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Schüller, Alfred

Article — Digitized Version The failure of economism in western and eastern integration policy

Intereconomics

Suggested Citation: Schüller, Alfred (1978) : The failure of economism in western and eastern integration policy, Intereconomics, ISSN 0020-5346, Verlag Weltarchiv, Hamburg, Vol. 13, Iss. 9/10, pp. 227-235, http://dx.doi.org/10.1007/BF02929246

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The Failure of Economism in Western and Eastern Integration Policy

by Alfred Schiller, Marburg *

The proposition that economic integration can help to smooth the way to political integration has been described by Wilhelm R6pke on many occasions as a dangerous manifestation of economism 1. The experience of the EC and the CMEA tends to bear out this opinion.

he term "economic integration policy" is in partner countries that this form of integration can T this article understood to denote the measures only function if there exists at least a federal-state aimed at removing obstacles to economic inter- constitution. A possible criterion for a further course between the states of a certain economic differentiation between institutional forms is area with the intention of improving the division whether the communitization relates to all or only of labour and of directing thereby the productive a few economic areas. In the former case F.W. forces into optimum channels according to scar- Meyer speaks of horizontal integration, in the city considerations. The theory of integration dis- latter of vertical integration 3. But whatever form tinguishes the following forms according to the the integration is to take, its minimum requisite degree of economic entanglement2: is an efficacious payments union able to ensure long-term equilibrium of international payments 4. Functional Integration of the First Degree com- prises free zones and customs unions and Economistic Integration Policy is concerned essentially with the removal of tariff and non-tariff barriers to trade. Under free trade Economistic is the term used here to describe conditions the exchanges of are charac- measures of integration policy which are confined terized by a relative output maximum which to "purely" economic sets of facts and part- Giersch has called the "trade optimum". solutions and are not consistent with the overall Functional Integration of the Second Degree is political or economic order desired or indicated the term applied to the Common . The ex- on conceptual grounds. To justify apposite modes tent of the international division of labour is not of procedure, which are often labelled "prag- determined by the absence of trade obstacles of matic", the following arguments are advanced: the mentioned kind alone but by the elimination [] Uniform progress to political and economic of institutional constraints on factor migration. All integration is according to order-political theory goods, services, personal and capital movements desirable but for the time being unattainable. are free. Here and today we should undertake what is Institutional Integration of the First Degree is the practicable. Economic part-solutions are best term for an incomplete economic union. It in- suited to this aim. Inherent in this argument is a volves extensive harmonization of the national danger that it leads to the adoption of the line of economic policies. Institutional Integration of the least political resistance. Second Degree, finally, denotes full economic 3 F. W. M e y e r, Die europ~ische Agrargemeinschaft und ihre and monetary union: uniformity of economic Auswirkungen auf die gegenw~rtige und zukSnftige Handelspoli- tik und das Transferproblem (The European agrarian community policy is achieved by supranational authorities and its effects on the present and future trade policy and the transfer problem), in: Gutachten zu Fragen einer europw with such far-reaching political powers over the Agrargemeinschaft, Bonn (Ausw~rtiges Amt) 1953, pp. 225-253. More recently: H. W i I I g e r o d t, Sectoral Integration: Agricul- * Philipps-Universit~t Marburg. ture, Transport, Energy and selected industries, In: F. M a c h- 1 For the last time in 1966 in his essay on "Nation und Weltwirt- l u p (ed.), Economic Integration' Worldwide, Regional, Sectoral, schaft" (Nation and the world economy), in: ORDO, Vol. XVII, London-Basingstoke 1976, pp, 117-128. 1966. 4 Cf. W R ~ p k e, Gemeinsamer Markt und Freihande~szone 2 Cf. B. B a I a s s a, The Theory of Economic Integration, Lon- 28 Thesen als Richtpunkte (Common market and free trade zone. don 1962. 28 theses as guideposts), in: ORDO, Vol. X, 1958, p. 41.

