1952—1955 Jean Monnet 1955—1957 René Mayer 1958—1959 Paul Finet 1959-1963 Piero Malvestiti 1963—1967 Rinaldo Del Do Table 1: Presidents of the High Authority of the European Coal and Steel Community. Source: Spierenburg and Poidevin (1994). 1 Institutions European Parliament: 732 members; joint power to adopt legislation; • approves budget, international treaties, commission; power of inquiry Council of the European Union (ex Council of Ministers): ministers of • member state governments; joint power to adopt legislation — Committee of Permanent Representatives (COREPER) (of the member states), with formal status from the Merger Treaty European Commission: 24 Commissioners, of which one is President • Court of Justice of the European Communities • European Council: heads of government, meeting twice yearly, with • formal status from the Single European Act onward. Other • — European Court of Auditors — European Central Bank — European Investment Bank — Economic and Social Committee: 222 representatives of interest groups (unions, consumer groups, ecologists) 1 1958—1967 Walter Hallstein 1967—1970 Jean Rey 1970—1972 Franco Maria Malfatti 1973 Sicco Mansholt 1973—1977 François-Xavier Ortoli 1977—1981 Roy Jenkins 1981—1985 Gaston Thorn 1985—1995 Jacques Delors 1995—1999 Jacques Santer 1999—2004. Romano Prodi 2004— José Manuel Barroso Table 2: Presidents of the European Commission. Policies Agriculture: the Common Agricultural Policy (CAP) Competition policy (à la U.S. antitrust policy, plus control of regional and business aid by the member states Energy policy Environmental policy Fisheries policy Internal market policy Labor market policies Monetary policy, monitoring adherence to Stability and Growth Pact (SGP) Regional policy, social cohesion Science and technology policy Trade policy Transportation policy It is remarkable that these 15 countries have set about and largely suc- ceeded in integrating what were distinct national economies, with every rea- son to think that the 10 new member states to the East will do so as well. Butitisalsoremarkablethatintegrationhasledtoamuchgreaterre- liance on the market, and a much more limited role for the public sector, than might have been predicted, given the size of the public sectors in the earliest Member States of what has become the European Union. 2 1840 1850 1860 1870 1880 1890 Belgium 334 854 1,729 2,897 4,112 4,526 France 410 2,915 9,167 15,544 23,089 33,280 Germany 469 5,856 11,089 18,876 33,838 42,869 Great Britain 2,390 9,797 14,603 21,558 25,060 27,828 Italy 20 620 2,404 6,429 9,290 13,629 Netherlands 17 176 335 1,419 1,841 2,610 United States 4,508 14,434 49,001 84,675 149,219 266,724 Table 3: Length of railroad line open, selected countries (kilometers). Sources: Mitchell (1975, Table G1; 1870 UK figure is for 1871); Historical Statistics of the United States (1975, Series Q321-328). 1840 1850 1860 1870 1880 1890 Belgium 7.38 18.87 38.20 64.0 90.85 100.0 France 1.23 8.76 27.55 46.71 69.38 100.0 Germany 1.09 13.67 25.87 44.03 78.93 100.0 Great Britain 8.59 35.21 52.48 77.47 90.05 100.0 Italy 0.15 4.55 17.64 47.17 68.16 100.0 Netherlands 0.65 6.74 12.84 54.37 70.54 100.0 United States 1.69 5.41 18.37 31.75 55.95 100.0 Table 4: Per cent of 1900 railroad line installed, selected countries (kilome- ters). Sources: from Mitchell (1975, Table G1; 1870 UK figure is for 1871); Historical Statistics of the United States (1975, Series Q321-328). To explain this aspect of EU development, we will review the economic situations of Germany, France, and the United Kingdom. 2 National Backgrounds One point is that industrialization began at different times in different Eu- ropean countries. The UK was the home of the industrial revolution. Railroad infrastructure is a crude but convenient index of the pace of industrialization. In absolute and in relative terms, the United Kingdom and Belgium were 3 Figure 1: The German Confederation in 1815, showing Prussian acquisitions. Source: Tipton (2003, Map 1). early leaders in developing railroad networks.1 France lagged behind Germany; both lagged behind the UK. 2.1 Germany Germancultureisancient. Germany is younger than the United States. 1 I have ended Tables 3 and 4 with 1890 largely because the available data for the United States suffers a break at that point, with later data not comparable to earlier data. 4 Figure 1 shows the hodgepodge of German principalities in 1815 (the year the Battle of Waterloo sent Napoleon into exile at St. Helena and fixed the map of Europe for some 50 years). 1834: Prussia established the Zollverein (customs union), collecting most German states behind a common external tariff. 