags significantly behind UK consumer’s spending. The figure clearly shows how extreme German consumer restraint has been, another direct consequence of German wage moderation. Thatcher’s UK was very efficient in stimulating savings, which reflected itself in a very low growth rate of public consumption. However, this picture changes completely at the end of the 1990s.

Figure 5

Figure 6

Figure 6 clearly shows that the United Kingdom, particularly since the beginning of the 2000s, unlike Germany and even France, did not implement a policy which promotes savings. Instead, public consumption stimulated the economy.

The result of this policy in terms of unemployment is something to be proud of (see figure 7). Britain, which lagged in the 80s far behind Germany and France, managed in the nineties and 2000s to reduce unemployment significantly, according to official statistics anyway. Even after the recession of 2008/2009, which hit the UK hard, the country succeeded relatively quickly to reduce the rate of unemployment.

Figure 7

The criterion of working volume (i.e. the total numbers of hours worked) is even more relevant for the labour market. It shows the same evolution as above (see figure 8). According to this measure, the UK is miles ahead of France, let alone Germany. The measure also shows that UK policy was very successful in creating new job opportunities. This was especially the case the after the financial crisis. This is also the reason why the UK is a popular destination for immigrants.

Figure 8

Finally, there is the evolution of inflation in the UK over the last 25 years (the graph starts in 1991). Inflation was not very conspicuous to start with (see figure 9). It is now higher than in either France or Germany, which is positive for growth. The country did not follow the deflationary policies of Germany and France immediately after the crisis.

Figure 9

You can read in the second part about the significance of investment and international trade for the British success and how the consumer boom can be explained.