INTERECONOMICS, No. 9110, 1978 227 INTEGRATION

[] Inferior economic part-solutions - such for tional transition to a central monetary authority instance as are incompatible with the desired in the EC are according to the Commission's order in the community - inevitably involve inte- report to be created by a five-year programme. gration sacrifices but would nevertheless be war- ranted because these are outweighed by the Article 39 of the Treaty of Rome of March 25, 1957 great overall gains for the integration policy which showed already that agriculture was intended to can be expected to ensue eventually. act as a pioneer for the integration policy of the EC. This article contains more economic-policy [] It is because of the existing differences in targets for agriculture than for other economic economic structure and level of development sectors. Although the EC countries had no uni- between the member countries that for the time form concept for the Community's overall political being no real progress towards integration is and economic order, Article 40 put the EC coun- possible. Only with progressive alignment of eco- tries under an obligation to carry through a com- nomic development levels will the order problems mon agricultural policy. The requisite compe- which are now standing in the way of a more tences were to be transferred to Community extensive division of labour such as would benefit organs (the Council of Ministers, the Commission all parties disappear, and this, as it were, by and the Assembly). Of the possible solutions the themselves. Order-politically viable and efficient EC countries chose the creation of European integration solutions are thus seen to depend market orders, in some ways the most far-reach- ultimately on development-economic factors. ing form of integration. Over 95% of all agri- A few examples will be given to show that eco- cultural products are by now covered by market nomistic integration attempts are not confined to orders. A system of common minimum , one system. As such attempts are however inevi- safeguarded by manifold internal and external tably devoid of a foundation in order theory, this defence and support measures, is the cardinal kind of integration policy cannot lead far no feature common to all of them. Incomes conform- matter whether it is applied to any specific system ing to the parity principle, i.e. in line with the or not. incomes levels of "comparable" occupational groups, are thereby to be guaranteed to farmers. The Example of the EC The common prices are fixed mainly by the rules applying to cartel prices: the weakest partner and The EC is guided by the exemplar of far-reaching the marginal operation provide in principle the institutional integration. Conditions resembling yardstick for decisions. those of a domestic market are to be created by advancing beyond a customs union. For some According to the economistic point of view this members, foremost amongst them probably the price policy purports to promote integration Federal Republic of Germany, economic inte- through alignment of the incomes levels. It is gration is also a motive force driving Europe to however due to this policy that agricultural pro- political union - albeit at the price of economic duction and productivity reserves are again and drawbacks. The typical example is agriculture again being underestimated and that investment which is enacting one variant of isolated vertical stimuli are created in contradiction to the reality integration. The European monetary union pro- of agricultural surpluses as if specific shortfalls vides another example of the economistic inte- had to be offset. The scope for maladjustments in gration policy of the EC: agriculture due to the effects of this price policy is correlated to the certain knowledge that the It was at the summit conference in The Hague in agricultural prices have been immunized by the December 1969 that the countries of the EC first integration policy and that the consequential manifested their will to move faster in the direc- costs of production surpluses are borne by coun- tion of an economic and monetary union with a tries which hope that their own "prepayments" in uniform so as to ensure the irreversi- the agricultural sphere will lead to incomparably bility of the integration process even if the pro- larger integration gains in other sectors or in the gress towards economic union and towards poli- economy generally once the anticipated speed-up tical union were not to be so fast. The stage-by- of political-institutional unification gets under stage concept inaugurated in 1971 with this end way. in view has come to nothing. It failed by 1974/75 at the latest. The demand for a monetary union Not only has the common price policy had the was revived in the EC Commission's report on the partial effect of further depressing the stagnant prospects for progress towards an economic and or regressive demand for agricultural products monetary union of December 5/6, 1977 and in its but it has checked the process of structural adap- essentials reaffirmed at the Council of European tation and rehabilitation of the farming industry in Ministers' meeting in Copenhagen on April 9, accordance with realistic cost and demand 1978. Conditions to facilitate the political-institu- situations and led to a reverse policy of re-

