What Came ‘After the Common Market’?

Sage looks at the thoughts of Douglas Jay, a Cabinet member in Wilson’s Labour Government, who was a staunch opponent of Britain joining the European Economic Community. (Long, technical in parts)

For many years, I have had a copy of the Penguin Special “After the Common Market: A Better Alternative for Britain[1] by Douglas Jay, on my bookshelf, filed under: ‘unread’, ‘historical curiosity’, ‘politics’. I’m not entirely sure how it got there. I was aged five in 1968 when it came out, so I certainly didn’t buy it then!

Does Jay’s short book still have any relevance to the continuing and current debate on Britain’s membership of the EU, nearly fifty years after its was published?

Douglas Jay

Lord Jay is not a household name any more. He was a key figure in Labour politics from the 1930s up until his death, but nowadays his son, Peter Jay, is probably better known.

Douglas Jay was the Labour Member of Parliament for Battersea North from July 1946 to May 1983. During that time, he served as Economic Secretary to the Treasury and Financial Secretary to the Treasury under Atlee, and as President of the Board of Trade under Wilson, serving from October 1964 until 29 August 1967 when he resigned (or was sacked) over Harold Wilson’s policy of joining the EEC. He continued to be opposed to the UK’s entry into the European Economic Community and campaigned for a ‘no’ vote in the 1975 referendum. He was created a life peer in 1987, and died in 1996.

Presumably, he began writing ‘After the Common Market’ after his resignation from the Government in 1967. Certainly, he was aware of General de Gaulle’s second ‘non’ and Wilson’s devaluation of the pound, both in November 1967, which puts an earliest possible date for the final revision of the text.

It would make more sense, perhaps, if Jay had started to write the book in the Summer of ’67 in anticipation of a ‘oui’ from de Gaulle with a view to it being a campaigning document in a referendum, which Jay expected: “…if the party system does not enable a clear choice to be made [at a General Election]’ there is a strong case for a referendum before irrevocable decisions are made.” It was perhaps only after de Gaulle exercised the veto that the book’s slant became more that of seeking alternatives to Britain joining the EEC, an aspect addressed in the final few chapters. As none of these ideas happened, I do not address them here.

Jay was an economist before entering parliament, and held what can be described as ‘economic’ positions in government. It is not that surprising therefore that much of ‘After the Common Market’ presents an economist’s viewpoint. There is little ‘pure’ politics in it, and much of the politics that there is follows from the economic circumstances that Jay forecast would come about on Britain’s entry.

What was wrong with Britain being in the EEC?

In summary, Jay opposes Britain’s entry into the EEC on four major grounds:

  • Effect on the British balance of payments
  • Effect of the Common Agricultural Policy
  • Effects on the Commonwealth, EFTA and other non-EEC countries
  • Loss of Sovereignty

It is interesting that the second and fourth points still seem relevant today, whilst the first appears almost, if not entirely, irrelevant, and the third is now pretty much a ‘sunk-cost’. For reasons of space and time, I will not look here at the effects on other countries, except to note that of the eight EFTA members in 1968, six are now members of the EU. Also, since 1977 there have been no tariffs in industrial goods between the EU and EFTA.

However, much of Jay’s book is about the UK balance of payments, and so is this article. Did Jay misread this issue? And what was the issue anyway?

The balance of payments, the EEC and the ‘Pound in Your Pocket’

A lot of the book, and especially the chapter entitled ‘If Britain Joined’, deals with “the economic effects on Britain of joining the EEC”. To the modern reader the economics discussed seem rather old-fashioned, as it is very largely dealing with possible effects of EEC membership on the UK balance of trade – a very thorny issue in the post war years. It was especially so as it led to the devaluation of the pound in November 1967, presumably why Jay gives it such prominence.

The balance of payments situation today seems of interest only to specialists, rather than the ‘man in the street’. It is not considered as so important as it was. Instead it is now seen more as diagnostic of economic problems and successes and not so much a problem in itself. Why the change?

The economic and political history of the Wilson government from 1964 to 1970 is complex. There are many sources, not all in agreement. Broadly though, the ‘received view’ is that on its election in 1964, the Labour Government inherited a large current account deficit that had arisen due to earlier Conservative attempts to boost the economy. The increased demand in the economy had succeeded in drawing in imports, rather than producing more goods for home consumption and for export. This meant, put simply, that there were more pounds available to non-UK interests than they required.

