The Why & How of European Economic Integration: A Brief Guide

by Robert Hosking.

The idea of regulatory and market orders comprises two political concepts often used for understanding how the European economy is governed. The former highlights the active control and extensive interference of the European economy by the Member States. The latter postulates the idea that European markets motivated by profit and accumulation and managed by the price mechanism are not only capable of self-regulation, but also the most efficient means of allocating resources. These descriptions highlight the methods employed to stimulate economies, as well as being terms to rationalise how they should be ordered and maintained.

 

In order to grasp how the economy has been fashioned in Europe it is first necessary to understand the nature of these two mechanisms. We must investigate how they have contributed to, or hindered, European integration and if indeed they offer the most persuasive account of that integration. It must be acknowledged that whilst these models are important tools, aiding our understanding of post-war economic development, they should not be considered in either/or terms and, contrary to much mainstream discourse, nor do they offer the most persuasive account of why individual nation-states created a single European economic space in the first place.

 

Rather, the market and regulatory orders must be understood as mutually compatible processes, whereby the ‘self-regulatory’ market needs just as much state regulation to function correctly as does the regulatory order itself. Both models are exercises of power that maintain the conditions for profit and capital growth, whilst subordinating our environment and much employment satisfaction and human needs to the market and, secondly, they are instruments used as a catapult into, and defence against, international capitalism [i].

 

In Europe, the expansion of the regulatory model soon after World War Two, reflected not just the economic needs of the capitalist, but also demands to create societies different to the pre-war one of mass unemployment and poverty. The ‘social democratic’ consensus, which required overt state regulation, produced two important effects; as a result of the establishment of the welfare state, capitalists’ tax contributions were augmented and, under conditions of rising employment, labour pressed for wage increases. Needless to say, both factors intruded on profit levels which explains why, over the following decades, there was the gradual adoption of an economic doctrine less resented by the capitalist.

 

In this post-war environment of state regulation one also witnesses the amalgamation of powerful nation-states to re-regulate the world economy. The construction of the Bretton Woods system began in 1944, and the General Agreement of Tariffs and Trade (GATT) in 1947. The rationale for these international regulatory orders was the internationalisation of the world economy and, under the USA’s mandate, the achievement of capital and trade stability. The International Monetary Fund (IMF), for example, was initially set-up to regulate exchange rates, whilst the GATT established trade rules and dismantled barriers to trade[ii].

 

By liberalising the international economy through means of intergovernmental regulation, nations were increasing their economic interdependency with one another. Under these conditions, one effect was that world-wide export-led competition resulted in import penetration, which had profound repercussions for the market order of business activity and employment. European integration, whereby economies are closely co-ordinated and policies unified into a single process, developed as a direct result of the internationalisation of the world economy[iii].

 

Just four years after the signing of the GATT, the regulation and integration of European markets began with the Treaty of Rome in 1952. This was followed by the European Economic Community (EEC) in 1957, and similar to the GATT in its emphasis on dismantling trade barriers, the European Free Trade Association (EFTA) was signed in 1960. These intergovernmental agreements were a necessary condition to remove trade barriers and permit the free movement of trade and capital, thus strengthening the signatory states’ market order against competition from other European nations outside these agreements, the USA, and the Asian trading block. The justification being that only a European-wide market could provide the necessary protection of capital, reduce demands for foreign imports, and to fully exploit economies of scale (mass production).

 

By the mid-1970s three decades of economic growth had ended. This led to the breakdown of the social-democratic consensus and the rise of neo-liberalism, whose basic tenet was to restore capitalist profit lost throughout the decades. The UK, which by the late 1970s had one of the European Community's weakest economies, was the neo-liberal trend-setter. Led by the Tory government, the state pursued business-friendly regulatory policies aimed at privatising key industries and public services, scrapping any odious forms of business regulation and lowering corporate taxes. This approach was to be adopted by most EC/EU Member States throughout the 1980s and 1990s.

 

While variations of capitalist models exist within the EU (as discussed in the fifth essay entitled, ‘A Brief Guide to the European Economic Space’), the state has always created the conditions for the self-regulatory, de facto market order to function properly. In this manner, neo-liberalism should not be confused with laissez-faire, for regardless of ideology all Member States must guarantee the free movement of trade and capital, improve competitiveness and train the labour market to the requirements of technology it publicly supports for the benefit of private corporations. It is for this reason that massive privatisation has taken place, as well as the dismantling of state services, pension rights and employment and human needs subordinated to the market order logic of supply and demand, rather than, want and fulfilment[iv]. The mixed economy is maintained in this fashion so that the EU and its Member States, with their rule-based frameworks, can better serve the interests of the European elite.

 

Now, although some guarantees have been made to protect the environment, the EU’s executive has created an institutional framework that allows unimpeded entrepreneurial activity. In consequence, the EU understands unification not as an economic system based on neutral regulatory and market models, but as the dismantling of democratic control that may influence economic policy.

 

The regulatory order that established the European Monetary Union (EMU), signifies not the integration of European societies, their cultures or peoples, nor the integration of states, but only the integration of markets. Increasing profit levels requires not only unimpeded movement of goods and capital, but also increasing labour flexibility and insecurity, and this is the essence of the EU’s economic policy. This policy is carried out by means of intergovernmental regulation aimed at liberalising the EU’s market order, an order which is predominately controlled by powerful multinationals and financial corporations. The EU’s use for economic integration is clear: to maximise the freedom of capital, the concentration of which is facilitated in every way and, to minimise the freedom of organised labour, through methods such as the threat of unemployment and the increment of short term, or flexible labour contracts.

 

The EMU’s regulatory arrangements, which consists of a common central bank (European Central Bank), a common currency (Euro), and common macroeconomic convergence criteria, are designed to deprive nations of any possibility of formulating their own monetary, fiscal and exchange rate policies. The rewards for abolishing this essential democratic right are said to be a stronger currency, lower prices, lower interest rates and higher economic growth. However, in the absence of national fiscal and monetary policy, for the market order to remain competitive entails cutting production costs and creating as much income as possible from profit and dividends. The former is achieved through higher productivity and reducing the costs of labour, the latter through lowering taxes.

 

Consequently, on the pretext of the EMU, we witness the main impact of liberalisation falling on the labour market. In Spain, one-third of all jobs created since 1993 have been temporary, while, for example, workers on the DaimlerChrysler Eurofighter cover six hour shifts with just 150 seconds ' comfort break' a day. The explicit aim across Europe is to make labour more amenable to market conditions[v].

 

It is indicative that European-wide economic regulatory control is not being complimented by a European-wide control to secure full employment. So, in the fight against inflation, which threatens profit margins, we find the establishment of the highly secretive European Central Bank (ECB), whilst the fight against poverty and unemployment is left to the ruthless market order. It also comes as no surprise to learn that one finds European-wide regulatory protection for private corporations in the form of tax-breaks, or publicly funded research support, while state protection for the individual is not being replaced by a common social policy.

 

The danger, then, of concentrating on these two models, often given in financial newspapers and economic text books in terms of plurality, is to misunderstand the economic system of capitalism. The reason for a regulatory and market order conducted in the manner we have witnessed, is the establishment of the relationship between a dead thing called capital and a live, creative thing called labour. The desired effect is to distribute the wealth of human productivity from the many to a small minority. It is clear that in an economic system labouring under different paradigms, the regulatory and market order would take on completely different meanings. 

 

Robert Hosking is a freelance writer and teacher living in Spain. This is the sixth part of his series on EU governance.