228 INTERECONOMICS, No. 9/10, 1978 INTEGRATION agrarianization with completely distorted supply the latest it was clear that this way of dealing structures. with food prices would not work. Revaluations and devaluations became a regular feature at Disintegrative Effects that time, especially from March 1973 onwards. If In addition to the disintegration phenomena in- the parity adjustments had been prevented as side the EC, sketched here briefly, the agricul- demanded by many people in the EC out of regard tural price policy has had external disintegrative for the of agriculture, trade and pay- effects with negative repercussions on the inte- ments restrictions would have had to be imposed gration process in the EC to which little thought on an extensive scale, and the relinquishment of is being given. The policy of re-agrarianization the requisites of a viable payments union would contrary to market considerations has ruinous at the same time have removed the minimum consequences for the international trade: insofar preconditions for a full integration in the EC. as this policy is copied by others, farming coun- tries, including many developing countries, can- Measures to make agricultural imports dearer not expect their agricultural exports to make a and agricultural exports cheaper were felt to be significant contribution to their general economic imperative so that the farmers in the countries development. They are forced to divert their pro- with upvalued should not be at a duction and specialisation in international trade disadvantage as far as their nominal incomes from the direction indicated by relative were concerned. Correspondingly, compensatory of production factors and comparative cost ad- payments in the opposite direction were used in vantages. Developing countries can increase order to prevent benefits accruing to agricultural their exports of agricultural products significantly industries in devaluing countries from their parity only when the EC has had a bad harvest so that changes. Such a policy of hampering exports and a supply shortfall has to be made good. The role facilitating imports has the overall effect of put- of stop-gap is however no more profitable in ting the farmers in revaluation-prone countries in international trade than elsewhere, especially if a privileged position as far as foreign exchange supply bottlenecks cause the affected countries rates are concerned, for they can pass on the burdens of post-revaluation adjustments to other to embark on measures which lead to proper industries while normally the sectors with stag- production battles and early closure of the supply nating or regressive markets - agriculture gaps. If production stimuli are offered, they rarely work before the world market has got over the amongst them - would be hit hardest by a re- 5. The economistic agrarian policy has valuation. a penchant for economically costly forecasting Narrow-minded Protectionism and planning errors because it bears no relation to a viable agricultural market order. Although the agrarian sphere has been segregated more and more securely from economic events The economistic argument for the policy of mini- elsewhere 6, many responsible officials in the mum prices led logically to the fulfillment of the member states and in Brussels have never hes- demand for a corresponding integration symbol itated to assert that agriculture has made the in the monetary field, namely, for fixed exchange greatest progress towards European unification rates. There is an imperative need for fixed pari- and is subject to the present difficulties only ties - so it was argued - in order to maintain because the monetary union has not made as real equality of prices which was taken to mean much progress as planned. They ignore the fact maintenance of the average farm cost prices at that the incomes differentials in EC agriculture their relative levels at the time when the agricul- today must be regarded as greater than in 1967 tural prices had been fixed in terms of so-called when the policy of uniform prices was inaugu- units of account. By resorting to European Units rated. There are also greater legal uncertainties of Account the EC tried to establish a uniform and arbitrary interpretations of the regulations. international agricultural irrespective That farmers are still entertaining thoughts of of the price trends in individual member countries autarky and do not shrink from aggressive acts and parity changes between them. This attempt of self-defence has been shown by the blocking was tantamount to the creation of a monetary of the Brenner pass. union exclusively for agriculture. By early 1969 at s The sugar in Great Britain in 1974 for instance was A danger springing from the narrow-minded agra- regarded as the result of a chronic shortfall of supplies although rian protectionism is that many Europeans may the country was self-sufficient for 88 % of its consumption and the notable had been caused by panic buying due to have second thoughts about political union of dwindling confidence in the of the British Gov- ernment. Brussels reacted in a typically economistic way" the 6 Not only the compensatory payments but many other special existing system of agreed production quotas based on a Euro- measures on the national level not all of which were introduced pean supply plan which imposed a duty on governments to pur- by Community decision sewed this purpose. There were grants, chase sugar at guaranteed minimum prices was stepped up by bonuses, subsidies, rate support, VAT relief and open nearly 50 %. It was not long before the EC "went up" again and or coved import impediments, like those applied in recent years became an important net exporter of sugar. by Italy in particular.