In a free market, which there was not, this would normally mean a fall in the price of sterling against other currencies such as the dollar and (increasingly during this period) the Deutschmark. A cheaper pound makes imports more expensive and exports cheaper, thereby reducing the one and increasing the other, tending to reduce or eliminate the trade deficit. In a free market, in other words, there is a self-correcting mechanism.

However, following from the Bretton Woods agreement of 1944, sterling and other currencies were committed to a fixed currency exchange rate system. This linked all western currencies to the dollar, and the dollar was linked to gold. It was understood from the beginning of the arrangement that countries that ran a balance of payments deficit would struggle to maintain their currencies’ exchange rates. The IMF was set up under the Bretton Woods agreement with the aim of providing loans to help those countries. Restrictions on capital flows from one country to another were also introduced with a view to preventing speculative pressure on currency values.

Up until the mid-1960s, the Bretton Woods system was regarded as something of a success. The economic recovery in the non-Communist countries following the war had exceeded most expectations. M. M. Postan, writing in 1966/7, noted that the world “aggregate Gross Product increased by well over 85 percent between 1938 and 1964.” [2] Some economists and politicians may have thought that they had, more or less, solved the developed world’s macroeconomic problems, especially that of unemployment.

For a nation like Britain, still thinking of itself as a world power, to be in a position where it could not fulfil its Bretton Woods obligations and maintain its ‘pegged’ exchange rate, was thought to be shocking and ignominious in itself. To be forced into devaluation was politically damaging both at home and abroad. It could be seen as a reflection of an international lack of confidence in the abilities of the Government of the day – and certainly such lack of confidence could make matters worse with respect to demand for sterling.

Further, there were many countries, including most of the British Commonwealth, whose currencies were effectively tied to the pound via ‘Sterling Area’ arrangements. Devaluation of Sterling would mean significant capital losses to these nations, which held much of their own reserves in sterling. British Governments felt a responsibility to these countries, as well as to Britain itself, to maintain the value of the pound.

Finally, for most of the 1960s, Wilson was concerned that Labour would gain the reputation as a ‘devaluation’ party. The only post-war devaluation, before 1967, being under Atlee’s Government in 1949.

Jay was also concerned about the balance of payments for another reason. When the balance of payments was bad, leading to pressure on the value of the currency, loans from the IMF and other nations were (and still are) the only way to shore up the currency if a nations own reserves were too low to do the job. As Jay observes: “The truth is that financial and balance of payments weakness is bound to force any country, and has forced Britain, into a position when it cannot dictate the terms on which it borrows, and others can. The only solution is to strengthen the balance of payments, and ensure that this situation does not arise. That is why the prospect of Britain joining the EEC should mainly be examined in the light of the balance of payments.”

Jay had himself first-hand experience of political weakness when negotiating for loans. In 1965 there was a sterling crisis. On 10 September 1965 the US Federal Reserve and a number of European central banks placed huge orders for sterling, shoring up the pound. A deal had been done with President Johnson to get this support from the US: the deal required that Britain maintained its ‘East of Suez’ military capability, and introduce a statutory incomes policy. The latter condition being the first time that a single nation (rather than a multinational organisation like the IMF) had influenced Britain’s domestic policy in exchange for a loan. It appears that Jay, along with Wilson, Callaghan and Brown knew of this otherwise secret deal[3]. Jay therefore knew there were good reasons to worry about balance of payments crises. But why did he think that being in the EEC would make matters worse?

Changes to Trade

The Common Agricultural Policy (of which more later) would, according to Jay, lead to higher food prices, in turn leading to higher wages and hence higher production costs of manufactured goods which might be exported. “…our costs, both of exports and goods sold at home would be raised… It is obvious at first sight that this operation would mean a net loss to Britain’s balance of trade with the EEC.” In short, British goods would become more expensive than they would otherwise be with respect to those of the other EEC members, and also to those of other nations, hence reducing our ability to sell goods abroad.

