Industrial Policies and Economic Integration: Learning from European Experiences (Industrial Economic Strategies for Europe)

Industrial Policies and Economic Integration This volume examines what industrial policies are and the role they play ...

Author: Patrizi Bianchi

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Industrial Policies and Economic Integration

This volume examines what industrial policies are and the role they play in the context of European integration. It provides a clear analysis of the process of integration from the Treaty of Rome to the Maastricht Treaty and beyond. Key issues covered include: • • • • •

the theory of economic integration policies to create a single market the role of European Community institutions policies to guarantee and promote market competition policies of industrial development and innovation

Industrial Policies and Economic Integration: Learning from European Experiences discusses a new range of policies, aimed at allowing a new common market to enter the global marketplace effectively. This volume will be essential reading for students of European economics and policy makers interested in economic integration. Patrizio Bianchi is Professor of Economics and Public Policy at the University of Ferrara, Italy, and President of the International Institute of Industrial Development Policy at Ferrara and Birmingham.

Industrial economic strategies for Europe Series editors: Patrizio Bianchi, Keith Cowling and Roger Sugden

Europe is currently at a crucial stage in its economic, social and political development. This series addresses the challenges to European economic policy. It will explore the design of industrial economic strategies enabling European industries and regions to flourish and prosper as we begin the twenty-first century. Competitiveness, subsidiarity and industrial policy Edited by Pat Devine, Yannis Atsoulacos and Roger Sugden Europe’s economic challenge Analyses of industrial strategy and agenda for the 1990s Edited by Patrizio Bianchi, Keith Cowling and Roger Sugden The impact of privatisation Ownership and corporate performance in the UK Stephen Martin and David Parker Economics of structural and technological change Edited by Gilberto Antonelli and Nicola De Liso Industrial policies and economic integration Learning from European experiences Patrizio Bianchi

Industrial Policies and Economic Integration Learning from European Experiences

Patrizio Bianchi

London and New York

First published 1998 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2003. Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1998 Patrizio Bianchi All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Bianchi, Patrizio, 1952– Industrial policies and economic integration: learning from European experiences/Patrizio Bianchi. p. cm. Includes biographical references and index. 1. Industrial policy—European Union Countries. 2. Europe—Economic integration. 3. International economic integration. I. Title. HD3616. E8B5 1998 338. 94–dc21 97–21642 CIP ISBN 0-203-44136-2 Master e-book ISBN

ISBN 0-203-74960-X (Adobe eReader Format) ISBN 0-415-14910-X (Print Edition)

Contents

List of illustrations Acknowledgements

viii ix

1 Introduction: economic integration and industrial policy Modern states and the process of economic integration Social coalitions, regional integration agreements and industrial policy Functionalist vs. federalist approach Actors and instruments of European Union policy-making Aims and perspectives of the European Union

4 6 8 11

2 The political economy of economic integration Economic and political effects of opening a closed economy Customs unions and structural adjustment Economic union and the reorganisation of the division of labour Structural adjustment and industrial policy

14 14 16 20 23

3 Public policies in an opening economy Economic integration and institutional barriers Institutions to regulate economic integration Public policies and governmental objectives Macro and micro industrial policies Macro industrial policies, top-down and the institutional context Micro industrial policies, bottom-up and the creation of capabilities Social rules and common objectives

28 28 29 34 36 37 39 41

4 Rules and institutions: from the Community to the Union Evolution and institutional change Community institutions and their functions The institutional structure and decision-making process of the Community The budget of the Community Institutional integration and the principle of mutual recognition The principle of subsidiarity and the Treaty of the Union Notes

43 43 49

v

1 1

53 56 57 62 66

vi

Contents

5 Policies to create the single market International liberalisation of the economy and structural adjustment policies Increases in market extension and structural adjustment The removal of institutional barriers and national diversity Fiscal harmonisation, public procurement and competition among different areas The political economy of technical standards National systems of technical regulation and the principle of reciprocal recognition

68 68 70 74 78 81 85

6 Policies to guarantee and promote market competition Common rules on intra-Community competition Collusion and restrictive practices The abuse of the dominant position The regulation of industrial concentration The development of competition policy after Maastricht Community rules on state aids Public-sector firms and the application of Article 90 Liberalisation and regulation of the telecommunications sector Competition policy, consumer defence and industrial policy

91 91 92 95 97 102 103 107 113 117

7 Policies to foster industrial development Industrial policies in the constitutive treaties Industrial policy in the seventies Industrial policy in the Single European Act and the Treaty of the European Union The notion of ‘European competitiveness’ Districts, networks and innovative systems Sectoral policies within the European context Employment, competitiveness and growth

121 121 124

8 Structural policies and cohesion Regional disparities, real convergence and cohesion Structural policies after the Single European Act Territorial interventions and local governments Objectives, actors and instruments of the new structural policies Cohesion, deepening and widening Community policies for small and medium-sized firms Social policy, human resources and educational systems

146 146 149 154 158 162 165 169

9 Policies for industrial and corporate innovation The Community’s old and new technology policies The creation of networks of innovators Challenges of innovation and routes of actions Information technologies and employment

174 174 178 180 183

126 132 136 139 142

Contents

Trans-European networks of infrastructures and European competitiveness Energy networks and the European Union’s new role The risks of institutional competition 10 Conclusions European industrial policies New approaches, new objectives Bibliography Index

vii

185 188 189 193 193 196 202 209

Illustrations

FIGURES 2.1 2.2

A closed economy Customs union

14 17

TABLES 4.1

Use of budgetary allocations for payments by the Commission as at 31.12.1995 (millions of Ecu) 4.2 Budgetary incomes: forecast as at 31.12.1995 (millions of Ecu) 5.1 Principal characteristics of VAT in EC member states (1990) 5.2 Main characteristics of company tax in EC member countries 6.1 Breakdown of takeover activities (including mergers) involving European firms for the 1987–1995 period, by geographical area (index 1987=100) 6.2 State aids in manufacturing sector. Current price 1988–1992 (millions of Ecu) 6.3 State aids to the manufacturing sector. Annual average for the 1990–1992 and 1988–1990 periods 6.4 State aids to the manufacturing sector 1990–1992. Breakdown of the aids by sector and function (percentage terms) 8.1 Structural contribution in millions of Ecu (at 1994 price) 8.2a Community annual expenditure (millions of Ecu) 8.2b Other Community instruments (loans granted) (millions of Ecu) 8.3 Community expenditures by member state (1990–1992) (millions of Ecu) 8.4 Community’s actions in favour of SMEs 8.5 Policies in favour of small and medium-sized enterprises in Europe 9.1 Fourth Framework Programme budget breakdown 9.2 TEN priority projects 9.3 TENs for energy

viii

57 58 78 79

101 107 108 109 151 152 153 154 168 169 179 186 189

Acknowledgements

Books are like houses: they are built up brick by brick. This building is the result of many contributions and suggestions, which are difficult to account for and quantify exhaustively. To all those who have helped me, my most heartfelt thanks. A particularly warm thanks is due to colleagues and students at the University of Bologna, to colleagues from the European Network in Industrial Policy—EUNIP—and to the research staff of Nomisma, Research Institute in Bologna. My special thanks also to Maurizia Zanardi and Ainoa Doughty, without whom this book would never have reached its final version. Finally, thanks to Laura, Lorenzo and Antonio. I know why.

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Introduction: economic integration and industrial policy Basic concepts and plan of the book

MODERN STATES AND THE PROCESS OF ECONOMIC INTEGRATION This book studies the nature and role of industrial policies—i.e., what they are and what they are for—in the context of regional integration agreements such as customs unions and the more complex economic unions. In particular, it concerns itself with the industrial policies implemented by the European Community after the new impetus given to integration beginning with the 1985 White Paper, and which has continued to be provided by the Single European Act of 1987, the Treaty on the Union signed at Maastricht in 1992, and the Turin Intergovernmental Conference of 29 March 1996. The latter also made a start in outlining the Union’s ambitions beyond the new century. Our particular focus can be defined as the design and implementation of instruments to accelerate the process of industrial and corporate adjustment to an increased extent of the market, given by the decision of nation-states to integrate themselves within a transnational context regulated by a political agreement. This problem is not strictly European, but it concerns all the experiences of economic integration emerging around the world, from Nafta to Mercosur, to the various experiments looking to reaggregate the independent states of the former Soviet Union. Nevertheless, Europe pioneered and experienced the most articulated and advanced case of economic integration. Thus, this book has the ambition of offering suggestions not only for further development of this European experience but also to those who are currently embarking upon new experiences of aggregation at the territorial level connected to regional integration agreements. We will state straight away that by ‘industrial policy’ we mean a variety of public actions aimed at directing and controlling the process of the structural transformation of the economy. The basic assumption is that the process of industrialisation serves as a guide for the whole process of transformation of the economy, and that by acting on such a process, therefore, it is possible to orient the more general mechanism governing the structural transformation of the country. According to this definition, industrial policies are deeply 1

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Industrial policies and economic integration

rooted in the consolidation of the modern state and the emergence of capitalism. In fact, it is with the development of capitalism that the capacity to organise production becomes a source of wealth for nations, because industry becomes the mechanism for accumulation and growth, which permits the establishment of a type of exchange based on efficiency in the production of reproducible goods and not on the fortuitous availability of scarce resources. With this comes also the growth of the modern state, i.e., the affirmation of political power as an organisation which defines expressly created structures— a group of rules, a series of roles, a set of resources—aimed at serving a unitary whole, specific in its choice of interests and ends (Poggi 1991). Industrial organisation is also a part of these specifically created structures, such that the modern state, which consolidates its position by identifying itself as both a territory and a structure of social powers, cannot afford not to guide and, if necessary, to exercise direct control over the development of this machine. This in turn determines collective growth and at the same time establishes the internal power relationships between social classes and interest groups, and external power relationships among nations themselves. The set of instruments to stimulate and regulate the development of production activities was already vast and well established in all countries, with examples dating back to ancient times, but their use was significantly transformed within the new context. This was so because the motivations and possibilities for putting them into action were founded on the definition of national interests uniting sovereigns and their champions in a process of economic competition which necessarily turned into trials of strength among countries (Supple 1973). With the birth of capitalism the nation-state affirmed itself because the new productive classes emerged as the forces of social change that wanted to see political recognition of the rights of citizenship—entitlements—which their economic abilities/capabilities had affirmed in the economy. Smith asserts that the wealth of nations consists in an organisation of production (the division of labour), that—by specialising productive functions and by coupling them according to their complementarities—cumulates knowledge and skills and transforms them into productive capacities. He states that the development of this division of labour should only be limited by the power relations of equally entitled individuals, competing for their own interests, that is to say by the extension of the market. Smith explains that there cannot be feudal laws, or monopolistic rights hindering the individual’s initiatives (Smith 1976 [1776]: 31). The market according to Smith is a nexus of horizontal relations in which relative power is not given, but is contestable on the basis of the ability to organise productive activity. The organisation of production and industrial competition are therefore the instruments for affirming the rights of individuals in society. The economic dynamic is therefore connected to institutional change, and this is linked to the existence of a multiplicity of subjects, free of institutional constraints and economically independent, able to compete to

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affirm their power and their social position. Social interaction in the Smithian scheme was not only competitive, but also co-operative so that the division of labour was based on the complementary specialisations of various individuals and various firms. Smith himself recalls that an economy based on the development of market forces requires a strong state to guarantee property rights and to legitimate private contracts, but also to guarantee those positive externalities that no one individual citizen could activate by himself, like defence, justice and public works, and those necessary for collective growth such as communications, educational and health systems, and finally to prevent any risk of monopolisation (Smith 1976 [1776]: 689; Robbins 1978:37). When the bourgeoisie became the dominant class, collective interest was identified with the nation as a whole, and the central state assumed the role of internalising, administering and often repressing social conflict in the name of a concept—the nation—which was as abstract as the God of the feudal kings. The nation-state and national industry grew up together in an increasing interlacement of social and economic interests and bureaucratic and productive structures. Hobsbawm (1990) describes the forced march towards the construction of the nation-state, by constraining languages, local cultures and social practices through a bureaucratic apparatus regulating the entire life of the people. In the meantime the state intervened to accelerate the structural change of the organisation of production in order to resist and oppose the increasing economic and political power of the other nation-states. The industrial revolution in Britain stimulated the continental emulation of those states which realised that economic and technological dependency on the new economic leader meant becoming political minorities. Landes depicts the variety of actions promoted by the King of Prussia in order to protect national industry, in the stage of structural change of production organisation, to face the British challenge (Landes 1969:125). A wide variety of instruments to enlarge the market through a regional trade agreement among the German states, the so-called ZollVerein, was created (1831–1871). List (1841) provides the economic theory explaining the necessity of protectionism to permit the consolidation of a strong national industry. List illustrates how protectionism has political aims, to prevent strong English firms from eliminating young German firms, and thereby imposing English domination on the new Germany. On the other hand in England, Mill theorises the return to protectionism to permit infant industries to grow and to prevent competition with already consolidated competitors that would destroy newborn industries (Mill 1844).

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SOCIAL COALITIONS, REGIONAL INTEGRATION AGREEMENTS AND INDUSTRIAL POLICY The opening and closing of the economy has had important social and economic consequences on the internal equilibria of countries involved in trade. For example, the relationships among different social classes change if markets are opened, and this can result in coalitions of interests which differ according to the type of opening that is realised. Different coalitions can be formed not only within the country to resist or to promote trade liberalisation, but also throughout the countries involved in the trade. For instance, if we look at a Ricardian scheme of international trade, based on relative advantages, that is, on the relative advantage of specialising oneself in a relatively more efficient production area (Ricardo 1817:128), we discover that opening the market implies a social turmoil among the established social interests. In a closed economy we can assume that both in England and in Portugal manufacturers can be considered to be emerging and innovative classes, the opposite of the conservative class of landlords; but, if the English manufacturers are much more efficient than the Portuguese, the advantage of trade occurs if English capital moves to the production of cloth and Portuguese capital specialises in the production of wine. They may be less efficient than the English competitors, but this would be relatively more advantageous than concentrating on the production of cloth. In this case there would be a transnational coalition of English manufacturers and Portuguese landowners who have a common interest in market opening, and English landowners and Portuguese manufacturers would form a coalition against the opening, asking for protection in order not to lose their own political power inside the society. The decision to open the market, therefore, results from the social conflict between these coalitions of interests. In the next chapter we will explore further the possible conflict emerging from a sudden opening of the market. Of course if we have perfect capital mobility, the reallocation of interests between the different sectors and the different countries could be very rapid, but we have important social rigidities, derived from each country’s history and framing national society. Before exiting from a sector, involving a reduction of the political power implicit in an economic and social position, people can express their voice to protest and try to stop the social change, if this social change can imply a possible failure in adapting their own productive and organisational structure to the new situation (Hirschman 1970). There are two possible ways to oppose social innovation: either to resist the change, by grouping all those who expect to be the losers; or to induce potential losers to reorganise their own capacities and collectively organise a positive response to the challenge. We use the term ‘regressive coalition’ to refer to an aggregation of individuals united by a common interest in opposing a selection process, but who are incapable of inducing alternative

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forms of the social division of labour. A regressive coalition therefore unites actors who do not have interests or capacities to develop complementary specialisations. Thus, it only requires a little effort since it is enough to oppose the prospective change individually, but this form of coalition is not able to develop any alternative paths towards a stable social aggregation. On the other hand there is a ‘progressive coalition’ if the process of aggregation of individuals induces a progressive transformation of the capacities and abilities of the individuals, such that a relative complementarity of action among them is generated. This ability to adjust the division of labour allows a system to be stable, since the members are interdependent and complementary, and consider the need for change as a collective good (Bianchi and Miller 1995). Traditional industrial policies were interventions with which nation-states tried to create a progressive coalition inside the country in order to respond to an international challenge. In the European experience, nation-states strengthened their own champions, assuming that they could be capable of defending the national interests in an economic conflict, bearing in mind political confrontation among countries. At the same time nation-states guaranteed the survival of national enterprises which might otherwise have been defeated in the course of the process of economic conflict among countries. The progressive coalition was identified in terms of the national interest, and internal competition was reduced in favour of the international competitiveness of the country. Nevertheless, when these nations stop promoting internal capacity to react, and de facto they defend the only interest to resist change in order to protect the existing internal power positions, the evolutionary process is blocked. In this situation industrial policy becomes simply the expression of the existing regressive coalition, using the state to ‘freeze history’. The government itself can be the expression of this regressive coalition or it can be captured by this group of interests without future. A possibility to escape from this trap is given by an international agreement to regulate over time the structural adjustment process involved in the process of trade liberalisation. An economic integration agreement (or regional integration agreement, if we want to stress the territorial contiguity of the countries involved) is a political agreement among governments. Its purpose is to guide this process of economic integration among countries, in order to limit those effects of liberalisation which are considered negative, thereby making the economic impact of trade opening acceptable to the social structures of the individual countries. Within this agreement, governments can agree on a set of actions to direct and control the process of structural change connected to the market opening. These would be: 1 actions to increase the extent of the market, i.e., to create an effective single market among the countries involved in the agreement; 2 actions to develop the division of labour throughout the countries involved

6


in the agreement, in order to increase individual specialisation, but also to establish a network of relations in a transnational context; 3 actions to regulate market power, in order to avoid the process of market integration being distorted by monopolisation attempts. In the first chapter, there will be a description of the effects of an economic opening, and of the motivations which can lead to a search for a political agreement to accelerate the structural change connected to this international challenge, drawing from the opening the greatest possible advantage. FUNCTIONALIST VS. FEDERALIST APPROACH There is a transnational nature to coalitions involved in transforming the economic structures by using regional integration agreements to change the extent of markets. Thus, such an intervention in economic structure implies different national and transnational actions aimed at creating the conditions to favour the emergence of progressive coalitions throughout the entire area of the agreement. We shall state therefore that such agreements can establish different degrees of integration. The simplest entails a reduction of tariffs among countries which nevertheless intend to maintain their autonomy with respect to tariffs imposed on third countries, as in the case of a ‘free trade zone’. Greater integration is given by an agreement which, besides pushing governments to draw up agreements liberalising trade among themselves, also commits them to a common policy towards third countries (the so-called ‘customs union’). Finally we will reach the more complex forms of integration (such as economic unions), in which it is considered that the economies of different countries become assimilated to such an extent that capital and labour can be freely reallocated within the whole of the common area, until— as in the case of a monetary union—the institutional conditions are considered to be sufficiently integrated to permit all transactions to come under the same monetary regime. The different forms of integration can be reached by following different procedures. As will be seen in chapter 3, these procedures can tackle the problems which emerge one by one, following a ‘functionalist’ approach, or they can tackle them all at once, following an approach which we may call ‘federalist’. All of the common steps can be established from the very beginning, through a series of negotiations to define not only the successive objectives of integration, but also the compensation for those who feel that at each negotiation they are put at a disadvantage by the agreed mechanism for integration. We may refer to this as a ‘constitutional’ approach. Alternatively, an evolutionary process can be started in which, once the rules of the game are established, it is the very interaction among participants which determines the results and the subsequent direction taken. We will call this second line of action ‘evolutionary’. It is clear that the different phases of integration require different policies.

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This is because there are also differences in the constraints and the objectives which authorities set for themselves, pushing producers into accelerating their own normal mechanisms of production and competition in order to adapt to the new context created with the agreements. The European experience shows clearly that the most critical phase is that which separates the creation of a customs union from the launch of an economic union. After a long and difficult period of gestation, the signing of the Treaty of Rome in the mid-fifties gave concrete existence to the agreement by the six countries of continental Western Europe. This agreement was to achieve, within an appropriate number of years—thirteen in the Treaty—a dismantling of internal tariffs, maintaining at the same time a common external barrier. This phase was achieved more rapidly than expected, so much so that the commitment had already been fulfilled by the early sixties. However, the subsequent phase which was to outline a more complete integration was significantly delayed and only after twenty years was a new phase launched, in which a new agreement and a new Treaty established the path for the development of an effective European economic and monetary union. However, this economic union has faced and appears to continue to face such difficulties that plans for monetary integration have been delayed, and the extent to which developmental conditions differ among European regions has been revealed. Without recalling the details of the history of European integration, chapter 4 reconstructs the rules and institutions established to guide the process of European structural transformation, from the Treaty of Rome to the Treaty of Maastricht. It emphasises that the Single European Act, which launched a new integration phase, also marked a substantial change in the procedure of integration, replacing a functionalist and constitutionalist approach of markedly French origins with an approach of more federalist and evolutionary inspiration, strongly influenced by the German experience and presence. Why is it precisely this phase which is most obviously critical, to the point that, in the European case, it has taken a long time and still presents so many difficulties for implementation? The answer lies in the nature and relevance of the structural and institutional transformations required. In fact, the establishment of an economic union weakens that nexus which links the organisation of production to the sovereignty of the nation-state, in order to allow a redefinition of interests and economic relationships in a context which exceeds the sovereignty of individual governments. The result is a far-reaching redefinition of the whole institutional structure within which economic relationships are identified and power relationships work themselves out. In this sense it is clear that the transition from a customs union to an economic union assumes a political relevance, because it implies the effective break-up of the nexus between national industry and national state, a nexus which has characterised the historical development of the West over the last few centuries.