TNTERECONOMICS, No 9/10, 1978 229 INTEGRATION

Europe and may modify their practical attitude view is borne out by the constitutional concept accordingly. There is evidence that many devel- for the monetary union which is also to be found oping countries are trying to apply the basic in the action programme for the second stage: elements of the EC's agricultural market system "The council of presidents would (especially the price arrangements and the pro- become the central organ of a central bank sys- visions for the financing of consequential costs) tem of a federalist design." The analogy with the on a global scale, and they may yet meet with Federal Reserve System in the USA springs to success if the EC, possessed by a breath-taking mind. In the end however an economistic decision protectionist fervour, goes on meddling with more was preferred. Let us briefly recall the various and more - economically more and more outra- strategies which were discussed after 1969 before geous - market orders (such as the one for wine) we turn to the details of the final decisiong: and is apparently not going to stop until the [] According to the "coronation theory", as it system has been extended to all agricultural has been called, which abides by the concept products. At the same time the EC Commission is that the political and economic order must be seen to tinker with ever new packages of defen- advanced in unison by an integration policy, the sive and remedial measures for specific products monetary union is to be the crowning piece in a and to work on what are deceptively called "re- sequence of convergent steps leading to the sum- finements" of the import protection system which mit of a comprehensively harmonized economic actually aggravate the import protectionism. policy. All in all, the experience with agricultural part- [] According to the so-called "pacemaker the- integration bears out those who - like F.W. Mey- ory", which conceives the economic and the poli- er and W. RSpke - noted at an early stage that tical order as separate elements of integration this method of integration promotes the disinte- policy, the advances to integration as envisaged gration of the European economy 7. by the "coronation theory" are unattainable. In- stead, monetary union has to be established all European Monetary Union at once so as to create inescapable compelling The basic law of the EC, the Rome Treaty of 1957, circumstances of a kind which force a change of aimed at the creation of a customs union. A attitudes and lead to a coordination and com- unified European monetary order was not pro- munitization of economic policy in its entirety. claimed as an explicit objective, possibly be- The pacemaker theory could therefore also be cause at that time it seemed too bold to assume called the theory of compelling circumstances. that the member countries might be prepared to sacrifice their autonomy in matters of credit policy A "Dilettantish Error" on the altar of the integration policy. The so-called Werner report which was put in Although it is probable that none of the member force by the EC Council of Ministers on March 22, states was earnestly thinking of relinquishing its 1971 envisaged the achievement of economic and national autonomy over its monetary and fiscal monetary union by 1980 ~~ It suggested that an policies, the EC Commission's memorandum on agreement had been reached in conformity with the action programme for the second stage of the coronation theory. The action which was integration s contained the first reference to the actually taken however followed the line of least subject: "The establishment of monetary union political resistance and complied in significant may become the objective of the third stage of aspects with the theory of compelling circum- the Common Market." In concrete terms the stances. Exchange rate bands were agreed for the problem was stated as follows: "The EC ministers first stage already subsequent upon the Washing- for economic and financial affairs acting together ton agreement of December 17/18, 1971 (the in the Council would determine the total volume Smithsonian agreement) which were narrower of the individual state budgets and the Commu- than those permitted at that time under the Bret- nity budget and the general financing conditions ton Woods system. Other measures taken at the on terms to be fixed at the time." same time included an increase of the financial provisions for regional and structural policy, short It is thus clear that harmonization of fiscal poli- and medium-term foreign currency support and a cies was regarded as the decisive prerequisite of a common , and this may be seen Of., especially in regard to the coronation and pacemaker theo- ries, H. G r 5 n e r, Probleme elner europ&ischen W&hrungsunion as a reflection of a desire for parallel progress (Problems of a European monetary union), in: ORDO, Vol. XXlI, towards political and economic integration. This 1971, pp. 291-312. lo In a simplified form the four stages may be characterized as follows: 1. Creation of the foundations for the harmonization of 7 F. W. M e y e r, Die europ~ische Agrargemeinschaft.. i~Ol~lbid.; monetary and economic policies in all fields 2. Achievement of W. R ~ p k e, Gemeinsamer Markt und Freihandelszone, " more equilibrial economic development, 3. Transition to an eco- s The three stages of four years each cover the periods of 1958 nomic and monetary union, 4. Completion of the economic and to 1962, 1962-1966 and 1966-1970. monetary union.

230 INTERECONOMICS, No 9/10, 1978 INTEGRATION coordinated intervention system known as the cause any surprise. At present no more can be "Snake". done than to give an indication - with the help All these measures including the narrowed fluc- of flexible exchange rates - of the degree of tuation bands in particular amount to an attempt to possible economic integration which corresponds embark upon monetary integration in isolation as it to the order- and process-political affinity of the were, although there existed no realistic chance of various member countries. progress to systematic coordination of the cycli- cal and financial policies, to say nothing of an Costly Steps economic order policy. By the end of the first To judge from the real degree of willingness stage it was already becoming clear that fixed among the EC member countries to advance to- exchange rates cannot act as a lever for inte- wards integration, this variant of a market-eco- gration policy if they are not set at realistic parity nomic method is the only one at present which is levels. The divergent order and process policies capable of taking the existing strains. For the in the EC countries did not however allow of time being it is also ineluctable although R6pke fixed and at the same time realistic exchange once voiced the view that the European countries rates. "Fixed but adjustable" parities between were more likely to turn to monarchy than to the currencies of the member countries in com- abandon the - under existing conditions mis- bination with possible restrictions on capital taken - ideal of stable exchange rates. Following movements were described in 1972 as essential up the quoted report of the EC Commission of and basic conditions for the achievement of a December 5/6, 1977 the Council of Ministers union even though this exchange rate regime had actually decided at its meeting in Copenhagen already proved most destabilizing and disinte- on April 9, 1978 once more to establish a Euro- grative under the Bretton Woods system. The pean currency system leading in the long term to reason for this is that it is inconsistent with the a central monetary authority with sweeping main prerequisite of international economic inte- powers. This system is to emulate in part the gration, namely, the compulsion for the preser- original central design for the Inter- vation of a balance of international payments. national Monetary Fund which has been shelved as absolutely utopian. The beginning of a disintegration process in the EC was evidenced by the imposition of trade The starting move is again to be a "certain stabi- restrictions on grounds and lization of the exchange rates" of the Snake cur- of strict controls directed against "speculative" rencies in relation to the other Community cur- capital movements. The real cause of these rencies. This is to be the first step in a five-year movements, the existence of unrealistic exchange programme which has the attainment of monetary rates, was not admitted. This policy is for two union for its ultimate aim. A coordination concept reasons to be described as economistic - first, with a manifestly economistic bias has been because it rests on the assumption that the free- adopted as a flanking measure for the new ex- dom of goods exchanges and factor migration change rate cooperation: the internal market is can be maintained in the face of restrictions on to be "brought to completion" within five years; capital movements; and secondly, because it was and the convergence of the national economies believed - and this is the fundamentally econo- and the structural measures and solidarity in mistic trait of this policy - that it was possible to monetary matters are to be "improved upon" in go on to a monetary union without paying the this context. This quite non-committal programme inconvenient price of a great measure of willing- deserves to be described as economistic because ness to advance towards order-political inte- it shows no sign of a basic guiding idea but en- gration. The idea that economic integration could visages nevertheless far-reaching and in econo- be achieved on the way over monetary integration mic terms costly measures in the spheres of and that this could bring the EC nearer to political monetary and structural policy. For instance, the union proved a "dilettantish error"11 with costly Community is to be given much more scope for consequences 12. rendering foreign currency support although the allocations for this purpose were already doubled That agreement on the transition to the second in December 1977, the persistently inflationary stage of the monetary union was not, as sched- climate in the EC notwithstanding. uled, achieved at the end of 1974 cannot really The "new" structural policy for the Community 11 H. W i I I g e ro d t, Voraussetzungen einer Europ&ischen W&h- rungsunion (Prerequisites of a European monetary union), in: seems to relate primarily to attempts to solve the ORDO, Vol. XXlII, 1972, p. 79. mostly self-inflicted structural problems in the 12 In 1976 alone the Federal Republic of Germany made an "mte- gration sacrifice" of DM 13.2 bn for intervention measures to iron and steel, textile and shipbuilding industries stabilize the Euro-Snake but the integration-promoting effect of this sacrifice in the meaning of the pacemaker theory did not at the expense of third countries. This sort of become evident. structural policy amounts essentially to an imi-