“Next stage in the process would be further loss of exports to the Commonwealth, due to the loss of Commonwealth preference for British goods.” “for it [EEC membership] would compel Britain, not only to withdraw the free entry and preferences now enjoyed almost universally for Commonwealth goods in the British market, but in addition to impose a reverse preference on them.” i.e. impose a tax on imports of food etc., especially hurtful to the economies of Canada, Australia, New Zealand and South Africa[4], and this “would mean inevitably the withdrawal of the reciprocal preferences given by these countries to our exports.” Jay says that in 1966, Britain exported around £800m worth of goods to those four countries alone.

But this wasn’t all. “The worst threat of all to the British economy… after the Common Agricultural Policy, is the abolition of all exchange control even on the export of capital by residents of a member-country to any other in the group.” Jay cites Article 67 of Treaty of Rome. “not merely would there be complete freedom for any UK resident – bank, firm or individual – to indulge in genuine direct or portfolio investment anywhere in the EEC, but there would be complete freedom for a flight of refugee or speculative capital owned by any British individual or firm who was scared by the British balance of payments prospect, or wished to gamble on a fall in the pound.” Jay thinks that this would make “any rational economic policy, let alone a full employment policy, impossible for the UK.” He adds, “Never since 1939 has such freedom been granted to UK residents except within the sterling area.”

Reading Jay’s comments now, in 2015, demonstrates just how far things have changed since he wrote them. The idea that not having exchange controls would make a rational economic policy, not just different, not more difficult, but actually impossible seems remarkable. The shocked tone about giving UK residents economic freedom seem almost totalitarian! Such controls were intended to prevent currency speculation, of course, but were in practice draconian when considered with hindsight. Exchange controls were finally abolished in 1979.

In summary then, Douglas Jay believed that by joining the EU, the British current account deficit will get worse, the pound will come under pressure, reserves will be run down in defending the pound, and the IMF, or more likely Germany, will bale Britain out at great political cost. “In such circumstances [the UK requiring economic aid and loans, probably from EEC partners], it is hard to see how Britain … could possibly escape being politically subordinated to Western Germany.”

Was he right? Not really. There have been no serious British balance of payments crises since 1967. Jay, writing no later than in early 1968, was not to know that the Bretton Woods agreement would collapse in 1971 and that the pound would be allowed to float (more or less) freely thereafter[5]. The crisis of 1976, when the then Chancellor Jim Callaghan borrowed US$2.3bn from the IMF, was caused by the Government’s inability to borrow enough in the markets to fund its public spending, not simply to defend the pound[6]. While the poor balance of payment position didn’t help, it wasn’t the point of the crisis. Callaghan and Healey hoped to defend the pound to control inflation, but the Trade Unions and the rank and file Labour party members wanted them to spend a lot of money they couldn’t raise in tax[7]. Foreign holders of sterling were losing confidence in the Government’s general economic policy, and this was the root of the problem, not poor trade figures per se.

On the other hand, Jay was correct to predict that Germany would become the major player in terms of lending to countries within the EU that fell into difficulties. Jay did not predict a common currency in his book, nor did he foresee a united Germany back in 1968. But the future economic dominance of Germany in the EEC was a correct prediction, as well as that Germany would use that strength to influence domestic policies of other EEC members was also correct, for example by having the ‘final say’ in the bail-out of Greece in 2015.

Balance of Trade

UK Balance of Trade (expressed as % GNP)
Goods (oil) Goods (non-oil) Services Balance
Received Paid Balance Received Paid Balance Received Paid Balance net
1968 0.4 1.8 -1.3 16.5 17.0 -0.5 6.8 5.9 0.9 -0.9
1969 0.4 1.7 -1.2 17.7 16.9 0.8 7.1 6.1 1.0 0.6
1970 0.5 1.5 -1.1 18.0 17.0 1.0 7.8 6.7 1.0 0.9
1971 0.5 1.8 -1.4 17.7 15.8 1.9 7.9 6.7 1.2 1.7
1972 0.4 1.7 -1.3 16.5 16.6 0.0 7.6 6.4 1.2 -0.1
1973 0.6 2.0 -1.5 17.9 20.1 -2.2 7.9 6.8 1.1 -2.6
1974 1.0 5.6 -4.5 20.9 23.3 -2.4 8.7 7.4 1.3 -5.6
1975 0.9 4.2 -3.3 19.8 19.9 -0.1 8.1 6.7 1.4 -2.0
1976 1.1 4.7 -3.6 21.6 21.3 0.4 9.0 7.0 2.0 -1.2
1977 1.7 3.9 -2.3 24.0 23.1 0.9 9.2 6.9 2.4 1.0
1978 1.7 3.2 -1.5 23.1 22.5 0.7 8.5 6.2 2.3 1.5
Figure 1: UK Balance of Trade 1968-1978. Taken from Black, John, ‘The Economics of Modern Britain’, 1980.