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In this context, the substance and role of industrial policies changes, as well as their role, because they must at the same time outline the new common context, and support the process of structural change to adapt productive capacity to this new transnational context. In a functionalist and constitutionalist procedural mechanism all these elements ought to be anticipated and defined ex ante in a negotiation, in order to identify all its terms and all the possible compensations for the losers. There is the risk of becoming caught up in a veto mechanism: those who consider themselves the potential losers form a regressive coalition with the sole interest of blocking the transformation as a whole. In federalist and evolutionary types of mechanisms this risk is reduced to a few common principles and to the common acceptance of the rules of the game, but it then becomes essential to provide the weakest with the means to ensure that they will be capable not only of passively accepting the game played out by others, but also of participating in the mechanism of interaction and therefore of the development of the common path. In any case the industrial policy of the economic union is not simply the extension to a transnational level of the traditional industrial policy approach. Rather it involves, on the one hand, the construction of the market, by creating the condition of a continuous expansion of the agreement areas, and, on the other hand, it allows new actors to enter this new single market, by expanding the division of labour throughout the entire area of the market, that in this case goes beyond the authority of nation-states. Whenever this process stops, once again we are faced by a regressive coalition, which is united simply by the capacity to oppose the change, but is incapable of moving beyond this point. In the history of Europe this phenomenon has been known as Eurosclerosis, and has justified the recurring collapse of people’s confidence in the Community to represent their interests and hopes. ACTORS AND INSTRUMENTS OF EUROPEAN UNION POLICYMAKING In chapters 5, 6, 7, 8 and 9 we will thus concentrate on the policies tried out by the European Community in order to push itself along the new phase of integration promised by the Maastricht Treaty. Here, industrial policies are used not only to create the common context for the game (the policies for the creation of the single market), and to lay down and guarantee the rules of the game (the relaunch of competition policies), but also to allow the weakest actors and, in any case, the largest possible number of actors, to take an effective part in the game (structural policies, innovation policies and policies for industrial development in the broadest sense). These last policies have seen the biggest changes, since they must give shape to modes of participation in a common and evolving context. Here, a method has been developed, namely networking, or in other words, the

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capacity to promote transnational networks of enterprises and local institutions in order to achieve common goals. In spite of numerous difficulties and ambiguities, this represents a prestigious and innovative element in this phase of integration. The main question is whether these policies are the continuation, at the Community level, of traditional industrial policies, or whether these policies and this method effectively represent a new public policy approach. Moreover, in drawing up such policies the Community, and now the Union, have carried out an action whose goals were clearly not simply economic but, it might be argued, also political. This is because it was held that through the acceleration of industrial structural changes, ‘institutional’ changes—those changes in the rules governing relationships and the effective behaviour of individuals, interest groups and collective organisations which define European society—could be induced, beyond their collective representation which had historically been carried out at the level of the nation-state. Industrial policies for the creation of the European Union thus pose a further problem linked to the reduction in sovereignty and in the capacity to govern at the national level. Indeed, a supra-national and a local level emerge as possible agents of industrial policy actions. However, to be effective, such actions must also be legitimate, i.e., capable of making a credible appeal to the principles on which the coercion implicit in the formulation of public policy is based. This becomes all the more true the more those policies are carried out with the involvement of a variety of subjects who voluntarily participate in the common action. In this sense the principles which are the basis for collective activity in the creation of the European Union have not always been clear and credible, or fully shared, just as local contexts have not always found in the different parts of Europe the same capacity for credibly expressing their own ability to guide collective action. This has often led to confused actions which, in addition to being characterised by very generic objectives defined in terms of general economic advantages, are saddled by a mediocre capacity to guide them. In the final analysis, the task of obtaining administrative legitimacy and effectiveness was left to the national levels, circumscribing the various industrial policies launched by the Commission within a residual context with respect to the basic needs of citizens, who none the less continued to identify with their own national states, despite the long common path already trodden on the way to European integration. This is where the issue of the objectives and principles inspiring the European Community and, nowadays, the European Union, is located: the issue concerns whether equity and democracy are to be seen as objectives to be pursued simultaneously with that of efficiency, or whether they are to follow in a second phase, once economic efficiency has been achieved. These conditions are addressed in the final pages, which aim to draw a few concluding remarks on the industrial policies outlined and implemented by the Community from the mid-eighties, following its relaunch, to the mid-nineties. This has taken place in the dramatically changed international

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scenario which followed the collapse of the Soviet Union and thus the end of political bipolarity and its ensuing economic order, which had none the less kept Europe regimented within a given context. In those pages we take up once again the issues of what industrial policies are and what they are for in the context of an open and global market, in which nation-states are no longer able to guarantee the unity of their own organisational assets and, in particular, no longer manage to govern the multiplicity of conflicting interests. These interests clash at a moment when economic relationships greatly exceed not only the extension of sovereignty and thus the power to command and coerce, but also the legitimacy of action of the nation-state. In this context, in all the countries in the world local instances tend to prevail as the place and focus for the self-identification of interests. This level, however, is probably not sufficient, and regulation at the supranational level is needed everywhere. Moreover, there remains the relevant theoretical problem of what it means to intervene in the structure of production in the context of the market, i.e., in a decentralised decision-making context, in which collective action is itself the result of coalitions of interests which come together, consolidate and often break up. This, however, takes our analysis back to its roots. In other words, it returns us to the search for the relationship between efficiency of production and growth, and even more so to the search for the relationship between the functioning of the market as an institution in which growth is the result of collective interaction, and the role of the democratic state as an institution in which this collective interaction must take place under the banner of common principles and objectives, shared according to procedures in which individual rights are not only declared but can also be effectively exercised. Reflections on the European experience can at this point indicate whether such considerations can also be useful in designing public policies for ‘less favoured’ countries (to use the somewhat hypocritical euphemism introduced by the Commission to refer to backward areas). The question one asks oneself, therefore, is whether a method has effectively emerged which, above and beyond the European context, can take on a general validity for intervention in the context of an open market, in order to facilitate and stimulate structural change, but one in which it still remains impossible to exercise a direct control guiding the behaviour of individuals. This reflection therefore concludes with a discussion of the role of the state and of public policies in an open context, in other words, a situation in which the behaviour of individuals can no longer be measured with respect to a single institutional structure, and in which authorities are constrained in their actions by the need to interact with other authorities, with whom to compare and possibly, but not necessarily, share principles, objectives and methods of government.

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AIMS AND PERSPECTIVES OF THE EUROPEAN UNION From the very beginning the European Community displayed broad-ranging ambitions linked to the plan for the creation of a Community among the European states. This pattern of economic integration had essentially political roots and was based on the need to create a co-operative context among European states, in order to avoid the emergence of new conflicts such as the ones which had characterised European history during the first part of the century, and to avoid at the same time the dramatic economic consequences of such conflicts. In all the documents leading up to the creation of the European Community there is a frequent use of words like ‘peace and prosperity’, which seem to have disappeared from the vocabulary of the economists and policy-makers of recent years. These objectives, however, were very clear in the minds of the founding fathers, who thought it necessary to develop strong links among European countries, through the creation of bodies capable of isolating and dealing with the issues of potential conflict. With the impossibility of creating a political union on a vaster scale becoming apparent by the mid-fifties, in a world already divided into two blocs, the chosen path became that of developing an economic union, albeit with clear political motives. Subsequent developments demonstrate how long the road towards the overcoming of nation-states as sources of collective identity and legitimisation truly is. It is only after having overcome the crisis of the seventies—a crisis of exhaustion of the long cycle of mass production— that the process of integration to deepen links among European states was relaunched. At the same time, however, the long political cycle of bi-polarism was also entering into crisis, with the consequence that the global environment which presented itself was far different to that familiar from the past, and the role of Europe itself changed. Maastricht therefore puts forward new objectives for integration to deepen the union among the Western European states, at a time, however, when the meaning of the geopolitical expression itself has changed. With the crisis of the communist regimes, Mitteleuropa has reemerged from the oblivion of the past fifty years. Germany is once again no longer the frontier of the West but the centre of the Old Continent, and the Mediterranean is once more becoming the possible fault-line dividing the old and rich North from a vast world, made up of the young and the poor, and which is undergoing a rapid evolutionary process. With the ‘White Paper on Growth, Competitiveness and Employment’ (June 1993), the Community, under the presidency of Jacques Delors, set for itself the ambitious path of accepting and successfully meeting the challenges involved in entering the twenty-first century, as the title of the document itself emphatically stated. The real challenge in fact was that of maintaining a level of growth capable of continuing to support a high standard of living, without resorting to closures

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or resulting in social fragmentations either within the Community or between the Community and the rest of the world. The true challenge of the twenty-first century is in fact to guarantee equitable growth within an open and competitive context, a great ambition which has turned the usual objective of the creation of a stronger economic integration among European countries into an instrument for achieving a more general plan for peace and prosperity. This plan, however—unlike in the past—can no longer simply address internal issues in part of a divided world, but must be made to consider a global context characterised by great changes. This global projection of the European Union emerges clearly in light of the increasingly decisive openings towards the countries of Eastern Europe, and even more so in the documents drafted at Barcelona (27–28 November 1995), which open up the dialogue for the creation of a free trade zone with the countries of North Africa and the Middle East bordering on the Mediterranean. Here indeed it is evident that the economic integration method is being used as an instrument for reaching a political objective which may be labelled ‘peace and prosperity’. These issues will be treated, though only partially, in this volume; but it will be emphasised how an action of economic integration none the less carries with it a perspective for growth, characterised by an increase in the specialisations and degree of complementarity among the different actors within the common sphere. In other words, it is quite possible to begin with a policy to promote international exchange, but this phase must sooner or later necessarily be followed by a phase of institutional integration in order to permit the development of a division of labour, and thus of an effective integration of production, among regions, firms and individuals, which in turn renders the integration process stable and irreversible. None the less, this process is the result of a multiplicity of relationships— among national governments and among different levels of government (from the Union right down to individual municipalities, from a variety of intermediary institutions right down to individuals)—which may simply resist the change, creating a coalition whose single common interest is the failure of the proposed process of change. In the final chapter we will return to this lesson from the European experience: economic integration implies the launching of a process which is evolutionary in nature and cannot be completely controlled, but which can only be directed through interventions aiming to ensure that certain acquired changes become irreversible. This evolutionary view of integration requires common industrial policies. These have the task of creating the conditions which consolidate production relations based on mutual interest and which can no longer be rescinded without the loss of the investments made. It is necessary, however, to bring all these different policies together within a unitary strategic vision, in which common actions serve a common political goal. A problem is that this vision

Basic concepts

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frequently tends to become blurred, because the link between the citizen and this institutional construct—so complex and often so complicated, and so different from the simple and simplistic view of the centralised nation-state— begins to fade, making it impossible for individual citizens to claim the construct as their own ‘state’. The question of what democracy means in an open and competitive context becomes the central issue for any further development of the Union.

2

The political economy of economic integration

ECONOMIC AND POLITICAL EFFECTS OF OPENING A CLOSED ECONOMY Let us begin with a simple consideration related to a closed economy, as shown in Figure 2.1. We represent a closed economy with the traditional Marshallian curves of demand (D) and supply (S). Let us assume that under closed conditions, that is under an explicit prohibition on imports of goods from outside Country 1, the balance between D(1) and S(1) is fixed at point A, with the relative price Pa and the relative quantity Qa. Suppose that the international price of the good being considered (Pw) is much lower, and that the possible demand of the country in question is relatively low with respect to the world supply, so that an eventual opening of this country to foreign trade will not change the international price. In this case we can represent the curve of world supply with a line that corresponds

Figure 2.1 A closed economy 14

Economic integration

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to a price Pw, which crosses the local supply line at point B and the local demand at point C. A unilateral and instantaneous opening to international trade would have a significant positive effect for consumers because prices would fall and therefore demand would expand to point Qc, since a larger number of people would be able to purchase the good imported at price Pw. However, there would also be an obvious negative effect: the internal production (QbQa) would be substituted by the imports (QbQa+QaQc) and, in micro economic terms, national production could only supply 0Qb. Internal producers would thus have to close their factories, and in macro-economic terms the country’s balance of payments would show a deficit. In political terms this could have very important effects on the conflicting internal social forces and interest groups, inducing the formation of regressive coalitions, united by the intention of blocking the change, but incapable of proposing alternative paths for growth. Consumers would be in favour of the opening, as long as their incomes were not directly connected to internal production; thus conflict would develop between consumers whose incomes came from the production of the good in question, and consumers whose incomes were independent of the internal production of the good. The national producers would be clearly opposed to opening. Until such time, their survival would be at the base of a very clear political exchange: the government guarantees protection and the producers support the protectionistic government. The opening to international trade, which would threaten to ruin these operators, would also threaten to rupture this pact, and thus weaken the government’s authority. Paradoxically, government authority must be relatively strong in order to open a country to international trade. From the point of view of social classes, we would have a weakening of the class of national producers, who have until now supported the government, in favour of an emerging class, the class of merchantimporters, who would benefit from policies differing from those implemented in the past. Let us suppose, therefore, that we have four groups of actors: a class of producers, a class of merchant-importers, consumers whose incomes are derived from national production, and consumers whose incomes come from other sources. In a closed economy, the citizens linked to national production (the class of producers plus those consumers whose income is linked to production) are at the centre of both the economic system and the political system, while the merchant-importers and the citizens who earn their incomes from other sources are at the margins of the power structure. This situation is illustrated by the workers and leaders of the state-run firms in the former Soviet Union. Opening the system turns it upside down and national producers, managers, workers and their families find themselves in difficulty, while the new class of merchant-importers emerges and those who do not have incomes connected

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to the national producers benefit. Again, the case of post-Soviet Russia is a good example of this turnaround and of the political problems linked to such institutional change. Furthermore, from a political point of view, a trade deficit also implies political dependence on the countries able to produce the good at price Pw. Paradoxically, the process of opening is carried out by a governmental authority traditionally supported by social classes which have everything to lose in opening the economy. On the other hand, those groups which stand to gain from the opening have until now played only a marginal role in the power structure. Thus, demand for protection becomes increasingly significant, since the economy depends on the production of the good in question, which is considered strategic for the country, and because supply is increasingly concentrated. The action of political pressure by producers is therefore evidently united, while that of the possible independent supporters of opening is divided. On the other hand, this solution is obviously inefficient because it is monopolistic; rather than lowering prices and expanding supply, it is seen as preferable to maintain a limited supply at high prices, with the goal of defending national industry, which is not capable of competing on the open market against more efficient competitors. Thus, the cost is transferred to consumers, particularly those who do not benefit from the national industry, who must endure long queues, and then severe rationing, only to buy goods at extraordinarily high prices. An autarkic situation is always difficult, as there is the danger of growing internal dissatisfaction and the development of regressive coalitions. These block change but are not able to propose institutional solutions which can develop complementary relative specialisations to reorganise internal production and withstand international conflict. In this context a protectionist movement can be either a regressive result, or an intermediary solution to permit internal reorganisation. If it is the latter, it could transform the potential regressive coalitions into coalitions capable of identifying paths for collective development through the redefinition of the division of labour. An economic integration agreement at a regional level can therefore be an instrument to guide the opening process and the process of structural adjustment which regulates internal adjustments, in order to sustain the processes of opening without generating the harmful political effects of a too-rapid liberalisation and without falling into a situation of indefinite protectionism. CUSTOMS UNIONS AND STRUCTURAL ADJUSTMENT A customs union is a political agreement among national governments to regulate the economic and social effects on the respective economies of opening


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trade, through the creation of a common trade area and a common policy of exclusion of external operators held to be more efficient. The economic theory of a customs union was developed after the war by Viner (1950) and Byé (1950) and challenged by many authors in the 1950s and in 1960s (Meade 1955; Scitovsky 1958; Lipsey 1960; Balassa 1961; Cooper and Mansell 1965; Johnson 1965). In recent years, however, there has been a return to analyses of strategic protectionism and thus also of forms of regional integration as instruments to regulate the opening of the economy (Krugman 1986; de la Torre and Kelly 1992; De Melo and Panagariya 1993; Georgakopoulos et al 1994). This discussion is based on the assumption that there are at least three actors: country 1 and country 2, both closed to international trade, and both less efficient in the production of a given good A in comparison to a third country W, the rest of the world. Let us start by assuming that both countries 1 and 2 are sufficiently small so as not to influence the world supply of the considered good with their opening (Figure 2.2). Then suppose that country 1’s internal situation can be represented by the traditional curves of demand and supply of the good being considered (A); international prices are lower, and therefore there is an internal structural problem linked to the relative inefficiency of national production compared to international production, which offers the same good at lower prices. The opening of the economy to international trade would imply the consequences mentioned above: consumption would expand to reach the point at which the demand curve of country 1 (S1) meets the international supply curve (SW), and this would happen with imports substituting the internal production (QbQc, leaving the internal producers only at point 0Qb).

Figure 2.2 Customs Union

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As outlined above this solution would not only be opposed by national producers, but also by those consumers whose incomes were derived from the internal production of the good, and by the government which would have difficulties sustaining a situation in which internal production decreased and imports increased. The unilateral opening would instead be supported by consumers who did not earn a living from the internal production of the good, by a new social category, the merchant-importers, that lived off the profits from the importing of goods from abroad, and obviously by producers in the more efficient country. The result would be a very complex conflict of interests in which the government authority facing a unilateral opening would be put in the position of having to take action that would initially weaken national producers, i.e., its principal supporters. On the other hand we have seen how difficult it would be to sustain complete closure over time, against those who would group together in opposition to the monopolisation of the internal economy. The customs union represents an intermediary solution, which allows the opening process to be regulated, controlling the structural effects. This involves an agreement with another country, in a similar situation of relative inefficiency in comparison with the rest of the world, to create limited trade in order to preserve at least a portion of national production and, therefore, to limit the negative effects an opening would have on the existing productive structure. Obviously this also implies limiting the positive effects, because demand will not expand to the extent that it would with complete openness. This last consideration pushes the neoclassical commentators to judge the customs union solution negatively against the option of unilateral opening. At this point it is helpful to examine further what a customs union is, and what it does. Let us assume, for example, that the closure is achieved through an explicit prohibition on imports from the rest of the world, or that imports are regulated by import taxes. In this case the agreement could then be that the goods that come from country 2, with which there is an agreement, are not subject to taxes above their market price (which, however, is higher than the international price because the production is less efficient) while the countries not participating in the agreement pay a tax on the international price. The final price is thus sufficiently high to discourage the import of goods produced outside of the customs union area. The production of country 2, more efficient than country I but less efficient than the international level (see the slope of the supply curve), is added to the production of country 1, so that the demand levels off at point E and not at point C, as in an open market, but does not remain at A, as in a closed market. The internal supply is divided between the internal production Qd and imports Qe—Qd from the partner country. In the creation of a customs union there is thus an aspect of opening, creating more trade with respect to a situation of autarky (from Qa to Qe),


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but also an aspect of further protectionism from the rest of the world, with related trade diversion. This directs trade not towards the international market but towards another country that itself suffers from problems of relative inefficiency in comparison with the more efficient operators at the international level. Cooper and Mansell (1965) and Johnson (1965) clearly demonstrated that a unilateral lowering of tariffs is preferable to the creation of a customs union. From the neoclassical point of view there is no explanation that justifies the creation of a customs union when compared with the option of a unilateral opening to international trade. In fact, if the point of reference is the single consumer, and one analyses personal losses in welfare, a customs union is inefficient. A customs union may be justified, however, on the basis that it allows the regulation of trade among weak countries, establishing a common protection from competitors who are too strong to be faced individually. It is a coalition of potential losers who are united to create conditions of reciprocal interest. This interest can be seen in static terms, as indicated above, or in dynamic terms, i.e., the customs union can be used to buy time while adjusting internal structures to make them become efficient enough to be able to compete in the customs union market, and eventually to compete in an open market. A customs union, and in general every regional integration agreement, can be a regressive coalition, sustained by those who believe that they are incapable of maintaining a small closed market, but are not able to withstand the social costs of opening. However, a customs unions can be also a political instrument which favours the creation of progressive coalitions able to use the increased extent of the market created by the customs union to improve their division of labour, in order to prepare themselves to compete in an open economy. In this regard, Grossman and Helpman (1995), analysing in formal terms the conditions for implementing a free exchange agreement, point to the necessary role of public authorities. They also indicate the need to consider the problems arising out of the formation of pressure groups opposed to the liberalisation during negotiations, and thus the need to review compensation mechanisms for dealing with the short-term effects of liberalisation. Dynamic effects can be generated if the passage towards a customs union is regulated over time, in order to permit an adjustment of national production structures during the transition, so that a progressive coalition is formed that pushes for complete opening, increasing the number of those capable of sustaining such an opening through a process of rapid structural adjustment. In this case an agreement is established that foresees the removal of internal tariffs among countries taking part in the customs union, maintaining a common external tariff to create an internal market sufficiently large to allow both statistical and dynamic economies of scale. This process, however, is

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worthwhile and credible as a path to reduce the external barriers over time, making internal firms competitive at a global level. The only response to the risk of generating resistance to opening is further integration, passing to a form of integration that foresees a reorganisation of production to fit the extension of the single market—an economic union. This passage occurred between the treaties of Rome and Maastricht. An economic union is therefore necessary for productive reorganisation on a vast scale in order to permit further international opening. However, an economic union implies strong institutional integration. Public policies for industrial development must thus be aimed not only at encouraging a change in the institutional context in which the firms do their business, but also at specific actions aimed at encouraging the development of industrial cooperation among firms to permit individual specialisation in a context of complementarity. This passage is very complex because it means going beyond nation-states and going beyond national identification of social groups. ECONOMIC UNION AND THE REORGANISATION OF THE DIVISION OF LABOUR By economic union we mean a situation in which two or more countries decide not only to construct a customs union, but also to permit the free circulation of productive factors, thereby establishing a common extension of the market, which would allow the reorganisation of production. An economic union means a rapid increase in the extension of a market, such as to permit a change in the overall division of labour. This change in the division of labour occurs: • within the individual firm, in attempting to adjust to the new level of demand and to increased competition; • at the industry level, where new specialisations can be identified by firms operating through the newly enlarged market; • within society as a whole, where productive and service-sector activities can be carved up differently within the context of the new market. The crucial element in the constitution of an economic union does not reside in the possibility for an individual operator to establish itself wherever it considers most appropriate. Rather it resides in the organisation of one’s own production in a way which specifies a division of labour which goes beyond a national definition of the single actors taking part in the overall process. Thus, with an economic union the basic condition for defining the advantages of international trade—the full mobility of output and complete immobility of inputs—loses relevance, which in turn means that the relationship which has linked productive organisations to a national institutional context, i.e., the correspondence between national capitalism and national state, also loses significance.