INTERECONOMICS, No. 9/19, 1978 231 INTEGRATION tation of the EC policy for the agricultural markets The concrete substantive application of the which aims chiefly at conserving the existing Leninist principles of in the structures. The disintegrative effects of the agri- CMEA countries is marked by a pronounced cultural policy have been described. heterogeneity - except, perhaps, in the USSR and This concept which accords with the pacemaker the GDR 19. If coordination of the economic plans theory makes it easy for all governments in the is nevertheless to be a principal means of so- EC to continue to go their own ways in economic cialist integration while real internationalization of and monetary policy and to impede the integra- planning and direction of the external economic tion process thereby. The EC Commission's new relations is still out of the question, it must be five-year programme for economic and monetary asked what other forms the economic cooperation union cannot be discussed here in all its details. in the CMEA may take. Bilateral trade and pro- In the light of the experience gained so far we duction treaties are the classical form of such may however venture the prediction that it will cooperation but they presuppose for their effi- prove impossible to advance by this route to the ciency prior multilateral adaptation of the eco- unified European monetary system by which nomic plans, perhaps with a view to intra-CMEA German circles in particular set great store 13. specialization which may be desired for a variety of reasons and to varying degrees. One can only The Example of the CMEA guess at the political exertions which have to be made in this connection, but politicians in CMEA The order principles for the policy of integration to countries are clearly as prone as those in the EC be deduced from the CMEA statutes of 194914, to put the blame for integration difficulties and the Principles of International Socialist Division the selfish hankering for autarky on factors which of Labour of 1962 TM and the CMEA Complex Pro- are supposedly beyond control. Special emphasis gramme of 197116 suggest that it is intended to is put in this connection on differences of eco- give effect to a variant of the functional inte- nomic structure and development between the gration, especiatly as institutions with supra- CMEA countries generally and various industries national sovereignty over planning, direction and in particular. supervision do not yet exist. The establishment of apposite institutions seems to be ruled out for An Economistic Subterfuge the near future by the constitutional reaffirmation of the national over external econo- That CMEA terminology draws on integration mic affairs and by the insistence on the sover- terms and forms which have nothing to do with eign right of the individual CMEA countries over the system - such as trade liberalization, world planning matters. This means that the only market price orientation, multilaterality of eco- method of integration which is practicable under nomic relations, currency convertibility - may be the economic conditions set by central adminis- described as an economistic subterfuge. There tration cannot be applied, for strict parallelity of is evidently some connection between this and internal and international forms of the planned 13 Cf. the Federal Government's report on integration in the Euro- economy follows logically from the Leninist prin- pean Communities, Bundesrat paper 212/78, April 28, 1076, p. 11. ]4 Cf. A. U s h a k o v, Der Ostmarkt im Comecon (The Eastern ciples of socialist economic planning, especially market in the Comecon), Baden-Baden 1972, p. 43 ff.; J. B e t h- from the "unity of and economics" and genhagen, H. Machowski, Integration im Rat fSr gegen- seltige Wirtschaftshilfe (ntegration in the Council for Mutual Eco- from the "unity of the economic plan ''17. This nomic Assistance, 2nd revised and extended edition, Berlin 1976. structural parallelism provides the conclusive 15 The ISDL principles are: 1. Close association of the socialist countries, 2. Coordination of the economic plans as the principal argument for the effectuation of a comprehensive means of integration, 3. Specialization and cooperation in the integration concept with a supreme supranational most important production sectors, 4. Achievement of a high beneficial effect of ISDL, 5. Elimination of the historical differ- planning authority in the CMEA, which implies an ences in the level of development of the CMEA countries with due regard to the national preconditions, 6. equivalence all-inclusive institutional economic union branch- in the exchanges of goods between the socialist countries, i.e. ing out into national offices for external eco- observance of the principle of mutuality and non-discrimination m economic intercourse. Cf. Neues Deutschland, East Berlin, nomic affairs; for integration-induced denational- June 17, 1962. ization of planning, direction and supervision of 16 Complex Programme for the further Intensification and Perfec- tion of the Cooperation and Development of Socialist Economic the national economic activities requires an Integration between the Member Countries of the CMEA, Die Wirt- internationalization of the central foundations of schaft, No. 32, August 11, 1971, p. 1-40. 17 j. F. K o r m n o v expresses the view (in: Spezialisierung und the economic order, especially those relating to Kooperation der Produktion der RGW-L&nder, East Berlin, 1974, socialist property, and uniform political planning p. 244) that such proposals for the elaboration of uniform stan- dards for an allinclusive general international plan have "objec- competences and powers of control. Economic tively not yet fully matured". integration of collectivist countries does indeed is W. R 5 p k e, Nation und Weltwirtschaft, ibid., p. 53. "because of the through and through political 19 According to Jans Hacker it has often been said in the GDR that the integration of the Eastern bloc has gone so far that nature of their presuppose an one may speak of an entity having a separate standing and its own principles under international law. Cf. Press and Information effective renunciation of the nation as an essen- Centre of the German Bundestag (ed.): Zur Sache. Themen Parla- tially sovereign entity" 18. mentarischer Beratung: Deutschlandpolitik, No. 4, 1977, p. 130.