 

Based on the figures for the period shortly before and after Britain joined the EEC, there was certainly no obvious sudden decline in the overall balance of trade (figure 1), although the balance of non-oil goods did get worse in 1973 and 1974. It should be remembered that there was an ‘oil crisis’ in 1973, which had knock-on effects throughout the economy.

The balance of trade, of course, has itself been awful for many years now. Since 1970 and up to 2014, the only years in which there was a trade surplus in goods were 1971, 1980, 1981 and 1982. How much of this deterioration can blamed on Britain’s EU membership?

In 2014, 44.6% of UK exports of goods and services went to EU countries, and 53% of imports were from the EU[8], as compared to Jay’s figures: “Some 65 per cent of our imports come from outside Western Europe, and about 65 per cent of our exports go to countries outside Western Europe.” So, if we take Jay’s  ‘Western Europe’ to include countries now in the EU which were not in the six EEC countries in 1968, we find that the proportion of exports outside the EEC/EU has fallen only by 10% over the whole period 1968 to 2014, and given that the EU now include countries such as Poland that Jay would certainly have considered as outside ‘Western Europe’ we can conclude, given the huge changes in world patterns of trade over those 46 years generally, that little difference has been made to our exports.

Imports from the EU however have grown considerably up to the present day, so that in 2014, the balance of trade with the EU is in deficit, which is large enough to outweigh the balance with the rest of the world (figure 2). Of course, if Britain did not import from the EU, it would probably have to import the same kinds of things from elsewhere.

JayFig

Figure 2: UK Exports and Imports 1999-2014 (ONS). Graphic from City AM http://www.cityam.com/218917/how-important-eu-uk-trade

Balance of Payments

UK Balance of Payments on Current Account 1968-1978 (expressed as % GNP)
Trade balance Property – Taxes Transfers Balance (current account)
1968 -0.9 0.9 -0.6 -0.6
1969 0.6 1.2 -0.6 1.3
1970 0.9 1.3 -0.4 1.8
1971 1.7 1 -0.4 2.3
1972 -0.1 1 -0.5 0.4
1973 -2.6 1.9 -0.7 -1.3
1974 -5.7 1.9 -0.6 -4.4
1975 -2 0.8 -0.5 -1.7
1976 -1.2 1.2 -0.7 -0.8
1977 1 0.2 -0.9 0.2
1978 1.5 0.6 -1.3 0.7
Figure 3: Taken from Black, John, ‘The Economics of Modern Britain’, 1980.

 

Again, the current account balance of payments (Figure 3) shows nothing of especial concern around the time of Britain’s entry into the EEC. While the balance does get worse from 1973 to 1976, it is not exactly at crisis point, and there is nothing to suggest that joining the EEC was as bad for Britain in this respect as Jay predicted in ‘After the Common Market’.

Common Agricultural Policy

Jay was very concerned about the impact of the Common Agricultural Policy (CAP) on the UK, and not just because of his concern about its effect on trade, described above.

Firstly, “The high food prices in the EEC are maintained by a form of protectionism known by the high-sounding title of the Common Agricultural Policy (CAP). It is in fact more restrictive and reactionary than any system of agricultural protection previously known, short of outright prohibition of imports.” This is done by a system of variable ‘levies’. “This means that the price is unalterably determined by the high cost of the inefficient home producer; and that if the world or import price falls, or home prices rise, the levy rises to make up the difference.” So the consumer “whose interests are barely considered at all at any point in the whole business” cannot gain by falling world prices.

Secondly, Jay complains that “it has meant the survival of highly inefficient, outdated – indeed almost eighteenth century – farming methods right into the second half of the twentieth century, with the inevitable consequence of strong and persistent pressure to keep up food prices in order to save this unproductive agriculture from extinction.”