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An economic union which leads to a common market not only for goods but also for capital and labour generates effects of productive reorganisation and redefinition of market strength that go beyond the national specifications which were known until that moment. In other words, the conflicts become internalised within a new collective body which assumes the aims not only of efficiency but also of compensating differences and inequalities. In fact, we will consider the situation of small countries, i.e., countries in which the internal demand has an extension inferior to the volume of production necessary to achieve a situation of full efficiency. In this situation the country’s government, in order to preserve the interests of those producers from whom it extracts consensus and legitimation, has two alternatives: the first defensive and protectionist, the second aggressive and expansionist. The first closes the country to international trade, protecting inefficient operators. In reality, the demand that the operator faces is specified in institutional terms in so much as the extension of the market is reduced to the area of administrative sovereignty of the government. The internal situation can be described as a ‘natural’ monopoly, and a single operator can be present in the internal market (or several operators in collusion functioning as a single operator). Alternatively, the government may push the operator to become larger so as to achieve conditions of productive efficiency. In this case, the government must support expansion beyond national boundaries, as a portion of production must be sold in a market which extends beyond the area of national sovereignty. In this last case the national operator tends to become the champion of the interests of the country in an economic conflict which also becomes competition among nations. Moreover, the government tends to put into effect industrial policies (to render more efficient or at least to sustain the internal production) and trade policies (to favour or sustain exports). Yet in both the defensive and aggressive cases there is a precise identification among national firms and national governments. With a customs union this interlacing becomes clear and evident: the governments negotiate to define trade conditions that permit the coexistence of expansion and protection, and of development and survival for their firms, thus regulating the political effects of economic opening and of closing. The assumption is that capital and workers do not move and therefore do not change flags. The institution of an economic union therefore implies a change in the relations between firms and government, and thus a transformation of the game of collective representation. Obviously this implies, as we will indicate further below, a significant institutional rearrangement of the national structure which makes the subject take on the function of regulator of the new common market. We will now see what the immediate effects of the single market can be; we will consider the effects of capital on the market. The simplest way is to define two operative markets. We will assume that a single market is created

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and that for the moment we are not interested in the effects on the movement of workers, so that only capital can freely go from one country to another. The neoclassical analysis of the common market is well known: the free circulation of the factors of production brings advantages for both countries, and a convergence in the returns to factors of production. A critique of this optimistic vision could be founded on the analysis proposed by Myrdal (1957), which puts forward important considerations on the opening of the movement of factors in the context of development economics. Myrdal considers that the free circulation of capital leads to a polarisation through a process which is cumulative in character due to the fact that the entry of capital in a country at a higher marginal productivity leads to new activity that in turn creates new opportunities, attracting new capital. Thus, a given situation from a centre would generate a process of attracting capital to create new opportunities for financial investment and a periphery that would continue to be increasingly closed. This last explanation allows us to re-examine the results in a classical light. In this vision a common market provides an opportunity to reorganise the division of labour transferring the activities to the location which presents the greatest advantages, not only on the basis of present income, but above all according to possible subsequent developments. It follows that if in the common area one defines a centre in which new activities are developed, the growth of these activities determines the possibility for generating ever greater advantages of specialisation, not only in the time given but also over time, which in turn will attract and create the conditions for new specialised activities. The creation of a common market can therefore provide the conditions for a redistribution of income at the local level that will alter the local conditions of production, encouraging the equalisation of income, but it can also create the conditions for a new distribution of relative advantages of production which accentuates the centre and periphery dichotomy. This polarisation becomes important because new situations of economic dependence that necessarily carry political implications are created. In a case in which the peripheral areas and the central areas coincide with member countries in the economic union, it is evident that this divergent path would establish differences that in time would change the political relationship between the countries taking part in the agreement of economic integration. Therefore, there are two views on the effects of an economic union: on the one hand there is a vision of comparative statics which is centred on the tendencies towards convergence in the operative conditions between countries that unite in an economic union; on the other hand there is a dynamic vision that accentuates the possible risks of divergence in the operative conditions connected with a progressive polarisation of development. In the two cases the relationship between national interests and individual interests evolves differently, as we will see in the following discussion.


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The final phase of economic and political integration is monetary unification. In theory monetary union implies the establishment of a single currency commonly accepted as the unit of exchange in the realm of the economic union; this implies the existence of an international authority which acts as the only issuing entity, collecting common reserves and printing currency. In practice, to have a monetary union it is sufficient to arrange a system of fixed and irrevocable exchanges of currencies among the member countries; this means the establishment of full convertibility and exchangeability of the currencies in any place and at any time, putting aside movements of commodities and of capital in transit between countries participating in the union, as occurs between regions of the same state. Certainly the assumption of a single currency has a fundamental symbolic and practical function, but the crucial element is to compel the individual countries to fix exchanges among themselves in order to permit the use of either currency for whoever operates in the region of the economic union (Emerson 1992). Nevertheless, this implicitly requires an actual convergence of the macroeconomic policies of the individual governments, and furthermore requires an explicit adherence to a committee that manages a common political economy which extends to the entire union. This means that the internal conditions of the different member countries must become uniform: it is necessary to establish a transition period to integrate, or at least to render compatible among themselves, the rates of inflation, public deficits and foreign spending of the member countries, so that once the terms of the monetary union are fixed a single country would no longer have recourse to the manipulation of exchange rates in order to stimulate exports and limit imports, altering the operative conditions of the economic union. A monetary union is therefore the completion of an economic union because it stabilises the operative conditions in the common market, removing the scope for individual governments to artificially alter working conditions within the boundaries of their respective countries. It encourages exchanges and thus collective welfare, and reinforces the union in relation to non-participant countries, consolidating in them the characteristics of internal integration. On the other hand, it requires a substantial abdication of sovereignty on the part of individual governments and thus reasonably requires a transition period to permit the individual countries to place themselves in a position to participate effectively in an agreement that will then greatly limit their respective capacities for autonomous action. STRUCTURAL ADJUSTMENT AND INDUSTRIAL POLICY The construction of an economic integration agreement is thus a very complex business, which brings together and compares different productive structures with different capacities and time scales for structural adjustment. The effects of the opening also differ greatly according to the diversity of industrial

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structures, of market forms, and also of institutional organisation and in particular of the modes of interaction between the different groups which confront each other within the economy. It is in this context that the question arises of what efficiency, and therefore capacity for strategic adjustment, actually means. Let us consider, for example, the case of the production of cars and let us suppose that two countries 1 and 2 reach an agreement to exclude a more efficient country W; this is the case of European countries which seek to block the entry of Japanese producers. Let us assume that country 1, for example Spain, is less efficient and country 2, for example Germany, is relatively more efficient, given that neither of them is competitive with country W. In this case, the greater the divergence in the efficiencies of the countries concerned, the more advantage the internally stronger country 2 will gain from the closure with respect to the weaker partner, country 1, since internal demand will be all the more directed at its own firms. Moreover, the stronger country 2 will gain advantage from the common closure with respect to the more efficient external country W, which otherwise, under open conditions, could have gained an advantage with respect to both country 1 and country 2. In such a situation, the internal pressures on country 1 to break the agreement with country 2 and to try the course of individual protectionism are clearly relevant. The more significant the gap in efficiency between 1 and 2, the greater the protests in 1, the less efficient country, at having to import from 2 at preferential prices, rather than from W at world prices. At the same time, there are substantial pressures within 2 to support the common agreement for the free circulation of goods within the union, while maintaining the external barrier. In such a situation it is then also in the interest of 2, the relatively stronger country, to support a process of rapid development of 1, the weaker country, in order to prevent the protectionist pressures within 1 from prevailing, thus leading to 2’s enterprises losing their advantage. For example, 2’s producers have a vested interest in the rapid growth of country 1, or at least in preventing country 1’s producers from falling behind, in order to avoid the situation where either country 1’s producers ask for protection not only from W but also from 2; or 1’s consumers request a unilateral opening up to W, to reduce the price of goods which must in any case be imported, given that there no longer exists a national industry to be defeated. The agreement would seem even more sustainable if there were several goods to be exchanged, since in this case, sheltered by the common tariff, exchanges could be liberalised and thus the modes of relative specialisation in the production of goods could be defined. Enlarging the extension of the market by institutional means (as in this case, by the removal of internal barriers) sparks off a reorganisation of production within the cycle of production itself, giving rise to a ‘Smitheffect’, born out of the development of the division of labour within a larger context.


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Here, however, it is necessary to point out that the efficiency of a country and of its industrial system is not just given by the sum of the efficiencies of its individual producers, but—as Smith himself explains—by the modes of interaction of these with public institutions, which operate as externalities for the productive system, narrowly defined. It is within the whole set of institutional relationships structuring an industrial system that social dynamics are played out. These dynamics can shape progressive coalitions, and thus encourage the process of relative specialisation, which in turn allows a division of labour enhancing individual and collective productivity. The principal externality is therefore related to the very complexity of economic and social relationships within a country, and to its ‘institutional’ stability, understood in terms of the transparency of the rules which regulate collective action. This collective efficiency becomes relevant in international integration processes, and can in fact affect the nature and direction of the process itself, favouring those operators who enter an integration framework having a sophisticated and complex institutional system behind them. On the other hand the less efficient country, which is unlikely to be able to sustain a situation of closure, or for that matter of unilateral opening, can make use of the common interest to encourage the development of more efficient activities and therefore to develop new specialisations, which are however capable of reactivating processes of endogenous growth at the local level. Overall, both the more and the less efficient countries could make use of this opportunity to develop a broader division of labour, becoming competitive as a whole and each becoming more efficient in absolute terms. Let us return to our definition of the concept of ‘progressive’ and ‘regressive’ coalitions. In this situation, conditions can be established for the creation of progressive coalitions which make use of the customs and economic union as an accelerator of the conditions of structural change. Thus, the customs and economic union can be seen as a means of redefining the rules governing collective action. On the other hand, this situation can lead to a series of regressive coalitions which, in requesting protection for the most fragile areas of each of the two economies, do more than just block the development of the more efficient country, by inhibiting the growth of a more efficient division of labour within the common market. In these cases mixed mechanisms may also take shape, in which the progressive coalition, oriented towards reestablishing new relationships for the division of labour, isolates the regressive coalition, compensating for its disadvantages, in order to limit its negative effects which would otherwise pervade throughout the whole construction. Thus, a plan for defining a customs and economic union can be established for protectionist reasons, but it can generate dynamics which lead to the creation of progressive coalitions. Likewise, regressive types of mechanisms can be sparked off in a progressive phase.

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However, just as a customs and economic union is a regulatory construct to guide the process of international liberalisation (in order to limit the explosive effects of such a liberalisation on existing coalitions), public policies can also be established to guide the economic dynamics and the institutional transformation. These policies, therefore, are enacted to encourage the formation of progressive coalitions, supporting the entry of new participants, acting on capabilities, so as to make the available actors effectively capable of becoming promoters of the change and catalysts for growth. The paradox, however, is clear: within a customs union, the agreement is stable if there exists a common capacity for growth, but the growth effort of the less efficient country must at the same time be considered to be greater than that of the more efficient country, and this can take place only with policies which substantially accelerate growth. These policies, however, cannot be established at the national level alone, since that would lead to a set of disjointed and competitive actions, and the more efficient country would be able to push for more efficient policy solutions, increasing the disparity even further and thereby risking the collapse of the agreement. Thus, a customs union can work if it evolves progressively towards an economic union, in which adjustment policies are considered a matter for common action, to be managed in the common interest of encouraging the growth of the weaker. This is because the agreement is thereby reinforced and thus the prospects for collective growth are improved. In this sense, a policy for the controlled opening of the market requires a variety of industrial policies to help create the new single market and to allow the reorganisation of firms with respect to the market’s new extension. Finally, policies are also required to guarantee that these changes will not translate into a reduction in the multiplicity which characterises the market itself, generating a monopolisation which would in any case have degenerating effects on the gains to be had from the transformation. An agreement among countries to create an economic union thus implicitly carries with it an industrial policy action for the development of the productive forces of the least favoured areas and groups. This action would have the common objectives of creating the conditions for increasing the multiplicity of the market, and of creating the scope for reciprocal specialisations which consolidate growth-oriented progressive coalitions. A different view, perhaps more inspired by traditional thinking, could be to interpret the opening up of the market, through the creation of a common market, as being in and of itself capable of providing the necessary encouragement for the instant adjustment of firms. However, the sparkingoff of a process of selection, which induces the least efficient to leave the market and rewards those who are most efficient, regardless of their territorial location and of their historical context, would rekindle conflicts among countries, generating strong regressive coalitions.


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A definition of industrial policy within a context of regulated international liberalisation leads us to rethink the very concept of public intervention in support of the development of production: it implies the overcoming of the link between firms and national states, with which the development of capitalism has been imbued from the outset.

3

Public policies in an opening economy

ECONOMIC INTEGRATION AND INSTITUTIONAL BARRIERS The effects—both positive and negative—of a process of economic integration can define themselves differently in situations in which there is truly full freedom of movement of inputs and outputs, and freedom to reorganise the products in formally open contexts, but which are in fact divided by the survival of diverse rules and normative behaviours. Nontariff barriers cannot usually be eliminated overnight by governmental decree, but require a structural adjustment that can also be quite lengthy: the non-tariff barriers are in fact specific institutional conditions which act as tariff barriers in relation to imports from another country, even if this country is a partner in a customs union. These barriers can result from consumers’ preferences, which are in turn linked to the social and religious traditions of each country. For example in a Muslim country, the religious prohibition on eating pork will limit the imports of salami more than any commercial restriction. Similarly, a country that has a strong nationalist feeling will hold that the acquisition of imported goods is a betrayal of the national spirit or it is simply a loss for national production and therefore an act which has negative effects on employment. There can be special regulations on individual products that make the quality of the goods exchangeable among countries imperfect substitutes, or that actually forbid the importing of goods not in accordance with the technical standards established within each nation. There are actions of national administrations that can have barrierlike effects, such as the existence of national monopolies for goods traditionally sold exclusively by the state or by its agent, or preferences on the part of the local adminstration for national producers to carry out public works, or different forms of fiscal taxation on consumption from country to country. But beyond these elements the principal non-tariff barrier is created by the diversity of the model of accumulation existing among countries, for example in the relationship between family property and financial capital, or between the importance of the direct role of the state in the economy and the financing 28

Policy-making in open economies

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of private investments and the functioning of the capital market. The national specificity of institutions that regulate economic development and the related political equilibria is a non-tariff barrier, not only to the entrance of external operators, but often also to the mobility of national operators in other institutional contexts. Similarly, the whole complex of rules, including unwritten rules, established in the context of social groups also constitutes institutional barriers. For example, it is acceptable in the United States for an entrepreneur to fail in his activities, since the possibility of re-entering the game is collectively accepted. The situation is different in Japan, where there is a strong ideological construct surrounding loyalty to one’s work and to one’s group. The result is that while the removal of tariff barriers causes significant adjustments because income distribution and productive advantages are altered, the removal of non-tariff barriers involves the institutional organisation of the economy itself and thus acts on the very historical identification mechanisms of a country. In broader terms, one can label as institutions the whole set of rules, developed endogenously or adopted exogenously, which structure a group of individuals, and which therefore define the growth of these individuals over a period of time or, in other words, define their history. Under such a definition, the integration between two groups implies a process of re-examination of the common rules binding the individuals within the groups, such as to be able subsequently to identify the set of shared rules. There is therefore a leap in the history of individuals, since the starting point for defining the actions of individuals in a collective context has changed. INSTITUTIONS TO REGULATE ECONOMIC INTEGRATION A process of economic integration requires not only a clear specification of the rules that govern the new operative context, but also clear rules of transition from the original situation resulting from the existence of separate collective subjects and regulated by their own internal norms, to a new situation in which a union between different subjects is constructed and common norms are established. The first problem—which is institutional in character—is to define the nature of the new regulatory subject. The second problem—which is procedural—consists in defining the methods of transition from two separate and diverse sets of norms to a common set of norms. There are two models for defining the new institutional actor that will regulate the customs union or the economic union. One model establishes that the governments of the countries which decide to group together constitute an intergovernmental group that defines the norms and administers the transition and in the end governs the union in the name of the collective. A second possibility is that of establishing a new entity entrusted with carrying out the functions of the competent authority on the material which is held in

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common. The entity is independent of the individual governments and therefore sovereign in the exercise of its functions. In the first case one assumes that the sovereignty remains soundly anchored at the national level, and thus the actor that manages the agreement will implement decisions that are the combined result of the decisions of the individual governments. In the second case there is a surrender of sovereignty by the national governments to an international authority that assumes the functions of the state in the new combined territory. With respect to this second solution, which substantially alters the preceding institutional order, there can be two lines of action, which we can call functionalist and federalist. The first of these lines provides that the countries under consideration limit this type of international aggregation to a very specific problem, leaving the remaining functions to national governments or to intergovernmental agreements to manage common interests. This is a functionalist solution, which assumes that economic problems and policies can be segmented off in order to isolate them and treat them differently according to their peculiarities. The federalist approach instead maintains that economic and political problems are not divisible, and therefore that only the construction of an international authority which has power over the conditions of national sovereignty can create an institutional context in which individual problems can find coherent solutions (Lintner and Mazey 1991). The procedural problem can be tackled according to two different models: 1 establishing the existence of a new entity—which is intergovernmental or international—to generate new communal norms, which replace the old national norms, and thus define the new general normative order; we will call this procedure constitutional; 2 establishing the principle under which every country defines norms which are also valid in the other countries, and therefore achieving reciprocal assimilation to define a new general normative order through an evolutionary process; we will call this procedure evolutionary. In the first case, there is a sort of definition of the new normative order from above, i.e., the new order emanates from an authority to which the individual countries must refer as it is the substitute for the national authority. This implies that interests which are plainly national are concentrated in the phase of definition of the norm at the intragovernmental level or else in the specification of the powers of the international authority. In the second case, by contrast, the national government and national firms can maintain a continuity of relations of reciprocal legitimation, provided they are able to define their own norms with common relevance before they are proposed by other countries. In this way the capacity to specify norms consistent with the behaviour of their own firms, but which none the less assume general relevance, becomes a factor of remarkable advantage with respect to national situations where the firms are unable to push their own


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authority to formulate general norms consistent with their interests, having to assume as a consequence the norms of the country with a more efficient administration. In the first case, a solution in which the decision-making process is centralised in the new authority (intragovernmental or international) is generated, and a new administration (of intragovernmental or international derivation) is created; in the second case there is a decentralised decisionmaking process in which the central administration must simply ensure the fairness of the multiple game and thus the effective application of the norms defined in terms of mutual recognition. In the first case the member countries may also make use of their inefficient central administration, but they must be able to manage in governmental terms the negotiations and coparticipation in the common functions of definition and implementation of the norms (eventually to be attributed to the new common administration). In the second case the country with a more efficient decentralised administrative structure (which is able to respond to the specific regulation of individuals or of interest groups) accentuates its capacity to guide the common normative process. In each case the transition phase becomes crucial because it is during the transition that the rules that will govern the new aggregation of the subsequent phase are established. To sum up, we can establish the existence of different degrees of economic integration with corresponding methods of normative definition and management: 1 an agreement limited to exchanges, with destruction of internal tariffs, but without external agreements (free trade zone). This agreement implies negotiations between governments and acts of individual governments to repeal the tariffs internal to the area; it does not require a common administration; 2 an agreement that establishes a customs union, which liberalises trade between member countries and establishes a common behaviour towards outside countries. Above and beyond the agreement between governments there emerges the need for an administration to verify the implementation of the agreements and the behaviour which has been selected by all member countries towards third-party countries; 3 an economic union that establishes a common market not only for commodities but also for production factors, making possible different ways of organising production, requires a stable administration of the agreements and the definition of new norms; it is necessary to verify that the member countries uphold the agreements not only among themselves but also towards third-party countries: 3.1 if this process occurs through a constitutional model, the negotiations between countries to establish the new rules will

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3.2

3.a

3.b

take place during the same phase as the definition of the common norms; this will involve a long negotiation and discussion period, because in the end every country will be subject to the new norms. The implementation of the norm must, however, happen rapidly; if this process has evolutionary characteristics, the general norm will establish only the principle of mutual recognition of the norms developed by the individual countries, and thus the definition of the general norm must be rapid whilst its implementation through specific regulations must be spread over time. In case 3.1 a central administration of the economic union that receives the norms and oversees their full execution is necessary. In case 3.2 the central administration of the economic union will have the single task of guaranteeing the fairness of the game and possibly of intervening in situations in which no single country has the required capacity of normative definition. Furthermore an economic union can be governed by a committee that can have the characteristics of: an intergovernmental body which establishes the norms and responds to the execution of these by the individual governments; such an intergovernmental body, however, requires a common administrative apparatus for the execution of the established norms; an international authority which runs its own administrative and judicial apparatus, but which nevertheless would have different duties depending on the procedure of integration selected, that is constitutional or evolutionary, as already described;

4 a complete economic union implies a process of institutional harmonisation (constitutional or evolutionary) of the institutional conditions in which the firms operate in order to remove the non-tariff barriers to the movement of outputs and inputs. The removal of non-tariff barriers implicitly requires an institutional reorganisation to render compatible situations which have developed in historically different contexts; 5 finally, a monetary union implies that macro-economic conditions must also be harmonised so that one can fix and stabilise the exchanges in time; this requires that the public deficits and the rates of inflation of the individual member countries be compatible with each other, which in turn requires an agreement among countries or between the individual country and the international sovereignty to orchestrate monetary, credit, fiscal and social policies to achieve objectives of macro-economic stabilisation in the realm of general compatibility. This obviously implies the introduction of considerable limits to individual countries’ sovereignty, and establishes an obligation of orchestration that introduces further problems of collective decision-making.