1850s & 1860s: steam power, first used on barge canals, then railroads. Early on, the Prussian government was cautious about promoting the development of railroads: finance ministers feared budget deficits • suspicion railroads would enable social instability • 1860s & 1870s: investment in railroads rose at nearly 8 per cent per year Backward linkages to supplying industries: stone, bricks, cement, timber, iron, steel, machinery, coal. Forward linkages to the rest of the economy: more rapid and reliable delivery of intermediate and final products, at lower cost for transportation services; reduced inventory carrying costs. The railroad network made the Zollverein an integrated economic region, what would later be called a “single market.” SteampowerandrailroadnetworksaroundtheworldintegratedGermany into what were becoming world markets. German unification: 1864, a little war with Denmark (acquires Schleswig-Holstein) • 1866,alittlewarwithAustria(whichlostVenicetowhatwasbecoming • Italy) 1870, a short but not-so-little war with France (the fall of the Second • Empire and beginning of the Third French Republic, which governed until World War II; founding of the German Empire, German annexa- tion of Alsace Lorraine) Not the least important characteristic of these wars is that they were short: a few months (late 1863—early 1864), 7 weeks, and 10 months, respec- tively. 1870s: speculation-fed boom. 5 Figure 2: The unification of Germany, 1864—71. Source: Tipton (2003, Map 3). 6 May 1873: financial collapse in Vienna. This triggered what was for some time called the Great Depression. Real output grew, but at a slower rate, over the period 1873—1895. Some argue that the seeds of protectionism, nationalism, chauvinism, and fascism can be traced to the 1870s. But investment, particularly industrial investment (Figure 3) continued. Moving into the 20th century, Germany was equipped with modern, up- to-date capital equipment. Figure 4: German industry increasingly organized in large plants, able to take advantage of economies of large scale production (where these existed). 1890s: the second industrial revolution, chemistry, engineering, and electricity • – led by Germany, as the first industrial revolution had been led by England decline of the share of agriculture in the work force • widespread cartels; in contrast to the approach of U.S. antitrust, an • 1897 German court decision made cartel agreements legally enforceable contracts Going into World War I, the German economy was up-to-date technically • with a concentrated and fiscally conservative banking system • a concentrated and cartel-ridden industrial sector • a government limited in size by the unwillingness and inability to run • substantial budget deficits and, drawing the incorrect lessons from the three short wars of the period of German unification, the government expected World War I to be short. As events unfolded, it became clear that the appropriate model for World War I was the U.S. Civil War, trench warfare and stalemate, with the ability or inability of the armies on the front lines to hold on determined largely by the ability of the government to direct economic activity to the war effort. 7 Figure 3: Capital stock in Germany, 1850—1913 (billion 1913 marks). Source: Tipton (2003, Figure 5.4). 8 Figure 4: Thousands of German workers in manufacturing, 1882 and 1907, by size of establishment. Source: Tipton (2003, Figure 6.2). 9 Germany’s failure to plan for the right kind of war (if that is not an oxymoron) was not unique: France, England, and Russia had similar expec- tations. How did the German government react to the war-driven need to increase its control over the economy? “War raw materials corporations,” with stock owned by the government and the largest firmsineachindustry. By the end of the war, there were 200 of these, covering all German industry. In many cases, they were simply the cartels that had existed before, under anewname. Post-World War I: 1918—1933, the Weimar Republic attempts to pay unrealistic reparations imposed by the Treaty of Ver- • sailles led to massive inflation, collapse of the currency investment slowed, quality of capital fell, and productivity with it • as the Great Depression (of 1929) spread around the world, German • cartels resisted cutting prices, which might have ameliorated the impact of the economic downturn. active German participation in international cartels, notably steel. • From a modern perspective, it is difficult to find much good to say about the interwar cartels. The motivation, however, was not perverse. The feeling was that cartels could organize international trade and allo- cate existing markets, however small they were, among producers. Withoutsomesuchallocation,itwasthoughtthateachgovernmentwould impose protectionist measures, protecting its own small market for domestic producers. As the worldwide economic downturn continued, international cartels col- lapsed, protectionist measures were imposed, and international trade flows withered away, exacerbating the effect of the depression. 2.2 France France: economic policy reflects two fundamentally opposite tendencies 10 centralization: “L’Etat, c’est moi.” • liberalism (in the 19th-century sense of the word): laissez-faire:therole • of the government is to provide public goods, enforce property rights and the rules of the market, but otherwise stand aside from economic activity.