Jays contrasts the CAP system with the British system of support for farmers then in force, which he supports. A scheme of making “so-called ‘deficiency payments’ from the Exchequer to the farmers which allows us to combine low prices to the consumer and the lowest import prices in the world, and therefore greater social equality generally, with a reasonable income for farmers and farm workers, a rapid increase in farming efficiency and output, and a great economy of manpower on the land.”

In short, the CAP kept the prices of farm goods high by tariffs on imports and price fixing of home produce, whereas the UK supported farmers by paying subsidies direct to the farmers, and letting consumer prices fall to market rates.

Jay is not entirely accurate in his description of the British system. There were at least some measures in place whereby agricultural prices were supported by market intervention and central marketing. A good example is the Milk Marketing Board[9]. In place from 1933 to 1994, the board bought up all UK milk production and managed sales to maintain prices.

None the less, Some of Jay’s criticisms of the CAP were also shared by the EEC Commission itself. In the late 60s, the increasing costs of CAP, and the inefficiencies of the small farmers were supposed to be tackled by the proposals contained in the Mansholt Plan. This would “encourage nearly five million farmers to give up farming: that would make it possible to redistribute their land and increase the size of the remaining family farms, in order to make them viable and guarantee for their owners an average annual income comparable to that of all the other workers in the region”. However, the farmers firmly rejected the plan.

By the late 1970s, overproduction in EEC farms was becoming an issue, especially in dairy. In 1979 penalties “for serious over-production” were introduced in that sector.

But it wasn’t until 1992 that there was any progress at all in changing the method of support for the agricultural sector from price maintenance to income support for farmers, the system broadly recommended by Jay.

While price support in 2015 is considerably lower than it was, and income support for the producer now forms a major element in the CAP, price support is by no means abolished (see ‘Agriculture: A Partnership between Europe and Farmers’). It is noteworthy that the present CAP is still trying to do the things recommended by the Commission in 1960s, such as modernising farming!

Despite the best efforts over the years of GATT and WTO, there are still CAP related import controls and tariffs in operation with regard to trade with the non-EU world. See, for example, HMR&C’s guidance.

So, in many respects, Jay was not wrong about the Common Agricultural Policy. The problems he identified with it have been somewhat ameliorated since he wrote ‘After the Common Market’, but have not gone away. In other words, the CAP is still expensive to maintain and administer and still encourages inefficient farming methods, although it is probably better now than it was in the 1960s.

However, Jay may well have been wrong with respect to food prices, although it is hard to say for certain. Certainly there were noticeable rises in food prices around the time the UK joined the EEC.

The major problem in looking at the data for the period around Britain’s accession to the EEC is inflation. UK inflation, following the ‘Barber Boom’ from 1972 and the first oil crisis of 1973, soared from an average of 5.4% 1968-70 to 7.8% 1971-1973 and 16.0% in 1974-78[10]. So the effects of any UK food prices rises due to the CAP might easily be covered up by rises for other reasons, such as higher fuel prices increasing distribution costs.

Variations in Inflation (%) 1969-1978
Commodity Group 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978
Food 5.4 5.0 9.5 6.8 12.3 16.7 23.3 15.7 16.2 8.5
Housing 6.3 8.7 10.5 11.7 15.1 19.8 22.5 15.0 14.9 11.6
Motor vehicle running costs 8.8 2.6 5.7 4.8 7.7 28.2 29.7 9.7 12.7 1.9
Fuel & Light 2.9 3.8 9.5 7.0 2.8 17.5 31.5 24.4 15.6 7.3
CPI 5.7 5.9 8.4 6.5 8.6 17.2 23.7 15.5 15.0 8.4
Figure 4: Taken from Black, John, ‘The Economics of Modern Britain‘, 1980.

 

Food price inflation was 12.3% in 1973, a year in which only the non-EEC influenced housing costs were inflating faster (probably ‘Barber boom’ effects) (Figure 4). This could be CAP effects, at least in part. After that, the oil crisis effects dominate in all categories. As the index itself has a weighting towards consumer food purchasing, comparing the price of specific food items[11] to the overall index doesn’t help much. A brief review of price data does not seem to suggest any special CAP effects over the period from joining the EEC that can be distinguished from general price increases, unless it is seen in the ‘one-off effect’ in 1973.

Today, there is nothing especially expensive about British food, at least in comparison to other developed countries.

