The United Kingdom (UK) joined the European Union (EU) in 1973 and left in 2020.** From the standpoint of Macro-Systems analysis (rather than Political Philosophy): (1) What were the material economic conditions during the 1973-2020 EU period and (2) What would have happened if Britain had stayed in the EU (the primary counterfactual). In this post, I'm going to approach these two questions in terms of Hardship, Financialization and Overall Growth of the UK Economy as measured by indexes created using data from the World Development Indicators.
From the time plots above, during the EU Membership period (1972-2020) Hardship (HARD1) increased, Financialization (FINZ1) increased and Overall Economic Growth (UK1) increased. Had Britain not left the EU, Hardship would have been reduced below 1960 levels, Financialization would have peaked in 2030 and declined afterward and a Steady-State Economy would have been reached around 2030.
In other words, Britain gave up on the EU Project before the benefits would have been realized, although there would have been intense debate about the benefits of a Steady-State Economy.
The next question is what will the future look like for the UK without the EU? We can't know the future, but let us assume that Great Britain does nothing different*** once it has left the EU. The graphic above forecasts the UKL20 EU Input model (see below) eliminating the input from the G matrix (see below). In this forecast, Hardship (HARD1) dips to lower levels, Financialization (FINZ) drops more quickly and there is a very mild collapse from peak growth (UK1) in 2025.
In either case, Brexit will neither stimulate unlimited exponential growth nor create unmitigated disaster. The looming Steady-State Economy will be interpreted as Economic Stagnation and blamed on the political party in power at the time.
The Notes below explain how this Counterfactual Conclusion was reached.
You can run both the UKL20 BAU Model and the EUL20 BAU Model on my Google site (here). For more background, see my other posts:
- Blog Roll: United Kingdom The Future is "murky" after Brexit!
- Blog Roll: European Union The EU is forecast to become a Steady-State Economy around 2050.
- Blog Roll: Steady-State Economies More economies are forecast to reach a Steady-State Economy around 2100 than you might think. The Steady-State Economy is a meaningful alternative to Neoliberalism but the Political Philosophy remains to be worked out.
For more information about how Historical Controllers**** and how the State Space DCM models were constructed, see the Boiler Plate.
Notes
** One problem with identifying the effects of EU Membership in Great Britain is that it coincides with the rise-and-fall of Neoliberalism.
*** The are many suggestions from the New Labor Government (see below) about how things could be done differently in Great Britain, but one possibility is that nothing other than leaving the EU will change.
**** In State Space DCM models, there are two types of independent components constructed from Principal Components Analysis (PCA). Overall Growth (usually the first component explaining most of the variation) and Historical Controllers (usually the lower-order components). For example, in the Moving Equilibrium model, the first component is overall growth and the next two components capture negative feedback loops that control growth.
References
Shefner et al. (2015) Austerity and Anti-Systemic Protest: Bringing Hardships Back In
The Conversation (2026) How Can Labor Escape the Doom Loop in 2026
Hardship Measurement Model (HARD)
Where data were available in the World Development Indicators (WDI), the variables above were used to construct three independent components that explain 97.7% of the variation in the indicators.
The first component, HARD1, explained 75% of the variation and was a relatively equal weighting of all the indicators. The second independent component, HARD2, explaining about 20% of the variation, and was a complex Inequality-Male Mortality-Unemployment, Household Expenditure-Unemployment historical controller. The third independent component, HARD3, was a Family Work-Inequality-Male Mortality historical controller that explained 3% of the remaining variation for a total of 97.7% of the variance explained using Principal Components Analysis (PCA).
From the time plots, all the components were stabilizing by 2014.
Financialization Measurement Model (FINZ)
Financialization (or financialisation in British English) is a term sometimes used to describe the development of financial capitalism during the period from 1980 to the present, in which debt-to-equity ratios increased and financial services accounted for an increasing share of national income relative to other sectors.
The indicators for Financialization in the UK were: (1) Bank Capital-Asset Ratio, (2) Bank Nonperforming loans, (3) Commercial Bank Borrowers, and (4) Commercial Bank Branches. FINZ1 (76% of the variation) was an historical controller balancing Bank Capital-Asset Ratio and nonperforming loans with Commercial Bank Borrowers and Branches. FINZ2 (<20% of the variation) was an historical controller balancing the Capital-Asset ration with Nonperforming loans. FINZ3 (< 0.05%) was Overall Growth.
Notice that Commercial Banking (FINZ1) takes off after 1975 while FINZ2 and FINZ3 are cyclical.
UKL20 Measurement Model
The UKL20 Measurement model is an implementation of the Kaya Identity, measuring the overall state of the system. UK1=(Overall Growth), UK2=(CO2+EG-LU) and UK3=(LU-Q-L-N). In the UKL20 BAU Model, UK1 and UK2 are unstable; stabilizing the Environmental Controller, UK2, would create a Moving Equilibrium Model.
EUL20 TECHP Model
The EUL20 TECHP (Productivity) state space model is on the edge of stability.
UKL20 EU Input
The columns of the Shock Decomposition above show the effects of EU1, EU2 and EU3 on HARD1, FINZ1 and UK Growth. EU1-3 had (1) positive effects on HARD1 (decreasing unemployment), (2) Delayed positive effects of Financialization and (3) Mixed effects on UK state variables, UK2=(CO2+EG-LU) being negative.
EUL20 Measurement Model
The EUL20 Measurement model is also an implementation of the Kaya Identity, measuring the overall state of the system. EU1=(Overall Growth), EU2=(CO2+EG-LU) an historical environmental controller and EU3=(LU-L-GDP) historical unemployment controller.
AIC Statistics
The Akaike Information Criterion (AIC) Statistics show overlapping confidence intervals and uncertainty about the best model for the UK.
What Should the Labor Party Do?
From Google AI:
The above graphic shows a very long list of things for the Labor Party to do in the future. If the list becomes larger or proves unwieldy, BAU is probably the best prediction for the future. Another option is for the Labor Party to begin preparing for a Steady-State Economy. Unfortunately, such a policy agenda is likely not realistic and will always be associated with Economic Stagnation.
