Hamish McRae: Britain's economic success will determine its power in Europe

'The ideas that led to reform of European taxes and to privatisation started in the UK'
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Do politics drive economics or is it the other way round? The question has taken on a new urgency with the argument over whether the economic case for adopting the euro can be distinguished from the political one. But the issue has been around since the beginnings of recorded history. As we have been reminded in the past few days, the last time Europe had a single currency was under the Romans – the inference being that the only way of having a lasting currency bloc is to have a single political entity.

The immediate issue facing Britain, however, is less stark. It is to what extent a member of the EU can exert political influence if it is not a part of the eurozone. Tony Blair insists that it can. In an interview to the Italian newspaper La Repubblica he is quoted as saying: "I am convinced that Great Britain could be a key partner – if you like a partner leader in Europe – on fundamental sectors like defence, economic reform, environmental protection and so on. But entering the eurozone is another question."

It is hard to object to that. Leave aside the obvious military leadership role and focus on economic reform: the ideas that led to reform of the European tax systems and the privatisation of nationalised industries started in the UK. On the other hand, Blair's office maintains that naturally we would have even more influence in Europe were we members of the eurozone – and that too must be true over some aspects of economic policy. Self- evidently we have no influence over monetary policy in the eurozone if we are not part of it.

When puzzling about the future it is usually most helpful to look back. What can history tell us? There are no unambiguous messages but I suggest that there are two reasonably clear propositions from recent history – and one less clear from current observation.

The first is that in the modern world, at least, it is hard to sustain economic advantages by political action for very long. I suppose the Roman Empire did achieve a higher standard of living for citizens of Rome by requiring the outlying provinces to supply goods and services to the core. But the main recent example of this "conquest and tithe" approach to economics, the Eastern European empire of the Soviet Union, lasted little more than a generation and ended up by impoverishing not just the conquered but also the conquering power.

Yes, you can cart off the equipment in the factories, as the Russians did from East Germany after the war, but that does not get you very far. Wealth creation in the modern world is a vastly more complex and subtle process than that. British experience of imperialism demonstrates that once the political forces for independence became focused there was no economic advantage in trying to sustain the empire – in fact quite the reverse. As the most celebrated current work on the subject – British Imperialism 1688-2000, by Professors Cain and Hopkins – argues, it was "organised entrepreneurialism" that turned the world map pink. Economics and finance led politics.

The second proposition is that economic success need not of itself bring political power. Japan has established a great commercial empire since the Second World War: it is the world's largest creditor nation and its consumer products dominate our daily lives. But it has never sought to play more than a walk-on role in global politics and it would be very difficult for it to do so. Arguably the whole of the EU punches below its economic weight: in economic terms it is a giant almost equal to the US. But in political terms it is a pygmy.

The third proposition is that influence in the world is now determined more by forces like culture, education and ideas – "soft power" – than by old-style economic and military might. Of course, the war in Afghanistan has demonstrated the competence of the US military. Of course, too, the States is the dominant world economy. So the US certainly has the hard power of guns and butter – helped by the fact that there is no other contender for leadership. But its soft power is surely even more remarkable: the extent to which its ideas shape the world.

Or rather the ideas of the US together with those of the rest of the English-speaking world: 34 per cent of the students who study abroad do so in the US and another 16 per cent here in the UK. Half the cleverest young people in the world go to the US or come here to add to their human capital. Add in those who go to Australia and Canada and the figure rises to more than 60 per cent. For those of us who are native English speakers, or who are lucky enough to write in English, this seems normal and natural. But if you are not, it is a source of profound concern, even resentment. Why should the ideas of Anglophones dominate the world elite when other people have ideas that are just as valid and just as useful to humankind?

Now apply these propositions to the debate over British influence in Europe. As far as economics ultimately leading politics is concerned, provided we are successful in economic terms we will continue to have influence, irrespective of whatever we do or don't do about the euro. Indeed, the more we can outpace the rest of Europe the more influence we will have.

I am not sure that we will continue to gain ground in economic terms against the rest of Europe over the next couple of decades. But if we do, we will certainly have influence over economic reform, as Tony Blair argues. And if that out-performance were attributed to the advantage of policy flexibility that we have over the eurozone, then we will have influence over macro-economic policy too.

On the other hand, such economic success as Europe has will not necessarily bring it more political power in the world. That depends on the sense of political unity that European electorates chose to develop. Maybe in another generation the Swedes, the Germans, the Italians, the Irish and so on will all be merged in a common political identity. Or maybe not. But whatever happens, it is hard to see the intellectual dominance of the Anglophone world receding for a generation at least, maybe much longer.

Europe will not feel comfortable about that. We will be the awkward squad, whether we want to be or not, because of our different intellectual and cultural traditions. Indeed, the more we influence Europe, as our politicians want us to do, the more awkward we will be.

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