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All these elements confirm that the more the union concentrates on the mobility of the factors of production, i.e., the more it acts on the national identity of the organisation of production, the more necessary is the profound reorganisation of the institutional structure itself, and thus the more necessary it becomes to establish adequate periods of transition to achieve the full implementation of the conditions established in the agreement. Resistance in this phase may obviously manifest itself not only on the part of the administration of the state that sees part of its power transferred to another external subject, but also on the part of those who consider themselves to be among the potential losers in the new economic and institutional context. Thus, the longer the transition period, the less traumatic the social impact of the structural transformation should be. On the other hand, the longer the transition the greater the possibility that the various forces within a country will come together to resist a change that becomes understood as an alteration of the political equilibrium established in the past. In the new institutional context it becomes important to establish how the decisions of the commission that will govern the union will be made, i.e., whether it will be intergovernmental (such as a council of national ministers) or whether it will be like another independent authority whose members are nominated by their national governments. An ample economic literature has recently developed focusing on the processes of decision-making by a commission in the area of public choice (Mueller 1989). From this rich literature, it becomes evident that the selection of the voting process is important in defining the way in which the commission will proceed, and that the way in which the agenda of tasks is set by the president of the Commission can itself influence the results. For example, a unanimous vote attributes to the weaker participants (or at least to that country that holds that it will be the most disadvantaged by the future fulfilment of the agreement) a right to veto the approval of the agreement itself. The passage from a unanimous vote to a majority vote takes away this right of veto, eliminating a dangerous hindrance to the execution of the agreement, but with the risk that the weakest member will be relegated to a minority position so dangerous that it will be forced to back out of the agreement or forced to do everything possible to block it. Furthermore one can generate a situation of the type described by Olson: a situation in which the citizens unite in opposing interest groups, each of which possesses the power of veto over the decisions of the government and can therefore prevent the fulfilment of collective choices. In a situation in which different governments coparticipate in an intergovernmental accord, each with the right of veto and each with a specific interest, different from that of the others, and moreover in the presence of a budget constraint, the outcome can be the blocking of collective decisions (Olson 1982). On the other hand, in the presence of a decision-making system in which the majority rules, it is necessary to set the conditions for the actual

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participation of all the members, through the exercising of an autonomous right to vote. Moreover, it is necessary to establish collective rules that guarantee not so much the neutrality (since this is not a realistic goal) as the rotation of the chairmanship and the transparency of the organisation of the activity of the commission. PUBLIC POLICIES AND GOVERNMENTAL OBJECTIVES A process of economic integration necessarily has political importance since it implies an alteration in the institutional mechanisms that at the national level link different social groups and at the international level shape their collective representation. None the less, we may state that the way in which this integration process is defined will largely determine the outcome of the process. A process of integration is in fact a complex mechanism for making reciprocal adjustments, which may lead to an increase in overall efficiency if the conditions for the development of a division of labour (understood in Smithian terms) are generated or, in other words, if the possibility for generating capacities and competencies along reciprocal specialisation paths is created. Otherwise, selection, assimilation or, more generally, dependency mechanisms may be created, which in actual fact constrain collective behaviour to the actions of the strongest, i.e., those most efficient in a direct comparison. In such a case mechanisms of refusal of the integration process may be generated, which, rather than outlining alternative models of development, simply oppose integration, blocking the institutional process of redefinition of collective action rules. One possible solution between the extremes of a liberalisation with an uncontrollable outcome and an autarky difficult to sustain in the long run is precisely, as has been explained, the negotiation of an agreement between countries to establish common rules for integration, and thus to guide the social mechanics and set a path for the process of redefinition of the relative specialisations. This transition agreement is however deeply ambiguous in nature. A customs or economic union could lead to an ever-broader progressive coalition which—added to the common will to stand up to competition from a stronger external actor—provides an incentive for integrating the weak (or the strong who are not able to impose their own superiority), in order to meet the challenge of the open market. It could however end up in a regressive coalition, in which each ‘weak’ country, motivated by the need to defend its most fragile subjects, converges with the other partners with the single objective of together blocking the liberalisation towards the stronger external actor, in order to avoid becoming the loser in possible aggregations aimed at excluding it. A process of economic integration, if it is not to dissolve into a regressive coalition whose sole common objective is to be found in the will to resist foreign competition, therefore implies some institutional convergence. This


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is because it requires, as a matter of necessity and to differing degrees, the definition of institutions capable of governing the structural transformations within a territorial context previously defined in terms of the exclusive authority of national government. Political integration can precede economic integration, as demonstrated historically in the United States; or rather one can brusquely establish a change not only of the political context but also of the economic context, similar to the revolutionary phases that brought about the creation of the regimes of central planning; or one can follow the path of a gradual economic integration that drags along political integration, as for example in the current situation in Europe. None the less, economic integration and political integration are complexly interrelated and founded upon a conflict of interests which is both political and economic. The selection of the path for reaching an economic integration that has an equally strong meaning for political integration, and the prefiguration of the governmental mechanisms of this new political and economic entity, both result from the convergence of a variety of conditions which are historically difficult to distinguish and impossible to link to a single cause. Nevertheless, the definition of a new organisation that has the characteristics of sovereignty and representation—and thus collective legitimation of the exclusive power of public choice—means that this new organisation must be answerable to the collectivity in these choices. The institutional nature of this new organisation is thus specified according to the type of choice to be made, to the legitimation received, and to the transparency of the actions. The participation of a national government in an economic union suggests a problem of sovereignty, and thus of redefinition not only of the authority which asserts its new powers, thereby diminishing the power of the national authority, but also of the social body and of the internal institutional design. In a solution of a federalist type, this can bring about a complete redefinition of the social body of the authority which exerts sovereignty, through the dismantling of the preceding political aggregation. Alternatively, in an intergovernmental solution it can also lead to an agreement in which the national governments reciprocally reduce their own autonomy, increasing the power of reciprocal conditioning. The two aspects, economic and political, are therefore contextual, since even in an integration in which the economic aspects prevail, the political aspects become an important and determinating factor for the development of the aggregative process. A purely economic reading of a process of economic integration could in fact conclude that the only objective to be achieved is an increase in the efficiency of production and exchange. However, a process which changes the organisation of production and the extension of the market, and thus alters the exercise of economic power in a territory, also poses problems

36


which must not be overlooked, namely justice, equity and democracy. Each of these, if they referred only to the national authority, could provoke reactions of delegitimation not only of the old but also of the new sovereignty, causing both disaggregation and different forms of political aggregation, for example of the localist type. In a process of a constitutional type, there is thus the risk of a block of the decision-making capacity of the commission that must define the new general norms. By contrast, in a process of an evolutionary type there is the risk that, on the one hand, the major efficiency of formulating norms with a communal character will accentuate the dominant role of one member yet, on the other hand, will force the other members to adopt the norms; the latter risks activating a complicated process in which the national authority of the ‘weak’ country is delegitimised and is thereby no longer considered a credible partner in the management of the integrative process. There is then the problem of overcoming, or at least of modifying, the relationship between economic interests and national interests, that is the link of identification between firm and nation-state. Almost paradoxically, the evolutionary process restores importance to this link, so that in the evolutionary process it is really the renewed link between economic interests and their institutional representation which prevails, in forms which are different from those in the past. Where the renewed link is more efficient a positive effect is generated that re-establishes the prominence of the institutional behaviour of individuals, defining general norms, and therefore extending beyond formal sovereignty the actual sovereignty of the new general rules imposed by the greater efficiency of the leading group in the process of normative redefinition. A purely economic reading of integration can lead to the definition of objectives of efficiency which, if not linked to the promotion of the objectives of equity and stability (that is, the objectives of political unification), can alter the institutional nature of the aggregate, changing the individual and collective rights of the subjects making up the whole of the social body that is recognised in the new entity, which results from the process of integration. We have to reconsider the collective actions which group individuals together, and take into account whether and how it is possible to address these collective actions. MACRO AND MICRO INDUSTRIAL POLICIES In our view, the market is a social construction that does not emerge by itself from a natural human impulse to trade. Rather, we begin with the assumption that in a society based on the existence of individual rights to trade, the market, as the place where trade relations among individuals (legally equal and equally able to trade) are created, is an institution that should be created through the definition of collective rules, which foster positive dynamics among these individual actors.


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In this sense, industrial policy is comprised of a variety of actions which include macro actions aimed at defining and guaranteeing individual rights to trade, and micro actions aimed at guaranteeing the individual competences and collective capabilities for production and trade. In other words, industrial policies, for our perspective of collective action, are instruments activated by a variety of factors to encourage institutional stabilisation, to guide structural change, to stabilise reciprocal specialisations and thus to consolidate groups of production. This means also acting to make rights of access more effective and sustaining the conditions for the development of capabilities (Sen 1984, 1985). The process of international opening is thus a way to extend the market and increase the division of labour beyond the national borders, and thereby to create networks of firms, whose unifying elements are not only geographic proximity and the dependence on a single government, but also the possibility of outlining new mechanisms of common institutional definition. The process of international integration is therefore not only an economic fact, it is necessarily a political one. It is therefore necessary to specify the historic conditions in which social aggregation processes have been carried out and, based on these specifics, to design macro and micro actions. These would function not so much as substitutes for a public authority, but rather to develop a collective mechanism, in which various public or private subjects interact to form progressive coalitions that can develop complementary and efficient specialisations, that are also fair and participatory and, therefore, stable. Since we hold that capitalism cannot be imposed by decree, as we see in the current Russian situation, and that it is not possible to pass from a centralised economic and institutional regime to a decentralised system simply by eliminating previous structures, we also argue that in a situation in which economic underdevelopment is linked to institutional decline it is not necessary to ‘return to the market’ but rather to ‘construct the market’. This means acting on the institutions of collective life and providing the capabilities to allow the majority of subjects to take part effectively in the collective. In any case, the central theme of Smithian thought must be re-examined: the market is a social construction that is founded on the legitimation of individual rights; this leads to a definition of collective dynamics that are not hierarchically predetermined, but a public authority is none the less needed to guarantee the functioning of a decentralised system of collective decision-making. The role of the state is central to the development of market forces. MACRO INDUSTRIAL POLICIES, TOP-DOWN AND THE INSTITUTIONAL CONTEXT In this context, macro industrial policies are those actions capable of affecting the institutional design of the system in which intervention is to occur. This

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not only means acting on the organisation of the public administration, but also on the accumulation regime of the country, that is, on the relationship between property and control of the firms. For example, in a country moving from a centralised, closed economy towards a market economy, such as in Russia and Argentina, this means above all facing an extraordinary process of institutional change. In addition to an intense manoeuvre to achieve macro-economic stabilisation there must be widespread action to denationalise the economy, through an extensive privatisation policy of public utilities, manufacturing activities and services formerly managed by the state. This radically modifies the relationship between state and economy and requires a public administration with minimal managerial involvement and more functions of directing and guaranteeing the choices made by the economy itself. An omnipresent state is thus substituted by a ‘lean state’: lean, but with more authority, capable of encouraging development by guaranteeing access to public goods, even if they are managed in a decentralised way. This new state must not only encourage international competition among the large national groups, but also internal competition, and must also promote the growth of a variety of small and medium firms, helping them to specialise and become integrated. The state can no longer limit itself to the direction of a huge centralised administrative body. It must also organise itself in a small but efficient central administration and in a variety of independent authorities which guarantee the course and control of public utilities in a variety of autonomous administrations. The latter should be charged in turn with promoting local development through a process of aggregation of all the entrepreneurial and intellectual forces around specific projects. In this case, the first series of interventions concerns the definition of the formal rights of citizens, and the design of the procedures which define collective actions. The next step deals with the definition of public goods, that is, those goods to which a citizen is entitled simply because he is a member of the collective, and the ways in which these goods should be managed. Here we must define the role of the public authorities which oversee the functioning of the market, preventing monopolisation but establishing exceptions to encourage activity that is particularly risky if not collectively supported. In this definitional phase of industrial macro policies the regulatory regimes of public utilities must be redefined together with the functions of the financial markets and the activities of research and development; in other words, with the activities which come before and after the production processes. In our approach it is clear that it is production that forms the centre of the argument, because only by stabilising the relations of reciprocal specialisation can we develop individual and collective efficiencies which can activate endogenous growth processes. The origin of efficiency is the ability to accumulate knowledge, so that


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macro action must be aimed at protecting and promoting the capacity to accumulate and use knowledge. This calls for the redefinition of the rights of access and of the general rules of use of the collective structures which reduce the individual costs of accumulation of knowledge, including schools and all activities which contribute to the diffusion of knowledge. All of these considerations would not be important if we did not emphasise the possibility of re-establishing a structure of property rights to allow access to the market and if social rules were not implemented so that disparities within the collective did not arise and induce members to form regressive coalitions. As Dahrendorf writes, a system in which formal rights (entitlements) are not supported by an adequate distribution of resources (provisions) will be unstable, as will a system in which there is an accumulation of resources which does not translate into increased rights of access to its citizens (Dahrendorf 1988). In this sense industrial macro policies are linked to the definition of rules shaping collective life and of the norms governing the functioning of those public activities that make the common rules manageable. Rules and public institutions have historically been identified with the nation. In many cases, a process of international opening can be the way to force change identifying limits and opportunities for an institutional redefinition, which would otherwise be blocked by regressive coalitions which have consolidated over time. The way to manage the opening can be important in reactivating internal mechanisms which lead to progressive coalitions able to redefine not only institutional assets, but also the processes of industrial reorganisation. In any case, efficiency, equity and stability are macro-level problems which must be faced in this new approach. MICRO INDUSTRIAL POLICIES, BOTTOM-UP AND THE CREATION OF CAPABILITIES Industrial micro policies are the means by which entitlements are transformed into capabilities, i.e., the means by which the formal right to participate in the collective game becomes an effective possibility founded on the activation of collective mechanisms for defining opportunities for growth. Micro policies involve the identification of catalysts for growth and thus mechanisms of convergence for a variety of subjects, public and private, aimed at guiding the process of relative specialisation and therefore an increase in individual sunkness, and the creation of groups of closely linked subjects, which remain open to successive co-options. The final meaning of so-called ‘endogenous growth’ is also to be found here: the capacity to create local conditions and rules which allow co-operation among individuals in order to develop individual and common knowledge, and thus to make possible the accumulation of sufficient knowledge to fuel collective growth (Boltho and Holtman 1992). From this perspective, industry

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is at the centre of the development process because within industry knowledge is transformed into competencies and capacities for producing, and thus determines the conditions for reproducing the economic system (Syrquin 1989; Abramovitz 1986). If the macro policies have to establish the entitlements, the micro actions have the crucial role of transforming entitlements into capabilities, i.e., transforming formal rights into effective capacities to exercise these formal rights. In an already consolidated context—in which the collective capacity for the accumulation of knowledge, the autonomous development of complementary specialisations, the negative selection of those who are not able to accumulate complementary knowledge already exist, and where entry is guaranteed—it is probably not necessary to implement micro policies because the multiplicity of the system is such that it can generate mechanisms of aggregation. A situation in which this multiplicity does not exist is quite different to such a case and micro policies are called for. Initiatives that start from specific local realities are of political value if they can be seen as the first node in a network to be constructed, if the procedures used there can be extended and used by other local experiences, and if learning from these pilot projects can be generalised to contribute to the positive evolution of the collective. Industrial micro policies are thus essentially networking actions, or policies aimed at reconstructing a network of relationships, which consolidate mechanisms of integration among individuals. This permits the evolution of a productive system based on reciprocal recognition, on the sense of adherence to a group, and on the identification of public goods and thus the evolution of externalities and, therefore of the suitability of collective action, with the capacity to sanction free riders. The industrial micro policies therefore have a strong territorial and sectorial foundation because it is easier to induce these processes of aggregation where a common cultural and technical base already exists. In a context of international integration it is therefore possible to outline actions which encourage the process of economic and institutional integration: these actions can be macro actions, to outline a path of convergence of the general rules and micro actions to induce individuals to aggregate. The first process, which we will call top-down, includes a constitutional phase for establishing the general principles for setting down a path towards convergence, and at the same time for establishing the nature of the decisionmaking model to be adopted for collective decisions, unanimously or by a majority vote. The evolutionary mechanisms follow in a second phase, which nevertheless can generate negative coalitions, if these mechanisms are not accompanied by the ability to act from the bottom-up to encourage the aggregation of individuals through policies which allow all individuals to enter and participate in the new integration phase. If the top-down process can be based on integrated convergence


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mechanisms, the bottom-up actions are founded on complementary mechanisms, generating a process which encourages the convergence of the general rules, but pushing towards specialisation and thus towards the differentiation of the productive capacity of individuals. The micro actions in a context of international integration not only have the function of accelerating the process of increasing the efficiency of the national systems and of encouraging the multiplicity of subjects in interaction. They also have the function of aggregating transnational networks, allowing subjects developed within national systems to operate together, and thus to develop new procedures which may support the process of change of the general rules, if the process of top-down institutional change seems to encounter resistance. Bottom-up action based on local experiments is valuable for industrial policy, although it is difficult to guide the process of institutional and structural adjustment of an aggregation of interests that now has a dominant role in the world economy. Policy initiatives which take as their starting point specific local conditions become real policies if they themselves are seen as the first step in a network to be constructed, and if the procedures thereby created can be extended and used by other local experiences, which, in learning from this pilot experience, generalise what would otherwise have been significant historically, but not significant in terms of collective evolution. Taking up once again the previously outlined Smithian model, we can assert that an economic integration agreement is an institutional mechanism for redefining the extension of the market, which necessarily implies the launch of a process for organising production and, simultaneously, is also a mechanism which respecifies the balance of power among firms, areas and social groups which structure the new unitary context. SOCIAL RULES AND COMMON OBJECTIVES In conclusion, we must remember that customs unions and economic unions are political agreements to encourage processes of economic integration in an international arena circumscribed and limited by a common action of control of external trade. None the less, because internal trade activates processes of sectoral specialisation and remodels the intra-industrial division of labour, the process of economic integration influences the rules that define collective action and thus assumes a function of institutional definition. A process of opening to international trade, however, generates changes in both countries, leading to coalitions which support or oppose the opening. A regulated opening to international trade, like a customs union, is an ambiguous solution that can translate into a last attempt at protectionism, or into a collective mechanism to guide the process of global opening; in either case there are structural changes connected with the type of institutional modifications generated by the formation of these coalitions. The process of economic integration pursued through common forms of

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regulation means an evolution of productive and institutional relations which modifies the structural characteristics of the individual economies and of the resulting social groups. The European Community has initiated a process aimed at creating an economic union, but it has seriously underestimated the significance of this move, too often leaving the resolution of possible internal conflicts to a mythical market, and indulging too often in the maintenance of levels of protection of the Community’s own producers, as in the case of producers of agricultural goods. The design of an industrial strategy, such as the one drafted in the Bangemann Report, becomes fundamental to the relaunching of the European Community (Bangemann 1992). A crucial point in this industrial strategy is the concept that the market is a social construction based on a multiplicity of actors and on decentralisation of the decision-making process. This multiplicity is, however, constructed from actions that allow new entry, that permit access to research and development, that encourage industrial co-operation, and that go beyond the field of antitrust regulation. Such actions are possible today if we consider that the state is no longer a unitary subject, but rather a variety of institutional levels interconnected in a complex web of co-operative and conflictual interactions. On the other hand the national state, if it is to reach a supra-national level within the European Union itself and also to reach the sub-national level extending to the regions and to local instances, cannot limit itself to the functions of guaranteeing development, material well-being and industrial production. The state is such if it answers not only to the primary need for guaranteeing the conditions for the production of wealth, but also to the need to ensure that wealth is distributed according to principles of justice and equity. The appeal to the market and to a society inspired by principles of economic liberalism does not eliminate these problems, but instead renders them more urgent, because such principles are prior to the assignation of allocative and distributive functions to the market. The market works if the rights of citizens, and their appeals to justice and equity, are transformed into effective conditions for participation in the common game, precisely because the market requires a commonality of rules and a consensus on common rules, if it is not to turn into a chaotic search for domination. This very conflict between, on the one hand, a view of European integration principally inspired by the search for a market efficiency which will subsequently lead to the conditions required for well-being, and, on the other hand, a view of integration in which efficiency, equity and stability appear contextually, has formed the nucleus of the recent crisis of the Community in its voyage beyond Maastricht and towards European Union. Before surveying the development of industrial policy outlined by the Community in the transition phase towards a full economic union, let us turn to the institutional changes of the Community from Rome to Maastricht and beyond.

