The United Kingdom remains a member of the European Union while the case of its possible exit is debated within that country and with the EU. The party of long establishment, the Conservative Party is divided on the issue of the precise structure of political and economic relationship with the European Union. The same can be said for that other major party, Labour, along with both organisations’ institutional and individual constituents.
The question of the UK and the EU is broader than the binary of stay or leave, and it’s larger than inclusion or exclusion from the political, juridical, and economic ties between them.
Let us remember that the UK was a hesitant member. It did not join the EU as a founding member, but later on 1 January 1973, after much deliberation and uncertainty between elected officials, ruling administrators, senior capitalists, financial managers, industrialists, and business associations. Its membership was a special case.
The precursor of the EU, the European Economic Community (EEC), was established in 1957. It was created by the Treaty of Rome, bringing together Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany.
The UK didn’t participate in the Euro, it didn’t join Europe’s Economic and Monetary Union (EMU). It’s officials and media often refrained from using the language most common on continental Europe that favoured political integration. As the European Economic Community deepened into the ‘Union’, the latter term was often eschewed by British officials in favour of the ‘common market’. The common market is even mentioned by some members of the Brexit camp who claim political-juridical distance yet desire a reworked bidirectional market access. This economic community accentuates select market access between members over political integration, and it seeks to promote UK independence in international relations. It’s likely hoped that this leaves room for the UK to nurture its beneficial if secondary rank within the Anglo-American alliance (sometimes represented by the ‘Five Eyes’ of the US, UK, Canada, Australia, and New Zealand), while pursuing an imperialist policy from the vantage of one that sits astride the two bodies of the powerful transatlantic alliance (the EU + the Anglo-Americans).
This should already tell us that the underlying tensions over Brexit and EU membership don’t simply rest on the subject of some hysterical reaction by a significant portion of the population carrying the day via the fluke of an entirely haphazard referendum. The UK’s ruling class has been divided on the point of membership and upon the exact nature of relations from the very start. That division and difference of long term policy designs has persisted over time, and is present and amplified by the ongoing struggle over the possibility of Brexit (whatever form it may or may not take).
The UK was and still is a special member of the EU, with special exemptions, because it has had and continues to have special historical, economic, and international relations that set it apart from the like of Germany and France. It also stands out in terms of its notable relationship with the US, that great world power and authority of the transatlantic alliance of which the EU is a part.
The UK had a colonial empire that spanned the planet. Even after the Second World War, it maintained a privileged relationship to its colonial subjects, from the white settler states (Canada, Australia, New Zealand…), as well as those of subject colonies like India. The empire was renamed the Commonwealth, a sly brand given the advantages it yielded to the imperial capital. For one, it enacted a monetary union of its own. The Sterling Area was established, lasting from 1940 to the early 1970s. The Commonwealth states were participants, London received privilege of funds, and financial management (See the book, The City: London and the Global Power of Finance, by Tony Norfield, for details).
This other ‘common market’, cast over the figure of a fading empire, provided special access to commodities and agricultural produce, even at below market (fixed) prices
The growing weakness of the UK economy, the declining exchange value of the Sterling currency, and Commonwealth deficit in relation to United States and its dollar currency helped to tip the scale in favour of the Sterling Area’s dissolution and of conditional EU membership.
By then, the UK had nurtured another instrument to its advantage: international finance. The City (of London) has become synonymous with global finance. It’s one of the commanding nodes of financial transaction and management within the world economy. Tony Norfield introduces his book, The City: London and the Global Power of Finance, writing that, “The City generates dealing revenues for the British economy from worldwide transactions and it offers easy access to funding for favoured corporations and governments. In doing so, it facilitates the global mechanism of finance and helps to centralise economic power” (Preface of The City).
In a later chapter, Norfield states that, “the British state’s promotion of finance in the late twentieth century, and still today, can be explained by the fact that the UK financial system is a structural part of the international operations of British capitalism, underpinning the role of Britain as an imperial power. Far from Britain having a ‘lagging’ commitment to finance since the 1970s, British policy-makers had a very forward-looking view on how the existing status of the City as a global financial centre could be leveraged to its best advantage” (Chapter 1 of The City).
In 2017, the UK had a total of foreign direct investment (FDI) abroad of $1,718bn (£1,313bn). These investments in foreign business activities provide UK investors with the potential for profit but also for a measure of influence and power. Of these, 44% were made within the EU, while 56% was in non-EU countries. Of the $1,750bn (£1,337bn) of foreign investments made into the UK (inward FDI stock), 43% came from the EU and 57% from beyond it. The inward stock in 2017 increased by 12.6% over the previous year, the vast majority of it from non-EU FDI (up 20.1% over the previous year) (UK Department of International Trade, UK Trade in Numbers: February 2019, pp. 24-27. Available: here, Accessed 3 May 2019.).