232 INTERECONOMICS, No. 9/10, 1978 INTEGRATION the predilection in the CMEA for economic part- the prices of a certain number of major selected solutions which deserve to be described as goods (raw and energy materials and important economistic because they are inconsistent with primary products) are to be fixed more or less the only form of integration which fits in with the uniformly for all CMEA countries. Any price dif- CMEA system. Typical are the vertical integration ferences would be expected to be due, in the forms practised in the CMEA such as the inte- main, to the diverging costs and productivity gration of raw material, energy and certain rates in the manufacturing phase of the pro- manufacturing industries. These and other forms duction process, it is argued that this form of of integration require common planning, direction price harmonization is justified because under and supervision, with appropriate international the conditions of the classical free trade all that planning prerogatives, because they involve col- happened would, essentially, be an alignment of lectivist property dispositions. the international prices. That a wide measure of It is a fact that the forms of specialized or com- anticipatory trade liberalization is an indispen- munalized production, perhaps through Inter- sable requisite of such adjustments is delibera- national Economic Organizations (lEO), introduce tely overlooked. Nevertheless it is hoped to "qualitatively new features into ownership banish the existing multi-price system for the relationships. The product is generated jointly. It goods in question in this way, which cannot be becomes the common product of the partners. described here in all its details 22, and thus to The appropriation process is changed." so To the achieve conformity between the internal pur- extent to which common production facilities chasing power and external value of the national develop into a new motive power for integration currencies. the CMEA will however experience an ever stronger conceptual need for the centralization of Contrary to the Requirements the formerly national planning and direction of the Economic Order powers. Taken to its logical conclusion, this The exchange rates arrived at in this way are to method of integration comes close to the Leninist remain fixed and act as a universal instrument for idea of a socialist large-area economy with a direct planning and direction of the foreign trade common overall plan for the CMEA (which would in the CMEA. A distinction between quota goods inevitably be dominated by the USSR) and not to and non-quota goods was proposed, and intro- the functionalist integration concept desired at duced in the Complex Programme in 1971, in present by the smaller member states in parti- regard to the intra-CMEA exchange of goods. cular which is marked by a preponderant desire Multilateral settlement over the International Bank for economic escape routes. Some of these will for Economic Cooperation (IBEC) is envisaged be mentioned here. only for the non-liberalized trade exchanges. The liberalized trade is to be settled for a limited A Price and Currency Community number of goods (chiefly consumer goods) on the It is a central objective of the CMEA Complex basis of the socialist standard currency, the trans- Programme to advance by 1980 stage by stage to ferable rouble. Any balances left are to be settled economically founded scarcity prices and realis- in gold or drawing rights on certain major com- tic exchange rates as the basis for multilateral modities with a world market. In this way the settlements by means of a system of transferable balances could be turned into convertible West- currencies with partial convertibility and partial ern currencies at any time. Partial convertibility trade liberalization. The concrete problem here is would thus be achieved, and this could be ex- how to bridge the gulf between diverging national tended as and when the liberalized trade drew in price structures which is an ineluctable conse- proportion, so that one could also speak of a quence of the marxist theory of (labour) values partly convertible transferable rouble. and prices and how to cope with the ensuing Were this concept to be applied in practice, it is dual and treble price systems. easy to predict that it would be the aim of every Let us assume that the Complex Programme country in the negotiations about the liberalization would try to accomplish this task along the lines lists to have as many of the goods which it pos- of an integration concept of compelling circum- sesses in abundance or which it can produce stances (the pacemaker theory) as developed by relatively cheaply or sell, for whatever reasons, Polish in 196921 . According to this at high prices included in these lists. The more

