Economic Integration: Worldwide, Regional, Sectoral

The Fourth World Congress of the International Economic Association was held in Budapest from 19 to 24 August 1974 under the Presidency of the editor of this volume. It brought together almost 1800 economists from seventy-seven countries; over 500 persons participated actively in the discussions.

In the Western economic literature, discussions of the types of economic integration of national states have customarily focused on the various stages of integration. From its lowest to its highest forms, integration has been said to progress through the freeing of barriers to trade (‘trade integration’), the liberalisation of factor movements (‘factor integration’), the harmonisation of national economic policies (‘policy integration’) and the complete unification of these policies (‘total integration’).¹

A skilful programme committee chooses for its conference papers titles that deceive in their simplicity but that on close inspection turn out not to be simple at all and that raise more questions than an author can hope to answer in the 5000 words allotted him. They thus lay the groundwork for future research and for future conferences. Certainly the title of this paper is deceptively simple, yet it cloaks a problem that goes to the heart of political theory: how should human beings organise their collective endeavours, especially those that require governmental action, so as to achieve best their diverse and often conflicting objectives?

The Chairman of the Programme Committee imposed on the President of this association an unduly hard task. Perhaps he felt some hostility towards him and wanted to be nasty; or he did not realise how difficult his assignment was! Anyway, I found myself saddled with the commitment to produce for this Presidential Address a history of thought on economic integration.

This paper presents leading ideas in post-war research on integration. In the spirit of Tinbergen (1952), the goal is understood to be the clarification of the connection between the instruments and objectives of economic policy. In the present context, the instruments are the tariff and nontariff barriers that hamper integration. Trade and capital flows are, in Tinbergen’s terminology, ‘irrelevant variables’, interesting only because of their impact on the objectives of policy makers. The latter are variables that affect welfare and its distribution to consumers.

When general integration of different economies is not attainable within an acceptable time span, policy makers frequently turn to international economic integration of individual branches of production. This sectoral integration is sometimes intended to be an indirect way of accomplishing general economic integration: by successive steps one economic section after another is to be included in a scheme of integration. It is hoped that total integration will eventually result from this piecemeal procedure.

Integration does not rest on the assumption that the mere abolition of governmental barriers can create a perfect market. Price equalisation can be blocked so long as there are monopolies with powers of discrimination. Such monopolistic practices can be curbed only by governmental action. It follows that integration is possible only among countries whose governments can agree on common rules and common procedures of decision making. There may be differences of degree, as exemplified by the institutions of the EEC and the CMEA consultations; under looser arrangements, GATT has its own machinery of negotiation and arbitration for traiff reductions, and economic co-operation between East and West is framed by general intergovernmental agreements.

Within the broad scope suggested by the topic assigned to this working group, I shall focus my attention on migration problems of the EEC.

This paper deals with the expedience and the possibility of creating a currency area, as well as the economic steps by which it may be achieved.

There are two things that are important to understand about the sociopolitical and institutional aspects of economic integration.

Among the main features of international economic relations in the years following the Second World War are the attempts that have been made to establish programmes of economic integration among less developed countries. These schemes have been implemented throughout the Third World, and particularly in Latin America and Africa.

The development of integration processes in international economic (and not only economic) life is a characteristic feature of the modern world. The concentration and internationalisation of production and the new require-ments of economic, scientific and technical progress add up to the objective basis for the emergence of integrating communities that differ from each other in socio-economic terms. These communities are an important factor in the world economy, notably in Europe. At the same time, a regional instead of a universal basis for integration may contain within itself definite contradictions, which come to the surface when an integrating community resorts to some form of collective protectionism.

Problems of international, intraregional, and subregional trade may be approached from three methodological points of view: the sociological, socioeconomic method; the method of pure economic theory; and the historical — empirical method, including analyses of international economic policies and institutions. Each of these approaches is useful for specific purposes. In this paper, elements of all three are used to tackle at least some of the main features of our broad subject, the analysis of general aspects of post-war development and future trends in intraregional and international trade. The thesis of this analysis is that in the early 1970s the world economy and world trade entered a new phase of development.