Transformation and European Integration

This book is about transformation in the framework of European integration. However uncertain the latter has become after the unexpected results of the French and Dutch referendums on the European constitution, the path for the Balkans to European integration is outlined, although the exact track is admittedly uncertain, with the exception of Romania and Bulgaria.

Since this chapter is about the regional policies of the EU, it is proper to introduce it with a brief discussion of the concept of regionalism and a definition and justification of regional policy.

Just barely has, in May 2004, the EU completed the most significant round of enlargement to date, by admitting ten new countries and roughly 75 million people, that the issue of further enlargements to the Balkans is already on the table of the new Commission and the European public opinion. Sheer economic convenience — the creation of an even larger common market — cannot explain the drive towards the inclusion of the Balkan countries in the European Union, as it is exceedingly difficult to calculate the short — and long-term costs and benefits for current member-states and for prospective members. It is rather the historical mission of the European Community (EC)/Union, of securing peace through prosperity and prosperity through peace on the European continent, that stands out as the main rationale for enlargement to the Balkan area. In turn, this finality poses European institutions with probably unprecedented challenges (see Chapter by Gozi).

The economic experience of the Balkan countries is striking with respect to several aspects. In the last decade the region has been the poorest European area with a large percentage of the population living below the poverty line. At the same time, in the last couple of years, the economies of these countries have grown at higher rates than the EU economy and inflation has remained low. However, unemployment is high, the informal sector is large, and institutions are poor. The launch of the SAP by the EU with the five Western Balkans (SEES) has created a new momentum for trade integration/liberalization in and of SEE but each country finds itself at different stages of integration and faces different problems and challenges. The process has important implications for trade integration and institutional upgrading; and trade policies and institutional upgrading have been recognized as key priorities for private sector development and economic growth in the Balkan region.

The process of constitutional transition and transformation of the state in the Western Balkans is still far from being concluded.¹ In addition to the complex processes of democratization, the political and economic reconstruction of the countries in former Yugoslavia² has to face the problem of administrative and territorial reform of a formerly socialist political and legal system.

Entrepreneurs are a driving force of transformation in that they activate the new market institutions, including the new private sector; innovate products and processes, markets and social relations; assist companies privatization and restructuring; support competition and transform economic organization. However, there is no guarantee that privatization and liberalization result in entrepreneurship: it may result in ‘proprietorship’, that is, aversion to capital accumulation and competition and orientation towards consumption of the surplus (Scase 2003). As a consequence, entrepreneurs often make no productive contribution at all by producing goods and services that increase the overall economic value produced in the economy, and in some cases play a destructive role (Baumol 1993, 2004).

Postcommunist transformation has been aptly summarized as a process of ‘making capitalism without capitalists’ whereby the key players are former communist technocrats and (sometimes) dissident intellectuals, and not a propertied bourgeoisie (Eyal et al. 2000: 1). This phenomenon was conceptualized at the outset as ‘political capitalism’ (Hankiss 1990; Sztaniszkis 1991), but later on that concept turned out to be of limited heuristic value. Indeed a number of investigations on the reproduction—circulation of elites has revealed that a good deal of former nomenklatura members are among the losers in the transition for the conversion of their political capital into economic wealth was often unsuccessful (Szeleny and Szeleny 1995; Higley et al. 1998; Eyal et al. 2000). On the other hand, a high number of the former elite have been able to keep power, privilege and prestige also under the new regime, especially in Russia (Kryshtanovskaya and White 1996; Lazic 2000; Steen, and Gel’man 2003). The different degree of elite reproduction and circulation in the countries of CEE has been explained through the degree of cooptation of the intelligentsia or the formation of a counter-elite during the communist regime or the current stage of democratic consolidation (Szeleny and Szeleny 1995; Adam and Tomšič 2002); the political changes of the perestrojka years (Lane and Ross 1997); the impact of nationalist movements on elite selection, as in the former Yugoslavia (Lazic 2000).

Early attempts to theorize the relationship between international aid and economic growth of poor countries assumed that aid inflows would fill a savings ‘gap’ and would lead to increased levels of investment that would boost growth and lift poor countries out of underdevelopment and poverty. In the 1990s a number of empirical studies cast doubt on this optimistic picture and appeared to show that there was little relationship between aid and economic growth (Boone 1996). This was explained by the argument that aid donations tend to be converted into higher public or private consumption rather than being channeled into increased investment. Subsequently, Burnside and Dollar (2000) showed that the effect of aid on growth depended on the macroeconomic policies of the recipient countries. In countries with ‘good’ fiscal, monetary and trade policies, aid was shown to have a positive effect on growth. This gave rise to the argument that aid should be targeted on countries that followed so-called ‘good’ policies. As Easterly (2003) has shown, donor governments have adopted this framework to target growth where it is expected to be most effective. Critics of the approach have argued that there are diminishing returns to aid even in countries which pursue good policies (Dalgaard and Hansen 2001; Hansen and Tarp 2001). This implies that even where good policies are adopted, there is a point beyond which aid loses its effectiveness.

Co-operatives are enterprises/institutions owned and controlled by their members, who may be their workers, customers, service users, or simply concerned individuals within the community. Ownership and control is determined not by capital invested, but by membership of the co-operative and a system of ‘one person-one vote’. Co-operatives offer to both members and to the wider community alike many important economic and non-economic advantages. As the ILO has long concluded (ILO 1981, 2002; Parnell 2001; Birchall 2001, 2003), for a number of reasons co-operatives are vital community-based institutions: they create new and sustain existing jobs, help to establish and underpin economic and political democracy, promote greater equality of wealth and power, help to ensure greater personal dignity and self-respect in the workplace, underpin employment security and continuity, facilitate market access and higher returns for small-scale agricultural/rural producers and artisans, and help build crucially important reserves of solidarity and trust (social capital) in the community.

Italian companies have been very active in CEEC, to the point that Italy comes only after Germany among the exporters to these countries (excluding the Easternmost ones). Since SMEs are the load-bearing structure of the Italian economy and are amazingly dynamic and competitive worldwide (Di Matteo and Piacentini 2003), in the countries where Italy has a large share of that country’s imports, they are the leading force of Italian presence.

To view the Balkans from Brussels is not easy. In order to fully understand Balkan affairs, it is necessary to rid oneself of several preconceptions and make a particular effort, first of all cultural. An effort that should begin by getting rid of ‘geo-cultural’ analyses based on the model developed by Samuel Huntington, who explained the events of Bosnia and the former Yugoslavia through the paradigm of the ‘clash of civilizations’: Muslims against Christians, Catholics against Orthodox, along a ‘frontier of civilization’ that would separate the ‘two Europes’, the catholic and the protestant Europe from the orthodox one, passing through the Ukraine, divided by Catholics and Orthodox, and Bosnia (Huntigton 1996).² And to get over the attitude summarized by Winston Churchill’s quote, ‘the Balkans are a region that produces more history than it can consume’.