20 F. S a c k, Erfahrungen und Problems bei der Bildung inter- successful a country is in this respect, the greater nationaler Wirtschaftsorganisationen der Mitglieder des RGW aus is its chance of emerging from the settlements der Sicht theoretisch-methodologischer Grundfragen der politi- schen Dkonomie des Sozialismus (Experiences and problems of 21 Of., for further details, A. S c h t~ I I e r, Osthandelspolitik als the formation of international economic organizations of the CMEA Problem der Wettbewerbspolitik (East trade policy as a problem members as seen from the viewpoint of basic theoretical-method- of the policy), Frankfurt 1973, p, 201 if. ological questions bearing on the political economics of social- ism), in: Wirtschaftswissenschaft, 23rd year, 1975, No, 10, p. I453. 22 ibid.

INTERECONOMICS, No. 9/10, 1978 233 INTEGRATION with a surplus balance and of accumulating con- ficiency" of "hard" goods which are international- vertible currency balances for purchases in the ly in demand. The synchronous development of world market. If the somewhat vague ISDL prin- the convertibility of goods and currencies pro- ciple of equality of treatment and non-discrimi- ceeds accordingly gradually over a prolonged nation is applied, the liberalization lists can be span of time and only provided that the material expected to grow to enormous lengths, the more constraints imposed by economic scarcities so as the described procedure for price align- abate. ment and exchange rate determination can be Seen from the obviously unrealistic and - owing manipulated at will. Whether the exchange re- to underlying Marxist ideas - narrow point of lations conform to the plans or not would become view, convertibility is the outcome of an economic a marginal consideration in intra-CMEA trade. development process which, it is true, needs a Such a result would however fly in the face of the helping hand - such as the Complex Programme. order requirements of a system of central plan- The stage-by-stage plan to be carried out under ning and direction of economic relations. the Complex Programme by 1980 resembles the Werner plan, and the EC Commission's five-year A Narrow Marxist View programme which took its place, in that it offers The economistic origin of the outlined proposal to the participants the political advantage that is evinced by the fact that it was made when there is hardly any real need to justify solo tours Poland was a chronic creditor in the CMEA. The and that any failure to reach the ultimate aim can Poles understandably did not cherish the prospect be easily explained away as due to arrears in the of mandatory clearing of balances by means of economic development of individual member goods which they did not want and the danger of countries. The blame can, besides, be put on ex- being stuck with balances for good. The substan- ternal factors supposedly beyond control. It is tial price increases for raw and energy materials possible to revert in this way again and again, at in the world market since 1973 have changed the one's own discretion, to a relatively non-commit- balance of interests of the individual CMEA coun- tal integration programme for multilateral plan tries in regard to foreign currencies profoundly: coordination, currency convertibility and a com- The USSR has become the outstanding creditor - mon external economic order, simply by referring especially in relation to Poland - and it is the to the indeterminable precondition of the "neces- Soviet T.O. Bogomolov who now sary alignment of economic development levels" opines that gradual convertibility of CMEA clear- in the CMEA area. ing accounts in gold or hard currencies is a suit- able means of stimulating intra-CMEA goods ex- Conclusion changes while his Polish colleague A. Marszalek expects such a hardening of the transferable Under the conditions of the market economy the rouble to have adverse effects on the inter- order and process policy offers a large variety national socialist division of labour. of alternatives in regard to the desired degree of integration. So there is no need to resort to Marszalek uses an argument which may be de- economistic part-solutions of a kind which - like scribed as a variant of the coronation theory of those described here - raise more integration integration founded on development-economic problems than they resolve. Theoretical reasoning considerations 23. According to this view, which and practical experience show alike that the has often also been presented in the West, pro- choice between alternative solutions is not avail- duction cannot be freed from the intrinsic limi- able to centrally directed economies. The abor- tations of a planned economy until the "con- tive attempts to give a real meaning to certain vertibility of goods" has been achieved, i.e. until terms of the free trade language (like multilate- the CMEA countries are capable of producing - rality, liberalization, convertibility) within the and setting aside for the export trade - a "suf- compass of the CMEA demonstrate the dilemma 23 Marszalek refers to an argument which allows of arbitrary ap- of operating with such concepts in the absence plication, namely, that the economic requirements for the intro- duction of even partial convertibility of the transferable rouble of a basic market-economy concept of the order do not exist as long as the CMEA countries do not possess the of the international division of labour and cur- requisite reserves of hard currencies. Cf. A. M a r s z a I e k, The Transferable Rouble, quoted by H. T r e n d, Some Issues rency exchange relations. for the 30th Comecon Council Session, Radio Free Europe Re- search, RAD Background Report/151, July 2, 1978. Reference to other attempts to create a socialist 24 Mention may be made in particular. .~ the static concept, of "international socialist price determination" on the has s of un- price and payments community 24 would also show avoidably obsolete reference prices in the world market and of Kormnov's proposal for a jointly organized procedure for ascer- that the efforts to extensive division of labour taining the optimum structures for specialization in the OMEA. and effective forms of an equilibrial regulation of Cf. J. F. Kormnov, op. oit., and for a critical view, A. Sch~l- I e r, op. cit., p. 183 ff. Concerning the state of the various forms the external economic relations in accordance of integration m the CMEA cf., also, the survey by H. T r e n d, with scarcity considerations into the CMEA come Comecon at the Beginning of 1977, Radio Free Europe Research, RAD Background Report/65, March 25, 1977. up against an economic order limit which is dis-

