MONEY
The Common Market re-examined % NICHOLAS DAVENPORT
In its last bulletin the worthy National Insti- tute of Economic and Social Research had another look at the Common Market. I say 'worthy' because the Institute, being sup- ported by private and public money, works day and night to justify its subsidies and stress its independence of judgment.- So when it expresses sceptiCism of the Common Market you may be sure that it is an unbiased view arrived at by its econometricians after much searching for the truth. In other words it has not been 'got at' by auy of the hosts of propagandists screaming for or against our joining the EEC.
We are all aware that as the Treaty of Rome stands we would be involved in heavy extra costs. We buy our food in the cheapest markets of the world. When we submit to the common agricultural policy of the Six and bring our prices up to theirs our retail price index for food would rise by 18 per cent to 24 per cent and the cost of living index by 4 per cent to 5 per cent over the transitional period, whatever that might be. These figures are taken from the White Paper published by the Labour government in February last. It was a maddening paper—what you would ex- pect from an inter-departmental committee of civil servants sitting on the fence—but no one, as far as I know, has questioned the validity of these estimates of the extra food costs. Do the industrial advantages for our manufacturers, who gain free entry into the European market, offset the disadvantages of a higher cost of living? 'The crucial ques- tion', said the White Paper, 'is whether our GNP can be expected to grow more quickly over a transitional period and beyond if we are members of the Community than if we are not. If it can, and if the additional growth is greater than the cokt of membership, then there would be a net economic advantage to us in incurring that cost.' The White Paper foolishly gave various estimates of the total cost ranging from around £100 to £1,000 million a year, which made the whole report appear ridiculous, but it was surely right to stress the importance of the 'dynamic' effects, if any. It is on this question of dynamism that the National Institute now casts a scept- ical eye.
After collecting and analysing a mass of statistical data on growth of output and pro- ductivity, on internal and external trade, on specialisation and the distribution of labour, the authors of this econometric study come to the conclusion that there is `no substantial evidence that the countries of the Community have become more competitive, more speci- alised or faster growing by reason of their membership. If anything the evidence points to the opposite direction.' Some economists will dispute that contention by producing other sets of figures—I admit that some of the National Institute tables can be interpret- ed in more ways than one—but as a world manufacturer Ourselves we ought to pay special attention to the market performance in the world trade in manufactures outside the EEC. Before they came to form the Com- mon Market in 1959 the members' combined
share of this world trade was rising fast. It continued to do so until 1961 but since then their share of exports to the rest of the world has fallen steadily and this decline is widely distributed over both destinations and com- munity groups. Indeed, it is only the buoy- ancy of Italian exports which has kept the mc share rising at all. So much for 'dynam- ism'.
• Some economists may reply `So what? The members of the EEC obviously prefer to trade with one another, for the turnover in manu- factures within the community has been ris- ing fast.' Yes, but this intra-trade has still not been displacing imports from non-community sources. Outsiders, remark the National Insti- tute, 'have also continued to increase their share [of community trade] at the expense of manufactures consumed in the member country that produced them'. These figures certainly do not suggest great dynamism on the part of the manufacturers of the Common Market. Indeed, they point to greater dynam- ism on the part of the ux manufacturers who have been able to jump over the EEC tariffs, which are fortunately not very high tariffs, and do an increasing trade with the EEC members.
The National Institute is not, of course, suggesting that the Common Market has been a failure for its members. It has attracted an enormous American investment. It has im- proved the mobility of labour within the community; it has enabled countries like Italy to shift a reserve of manpower uneconomi- cally employed in agriculture into more pro- ductive fields; it has allowed small industrial units to expand more easily and enjoy the economies of scale in production. But the authors of this National Institute study claim that they found no evidence of greater dyn- amism. 'It is hard to think', they say, 'that if the dynamic properties of a widening market were really as great as is suggested the stati- stical evidence . . . would be so complete!y and consistently lacking.' And their parting blow is really a knock-out: 'With much the lowest ratio of agricultural employment to total employment the Ix seems ill-placed to take advantage of any "dynamic" forces that may be at work. To accept a heavy burden of "implicit effects" as the price of entry in the belief that the "dynamic effects" are likely to be even bigger would under these circumstances represent a triumph of hope over experience.'
There is one 'vested interests' lobby led by the Financial Times which will ignore this caution because it sees a considerable gain for itself in joining the Common Market —and that is the City of London. There is no doubt that London could become the financial centre of Europe if we join and might lose its present dominance if we stay out. I noticed that Mr John Davies at a City dinner last month gave this warning to the City tycoons: 'You should look more closely at what is going on in Europe. There are many institutions in France and Germany which have now acquired most if not all the skills and expertise which you in the City of London have developed but they have in some cases gone further. They are learning to operate across their frontiers.' Of course. our merchant banks have their offices and partners in Paris and other financial centres abroad and could bring the Continental issue business to London, whose capital market is second only to New York. The extra com- missions for bankers and brokers would then run into another £100 million a year. But no one would wish that our vital national vote to join or stay out of this inward-looking market be decided by the top hats of the City.
ffolkes's investors' alphabet S is for Shaking the cherry tree
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