4

Rules and institutions: from the Community to the Union

EVOLUTION AND INSTITUTIONAL CHANGE The European Community (EC), now European Union (EU), has institutional characteristics that do not directly correspond either to a federation of states or to an international organisation. This peculiar character was confirmed by the Treaty on the European Union (TEU), signed in Maastricht on 7 February 1992, and has also been stressed by the Intergovernmental Conference of Turin (29 March 1996) which seeks to revise the Treaty to adapt it to the new goals of increasing internal cohesion and of tackling the issues raised by the widening of the Union to West, East and South. Even though this Treaty envisages significant transfers of power from nation-states to the Community, it cannot in fact be considered a federation treaty in which sovereignty passes from the member states to the federation, giving superior legislative, executive and judicial tasks to the federal institutions, not only in areas concerning relations among the different states, but also as regards the activities of individuals within member countries of the federation. Nor can it be reduced, however, to an international organisation in which fully sovereign states merely grant the supra-national institution the power of co-ordination of specific international activities, without giving it authority over relations between individual citizens within the member states. In the EC, and now in the EU, elements of a federation—namely: a central authority with a supra-national character and, corresponding to this, with some of the powers making it capable of developing and implementing its own body of laws valid within the borders of the member states—coexist with elements of an international organisation in which the decision-making power is held by an intergovernmental body. Both the Single European Act (SEA) and the TEU strengthen the role of the European Council, establishing the leading role of the Council of Prime Ministers, within the general framework of consolidating European institutions. On the other hand, one finds not only procedural changes of a constitutional nature—referring to a basic text (the Treaty of Rome and its amendments) 43

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and creating the principal source of Community law—but also evolutionary changes. The procedural changes are particularly seen in the SEA. The evolutionary changes are brought about through substantial modifications in the institutional relations derived from the extension of powers of the Commission, as well as through the judicial interpretation of the norms of the Treaty that have resulted in modifications of the internal decision-making models of the Community itself. The European Community is therefore a unique institution in which supra-national characteristics and institutions are combined with intergovernmental characteristics and institutions (Nugent 1991:383). In this sense, it should be emphasised that the EC’s most significant and peculiar characteristic is precisely its continual mutations, its establishment through formal acts of integration paths and procedures, which in turn force the contracting states to alter their own internal regulations. A process of constitutional revision, in structure mirroring the spokes of a wheel, is thereby established, the final success of which leads to the opening up of a new constitutional phase. The Treaty that instituted the European Economic Community, signed in Rome on 25 March 1957, is thus the basic text of this association of states, and defines the founding principles, the general objectives which inspired it, the institutions which govern it, and the specific subjects with which it deals. Such a complex structure is the result of numerous preparatory documents, among which the founding Treaty of the ECSC (European Coal and Steel Community)1 was particularly relevant. The founding treaties of the ECSC, of Euratom, and of the EEC, and the subsequent treaties bringing in new member countries, together with the acts that amended and integrated the Treaty of Rome may be considered as the Constitution of the Community (Nugent 1991:42). The founding treaties of the ECSC and of Euratom outlined the institutions responsible for the implementation of the respective accords. These institutions paralleled the institutions of the EEC until 1967 only to become integrated in the latter, leaving in existence, however, the original founding treaties which continue to have some normative weight within the context of the Community. The SEA, signed in February 1986 and put into effect in July 1987, is the principal act amending and integrating the Treaty. It contains not only indications of a constitutional nature, but also provisions which alter the decision-making process of the Community, laying down in advance the conditions for an internal evolution of the relations among institutions. The TEU is a much more complex construction, both substantially amending the Treaty of Rome and enlarging the area of common action. In this chapter we will look at the institutional evolution of the EC from the Treaty of Rome to the new Treaty on the European Union, thus outlining the Community’s developments up to 1998. We will also analyse new developments in intergovernmental co-operation.

Rules and institutions

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Let us remember that the Treaty of Rome is based on six sections: I II III IV V VI

Principles; Foundations of the Community; Policy of the Community; Association with overseas countries; Institutions of the Community; Temporary and final arrangements.

The first section, covering principles, recalls the variety of motivations which animated all of the Europeanist movements from the end of the war: the creation of an economic union is seen as the most secure means for pushing the governments towards an integration of their policies and therefore towards a co-operation that will avoid new conflicts and new wars. In the First Section, Article 2 defines the general objectives of the Community, to be pursued through the instrumental path of the creation of a common market and the gradual convergence of the economic policies of the member states. These general objectives are defined as follows: ‘to promote…a continuous and balanced expansion, greater stability, a more and more rapid increase in the quality of life, and closer relations among the states which participate’. This definition thus highlights the common objectives of efficiency, equity and stability, which will later reappear as important parts of the Single Act. However, this Article may be read in two different ways. The first underlines the need for jointly achieving all three objectives: since an increase in the efficiency on the part of any subject (member country or single individual) may bring about an increase in internal inequalities, with negative effects on the equity and on the stability of the association, the creation of the common market and the convergence of policies must be oriented to the joint pursuit of the common objectives. An alternative vision emphasises instead that a full implementation of the common market would necessarily involve characteristics of collective efficiency, and that equity and stability would thus be the result. It becomes clear that placing the emphasis either on the first reading of Article 2 or on the second makes a significant difference to the way in which the policies of the Community are defined. Article 3 establishes that pursuing the ends outlined in the previous Article requires, according to ‘the conditions and…the rhythm foreseen by the present Treaty’, the creation of the following: 1 a customs union, based on the abolishment of internal tariffs and on the institution of a common external tariff; 2 a common market, centred on the free circulation of not only goods, but also labour and capital; 3 an economic union; its point of departure is common policies for agriculture

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and transport, for antitrust, for employment and for infrastructural issues; these common policies are to operate through the creation of a Social Fund and of a European Bank for Investments, and through the coordination of policies and the similarity of national legislation. Article 4 defines the institutions of the Community: an Assembly (only in 1962 would this take on the title of Parliament), a Commission, a Council of Ministers (assisted by an Economic and Social Committee), and a Court of Justice. Both Articles were changed in the TEU. There follow (Articles 5–8) the first modes for implementing the Treaty; here, as in all the subsequent Articles that defer to subsequent regulationary integrations, the principle was established that the Commission proposed and the Council of Ministers approved, with a clear indication of the application of the principle of unanimity to subjects constitutional in nature. With Article 8A of the SEA the objective of the completion of the internal market by the end of 1992 was introduced into the Treaty. With the same SEA a new decision-making procedure was introduced in ten Articles, establishing a principle of co-operation among the various institutions, reinforcing the powers of Parliament and increasing the subjects no longer requiring unanimity which may be put to a majority vote by the Council. The TEU greatly developed the content of Article 8, by introducing a broad perspective on European citizenship. In the second section, title I, there is a very detailed agreement among the parts, i.e., of the procedure for the founding of the Customs Union, with very accurately fixed times and means for the removal of tariffs (chapter 1, section 1), and of quantitative restrictions on trade among states (chapter 2). Common procedures for handling relations with third countries are also defined (chapter 1, section 2). A long time scale was provided for the removal of internal tariffs, in the conviction that this must guide the process of productive reorganisation within the individual countries and thus neutralise the negative effects of the customs liberalisation within the Union. It is evident from a reading of the Articles cited here (from 9 to 37) that what is envisaged is a slow process of progressive liberalisation, carefully regulated by a centralised entity, in order to prevent the emergence of a customs union resulting in internal inequalities among countries participating in the agreement. The title dealing with agriculture follows immediately (Articles 38–47); the sector is heavily regulated through a common agricultural policy. In title III the norms regarding the free circulation of people are specified (48–51), as are the right of establishment of economic activities in all the member countries (52–58) and of the free circulation of services (59–66) and of capital (67–73). Title III thus establishes that member states must remove restrictions on the mobility of people, services and capital, but leaves the effective specification of the paths to be followed in the establishment of the common market to subsequent programmes of interventions.


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The TEU completely redesigns Article 73 concerning capital mobility throughout Europe, and takes financial and monetary integration as constituting a keystone of the Union. A common transport policy is mentioned in title IV (Articles 74–84), however leaving to subsequent decisions the detailed specification of this common policy. The third section deals with the policy of the Community. Title I, regarding common norms (rules, standards, regulations), deals with rules of competition (85–94), fiscal provisions (95–99) and convergence of legislation (100–102). These last two parts limit national powers as regards the definition of the norms that could lead to discrimination in exchanges with other countries of the Community and attribute to the Commission the powers for verifying the correct application of the accords. The rules on competition deal not only with the rules applicable to firms (85– 90), but also with practical means (arrangements) on dumping (91), as well as on state aids (92–94). Principles are also defined for dealing with this delicate subject, but the definition of the applied rules is left to subsequent decisions. Title II deals with economic policy, in particular balance of payments and trade policy. Although common rules are not established, these subjects are considered of common interest to the member states and specific regulations are postponed to subsequent decisions. In Article 100A of the SEA the co-operative procedure described above was extended and a majority vote was introduced for most of the measures on the completion and the functioning of the internal market. The SEA also introduces Article 102A, entitled ‘Co-operation in Economic and Monetary Policy’ (economic and monetary union). The TEU amended several Articles, and especially Article 100 and subsequent Articles, by introducing specific rules for both the convergence of the legislation and the policy-making approach used by the EU bodies. Several adjustments regard monetary and fiscal policy, and Articles 109 and 109A to M in particular define the new common institutions aimed at the creation and management of the Monetary Union. Title III deals with social policy. In part 1 (Articles 117–122) it essentially aims to promote a close collaboration among countries in the areas of the right to work and the protection of working conditions, and in part 2 (Articles 123–128) to institute a European Social Fund, administered by the Commission in order to create the conditions for the defence of employment, and for the professional retraining of workers. Articles 129 and 130 create a European Investment Bank (EIB), with its own juridical personality. They specify that the members are the individual countries and, therefore, that this institution is autonomous with respect to the Commission. The EIB has the extremely important task of contributing ‘to balanced development without shocks to the common market in the interest of the Community’. Thus, the objectives of equity and stability in the development of the common market are taken up once again on the basis of

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the existence of the Community itself; these objectives are to be pursued through the supply of loans and guarantees, obtained through the financial markets or through individual resources, and made available to various sectors of the European economy with the aim of financing: (a) projects for improving less-favoured areas; (b) industrial modernisation or conversion projects to create activities required by the establishment of the common market and which, due to their vastness or nature, cannot be financed by individual countries; (c) common interest projects which, due to their vastness or nature, cannot be financed by individual countries. In this way, the principle of a communitarian intervention in the form of aid was established for those projects which have a communitarian character or motivation but exceed the capabilities of the individual countries. Until the SEA, the EIB and the European Social Fund were the only instruments available for interventions of a communitarian nature, which were not simply limited to the needs and the intervention capabilities of the individual states; with SEA numerous Articles were added aimed at increasing the number of the Commission’s instruments of intervention for encouraging an active policy of European integration. The TEU entirely rewrites Article 130, which becomes the pivot of the new approach to the industrial policy of the EU. We will analyse the content of this Article in the next chapter; here we stress that the entire complex of Articles 130 and 130A to 130Y are a massive innovation in the Treaty and that they entitle the Commission to intervene in the economy to create a new social and economic environment for supporting industrial growth; in other words they provide the legislative basis for defining the new approach to the industrial policy of the Union. Articles 130A–130E, entitled ‘Social and Economic Cohesion’, introduce the reform of the Community’s structural funds. They outline the scope for intervention at a territorial level, thereby directly involving the regions by establishing a connection between supra-national authorities, like the Commission, and sub-national authorities, like the regional governments. It is important to note that before these amendments, regional policies were essentially held to be the competence of national authorities, and the Community resources in favour of the development of less-favoured areas were attributed to nation-states which then intervened at a local level on the basis of their own criteria. Articles 130F–130Q centre on ‘Technological Research and Development’, establishing the basis for implementing a variety of common programmes in the sector of research and development. Also in this case the Community reserved for itself the possibility of creating a policy of research and innovation which goes beyond national competences. Articles 130R–130T open up the possibility for Community intervention in environmental areas, inserting into the Treaty amendments of vast importance for the future. The fourth section (131–136) regards the association of countries and overseas


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territories, i.e., the common administration of relations among European countries and ex-colonies and protectorates of France, Belgium, Holland and Italy. This section was amended in 1973, with the entry of the United Kingdom, to extend commercial advantages and economic co-operation to the countries of the British Commonwealth. The maintenance of privileged relations among European countries and their colonies was thus established, placing these commercial relations in a common context of development co-operation. The fifth section outlines the competences and the organisation of the communitarian institutions. With the SEA the role of the European Parliament was strengthened, although this institution was not called to carry out legislative functions as the name suggests and as the federalists requested, and the areas of intervention and proposal of the Commission were enlarged. However, the tasks of the Council were redefined and periodic encounters of the heads of state were institutionalised (even if this was not incorporated in the Treaty), giving to these intergovernmental organs the role of effective ‘legislature’ of the Community. The TEU changes several Articles in order to specify the roles and organisation of the institutions in charge of establishing and managing the Union. Finally the last section contains the general norms, both final and temporary, which allow for the application of the Treaty. COMMUNITY INSTITUTIONS AND THEIR FUNCTIONS We will now take a brief look at the functions and organisation of the communitarian institutions. Articles 155–163, amended several times, outline the powers, the functions and the organisation of the Commission. Given that the institutional ends of the Commission are ‘to ensure the functioning and the development of the common market in the Community’, Article 155 attributes the following powers: • the Commission enforces the application of the provisions of the Treaty and those adopted in virtue of the Treaty; • it formulates recommendations or opinions in specific sectors; • it has power of decision and participates in the formation of the acts of the Council and the Assembly; • it exercises the competences that were conferred on it by the Council for the implementation of the regulations established by it. Therefore, there is a power of policy (but also political) initiative, the task of supervision (for example in the field of competition policy, where the Commission functions as the High Authority on antitrust), a power of decisionmaking linked for example to the administration of structural funds, and powers delegated by the Council. The members of the Commission (a total of seventeen for the five largest countries and one for each of the smaller countries—Article 157) act in the

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interests of the Community (157) and are nominated by common agreement by the governments (Article 158). This differs from the Council, where each member represents the interests of his own government. 2 The Commission, which also unifies the powers and the functions of the High Authority called for by the treaty of the CECA, is charged with the creation of an apparatus organised in directorates, each responsible for a specific policy area. As for the powers of the Council, Article 145 of the Treaty establishes that ‘the Council provides the co-ordination of the general economic policies of the member states and the power to make decisions’. The Council is formed by ministers of the member states and its composition can in fact vary according to subject, so that for example agricultural problems are presented to ministers of agriculture. The Council’s functions are thus embodied by a General Council composed of foreign ministers and a technical council composed of ministers in charge of specific areas. The presidency of the Council is rotated, and is assisted by a permanent secretary, who has the task of providing technical support. There is then a Committee of Permanent Representatives of the Member States (COREPER), made up of national civil servants, and which carries out the analysis of preparatory material for the meetings of the Council. There is also the intergovernmental apparatus, consisting of a secretary and national representatives, which provides a balance to the Community bureaucracy with its supra-national character. Beginning in 1974, the meetings of this communitarian institution were accompanied by periodic meetings of a European Council composed of the Heads of Government of the member countries. This European Council was not born of the Treaty but was recognised in the SEA as the body which has the tasks of guiding the Community, through the outline of the long-term problems. The TEU identifies an institutional role for the Council, both in relation to the creation of the economic and monetary union, and in the protocols regarding the European systems of central banks. The Parliament was defined in the Treaty simply as an Assembly (137– 144) originally formed by delegates of national parliaments; by 1979 this assembly had changed to being elected through universal suffrage and the SEA finally ratified the change from Assembly to European Parliament. The Parliament has decision-making powers and powers of control: it may in theory exert a power of censure over the Commission, leading to the decline of the Commission’s powers; this power of censure, however, despite the fact that it is limited to the Commission and does not extend to the Council, has never been exercised, perhaps because of the gravity of the sanctions this would cause. In 1975 the Parliament was granted the powers to intervene in the Community’s definition of non-obligatory expenditures (including the distribution of structural funds), while the distribution of obligatory and nonobligatory expenditures and the allocation of the obligatory expenditures (including the common agricultural policy) is the duty of the Council. The


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Parliament has however acquired the power to reject the draft budget, requiring the Commission and the Council to create and approve a different budget. Finally the SEA increased the legislative powers of the Parliament, establishing a procedure of co-operation among this institution and the Council, and furthermore allowing the Parliament, upon second reading, to amend the directions of the Council on subjects dealing with the completion of the internal market and political and social cohesion. Furthermore, common decisions of the Council and the Parliament are required on the subject of the Community’s growth. The TEU develops these innovations and stresses the role of the Parliament, but it is evident that the European Parliament is still very far from having the legislative role played by a parliament in a nation-state. Beyond this, it must be remembered that the Treaty foresees the institution of an Economic and Social Committee (193–198), ‘composed of representatives of the various economic and social categories’, indicated at the national level, and nominated unanimously by the Council. This body has consultative power only with respect to the Council and the Commission. Surrounding the Committee are pressure groups which represent national interests and interests regarding specific categories, in effect formalising the function of lobby groups aimed at the decision-making centre of the Community. The TEU introduces a Committee of Regions, providing a consultative role to the Parliament and the Council. The Court of Justice (164–188) was already instituted under the ECSC. It became a single court for the three Communities—ECSC, EURATOM and EEC—with the convention on the common institutions combined in the Treaty of Rome. The Court, composed of thirteen judges and six advocates general, plus a registrar, has the tasks established in general terms by Article 164 of the EEC Treaty (Article 136 of the ECC Treaty and 31 of the ECSC Treaty). Article 164 forms the basis of the Court’s right of interpretation and application of the treaties. Therefore the Court: • issues opinions on appeals for the recognition of the violations of common obligations, carried out by both the member states and the Commission; • exerts contol over the legitimacy of acts of the Council and of the Commission, and may make pronouncements on appeal as a result of incompetence or violation of the Community obligations on the part of member states or Community institutions, or physical or juridical individuals; equally, it may issue opinions on the omission of acts that must be forthcoming from the Community institutions on appeals from the above-mentioned subjects; • establishes procedures of interpretation through the legal appeal promoted by national jurisdictions;

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• deals with the opinions on compensation of damages derived from extracontractual responsibility, and opinions on the subject of employment relations that implicate the Community institutions; • deals with the controversies regarding the EIB, and the contracts stipulated by the Community institutions; • deals with the controversies among member states submitted to the Court on the basis of compromisory clauses on the subjects for which it is possible to initiate litigation between the Community and states or between states. With the SEA a Tribunal of first grade (Article 168A) was introduced to establish a first verification of the allowability of resources, while it is still the task of the Court to deal with the appeals by member states and Community institutions concerning the interpretation of the Treaty, and the validity of the acts of the Community institutions. The Tribunal of first grade was instituted in October 1988. In 1975 a Court of Auditors (which began operating on 1 January 1977) was established with the task of auditing the Community’s budget. It must also be remembered that the European Investment Bank (EIB) is an institution allowed for in the Treaty, and that a European Bank for Development and Reconstruction was recently instituted, charged in particular with interventions outside the Community to sustain the economic renewal of Eastern Europe. The TEU introduced the role of a public ombudsman, similar to the Scandinavian model of the Ombudsman, to receive and support the claims of individuals against the Community bureaucracy. In conclusion, one should remember that the acts of the Community institutions (defined in Articles 189–192) may be ordered into five categories according to their importance and to the degree to which they are compulsory: • • • • •

regulations; directives; decisions; recommendations; opinions.