234 INTERECONOMICS, No. 9/10, 1978 INTEGRATION cussed in the marxist literature as a "basic con- nomic and political union. They will still enjoy the tradiction between the internationalization of the advantages of a widely ramified and efficient productive forces and the national organization international division of labour and factor migra- of production and social life". Consistently with tion even if, and especially if, the exchange rates this basic contradiction socialist state ownership are flexible. Under a market-economy order the is to be regarded as the decisive impediment to activation of these advantages depends upon the integration in the CMEA 25. The economistic ap- extent of liberalization. The CMEA, in contrast to proach to integration policy obviously offers no the EC, cannot develop an even approximately escape from this dilemma which is inherent in comparable integration mechanism with a similar the existing order. The only alternative left is a impact on the general welfare as realistic ex- socialist super-state which, by definition, has no change rates. One need only look at this fact integration problems. However, it has to cope soberly and without illusions to appreciate that with all the more regional and structural prob- suggestions for the incorporation of the Eastern lems. From this situation it is often concluded bloc in what has been called a "fully integrated that such a socialist economic integration cannot international monetary order" should be dismis- be attained except by a route which is at least as sed as economistic daydreams which have noth- long and difficult as that in prospect for the eco- ing to do with reality. nomic and monetary union of the EC. 25 Cf. T K is s, Probleme der sozialistischen Integration der Mitgliedslander dee RGW (Problems of socialist integration of Whatever may be thought of such predictions, it the CMEA member countries), Moscow 1971, p. 155; G. K o hi- is crucial to note one continuing difference be- m e y, l~konomische Theorie und eozialistische Integration (Eco- nomic theory and socialist integration), East Berlin 1975, p. 35 f. tween the Eastern and Western integration efforts K. H. S t i e m e r I i n g (Die sozialistische ~konomische Integra- which is of great moment for the welfare of indi- tion - ein Merkmal der Gestaltung des entwickelten Sozialismus dThe socialist economtc integration - a characteristic feature of viduals and nations: No bottomless hole will open eveloped socialism], in: Wirtschaftswissenschaft, 24th year, No. 8, 1976, p. 1121 ff.) does not voice any pessimism in regard below the member countries of the EC as far as to integration policy as suggested by this impediment but takes a rather optimistic view, and this on the mysterious ground that their integration is concerned even if the Com- the potentialities of the socialist states and the socialist means munity does not achieve the objective of eco- of production are still far from having been exhausted.

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DIE UNTERNEHMENSGEWINNE IM KONJUNKTURVERLAUF Methodische Probleme und Analyse der empirischen Zusammenhiinge (Profits of Enterprises during the Methodical Problems and Analysis of Empirical Contingencies)

The cyclical significance of the enterprises' profits catches the public's eye more intensely in particular.during periods of slackening economic activity. The short-term determinants of the profits of enterprises, i.e. the factors determining their development during the business cycle, are being worked out and analysed. Not least because of the comprehensive empirical data on which this study is based, it should be of similar inter- est to the scientist and the businessman. (In German.)

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INTERECONOMICS, No. 9/10, 1978 235