This report is part of a series of case studies examining the link between a nation’s Economic Openness and prosperity. We focus on the United Kingdom, as it is both an example of a generally high performing economy, but also one whose future relationship with other trading partners is very much under scrutiny.
The Legatum Institute’s mission is to create the pathways from poverty to prosperity, and our work is focused on understanding how prosperity is created. To that end, with the generous support of the Templeton World Charitable Foundation, we have created a Global Index of Economic Openness to rank 157 countries’ openness to commerce, assessing the environment that enables or hinders their ability to trade both domestically and internationally. As part of this programme of work, we will be undertaking a series of in-depth country case studies based on the Index, including this one on the United Kingdom, in which we analyse its performance in the key characteristics of openness to trade, investment, ideas, competition, and talent.
The United Kingdom has a tradition of Economic Openness stretching back centuries, to the original codification of the City of London’s special legal status in the Magna Carta. Whatever challenges the United Kingdom faces in the future, this tradition of Economic Openness – the settled way of doing things – provides a firm foundation on which to build. Analysis from our Global Index of Economic Openness shows a strong correlation between a country’s institutional strength and its ability to withstand shocks and crises, and to recover quickly.
Indeed, this report shows that Britain has great institutional resilience that will enable it to withstand significant disruption and shocks.
This report is part of a series of case studies examining the links between a nation’s Economic Openness and prosperity, informed by the insights generated by our Global Index of Economic Openness. We focus on the United Kingdom, as it is both an example of a generally high performing economy, but also one whose future relationship with other trading partners is very much under scrutiny.
We examine four characteristics of open economies, assessing the extent to which they have:
Market Access and Infrastructure, such that products and services can be easily produced and delivered to customers;
Investment Environment, such that domestic and foreign sources of finance are widely available;
Enterprise Conditions that ensure markets are contestable and free from burdensome regulation;
Governance that is underpinned by the Rule of Law, as well as Government Integrity and Effectiveness.
Our analysis indicates a clear link between the extent to which a country’s economy exhibits these characteristics and its productive capacity. This link is supported by a long history of academic literature, and can also be seen in the histories of those countries that have achieved a high level of economic wellbeing.
It is this link that we explore in more detail for the United Kingdom in this case study. The UK performs well on these attributes of Economic Openness, and is a good example for other nations as to what a commitment to these principles can deliver over time.
But Britain is also a country whose openness is in the spotlight, with key political and economic questions about its future being highlighted in the Brexit debate. This debate often focuses entirely on the benefits or disadvantages of free trade, but as we will show in this paper, Economic Openness is about much more than trade. The evidence shows that increasing Economic Openness can have many benefits, and we believe that turning away from openness would likely have commensurate costs; as in any area of policy, it is helpful for policy makers and the general public to be aware of these trade-offs.
Our key findings are as follows:
1. The United Kingdom has long been a free trading nation and a champion of open markets and competition, resulting in greater choice, lower prices, and more innovation that in turn attracts capital and skills. Britain has historically had a culture of enterprise and openness to the world, and is ranked seventh in the world for Economic Openness.
There is a long history of private enterprise. These Enterprise Conditions are hard to replicate quickly, as well as hard to destroy. It is the result of a history of trade, Rule of Law and an entrepreneur-friendly environment, in terms of regulation and access to capital. The United Kingdom is well placed to continue thriving despite threats to its economy, both from uncertainty around the outcome of Brexit and the possibility of an anti-enterprise political agenda.
2. Britain is a leader in technology with an advanced Communications infrastructure that supports and enables its Market Access and Infrastructure, Investment Environment and Enterprise Conditions.
3. The status of the City of London, a leading global financial centre, rests upon a historically strong institutional base, resulting in deep liquidity and extensive expertise in the provision of capital solutions necessary to launch new ideas and generate growth.
One can find much reason for optimism for the United Kingdom in each of the pillars of the Index. It is in a healthy position, and its tradition of Economic Openness stands it in good stead. Whatever position it reaches in the coming weeks and months as it redefines its relationship with the EU, the one thing we can learn from this report is that it will be able to build on these strengths primarily by being economically open.
Economic Openness: United Kingdom Case Study:
This publication was made possible through the support of a grant from Templeton World Charity Foundation.