Unlike state ordinances, in which the term ‘regulation’ identifies a secondary form subordinated to the law, the Community’s regulation is the most important expression of the normative authority of the Community institutions. The regulation has a general scope, is obligatory in all its elements and is directly applicable in each of the member states. For example, regulation 4064/89 on the subject of control of concentration has a general character and is obligatory in all the territory of the Community, and thus in every member state. Directives bind the member states, with the goal of reaching a common result, but the nation-states have the responsibility of deciding on the form


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the directives will take in each country and the means used to carry them out. A decision, on the other hand, is an obligatory act that binds the single member state or the single legal or physical person. Recommendations and opinions do not have a binding character. They stress the position of the communitarian institutions on specific subjects with the goal of inducing the other institutions or the member states to keep this in mind in future common decisions. There are also atypical acts not foreseen by the Treaty (Article 189), such as general programmes and common declarations, which are effective, especially internally, in supporting its implementation. THE INSTITUTIONAL STRUCTURE AND DECISION-MAKING PROCESS OF THE COMMUNITY This institutional profile was largely affected by the preceding experiences of the European Coal and Steel Community (ECSC), the Organisation for European Economic Co-operation (OEEC) and the Council of Europe (Urwin 1991:19, 27, 35). The historical reference thus stresses the idea of an international organisation that nevertheless tends to become a federal state. The central body of the Community’s institutional apparatus is however of ‘French’ derivation, with an executive body, essentially technocratic. Decisions are validated by a body which is representative of the national governments; national sovereignty is maintained through the demand for execution and supervision of the decisions by a central administrative structure. It has to be noted that in the ‘French’ model there is no room for subsidiarity, because the power of representing the public interest and of governing are centralised at the highest institutional level, and this sovereign institution can transfer some operational functions to the lower levels, but the source of legitimation remains attached to the institutional organ representing the nation-state. In some cases, the nation-state can transfer some powers to a supra-national organisation, but this organisation derives its legitimation and power from a specific delegation of the nation-states. The High Authority of the ECSC and the Commission of the EEC are organs of execution and supervision of the expressed wishes of the Council that act as a collective president of this organism, while the Parliament remains the Assembly of an international organisation and the Court of Justice remains a body of interpretation of the Treaty. In designing the profile of the institution of the European organisations the role of Monnet, first Commissioner of the French Planning Commission, was crucial. Monnet and the pioneers of the Europeanist movement were clear in their minds about the fact that what appeared possible in terms of economic co-operation was clearly not possible in terms of political integration. Instead of advocating a complex project of political union, he

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proposed a functionalist approach. The Monnet functionalist method seeks to identify and isolate specific problems, which are then to be tackled and solved through the creation of a specific institution, managed by a neutral, highly qualified bureaucracy, in order to internalise and settle specific conflicts among nation-states, and hence induce the conditions necessary for a positive political co-operation. Thus, steel and coal—the core of German rearmament—was managed by an international authority according common rules; then, nuclear power—that is the nub of the new military and civilian power—was put under common control; agricultural production and farmer incomes were also rapidly considered a matter for common decisions because it was considered necessary to stabilise the social basis of Western European countries in the period of the Cold War; finally, the progressive rebate of customs tariffs was jointly regulated so that structural adjustments connected to the opening up of national markets would not generate social unease. The possibility of easily likening these bodies to those of a nation-state or those of a federal state therefore fades away. The European Community was designed according to the French-style centrally administered unitary state, but the European Economic Community was neither a nation-state, nor a federal state, because it was not a state but an economic drive, a ‘manageable’ means of driving a political unification, which was at that time considered ‘unmanageable’. The Commission is not the ‘government’ of the Community, and its president is not a sort of prime minister of the Community as Commissioner Hallstein asserted before the conflict with the French government in 1963. The Commission has the power of initiative in Community policy-making, but its actions must be approved and thus ratified by the Council. The Commission is the ‘Guardian of the Treaty’, acting simultaneously as both a proposing and a consultative body to the Council of Ministers. It is an organ created by the Treaty that, after the Luxembourg compromise, has the final say in decisive moments on single subjects. It is the Council of the Heads of State, a body not provided for in the Treaty of Rome, that assumes the constitutional functions regarding substantial choices. However, the Commission is endowed with the important power of initiative that has pushed this body continuously to widen its sphere of action, multiplying its activities in a variety of interventions. This power of initiative was strengthened with the White Book, which brought about the approval of the SEA and then led to the EU. Just as the Commission is not a government, but the Community’s government is rather the combination of the actions and interaction of the two tendencies, supra-national and intergovernmental, the Parliament is not the simple transposition of a national legislative body. The ‘legislature’ of the Community was instead placed within the intergovernmental body, leading to the Assembly, composed of delegates of the respective national parliaments, the consultative functions. Its transformation into the directly


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elected European Parliament did not change this situation, which only with the SEA saw the recognition of powers of legislative interaction with the Council. On the other hand, this consultative role was shared with the Economic and Social Committee, which is the aggregation of explicit specific interests. The institutional structure of the Community is—in a certain sense— ‘misleading’, because the supra-national function draws its legitimation from national sovereign powers still clearly exercised by the national governments in the context of limited, or better yet, planned, sovereignty, although there were no clear sanctions against infringements or resistance to the common action (Nugent 1991). The transplanted vision of the ‘French state’ then proved to be fallacious because no hierarchy existed between the vertex and the lower levels, and the supra-national organism did not have the exclusive power to exercise force within its administrative territorial realm; the administrators even had the power of interdiction in the action of the administrative leaders, in a mechanism of intersecting vetoes that block decisions and the recognition of initiative. Additionally, the long economic crisis of the seventies highlighted once again the delicate relationship between representatives of collective interests and the defence of economic interests at the national level. The SEA introduced adjustments in this organisational structure, and in fact took away from individual governments the powerful weapon of veto exercisable in conditions of unanimous vote. But, above all, the SEA implicitly introduced the principles, those of subsidiarity and reciprocal intervention, that reverse the general perspective of Community decisionmaking, passing from a ‘French’ vision to a ‘German’ vision. In a ‘German’ perspective, which is essentially federal-oriented, a centre endowed with strong initiative capabilities and foreign representation placed individual members in competition among themselves, favouring an evolutionary process in which the more efficient define the common norms. This vision places the emphasis on the characteristics of intitiative and control of the Commission, establishing by definition an alliance among ‘strong’ subjects which act within the administrative territory. Germany is the only federal country in Western Europe, and its experience has become a cornerstone for redesigning the institutional profile of the Community. In a federal state legitimation of public action stems from the bottom up. Powers are attached to the lower institutional levels, and the powers of the federal institutions are listed and exclusive. The crux of the institutional profile of the European Community is that it is a unique institution in which supra-national characteristics and institutions combine with intergovernmental characteristics and institutions (Nugent 1991:383). It is an evolutionary institution which is attempting to tackle the difficult task of overcoming the national institutions without overcoming the nation-states themselves. As a result of this peculiarity, the relaunching of European integration which occurred in the mid-1980s needed to identify

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principles for favouring both integration among different national institutions and co-ordination among different levels of decisionmaking. Thus, we have two dimensions of normative integration: (1) horizontal, among nation-state institutions, (2) vertical, among various levels of institutions, from European to regional ones. These two dimensions cannot be tackled by using the previous instruments given in the Treaty of Rome. THE BUDGET OF THE COMMUNITY Likewise, it is not possible to trace the budget of the Community back to the accounting scheme of a national government. In fact, the European Community, not having the authority to issue money, cannot finance a deficit in its own budget; and the Community budget is thus constrained by the resources actually available. Nevertheless, the Community budget is different from that of international organisations in that the EC in fact enjoys its own resources and the Community budget is larger than that of every other international organisation, but also more limited than that of every nationstate (Shackleton 1990). The Community budget in fact obtains its own resources from: (a) customs duties placed on imports of goods from third countries—a portion of the tariff for agricultural products and the entire tariff for other goods— and (b) from a portion of about 1.4 per cent of the VAT collected in the individual member countries. In 1990 these two sources made up 29.08 per cent and 60.28 per cent respectively of the Community budget, leaving approximately 10 per cent from other contributions calculated on the basis of the GNP of individual countries and from other minor contributions (Tables 4.l and 4.2). On the other hand, the expenditures of the Community, which have been continually growing to reach nearly 75 billion Ecu in 1995, are still largely drained by the maintenance of the policy of agricultural protection; the administration of the Agricultural Guarantee Fund still accounted for almost 60 per cent of the entire budget in 1990 decreasing to 50 per cent in 1995. Notwithstanding the relative increments proposed in recent years, only 32 per cent of the funds remains available for structural policies and only 4 per cent for the policies regarding innovation, research and energy. This share has changed in recent years, in particular as a result of the reform of agricultural price support and of the renewed commitment to the Community’s less-favoured areas. Moreover, interventions in the field of innovation have been rationalised and reunited within a four-year framework programme, in order to ensure a more systematic overall vision and control.

Rules and institutions Table 4.1

Source:

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Use of budgetary allocations for payments by the Commission as al 31.12.1995 (millions of Ecu)

European Commission, ‘General Report on the EU’s Activities 1995’, Brussels, Luxembourg, 1996

INSTITUTIONAL INTEGRATION AND THE PRINCIPLE OF MUTUAL RECOGNITION The Community’s complex procedural mechanism has over the years outlined a system of reciprocal interdiction which has often resulted in a muddying of the common decision-making process. Obviously, the relationship between Community institutions and member states regarding the subject of normative harmonisation is a yet more delicate terrain. Such harmonisation is a necessary step in the passage from a customs union to a common market, in which not only goods but also capital and people can move; clearly it is extremely complex because it involves adjustments in the institutional and administrative apparatus which different countries have built up, layer by layer, over time, making them defining elements of their civil development. The Single Act became the crucial moment of institutional reform of the Community because it acted on the mechanisms of relations between Community institutions and member countries. Consequently the SEA is not only a general programme for achieving the objective missed in the sixties and seventies, that is, the passage from a customs union to an economic union, but it is rather a process of constitutional reform that reinforces the evolutionary nature of the process of integration. The transition from a customs union to a common market is a very complex institutional change because it implies the weakening of the

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Table 4.2 Budgetary incomes: forecast as at 31.12.1995 (millions of Ecu)

Source:

European Commission, ‘General Report on the EU’s Activities 1995’, Brussels, Luxembourg, 1996

bond between the development of capitalism and the nation-state. Such a bond has characterised the last two hundred years of European history. The Treaty of the European Union (TEU) accentuates this evolutionary character, establishing a new transitional period within which to complete the European union. This very interlinkage has furthermore defined different growth paths for the different European countries, whose national institutions have been moulded out of their specific internal situations. In fact, within a mechanism of international trade the national economies confront each other essentially through the exchange of goods, thus leaving to one side the social and technical modes which characterise production within each individual state. The customs union is a policy mechanism for driving the redefinition of the economic relations among countries, which allows a country to open up to external trade while regulating the internal effects of this change; nevertheless, it is assumed that the association of two or more countries, united by the common interest of excluding a third country with more efficient production processes, avoids the integration of the production structures which would lead to a loss of the respective national identities. The internal institutions do not only remain unchanged, but in a certain


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sense they are reinforced in the determination of a principle of common centralised regulation within the respective national governments. Possible internal crises in the two countries reinforce this national character because the weak subjects of the two countries request protection from their national government against changes which have negative consequences for them. Therefore, if the creation of a customs union demands the removal of tariff barriers, an economic union demands the removal of non-tariff barriers, which nevertheless are none other than the institutional differences cumulated over time in the different countries. These elements appeared with great clarity in the internal evolution of the Community from the crisis of the seventies to the turnaround of the eighties. The transition to an economic union implies, then, a programme of harmonisation in the norms that regulate productive activity in the individual countries, in order to permit the organisation of production aimed at the Community’s internal market. The passage to an economic union implies not so much the transfer of productive activity from one country to another but a coherent reorganisation of production with a reorganisation of the extension of the market: the market becomes a single one, and production therefore reorganises itself within the territory of the economic union in reference to the market unified by the shared regulatory principle. The process of normative harmonisation can, nevertheless, be conducted in two different ways: by constitutional or by evolutionary means. In the constitutional mode, the member countries agree among themselves once and for all to define and apply new common norms that override and substitute national norms; a new central authority has to be established to manage the common rules and to guarantee the observance of the common norms. In the evolutionary mode, general procedures are agreed among member states to induce the member countries to interact among themselves so as to affirm and subsequently adjust new common rules, thereby leading to the reciprocal assimilation of the existing national norms into a new common norm. Article 100 of the Treaty of Rome referred to a constitutional mechanism. It affirmed: The Council, deciding unanimously on the proposal of the Commission, establishes directives aimed at the reconciliation of the legislative, regulatory and administrative dispositions of the member states which have a direct incidence on the institutions or on the functioning of the common market.’3 With the SEA comes the recognition that the previous phase, based exclusively on constitutional procedures, did not work: individual member countries resisted the normative integration, not only by using the right of veto in the areas of negotiation in which they felt weak, but also by not applying the actions defined at the Community level. It was then decided to render the ‘constitutional’ mechanism more rapid and effective, removing the unanimous vote and therefore taking away the right of veto, and moreover,

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permitting the Commission to assume a vastly ranging power of initiative, defining a precise picture of harmonisation directives, to which the member countries must adapt within the transition period which ended in 1992. Nevertheless, it appears evident that this action to reform the principle established by Article 100 is not sufficient. By eliminating the technical barriers among member states, the Commission introduced as a general principle of harmonisation the principle of mutual recognition. With the introduction of this principle to tackle the problem of horizontal integration, the procedural mode for integrating national institutions becomes more evolutionist. The Commission’s White Book on the completion of the internal market, prepared for the meeting of the European Council in Milan, 28–29 June 1985, states: ‘the Commission intends to design and implement its action, in general, no longer insisting on the concept of harmonisation, but rather on that of mutual recognition and of equivalence’ (EC 1985:7).4 The principle of mutual recognition signifies that a good, produced according to the laws of a member country, has free access to all the other member countries. This principle entered into the Community law with the noted ‘Cassis de Dijon Judgement’, discussed by the Court of Justice in 1978 (El-Agraa 1990:154), whose importance greatly surpassed the narrow realm of technical norms. Until the end of the seventies, the path of technical harmonisation of products and services was entrusted to the capacity of the Community bureaucracy to define European norms which had to be unanimously accepted by member countries. With the well-known judgement ‘Cassis de Dijon’ (Judgement of 20 February 1979, Rewe-zentral AG c. Bundesmonopolverwaltung für Branntwein—Judgement 120–78), the Court of Justice recognised that the German authorities could not prohibit the import from France of an alcoholic drink, of a gradation inferior to that usually admitted in Germany, if this drink is legally produced and sold in another member state of the Community. The SEA fully assumed this principle of mutual recognition, establishing that ‘the Council can decide that the norms enforced in a member country must be recognised as equivalent to those applicable in another’. The principle is applied to the technical standards placed on goods, but is extended to services, like banks and financial services, professional activities, etc. The importance of this approach, therefore, is that controls to verify the admissibility on the basis of national norms regarding consumer protection, or the environment, are no longer exercised at the point of entry into the national market, but are applied at the origin. This implies that in the single market products having different levels of quality compete with one another, and this results in the substitution of a spatial segmentation of the market with a qualitative segmentation of the market. The opportunity to have an efficient public organisation at national level which defines technical standards becomes a very powerful collective


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competitive advantage for the firms of that country, who can sell their goods on the single market, segmenting the market in their favour. A national organisation’s capacity to create particularly ‘good’ technical norms therefore becomes the instrument which activates an evolutionary process of technical standardisation at the Community level. Thus, countries which have a national industry capable of creating technical innovation paths and, through these, capable of a competitiveness no longer based on price but on quality, become substantially advantaged if they have public organisations capable of creating national norms compatible with the interests of national industry, specifying norms that in fact take on a certain prominence at the Community level. Those national firms which are not able systematically to innovate and to compete in terms of quality, and which do not have at their disposal efficient standard-setting authorities, are forced to follow the standards set by the more efficient countries. This establishes an evolutionary criterion which gives a competitive advantage to countries in which the public and the private are linked together in a more stable and efficient way in designing standards to safeguard their own interests within the context of the Common market. As far as services are concerned, the new approach is based on the recognition of quality control in the country of origin. This means that a delay in the reform of internal standards in a country as regards, for example, the behaviour of credit institutions can now be overcome, because banks from other member states, following their own national standards, are able to operate in the country in question. This leads, therefore, to a process of institutional competition. Such a process is based not only on competition among firms but also on competition among the rules which individual governments and local authorities prove themselves capable of establishing in order to favour the firms and actors which identify themselves and which participate in the process of defining standards. A link between public authorities and private interests is thus reestablished, albeit within the context of a Common market. Padoa Schioppa (1987), in the report that outlined ‘the strategy for the evolution of the economic system of the EC’, specified that ‘officially adopting the principle of reciprocal recognition suggested by the White Book, the Community achieved a very important change in its strategy of effective dismantling of the non-tariff barriers’. Moreover, in order to underline the institutional scope of this assumption of the principle of mutual recognition, the report adds: The White Book marks the passage from a monolithic conception of the process of integration, according to which the legislation and the national powers become fully substituted by Community powers, to a pluralistic conception, pragmatic and federalist, in which the national legislation will become not substituted but framed within a common view such as to ensure the respect of several minimum criteria selected by the Community’ (1987:110).

