Regional Integration in East and West

The contributions to this book, by economists from both West and East Europe, are intended (a) to give, in Parts 1 and 2, a general conspectus and comparison of the integration systems of the European Economic Community (EEC) and the Council for Mutual Economic Assistance (CMEA) and (b) to cover, in Parts 3–6, some specific problems and policies.

Economic integration is one of the most complicated, contradictory, and at the same time dynamic processes in the international situation. During a comparatively short period — just 25–30 years — dozens of different integration groups emerged in various regions of the world. But not all of them passed the test of time. Not a few groups lost their positions. Others collapsed altogether. A third group did not go far beyond the limits of projects. However, the main groups — among them the Council for Mutual Economic Assistance (CMEA) which consists of ten socialist countries, and the European Community (EEC) which now unites ten capitalist states — have proved their viability. And what is more, CMEA and EEC have turned into great and significant factors in world progress. They exert a growing influence upon the internal economy and policy of the participating countries, and upon the relations between countries in Europe and those beyond its limits.

In the 1980s, both socialist and capitalist states face the challenge to adapt their concepts of socio-economic development to the significant changes in political and economic conditions. Compared with the early 1970s, all these states are now confronted with new domestic and external conditions for continued social, economic, scientific and technological progress. The special aspects are:

German tradition in the theoretical discussion of economics is to subdivide the overall subject of economic policy into ‘Ordnungspolitik’ on the one hand, and ‘Ablaufpolitik’ on the other (1). If the EEC Treaty’s concern for integration is subdivided this way and examined accordingly, it becomes apparent that decisive elements of the first have been transferred to the competence of the Community, whereas the second remains largely under the jurisdiction of the national states.

The 1970s saw big changes in the conditions for growth and equilibrium, in structures and in forms of cooperation within the international economy. These changes could be attributed in part to specific problems of the national economies or of the major regions of the world economy; at the same time they have exerted an active influence on more than 150 national economies and on all the integration groupings on the international scene. Neither the CMEA integration nor the individual CMEA countries** can be excluded from this general statement, although their economic development, and the impact of the world economy upon them, as well as their responses to the external challenges, in some respects display specific features.

The process of economic integration in Western Europe started with the establishment of the European Coal and Steel Community in 1952. Various steps followed until in 1957 the Treaty establishing the European Economic Community (EEC) was signed in Rome.

In this chapter we study the possibilities of economic integration between Western and Eastern Europe. The first section contains a theoretical analysis which attempts to fulfil two requirements: to take into consideration not only the discussion in the literature, but also the social, political and economic relations. Given the space limitations, this can be accomplished only at the price of severe omissions in both areas.

Ricardo, Ohlin and Heckscher — to mention a few founding fathers of international economics — would undoubtedly have approved of the creation of the European Community and the European Free Trade Association. Of course, customs unions and free trade areas are a second best solution, but they are at least a step towards the necessary international specialisation.

Regional integration in Europe influences many aspects of business life, including the multinational enterprises (MNEs). The questions to answer in Part I, dealing with Western Europe, will therefore be: (a) how does the process of regional economic integration affect the MN Es? (b) (in view of their powerful position, a very important question): how do multinationals view the process of economic integration — are they favourable to it or not? In Part II I comment briefly on similar developments in the CMEA area. The major issue will be the functions to be performed by the Socialist Common Enterprises (SCEs)

The point of departure of the Common Agricultural Policy — in contrast to that for the industrial sector — was characterised by unusually strong dissimilarities between the agricultural structures in the six original member countries of the EEC. Thus — to mention only the extremes — a well-structured and excellently organised export-oriented agriculture in the Netherlands stood in contrast with Italy’s agriculture, mainly consisting of small and very small farms. Whereas the output of a relatively small number of Dutch farmers by far exceeded domestic demand, Italian farmers, representing a considerably higher proportion of the working population, were nowhere near able to meet the Italian domestic demand for food. Accordingly, the national agricultural systems in the member countries exhibited a variety of mechanisms for the protection and support of agricultural production, in the form of market régimes, price guarantees, subsidies, direct income subsidies and monopolies. Once again there is a significant difference from the industrial sector, which was essentially protected by customs duties and quantitative restrictions vis-à-vis trading partners. These facts naturally generated diverging interests of member countries in the establishment of a Common Agricultural Policy. Thus France, being the Community’s biggest agricultural producer, as well as the Netherlands, insisted on the inclusion of agriculture in the European process of integration and made their agreement to the Treaty of Rome conditional on the establishment of a Common Agricultural Market.

In Section A of this chapter we discuss the new problems facing CMEA countries in the 1980s and the solutions now being adopted, with special attention to measures for the closer integration of their economies. In Section B we outline the Long-term Purpose-oriented Programmes of Cooperation for promoting integration by concentration on specific major problems common to CMEA member countries.

The present paper tries to throw light on some of the new aspects of convertibility in the European CMEA region, first of all at the regional level. I shall confine myself to purely financial aspects and to closely related problems of economic management; analyses of ‘real’ economic processes and economic policy alternatives are consciously omitted.