Foreign direct investments (FDI) are made by a business that expands its operations or control into or within a country that is not its ‘home’. This can include taking a controlling share of a foreign company, setting up a foreign subsidiary or associate company, via a merger, or by way of a joint venture. FDI is outward when the observed country’s businesses invest abroad, and inward when the given country receives such investments.
The recent trend has been toward the growing importance of non-EU outward and inward FDI stocks.
In 2008, of the inward FDI stock, 51% came from the EU while 49% was from others, while the outward stock was made up for 48% EU and 52% others. I don’t have data from before 2008, but that’s available and would be worth looking at in order to graph the trend over the past decades.
In 2017, the UK was the third topmost destination for the world’s FDIs, after the US and Hong Kong (UK Trade in Numbers, p. 28). UK companies are also among the world’s top investors, with an outward FDI that, according to Tony Norfield’s research, was second only to the US in 2013 (The City, Chapter 1).
I think it a good idea to quote a lengthy selection of excerpts from Norfield’s The City, taken from various sections of the first chapter:
In 2013, the assets held by UK-based banks – a measure of the scale of their lending – were more than four times the value of UK GDP, or the annual national output. When the size of the equity market and debt securities, such as government and corporate bonds, was added, the total came to eight times GDP.(The City, Chapter 1)
[I]t is not just private capitalist companies who manage financial deals, since government finance ministries and central banks do so too. Governments sell securities to private investors, whether companies or individuals, and to other governments, in order to raise funds for public spending and to manage the state debt. Central banks also oversee the operations of the financial system, determining the interest rates at which they will lend (or receive) funds, how much will be lent and to whom. This puts the state, and especially powerful states, in a key position.(The City, Chapter 1)
There are some 200 countries in the world, but only twenty or so count as major players in world affairs, and even among those there is a clear hierarchy. As a rule, the rest must accept whatever changes in trade relations are imposed, bow to political pressures, and be wary of military intervention or other hostile actions.(The City, Chapter 1)
[F]inancial privilege is a form of economic power, and the countries that enjoy it use the financial system to draw upon the world’s resources. Those that are important financial centres receive big revenues from international financial dealing, while companies based in the richer countries have greater access to investment funds and are in a stronger position to use their financial ‘clout’ to take over rivals and extend their economic influence worldwide.(The City, Chapter 1)
The financial system is the means by which the corporations and governments of the rich countries control the world’s resources. This is not to say, however, that they can control the workings of the capitalist world economy. The capitalist market system is beyond control, and capable of bankrupting even its most ardent supporters.(The City, Chapter 1)
At the same time, British trade of the early days of EU membership up to today is more geographically diverse than that of the continental powers of France and Germany. I mean, that the UK is more integrated into the international markets for finance and merchandise and less regionally focused on the EU than its continental peers.
In 2018 and 2017, the UK’s balance of international payments were about evenly split between EU and non-EU members. This indicates the sum of all transactions by UK companies, governments, and individuals with those outside of their national boundaries, such as for trade in goods and services, capital transfers, remittances, etc. (UK Trade in Numbers, pp. 4, 6.)
Compare this with a historical snapshot of merchandise exports for the three countries mentioned (The City, Chapter 3):
- UK: 52% to the EU in 1980 | 58% in 1990
- France: 56% to the EU in 1980 | 63% in 1990
- Germany: 61% to the EU in 1980 | 63% in 1990
The integration of the UK political, military, and intelligence services within the Anglo-American system is more advanced than that of its continental peers. It’s an outgrowth of historical and cultural conditions, and may well be visible in the trade statistics. In 1990, exports to the US and Canada made up 14.4% of the total for the UK, while they made up only 6.8% for France and 7.8% for Germany (The City, Chapter 3).
The US is clearly the most powerful member of the transatlantic alliance system, with its economic, political and military constituents: NATO, the EU, USMCA/NAFTA, NORAD, UK-US Mutual Defence Agreement, etc. The UK derives great advantage from its place in this dynamic makeup, and it competes with other members, the US included, for degrees of advantage. As US dominance declines globally, the internal hierarchy of the alliance has been disrupted. The continental European members seek to appropriate relative advantage as well as increased liberty or leadership in international relations. At the same time, European economies are threatened with slow growth and relative decline. The growth of the Chinese economy is now accompanied by that country’s active involvement in determining the place and pace of new political and economic developments.
These have generated tensions within the transatlantic alliance, especially between the Anglo-American bloc and the continental European one. Since the UK exerts much power and influence via its singular role as a broker of global capitalist transactions, it must seek to maintain that position with relations to the EU as well as the US, Canada, Australia, China, and other sources and destinations of strategic economic circulation. The debate over the best course of action in maintaining and expanding this international role during a period of declining US power is part of what’s on show in the drama of Brexit