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The establishment of this principle of mutual recognition has been accompanied by the removal of the unanimous vote requirement for the majority of decisions which have a constitutional character. For instance, decisions concerning the introduction of minimum standards in the areas of security, health and environment; these set the minimum limits within which individual national legislatures may locate themselves.5 Thus, we can assume that the capacity of a country to assimilate Community directives, and to carry out a sort of institutional competition through the issuing of its own ameliorative norms, depends on the capacity of its internal productive and administrative apparatus to adjust itself rapidly to any proposed new standards. In any case, the laying down of general rules that are ratified by the Commission and the Council establishes the lower limits and creates an evolutionary process of institutional integration guided by the most efficient countries. Thus, there no longer exist powers of interdiction on the part of members who are slower in the adjustment process. As we have identified a new procedure for normative integration among member states, it is necessary to specify the means by which power relations among the different decision-making levels are defined. This allocation of functions cannot be given once and for all because of the evolutionary nature of the integration process. THE PRINCIPLE OF SUBSIDIARITY AND THE TREATY OF THE UNION Subsidiarity is the most abstract concept introduced in the recent political debate in Europe. As with the parallel principle of mutual recognition, subsidiarity was unknown in the previous Treaty of Rome; it emerges implicitly in the European Single Act (SEA), and becomes a central pillar of the constitutional definition of the Treaty of Maastricht. Subsidiarity has played the most important role in the two Community Summits at Birmingham and at Edinburgh, held to prepare the transition from the European Community (EC) to the Union (EU). The present definition of the basic principles of the new European Union emerged from those discussions stemming in turn from the previous experience of integration among European nation-states. Article B of the Common Provisions—Title I—of the Treaty of the European Union (TEU) expressly mentions that ‘the objectives of the Union shall be achieved as provided in this Treaty…while respecting the principle of subsidiarity’. This principle is implicitly defined—in Article 3B of Title II, ‘Treaty Establishing the European Community. Part One Principles’—as: ‘In areas which do not fall within its exclusive competence, the Community shall take action, in accordance with the principle of subsidiarity, only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community. Any action by the


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Community shall not go beyond what is necessary to achieve the objectives of this Treaty.’ This principle is used as a central concept of the new Treaty to establish the institutional level at which decisions concerning the development of the Community action must be managed. The Treaty mentions the European and the national levels, but, by extension, it also involves the regional and municipal levels. This concept tackles the core of the problem of the Union’s development, i.e., the problem of sovereignty, by specifying the nature and significance of the relationships among different levels of institutional bodies which have the power of representing political, economic, ethnic, religious, and cultural aspirations and interests, and in consequence the power to take decisions. This concept is, hence, a constituent principle for the Union and a powerful instrument for managing the relations among policy-makers. It has a juridical value, because no decision taken within and throughout the Union may contradict Article 3B of the Treaty. It is also a necessary principle, because though its application may not limit the power of the Commission, the Commission may not in turn take decisions on behalf of the national and regional governments, except in those areas which are explicitly listed as exclusively at the European level. Nevertheless, subsidiarity remains an ambiguous concept. It is applicable every time a potential conflict emerges among the Community and the national levels; it concerns the constitutional nature of the Union, and marks the difference between the new European Union and the previous European Economic Community. Therefore, in order to understand the role and significance of subsidiarity, we must analyse the details of European integration and of the institutional structure built for driving this process. We must look into the meaning of the parallel principle of mutual recognition and of the constitutional nature of the transition from the previous Economic Community to the present Union. As Padoa Schioppa (1988) points out, the principle of subsidiarity is added to the principle of reciprocal recognition. The two principles are strictly interdependent and it is impossible to understand the former properly if we do not understand the latter. Padoa Schioppa argues that subsidiarity means that ‘the highest levels of government must exert only the functions that ensure public goods that cannot be supplied efficiently by lower levels. The list of these goods must certainly include unlimited access of all suppliers to the common market, minimum standards of security and stability, a minimum of protection for consumers and investors. Consequently, the Community must intervene only when it is the only level of government capable of supplying public goods that are such for the entire area of the community’ (p. 111).6 In this restricted definition the principle of subsidiarity is not at all new. It was already clearly specified in Smith, just as it is firmly rooted in the freetrade tradition. For example, Smith recalled that the sovereign must guarantee

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external and internal defence, along with the public works that make communications possible; yet Smith himself also introduced references to the public regulation of innovation, through patents and copyrights, and certification of the quality of products, over and above the controls against attempts at monopolisation; Smith also asserted that education also had the characteristics of a public good (Smith 1976 [1776], Part IV, and V, I, 1, 689; V, I, 708; V, 1,723). Along these same lines Lord Robbins recalled that there exists a continuity in English free-trade thought, from Smith to Keynes, that allows the state functions of intervention that overcome specific individual interests in the collective interest.7 Under the unitary state, the extension of the activation and fruition of these public goods coincides with the area of extension of the sovereignty and authority of government; thus the nation-state affirms itself, extending common norms to the whole of its territory (on the basis of the exercise of its power of exclusive use of force), but also offering common services with the characteristics of public goods, such as defence or public order. On the other hand, the political specificity of the governmental authority and its collective legitimation depend on the variety of public goods that the governmental authority is able to guarantee its citizens.8 In a federal state, the central apparatus of the federation takes on the general tasks which not only exceed the individual citizen’s capacity of supply, but also that of the individual member states. This is the case of external defence, or of the issuing of a common currency to facilitate trade within the entire federal territory. The supply of public goods extended to the whole federal territory implies, however, the allocation of exclusive functions to the federal level rather than to the state level, such that even if hierarchical links between the federation and states (or a direct chain of command among different governmental levels) are not established, a functional division of tasks is created, with a complex division of the degrees of sovereignty of the different state and federal institutions. The specification of the existence of a principle of subsidiarity defined as such (let us say in the liberal sense) on the part of the Community institutions implies the definition of functions at the Community level, renewing the functionalist vision of a European Community having its own raison d’être, over and above the unitary ideals, in the need for public goods at a level that exceeds the individual nation-state.9 This principle is complementary to the preceding one of mutual recognition, since it is agreed that certain public goods go beyond specific local interests and thus coincide with a larger area of sovereignty, thereby finding in the Community institution the authority capable of activating the public good under consideration. Nevertheless, there is another reading of this principle which refers instead to the possibility that the higher authority substitutes the local one if the latter is unable to interact in the evolutionary process of normative definition.


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According to other authors this principle goes back to the tradition of. the social doctrine of the Church (Kapteyn 1991; Schaefer 1991). Kapteyn argues, for example, that the principle of subsidiarity is defined in the identification of a ‘sussidio’ that the central state presents to authorities at an inferior level to satisfy and sustain its initiative when these are not capable of acting autonomously.10 This formulation is found in the papal encyclicals and in particular in the Quadrigesimo Anno (1931) of Pius XI, and in later encyclicals (such as La Pacem in Terris (1983) and we believe also in the recent Centesimo Anno (1991)). In this conception there is undoubtedly a view of social organisation in which the state is seen as an organic body in which the single parts must be integrated in the whole, and thus the function of the centre is that of guaranteeing this integration, going as far as substituting for local governments in cases in which they are not able to participate autonomously in the whole. This principle had few followers in Great Britain and France where there existed a well-consolidated tradition of a unitary state, whose legitimation was consolidated by the workings of a central government. The major verification of this principle is found instead in the Constitution of the German Federal Republic, that is, of a state which, after the war, had to redefine the basis of its legitimacy beginning with the existence of a multiplicity of local states, in the explicit refusal of the centralisation of power which came about under the Reich of Bismarck and to an even greater extent under Hitler. The role it played in the definition of the German Basic Law and later in its practical application by Adenauer largely explains how this principle, inspired by the social doctrine of the Church, entered among the foundations of the new Federal Constitution.11 The central state intervened to guarantee the well-balanced development among the Länder, acting where the local authorities could not respond because of their institutional limitations or administrative weaknesses. This principle was linked in its German application with the Social Market Economy, derived from the ‘Ordöconomie’ that constitutes the German version of free-tradism. There resulted a general conception of the state founded on a principle of decisional decentralisation, but also of strong institutional intertwining among the different private and public subjects, with criteria of codetermination and of decisional complementarity. Above these subjects there is a central authority capable of intervening in cases where these mechanisms are not able to function in the general interest. This is thus a view strongly imbued with paternalism, but also gifted with an efficient capacity of control over a very homogeneous and structured, even if complex, society that can develop itself with its own internal norms, but in the realm of common rules supervised by a strong centre. Subsidiarity and reciprocal recognition are thus to be found in this view of Catholic derivation, but they are substantiated in the German reality. In the SEA the reference to the principle of subsidiarity is limited to Article 130R,

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which establishes that the Community may intervene in environmental subjects where the intervention makes more sense at the Community level than at the national or local levels. Nevertheless, Kapteyn notes that this principle was used extensively by Delors (who, while being a socialist, represents a Catholic constituency): this principle, which is sufficiently ambiguous to be able to attribute different motivations to the Commission’s actions, forms the basis for a strong push towards an evolution of institutional relationships within the EEC. Moreover, this new formulation brings together not only the traditional Federal-German formulation—remember that Germany is the only federal country in the EC—but also the recent push of the German Länder which are seeking greater autonomy from their own central government by activating direct connections with the Commission (Schaefer 1991:690). This new approach thus creates an alliance among the most dynamic institutions which are interested in forcing the internal equilibria through the institution of an evolutionary reform process. On the other hand, this approach is linked to the interests of big businesses, which can redefine their productive organisation within the entire territory of the Community but set up their operative centres where the local norms are most appropriate to their interests in terms of growth. Therefore, a connection among the interests of local and national institutions and the development of firms is recreated within a context which is nevertheless open with reference to the greater context of the Economic Union. Summing up, the matter of subsidiarity is not simply an issue of how much decentralisation is suitable for Europe but, rather, is directly connected to the nature of the evolutionary mechanism. In an evolutionary context, rules emerge from interaction, and the risk is that the weaker competitors continue to become weaker, because they are not capable of playing the same game as the stronger contenders. Subsidiarity means not only the decentralisation of decisions and, therefore, the activation of mechanisms of reciprocal recognition among the members of the Union playing at different levels, but also the creation at the highest institutional levels of the conditions necessary to enable the weaker members, whether nation-states or regional governments, to participate effectively in the collective game.

NOTES 1 The outline of resolutions of the Committee studies for the European Constitution, adopted by the Committee for the European Constitution in Brussels in November 1952, precisely detailed the functions of a government, of a parliament and of a judiciary power of the Community; thus the proposal for a draft Treaty concerning the Statute of the European Community, adopted by the Assembly ad hoc, in Strasbourg on 10 March 1953, anticipated many aspects of the subsequent Treaty (Bowie and Friedrich 1954). 2 Therefore, one may suppose that the governments indicate the possible commissioners, whose appointment must be confirmed by the governments of


3

4

5

6

7 8

9

10 11

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the member states according to unanimous procedure, since these must then act jointly in the interests of the Community as regards individual countries, or at least within the Commission in its relations with the Council. Despite this, there was the case of Lord Cockfield who was ‘not renewed’ by his government because he was too integrationist. Article 101 specifies that if a state does not adapt correctly and therefore maintains a normative disparity that distorts the intra-Community competition, the Commission must consult with that state with the end of removing this obstacle, and only if the consultation does not produce results, must the Council decide unanimously on the directives needed to resolve the situation. Furthermore it was added ‘Moreover, the commitment directed towards the coming together of the legislative, regulatory and administrative dispositions of the member states will not diminish, in accordance with Article 100 of the Treaty. Certainly, actions based on this Article would be more rapid and effective if the Council would agree not to allow the requirement of unanimity to block progress in the cases in which it is possible to find other solutions’ (EC 1985:7). Germany, France, Great Britain and Italy have 10 votes each, Spain has 8, Belgium, Greece, the Netherlands and Portugal 5, Denmark and Ireland 3, and Luxembourg 2. In order for a proposal to be approved it must have 45 votes in its favour, while 23 votes are required for establishing a minority veto with the power of blocking a proposal and therefore of reopening the discussion. It should be remembered that pure public goods have two crucial properties: the first is that the enjoyment of the benefits of public goods on the part of an additional individual does not cost anything; the second is that it is impossible to exclude a single individual from the use of the public good (Stiglitz 1988:119). Lord Robbins 1978:37–38. According to some conceptions the state must for example furnish only several minimum services such as to guarantee the validity of contracts between individuals, leaving then to individual citizens the liberty to activate or not relations of buying or selling of any good; according to other conceptions the state must instead guarantee a condition of well-being to all citizens, providing services to the collective and to individuals. This view reappears in the English federalist tradition, represented by Lord Lothian and by Lord Robbins himself, which argues that the creation of common interests, and the construction of common organisations able to respond to these needs, requires a European federation. Let us remember that in Latin ‘subsidium’ properly means to offer help in the case of personal need. It must be remembered that Adenauer’s power lay in the support of the Catholic party, in the institutional role of President of the Commission for the definition of the Grundgesetz, and then in the institutional role of the Chancellor.

5

Policies to create the single market

INTERNATIONAL LIBERALISATION OF THE ECONOMY AND STRUCTURAL ADJUSTMENT POLICIES By ‘economic union’, as was indicated in earlier chapters, we mean a grouping of nation-states which come together to establish a series of common rules by which to guide a process of economic integration. An economic union therefore implies, in its different forms, a political action which aims to guide a process of institutional transformation and thereby to shape the structural dynamics within and between the member countries. To capture the nature and direction of the structural transformations taking place within an open economy therefore requires a contextual analysis of the collective dynamics and institutional transformations, in other words, an analysis of the means for defining the collective rules which regulate the internal and external relations of the social groups which come to interact through the process of economic liberalisation. Furthermore, in European history, state and economy have mutually shaped each other, producing intricately linked political and economic institutions which are impossible to disentangle one from the other. Continental capitalism developed within the confines of nation-states, which soon proved too small. The result was that with the scope of national sovereignty being less than that of the market, all economic expansions inevitably turned into a conflict between states. Industrial policies designed to promote industrial development in Europe have historically been characterised by heavy state involvement, in the belief that the support of national production, either in the form of subsidies for local enterprises considered incapable of surviving foreign competition, or in the form of the creation of national champions, was the way to defend national interests within an international context. One of the basic premises of this policy was that the productive system was defined in national terms. Hence, the state should intervene both on the division of labour—either to safeguard the existing state of affairs, or to transform the existing organisational situation into a more concentrated organisational model—and on the extension or scope of the market. Commercial policies which either opened or closed the 68


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market, following a clearly defined set of criteria, were the tools to be employed. In any case, particularly where the size of the market was greater than the size of the state, it was generally accepted that the actions of the state should aim to reinforce the interests of the national subjects who identified with that state and who legitimised its actions, as against those of the subjects who bore allegiance to another flag. The traditional points of reference for such a policy were obviously the strong interventionist tradition in France, and, essentially in the wake of this tradition, the experience of Japan’s MITI (Ministry of Industry and International Trade); in other words, policies founded on strong centralised bureaucracies, capable of outlining industrial development paths, through the use of instruments of command (in the case of France) or through the provision of a strong moral influence as regards the behaviour of independent economic actors (in the case of Japan) (Stoffaes 1984). This ‘constructivistic’ type of industrial policy clearly left little room for competition policies, precisely because the state, at the bottom, was pushing for an internal monopolisation, in order to arrive at sufficiently large and efficient scales of production and thus to safeguard the posited national interests competing on the international markets (Neumann 1990). Equally, territorial considerations were absent from such a vision: constructivistic policies paid no attention to production relations existent at the local level, except in terms solely concerned with factor costs. Thus, the only means for carrying out a reorientation of production activities towards less developed areas was compensatory action implemented through specific incentives, in order to reduce plant and production management costs for an individual firm working in a backward geographical area. Under conditions of economic integration brought about through the use of common political regulatory instruments—for example, under an economic and customs union—a policy with such a ‘narrow’ perspective is unworkable. In fact, from the point of view of a customs union between two countries, as mentioned previously, it is clear that a process of regulated liberalisation and of common closure towards an external competitor leads to an evolution of the economic context which brings into question existing alliances internal to the countries, and at the same time allows new alliances to emerge and fosters new interdependent interests among producers in those countries. In the context of a customs union it is assumed that the institutions in both countries remain untouched by the process of commercial liberalisation. It is equally obvious, however, that the regulation of state actions in both countries soon becomes essential in order to ensure that such actions do not impede the process of internal adjustment in the name of protecting the interests of a particular group or creating explicit distortions harmful to another. It is difficult for this process of defining common rules of action to proceed

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without touching national institutions, precisely because it is the actions of these institutions which must be mutually limited. At the same time these institutions must attempt to ensure that the changes brought about by the union do not result in too extreme changes in the equilibrium between the different economic groups affected, or there is a risk that the potential ‘losers’ will come together in a regressive coalition solely intent on resisting the process of integration. Thus, as the case of the EC testifies, this politically crucial passage consists precisely in the identification of the modes of transition towards an economic integration, within which the political institutions of the two countries reach a level of mutual assimilation sufficient to render a break in the process more difficult. This, however, implies broaching the question of the role of the state within an open market and thus the extremely thorny question of the legitimation of the actions of a public authority capable of making collective choices in the name of the public interest, when ‘public interest’ in Europe has historically been identified with ‘national interest’. The EEC’s attempt to introduce a constructivistic type of industrial policy during the seventies failed, as did the policy of regulating all aspects of all productive activities, lengthily attempted in its agricultural policy. The relaunch of the process of European unification, initially by the Single European Act and then by the Maastricht Treaty has attempted to design, along evolutionary lines, a public policy approach which would favour industrial adjustment as directly linked to the creation of the economic union. Such a policy was defined through various documents produced during the late eighties. However, it is within the complex and even chaotic set of actions of the European Commission and of the member states that the new approach to industrial policy within an open market is to be found. Such an approach is significant beyond the confines of the EEC’s own experience, and certainly beyond the success of the Treaty approved at Maastricht. INCREASES IN MARKET EXTENSION AND STRUCTURAL ADJUSTMENT All Commission documents on industrial policy underline the primacy of the completion of the single market. With this in mind the first step is to remove internal tariff barriers. However, the problem posed by non-tariff barriers, which are in fact the result of the historical stratification of the various countries, and constitute a record of their capacity to resist integration, soon arises. From the classical perspective, increases in market extension, brought about through the elimination of barriers between already existing markets, force enterprises to reorganise their production in order to respond to the competitive requirements of the new market. Furthermore, by the same (and frequently invoked) Smithian token, a larger market renders possible the


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development of specialisations, in particular aspects and areas of production, and the identification of other complementary producers. Thus, an increase in market size increases both the degree of specialisation of individual firms and their competitiveness, with favourable consequences for the collective group. The consequences of a transition from a customs union to an economic union cannot, however, be so easily taken for granted. On the one hand, such a transition could merely represent a regressive coalition aimed at guaranteeing the protection of individuals, who erect a spiders’ web of mutual vetoes; alternatively, the transition can represent an active instrument for guiding structural changes, easing the formation of progressive coalitions, and thus enabling the rapid attainment of a situation of complete liberalisation. Thus, the transition from a customs union to an economic union can be characterised by the fact that under a customs union, the institutional and productive dynamics are taken to be guaranteed within the framework made up of nation-states and the various agreements between them, whereas under an economic union the assumption is that the system of production as a whole can be reformed and hence that the institutional dynamics must be redesigned jointly by those concerned. In reality the transition is much more complex. As Ricardo (1817) explains, the lack of capital mobility, postulated by international trade theory, is based on the convergence of the interests of both nation-states and of national capitalism, such that the creation of an economic union cannot be considered merely a ‘technical’ event to be sustained through administrative measures which remove non-tariff barriers, just as a customs union removes tariff barriers. Non-tariff barriers are institutional barriers, which require the effective harmonisation of historically different aggregation rules. This in turn requires the establishment, within the new institutional framework, of the conditions necessary for an effective pluralism of subjects each endowed with equal capacities for interaction and equal rights to voice their opinions, i.e., to protest. As indicated earlier, therefore, when common policies are geared towards directing the integration process, they must be capable of acting ‘from the top down’ as macro policies designed to force the convergence of ‘constitutive’ rules and to guarantee their enactability. In contrast they must also be able to act ‘from the bottom up’ as micro policies designed to re-create the capabilities which are essential to ensure that individual rights to participate in the collective game are effective rights: capabilities which concern the formation of new productive aggregations, founded on complementary specialisations and supported by progressive coalitions capable of sustaining the proposed structural and institutional changes. The actual creation of an economic union implies not so much the complete removal of institutional barriers (which have been important not just for the movement of goods but especially for the movement of capital, services and persons) but rather the redefinition of the collective rules for common action,

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with the inherent guarantee against free riders and against barriers preventing qualified new subjects from entering the game. Nevertheless, the Commission’s primary concern in drawing up the White Paper leading up to the Single European Act was to stress that even a full implementation of the customs union had yet to be reached. In fact, whereas tariff barriers were removed in the sixties, by the eighties the movement of goods was not yet considered satisfactory, and thus the ‘Costs of the nonEurope’ (i.e., the extra costs resulting from the persistence of non-tariff barriers impeding the free movement of goods and leading to a loss of social welfare) became an important issue for discussion. These limitations increasingly came to be considered a consequence not only of differences in technical regulations and administrative and customs obstacles, but also of differences in the role played by nationstates in defining their own level of demand or in taxing essentially the same activities. The study of the static and dynamic effects of the removal of these institutional limitations has been defined as The Economics of 1992’, in order to underline the fact that the study concentrated on aspects other than those covered in a traditional study of the effects of a customs union, already extensively dealt with in the existing literature (Emerson et al. 1988; Cecchini 1988). This approach, strongly influenced by Owen (1983) and assuming the existence of significant technical economies of scale across a large number of sectors, concluded that the economies which would follow from the removal of non-tariff barriers would result in an increase in firms’ productive efficiency and hence in an increase in advantages for consumers. In fact there exists a vast literature, ranging from the classic works of Sylos Labini (1956), Bain (1956) and Modigliani (1958), and reaching up to the present day, which demonstrates how firms themselves tend to grow not so much in order to achieve optimal technical scale efficiencies as to put into action strategies to fill the market and thus to block the entry of new competitors. It has further been demonstrated that this type of strategic action is possible even in the case of differentiated products, using tools such as advertising and the continual introduction of new products on the market (Schmalensee 1978). In fact, as has also been shown, such action can result in a firm overexpanding its own unrecoverable fixed costs, precisely in order to emphasise to potential new entrants the credibility of the threat it poses as the dominant firm (Eaton and Lipsey 1979). It follows that in a large market, that is, in a market which is greater than the size required by sector-specific optimal scale efficiencies, and further which is open towards the outside, a firm can behave in a monopolistic fashion and expand in size up to the point where the efficient entry of new competitors is impeded (Milgrom and Roberts 1982; Sutton 1991). In this case an antitrust authority which has jurisdiction over the whole of the single market must intervene in order to oversee the behaviour of individual firms. It must also


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guarantee market conditions which permit effective competition among operators to take place, allowing new competitors to enter the market and preventing operations to increase concentration resulting in restrictions in the competitive arena. An alternative approach is linked to the theory developed by Baumol, Panzar and Willig (1984), which instead holds that, in the presence of a dominant incumbent, and provided a new entrant can enter and leave the market without costs, potential competition regulates the behaviour of the firms within the market even in the absence of effective competition amongst operators. In this view, it is not an antitrust authority which is required but rather an effective opening of the market to make possible the entry and exit of more efficient external operators each time internal prices show a tendency to rise. In other words, a unilateral liberalisation of international trade is an efficient substitute for an antitrust policy, provided fixed investments are recoverable. None the less, a customs union tends to be carried out precisely in order to regulate relationships between the ‘inside’ and the ‘outside’ of the market, in other words in order to allow ‘internal’ firms to reorganise themselves with respect to ‘external’ firms, by assumption considered to be more efficient. This means that under a customs union the hypothesis of a perfectly accessible market which supports a process of self-regulation characteristic of the theory of the contestable market no longer applies. This leads to a renewed need for reinforcing the degree of antitrust control over the process of concentration arising out of the removal of residual intra-Community barriers; alternatively, external trade barriers must be removed, allowing more efficient competitors to enter and thus to act as a measure of control over internal operators. To do so, though, would remove one of the principal justifications for economic union. Even a classic reading, however, allows for a different interpretation. Smith underlined the fact that the division of labour is limited by the extent of the market and thus that increasing the realisable volume of income alters the very organisation of production. This means that when the size of the market is increased, there is not only a concentration effect, but also a reorganisation of production effect, so that in order to control the market it is no longer necessary to exercise control over all of the many activities which make up a single cycle of production; it is enough to exercise control over the activities which hold the key to controlling the cycle. Therefore, even in this case, an action of liberalising the internal market, within the context of an economic union, requires a careful antitrust supervision in order to avoid the creation of monopolist conditions regarding those key activities for the cycle. This perspective is especially relevant if, for example, reorganisational effects are generated such that certain firms concentrate their activities on the productive phases and others on the phases upstream and downstream from production. Under these conditions it would

