For European union, communism collapsed 4 years too soon

Robert Kuttner

September 18, 1992|By Robert Kuttner

HARLAN Cleveland, a great internationalist and diplomat, once observed that he still had grave reservations about world government "because I might not like it, and it might not like me." But despite the globalization of commerce, nation states still define citizenship, identity and economic security.

Today, citizens of the United States and Europe, facing hard times, are freshly questioning whether "one world," or even one continent, is what they really want. As a consequence, two treaties, the North American Free Trade Agreement (NAFTA) and the European Community's proposed Maastricht Treaty of monetary and political union, hang in the balance. I hope that the Maastricht Treaty survives French doubts in this chaotic week for world currencies, and I hope the proposed North America trade deal is sent back for renegotiation. That sounds contradictory, but the two proposed unions are really very different creatures.

The main difference is that the European Community is a political as well as a commercial union -- an emerging confederation carefully prepared by 40 years of step-by-step economic integration (and now gravely threatened), while NAFTA represents a naive and breathless faith in private markets.

European union began with a coal and steel community in 1951, then a six-nation common market in 1957. This led to three decades of very gradual, socially bearable dismantling of commercial barriers to trade, coupled with the building of new institutions of economic governance. Monetary union -- a European central bank and currency by 1999 -- would complete this process.

Unlike North America, Europe today is an area with broadly common living standards, and it shares a common "social

market" philosophy of private commerce leavened by social protection. As the Europeans have built their common market, step by step, they have taken great care to sustain and broaden that tradition.

First, while moving toward internationalism at a continental scale, they have recognized the reality of nationalism. An evolving common market, therefore, could not be a perfectly free market, lest its economic disruptions lead to nationalist backlashes. For example, Europe's "common agricultural policy" of farm price supports -- so odious to American trade negotiators -- was necessary to make the common market bearable to Europe's farmers.

Second, the Europeans have built public institutions of continental scale to match private ones. There would be one set of commercial regulations for all of Europe, and labor and environmental standards as well. Europe spends tens of billions of dollars yearly on regional development programs aimed at bringing up poorer countries such as Greece, Portugal and Ireland, to the level of richer ones.

NAFTA does nothing of the sort. There is no integration of political institutions, no regional development fund, no systematic effort to raise Mexican environmental and labor standards, or to harmonize economic regulation. Rather, there is a headlong rush to create a common market among nations with radically different sets of wages, living standards, and philosophies of social protection and governance.

Conceivably, the proposed NAFTA could be fixed. For example, Congress or a Clinton administration could demand that Mexico step up environmental protection and pay wages in proportion to worker productivity, so that U.S. firms would not move solely to take advantage of social and industrial conditions that would not be tolerated at home.

NAFTA could be a common development strategy rather than a simple free market. It could include a transaction tax on U.S.-Mexico trade, to finance the retraining of dislocated workers and upgrade infrastructure along the border. But defenders of the deal argue that the more it is encumbered with such provisions, the less it resembles a free trade area. And they are right.

It may simply be that pure free trade is premature between two nations at such radically different levels of political and economic development. After all, during the great World War II boom, the world economy performed well with a growing volume of trade, but not totally free trade. The remaining barriers to trade allowed nations to pursue their own policies of economic stabilization and social protection, and in retrospect that was not such a bad thing. If the Maastricht Treaty is approved, Europe would still be able to pursue that model -- but continentally rather than nationally.

Unfortunately, timing is everything. In a sense, the collapse of communism happened about four years ahead of schedule. If it had happened, say, in 1993 instead of 1989, the European Single Market of 1992 would be a done deal and Western Europe would be well on the road to full union.

The collapse of the East has imposed costs and increased rivalries in the West. Germany, Europe's central banker, has been holding the rest of Europe hostage to the redevelopment of Eastern Germany, and citizens from Cannes to Copenhagen are discovering that perhaps they are French and Danish first, European second. This is illogical, since a European central bank would be far more accountable to all Europeans than the German Bundesbank is -- but then panicky nationalism is seldom logical.

If European union fails and NAFTA sails through, the wrong model of economic union will have triumphed.

Robert Kuttner writes regularly on economic matters.

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