According to a Guardian article in July 2014, Germany had the lowest priced ‘basket of goods’ as compared to London, and other EU and non-EU developed countries. This is broadly in line with data on numbeo.com in October 2015. The Guardian’s list includes many products not covered by the CAP, of course, but even when this is allowed for, Germany is still cheap by comparison to the other countries in the survey. The non-EU cities included in the survey, New York, Toronto and Sydney, are all more expensive than London. What is also noticeable is the variance between EU nations: Milk, at £1 (for 4 pints), is cheapest in the UK, but the highest EU country price is given as £2.15 in Paris, with Dublin being roughly half-way between at £1.53. My point is that, nowadays, there is nothing particularly expensive about food in the EU as compared to other developed countries’ prices, and that there is a good deal of variation within the EU itself, which shows that factors other than the CAP are influencing prices. This could be variations in local supply and demand for the various goods, or varied competitive environments between retailers. The linked Guardian lists several possible explanations. Of course, 46 years on from ‘After the Common Market’, and after nearly 22 years since the 1992 CAP reform, the effects of the CAP on British prices may have been lost amongst all the other factors that affect food prices.

 

Democratic Deficits

Perhaps where Jay has proved to be the most correct, and certainly his criticisms still remain, is in the context of the ruling institutions of the EEC. Jay notes “the fundamentally undemocratic nature of its [Treaty of Rome] constitution and of its ruling bodies: the Commission of officials, the Council of Ministers, the mass bureaucracy in Brussels, the Court and the so-called European Parliament which seldom meets.” Despite much ‘reform’ of the EEC/EU since 1968, these comments seem to apply just as much today.

“[The Community Parliament]’s only power, and that by two-thirds majority, would be to pass a vote of censure on the Commission which would require the whole of the Commission to resign.” This was deliberate by the framers of the rules, claims Jay, as “Either a supranational authority like the Commission is not democratically controlled at all, or there must be an effectively elected Parliament to control it; in which case a federal system and a further surrender of sovereignty are unavoidable.”

The EU Parliament today is different from that in 1968. For one thing, there are elections to the parliament whereas in Jay’s time members were selected by the governments of member countries. Direct elections being introduced in 1979. The parliament still does not have full legislative powers, it cannot initiate any legislation, but does now have the ability to ask the Commission to draft legislation for it. Much of its legislative power, and its control over the budget, is shared with the European Council (the Council of Ministers). While the EU parliament is certainly more powerful than Jay knew it was in 1968, it is still does not control the Commission, nor is it ever likely to.

Jay says that, in joining the Treaty of Rome “the British Parliament would hand over to the Council of Ministers and the Commission the power of legislating in the future, in ways not known at the time of signing the treaty, on the internal affairs of this country…without any approval or discussion by the British Government or Parliament.” With the strengthening of the powers of the European Parliament since 1968 one could amend what Jay says a little. He was completely correct in predicting the loss of sovereignty of the British parliament, of course, as it was as plain as day even 50 years ago that this was going to be the case. The institutions of Europe, at least when acting collectively, really can call all the shots today. This is especially obvious in the Eurozone countries such as Greece, where the domination of the Commission-led (and German influenced) ‘Troika’ in the internal economic affairs of that country is blatant.

“It [the EEC] is founded on the central belief that modern society ought really to be ruled by the expert, the technocrat, the super-bureaucrat, the scientifically equipped wise man, who can find the right answer by pure calculation, unaffected by the pressure of vested interests or politics. It is rooted in an essential distrust of the people.” The very nature of the Commission, still largely uncontrolled by any directly elected body, is that of a bureaucracy. Whilst it is now the case that the President of the Commission is now elected by the EU Parliament, it still cannot remove him (or her) without sacking the entire Commission and this requiring a 2/3rds majority. The Commission cannot really be said to be responsible to the parliament.

It is still a matter of debate whether the EU parliament should be fully democratic and really control the Commission, in which case it could be argued that, as Jay suggests, a fully united EU polity has formed. If one doesn’t want that, then it is perhaps best that the EU parliament remains relatively weak. However, what Jay said about it in 1968 remains broadly correct, despite the many reforms since.

… And Propaganda

“The Commission still controls the EEC ‘information’ machine, on which £1m a year is spent…from which propaganda and entertainment is conducted on a liberal scale throughout the EEC: one indirect source no doubt of much of the brainwashing propaganda encountered outside the Six as well as within.” According to Eurosceptic group ‘Business for Britain’, the EU budgeted to spend £536m on direct publicity in 2014. This may be a high estimate but it is difficult to pin down what the EU’s publicity budgets actually are. Each part of the Commission seems to have a publicity/PR department of its own, and funds can also be made available for special projects and campaigns from other sources. The estimate does not include publicity expenditure required as a condition of all EU grant funding, which can be a material proportion of the grant expenditure. I think we can conclude that EU publicity spending is as significant, if not more so, than it was in Jay’s day.

So, Was Jay Right or Not?

Jay was writing for his time, and he was a man of his time. In 1968 he was wedded to the post-war certainties and didn’t concern himself with the problems of the Bretton Woods system. He couldn’t foresee the collapse of the system and the change in economic assumptions that it implied. Thus his concerns about the UK balance of payments and hence the exchange rate are now rather old-fashioned.

He was right that the balance of trade would get worse, but perhaps wrong as to why that was. There is little reason to believe that the situation would be any better today if Britain had stayed out of the EEC/EU, and less that it made much difference around the time that Britain actually joined.

Douglas Jay did understand the nature of the EEC/EU as an institution, and correctly identified the ‘democratic deficit’ that underpins it, and the role and influence of the Commission and the other institutions that reduce or eliminate national sovereignty of member states. He was correct to identify the large expenditure of the EU/EEC on self-promotion and publicity. I am not sure that any of this was a great insight, however, as it was as plain as day then, as it is now, that this was how the EEC/EU worked.

What was perceptive, perhaps, was the identification of Germany, rather than France, as the lead nation amongst the rest, and the attribution of significant power within Europe to that nation.

While Jay was broadly correct about the CAP, in that it was expensive and wasteful even by the Commission’s own admission, for many years after 1968. It is possible, but not certain, that it did drive up UK food prices. It is likely that food consumed in Britain would have been cheaper that it was if Britain had stayed out, but for how much and for how long cannot be determined, and by now food prices in the UK are no different to anywhere else in the developed world. The issue for today really is how to ween farmers off subsidies of any sort without a collapse in the supply or unacceptable political consequences:  the same issues that Jay identified, but didn’t care about so long as they were the right sort of subsidies.

Jay was a socialist of the old school: central planning, central controls over the levers of the economy. However, he believed that these levers should be controlled by democratically elected bodies in sovereign nation states, and so he was bound to reject the idea of the non-democratic, bureaucratic EU.

 

 

 

[1] Jay, Douglas, ‘After the Common Market: A Better Alternative for Britain’ Penguin Books Ltd, 1968, ISBN 9780140522587. Unless otherwise stated, all quotes “.” are from this book.

[2] MM Postan, An Economic History of Western Europe 1945-1964, Methuen & Co, 1967

[3] Sandbrook, Dominic, ‘White Heat’, p125, Abacus, 2008 edition.

[4] South Africa was not in the Commonwealth at this time, primarily due to its apartheid policies, but was mostly included in Commonwealth trade agreements.

[5] Not always, of course. Various attempts to peg sterling to the Deutschmark and, most notoriously to the ERM, have been tried and failed since, but none failed simply because of balance of payments issues as such. They were self-inflicted by British Governments pursuing unsustainable policies.

[6] National Archives Cabinet papers. See especially Chancellors statement on page 8, referring to both external and internal deficit.

[7] See for example Callaghan’s speech to the Labour conference of 1976, where he warns party members: “Like everyone in the Labour Movement, I believe in a high level of public expenditure. But I part company with those who believe we can rely indefinitely on foreign borrowing to provide for greater social expenditure, a better welfare service, better hospitals, better education, the renewal of our inner cities and so on. In the end these things, comrades, are only provided by our own efforts.” Coincidently, the speech was written by Peter Jay, son of our author Douglas.

[8] http://www.cityam.com/218917/how-important-eu-uk-trade

[9] See http://ageconsearch.umn.edu/bitstream/6969/2/cp02fr01.pdf for a brief history and a discussion of how the MMB scheme interacted with the CAP and what happened on its abolition.

[10] Based on consumer prices. From Black, John, ‘The Economics of Modern Britain‘, 1980.

[11] See also ONS statistics on UK prices of various goods including many foodstuffs .xls file

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