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be possible for a firm to control, for example, both advertising and distribution, creating an unfair pressure on producers denied direct access to the final market. Besides, a competition policy cannot confine itself to a liberalisation of the internal market and to an antitrust watchdog function, but must also seek to encourage the entry of new firms; if these firms are not to be ‘external’ to the Community, then the Community must facilitate the ‘internal’ birth and development of new firms, protecting their growth from potential deterrent actions carried out by operators already present in the market. In this sense, it is clear that the completion of the internal market, to be carried out through the removal of internal institutional barriers between countries, must be accompanied by measures to guarantee the efficiency of the competitive process, in order to prevent the trend towards concentration from becoming a trend towards monopolisation. A policy designed to support not so much individual new firms, as clusters of new firms, which acting as a whole may be able to move into the market, may have two objectives: first, to permit less advantaged nations to participate in the game; and second, to create transnational progressive coalitions interested in forcing through institutional change in order to break up regressive coalitions based on the maintenance of national identifications. In other words, an effective increase in the size of the market implies not just the elimination of institutional and tariff barriers, but also the guarantee of the social diversity which the institution of the market embodies. This implies, on the one hand, competition policies to deter the formation of monopolies and, on the other hand, active policies which, through the encouragement of structural adjustment and innovation, enable the largest possible number of competitors to participate in the collective game. THE REMOVAL OF INSTITUTIONAL BARRIERS AND NATIONAL DIVERSITY The analysis of the ‘costs of the non-Europe’ emphasised how the very circulation of goods continued to be impeded by the existence of institutional barriers linked to the survival of various features: national technical standards; administrative obstacles to exchange and obstacles at the borders; different regulations for transport; disparities in fiscal matters; disparities in the regulation of capital and financial markets; and finally, disparities in the application of Community law (Emerson et al. 1988; Cecchini 1988). All of these obstacles meant that the situation within the Community was very heterogeneous, with the result that the very mobility of physical goods was threatened, leaving protected spaces within which monopolistic activity remained possible. In addition public procurement activities organised by both central and local administrations were not transparent, so that the vast


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area of demand directly managed by the state remained segmented along national boundaries. These shortcomings were even more serious when it came to the exchange of services and the free movement of persons, and in particular of persons employed in professions regulated at the national level. Professionals such as lawyers, notaries, doctors, architects and engineers, for example, though they may offer their services privately none the less do so on the basis of an official recognition which comes from having passed a specific examination or having registered with a professional association. These differences from country to country are further exacerbated by differences in the organisation of the relevant study paths. All of these limits to free movement are difficult to remove because they reflect genuine differences in social organisation, themselves reflecting the different national identities of states. The transition towards more complex forms of economic integration thus provides an impetus towards finding ways of reaggregating interests over and above the national organisation of administrations and over and above the national identification of production. With this objective, as mentioned earlier, the economic crisis of the seventies and early eighties, which required a dramatic reorganisation of the various structures of production, actually provided the opportunity for redesigning the very basis of the model of industrial command within the various national contexts. France and Germany, for example, adopted different but essentially convergent approaches aimed at the creation of a stable nucleus from a network of the main firms and banks, thus stabilising the institutional relations governing the economy in the face of possible future political and economic changes which could alter the overall European picture (Hayward 1995). If by ‘institutions’, therefore, we understand not only public administrations but rather the whole complex of norms and regulations which govern a country’s economic and social life, significant institutional diversity continues to exist within Europe. In fact, if by ‘institutional context’ we understand the set of written and especially unwritten rules which link together public administrations, large firms, associations and specific organisations, then there is no doubt that within Europe there continues to be substantial diversity in the institutional contexts of the different countries. These various contexts also differ in the degree to which they are capable of opening up and coopting or assimilating foreign subjects, or the degree to which they are able to reject influences deemed undesirable, and can thus command different degrees of credibility in pursuing a path towards convergence with other systems. Thus, a crucial element for the creation of a single market, but also for the creation of effective economic and political union, is provided precisely by the possibility of reaching an integrated institutional context, within which national institutions—i.e., institutions developed within nationally specific and often contradictory contexts—may either:

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1 dissolve themselves into a new institutional framework, within which the old aggregations can no longer be identified, or 2 coexist, with each nation opting for a set of internal norms which complement achievements in the other states, so that a mutual integration of regulations, which none the less preserves the identity of each, becomes possible. The Single European Act de facto chooses the second of these two options. The aftermath of the Maastricht Treaty has shown the difficulties inherent even in this second option, due to the fact that it requires an effective complementarity in the paths adopted towards institutional convergence. For example, in order to reach a unitary context for the market, it is necessary to overcome physical barriers among states, in other words to eliminate customs barriers along internal borders. This however implies that the controls on entry into the various countries must be replaced by controls at the point of origin or controls on process. In other words, external controls among countries must be internalised by a common authority, or must be carried out by local agents acting in the name of the collective. In the case of sanitary or public safety measures, for instance, the controls normally carried out along the Community’s internal borders can only be removed if alternative common control measures have been established. These in fact lead to the setting up of a single police body or to the establishment of close working links between the police forces of the individual member states. The political significance of these actions therefore goes well beyond narrowly economic factors, and a quantitative estimate of the savings resulting from the removal of physical barriers is thus important in reducing the political impact generated by the ensuing ‘forced’ co-operation between national authorities operating within the Community context. Similarly, the free movement of persons and in particular of freelance professionals cannot be based solely upon a formal recognition of the equivalence of different educational qualifications: such formal recognition is meaningless and discrimination will continue to occur against degrees awarded by universities from ‘marginal’ countries unless the equal value of different university qualifications in terms of the professional preparation they confer is borne out in practice. Thus, to the formal declaration of equivalence among different university degrees must be added an effective convergence among different study paths, requiring a greater degree of didactic interchangeability to be brought about through the creation of channels of communication among the individual curricula. This is provided for in a number of Community programmes designed to create networks of universities, enabling the exchange of both students and teachers, but most of all providing incentives for the institutions from different countries to work together. This complex of policies, which we will call ‘networking’, will be examined in the chapter on industrial, structural and innovation policies.


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The removal of institutional barriers is not just a technical issue regarding the elimination of queues at frontier posts. It is also extremely relevant from a political perspective because it has consequences for the balance between political and economic organisation. Therefore, in order to be implemented it requires the involvement of identity and protection aspects relevant at the national level. Thus, the delays in the enforcement of Community directives have not just been the result of political laziness on the part of governments, but also of objective differences in the administrative management of countries with different institutional backgrounds. Germany, for example, has had the capacity to react rapidly because its administrative system is based on a highly decentralised model in which the centre is small and has subsidiary functions. Italy, by contrast, has a highly centralised administrative system, based moreover on the principle of co-ordination, which requires highly complicated joint actions within the context of cumbersome administrative machinery. Beyond these differences, however, lies an economic and social fabric historically organised according to varying degrees of state involvement; in Italy, for instance, the state is heavily involved, with public bodies covering all sectors of collective action. The resistance to integration may then be seen as deriving from varying degrees of state opposition to the denationalisation of the economy. The removal of tariff barriers thus lays bare the numerous differences which exist among European states and regions. The institutional differences become even starker once the process of European integration makes clear the need to move beyond nation-states. The crisis of the nationstate opens up a space at the local level, within which local administrations, as subjects of the integration process, may also have a role. These local bodies, however, having long been submitted to a process of forced homogenisation within the national state, need to promote their individual identities and to differentiate themselves from other localisms, if they are to play an active and independent role. Throughout Europe, therefore, the elimination of fiscal barriers (both tariff and non-tariff) between the different member states has led to an explosion of localisms in search of new identities, giving rise to new institutional barriers, to ‘frontiers’ which define the European map. In this sense, the ‘new frontier’ of the integration process implies not so much the elimination of historical, cultural and sometimes ethnic differences, long dormant and maybe also repressed, as the reassessment of the value of these differences, aimed at rendering them mutually compatible. There is ample room for subsidiary action by the EU and by member states in this direction. Such action should aim to bring forth simultaneously both the characteristics of local self-identification and the conditions for unity among the different parts and components of states and the Union. This search for local identities can serve to overcome the institutional barriers created by nation-states, but must also contribute to the identification of

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common principles in order to enable the self-conscious interaction of a multiplicity of different subjects within a wider federalist-oriented context. FISCAL HARMONISATION, PUBLIC PROCUREMENT AND COMPETITION AMONG DIFFERENT AREAS If the creation of a single market implies the establishment of a transparent and homogeneous institutional context, then an initial set of actions must include not only the elimination of physical barriers, but also a harmonisation of those fiscal and regulatory barriers which differentiate one country from another. The regulations covering the levying of taxes, both direct and indirect, together with the establishment of special fiscal measures for activities strongly regulated by the state, the so-called excise duties, are the result of a centuries-long process of stratification, which is nothing other than the explicit expression, within each country, of the relationship between state and citizen. The regulations which cover the levying of taxes on consumption, such as the income tax levied on individual persons and firms, are instruments adopted by national governments not just to control state income and thus the government’s budget, but also to redistribute income among citizens (Tables 5.l and 5.2). Fiscal harmonisation measures are thus extremely complex operations whose impact on society goes far beyond a simple technical harmonisation of tax bands. This explains why apparently simple measures require time Table 5.1

Principal characteristics of VAT in EC member states (1990)

Sources: European Commission, ‘General Reports’, Brussels; OECD, Revenue Statistics of OECD Member Countries, 1992


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and consensus-building and why their implementation is carried out within the framework of overcoming the limitations of the nation-state. The problems relating to the elimination of excise duties are equally complex. From earliest times states have reserved for themselves the right to trade in certain goods, arranging for their sale either directly or through exclusive franchises, subject to public licences for the sale of such goods. Clear examples of these goods are salt, tobacco, alcohol and petrol. These sectors have gradually evolved over time and the elimination of the excise duties thus implies a change in the regulation of such goods, and therefore also in the regulations which, at the local level, cover the consumption of goods which, for varying reasons, are considered to be particularly harmful or dangerous or strategic. One specific context for action in order to arrive at a market which, if not unitary, is at least strongly integrated, is that generated by public demand. Keynes (1936) demonstrated how an economic system can be in equilibrium and still have underemployment, and further be unable to move out of such a position autonomously, i.e., by relying exclusively on market forces. To emerge from such a situation the state must be capable of sparking off an autonomous demand for goods, in order to generate autonomous goods and rents which would not otherwise be produced. In such a Keynesian scenario there is a substantial identification between the extension of the government’s authority and the extension of the economic relations over which to intervene; in other words, the economy in question coincides with a country and the public authority is its national government. The more open the economy of the country being considered, the greater the Table 5.2

Sources:

Main characteristics of company tax in EC member countries

IRS, Fiscal Observatory (March 1993); Horwath International, International Tax Handbook, 1993; OECD, Revenue Statistics of OECD Member Countries, 1992

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possible benefits from a publicly induced expansion in domestic demand in the form of a growth in income and investment, which will only partially be able to expand aggregate demand in that country. On the other hand, the government’s capacity to expand demand within the country has historically created a link between the king and his champion, creating a web of interests with profound effects on the country’s constitutional base. This is especially true in the case of small countries where public demand thus leads to under-efficient supply conditions. Besides, in a context such as that in Europe, within which the extension of the market is greater than that of the national authority, a strong public demand for non-public goods has allowed national firms to reach an optimal minimal scale, and subsequently to operate competitively within the international context. The narrow link between public demand and national production is easily illustrated in the following figures: at the time of the Single European Act, public procurement accounted for 9 per cent of Community GNP, or 15 per cent when public service suppliers were taken into account; only 2 per cent of public procurement was supplied by foreign firms (Emerson et al. 1988). The 1971 regulation, which provided for a gradual opening up of public procurement on a European level, in practice had little effect on this last figure. The directive of 1988, which came into force on 1 January 1989, has provided an impetus towards increasing this percentage, but has not been able in the short term to create a single market for public procurement. This has largely been the result of a continued tendency to favour continuity in operations, often in relation to specific techniques and means of implementation diversified on a national or sub-national basis for that very purpose. In order to simplify and codify the vast set of Community rules on procurement, in 1993 the Commission approved six regulations relating to public procurement and to procurement in certain special sectors, including water, energy, transport and telecommunications (directives 93/36/EEC, 93/ 37/EEC, and 93/38/EEC of June 1993). The Commission’s intention in approving these directives was to establish principles of transparency for tenders and to create an effective competition among firms taking part in tenders. Thus, the notions and terms to be used in tenders are clearly laid down, together with the rules covering information, and those covering exclusion from tenders. Despite this attempt to achieve greater clarity— launched moreover through directives, and not through regulations—there exist significant problems with the way these developments have been implemented by national governments, who continue to maintain that public works are a tool for local development, and that they must therefore be largely assigned to national firms. According to Vanni D’Archirafi (1994), Commissioner for Industry up until 1994, national states tend not to respect the deadlines fixed for enacting the directives, and further tend to define non-transparent and confusing national procedures, as well as fiscal, industrial or social measures which


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are in contrast to the Community directives, and which above all disorient foreign operators, reducing the effective integration of the various national markets. On the other hand, this tendency towards the creation of a European market with an effectively harmonised fiscal context contrasts with a different tendency which is necessarily and increasingly making itself felt in Europe. The federalist-inspired path towards integration implies a decentralisation of administrative decisions, which entrusts both public expenditure for services directly used by the public and the collection of taxes to the administrative layer closest to the citizen (CEPR 1993). This new emphasis on fiscal federalism implies that individual local communities are now empowered to use taxation as a means of characterising themselves, by choosing to provide certain services or alternatively by reducing the tax burden borne by their own citizens. This should result in a new and more complex pattern of territorial units based on the attitudes of individual local authorities. This pattern, moreover, tends to be enhanced by the desire of local authorities to lower taxes in order to attract new enterprises or to support local entrepreneurial activities. The result is a kind of fiscal competition, which once again tends to favour those local contexts with the most means and best structure from the administrative point of view. In this way, a sort of ‘fiscal externality’ is generated which, since it inherently favours some regions, should be offset by transfers between regions in order to avoid a growth in disparities over time and a reduction in the capacity of the weakest to participate in the overall collective game. Even in this case, the unification of the market is a far more complex matter than the simple bringing into line of tariffs, tax bands and excise duties. It focuses attention on the central question of finding the most desirable relation, within a federal framework, between the centralisation and decentralisation of decision-making, and between the homogenisation of local contexts and their diversification. THE POLITICAL ECONOMY OF TECHNICAL STANDARDS Within the context of the creation of an effective common market among the member states of the Community, the harmonisation of technical standards governing the quality of products has taken on a fundamental importance; so much so, in fact, that one survey of European producers indicated how the principal non-tariff barrier to the international exchange of goods consisted precisely of the immense variety of national technical regulations (Emerson 1988; Cecchini 1988). The term ‘technical standard’ generally includes the end-results of two types of regulatory activities concerning the quality of products: 1 the activities of public bodies which aim at the production of cogent ‘technical regulations’;

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2 the subsequent activity of private organisations aimed at the formulation of consensual technical ‘standards’. The setting of technical regulations is generally based on the ordinary legal framework of the individual countries concerned; what changes from country to country is the relationship between the legislature and the executive. In fact, given the technical complexity and the evolutionary character of these regulations, what happens is that the legislature sets down the general guidelines and objectives for the regulations, leaving to the the executive the task of formulating specific regulations covering different groups of goods, together with that of adapting these regulations over time to technological changes. The compulsory nature of technical regulations is ensured through certification procedures which guarantee uniformity among products and in some cases among the processes required for producing goods capable of meeting the standards set by law. The standards for these processes are themselves generally defined on the basis of the product performance (homologation). At the international level, the EU itself is a source of technical standards, through the joint application of Articles 100 and 30. Similarly, bilateral or multilateral agreements setting common technical standards have also been reached through GATT. The role of international organisations, such as the United Nations Economic Commission for Europe (UNECE), is to promote the setting of international standards, which they do by agreeing recommendations. At the national level, the standards themselves are set by organisations made up of firms for the purposes of ‘standardisation’, i.e., for the specification of the qualitative characteristics of products; these organisations are usually associations set up under private law, financed through rights of association and through the sale of services such as the provision of official quality seals. Within the international arena, the national standards institutes (for example the ISO, International Organisation for Standardisation) come together within organisations operating at the continental or global level. These larger organisations tend to extend the compatibility among national standards. The regulatory process thus involves both private and public actors, and the economic role of this activity emerges precisely from the interaction between the two. What is the economic impact of the definition of technical standards governing the quality of products? First of all we can say that the standards can be qualified in terms of what it is that is regulated, and the goal for which it is regulated (David 1986a, 1986b). The former includes the following: • design standards, which specify the design characteristics of the goods; • performance standards, which specify the results of the products.


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These standards, following the classification suggested by David (1986a), may have several purposes: • standards for reference and definition, which are used to make explicit the product’s qualitative characteristics; • standards for minimal admissible attributes, which set some minimum parameters which the product must meet in order to be acceptable; • standards for interface compatibility, which set down those technical characteristics which enable parts of products or complementary products to work together correctly, even when produced by different firms. From the government authorities’ point of view, therefore, the goals behind the setting of standards are public goals, in the sense that the standards specify functional requirements and the outcome of a productive process, and set parameters governing product characteristics in order to protect the health of users, the environment and safety in general. The setting of a ‘technical regulation’ forces producers to establish and, in certain cases, to guarantee a specific quality level for their own goods, facilitating the development of price competition for a given quality standard. Furthermore, the enforcement of compatibility standards breaks up possible monopolies of producers of complementary goods. On the other hand, the specification of a ‘standard’ by a private standardsetting organisation ensures that certified and guaranteed products meet specific quality requirements, and is thus in the interests of producers wishing to convince consumers that, given equal prices, their products are of superior quality. What, therefore, is the overall result of standardisation? First of all there is a static effect. Within a closed context, i.e., within the context of an individual country, the adoption of a technical standard results in the reduction or, better still, the setting down of limits for the range of possible variation among goods in direct competition with one another. This leads to an overall homogenisation which allows for greater economies of scale in the production of final goods and of components. It also reduces transaction costs through the establishment of common parameters for negotiation, allowing moreover a decrease in the risk associated with asymmetries in the information held by buyers and sellers (Kindlerberger 1983). The establishment of compatibility standards, furthermore, enables the creation of network externalities, i.e., allows the individual producer to make products which are complementary with those already in circulation, knowing that an interface with the other products is guaranteed (Katz and Shapiro 1985). However, within an open context, i.e., within the context of international trade, the existence of different national technical standards can constitute a barrier to the entry of operators not capable of meeting such standards. The effect of this is exactly similar to that of the imposition of a tariff barrier and, in some cases, of quantitative restrictions on imports.

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In fact, the existence in the country to which one wishes to export of technical standards different from those in force in the country of origin can imply, for the producer, a fractionalisation of the production process (i.e., the establishment of a line of products exclusively intended for the country with the different standard), with a negative impact on economies of scale. This clearly implies a competitive disadvantage with respect to local producers, who are instead able to concentrate the whole of their production on the internal market. Similarly, where standards differ from country to country there is an increase in transaction costs, inasmuch as the operator must consider, in the course of a hypothetical negotiation, a range of individually codified variables. Finally, if the standard in force in a country differs from that in the operator’s national context, the sale of complementary goods on the foreign market is ruled out, or at least requires a greater expenditure on special features by the producer. The second overall result of standardisation is a very important dynamic effect. An appropriate regulatory process can in fact ‘pull’ and ‘guide’ technological innovation processes within national firms. There can be the risk of limiting technical development, by constraining it within a particular ‘path’ (David 1986b). Nevertheless, the fact that technological development can depend on past administrative decisions constitutes a relevant barrier in international trade, because if products sold in different countries are regulated by historically different ‘rules’, so that products are effectively grounded in different technological development paths, conversion or compatibility among different systems becomes more difficult. This in turn complicates matters for the individual operator who wishes to be present simultaneously in different markets. National governments and national producers thus have a common interest in establishing a system of technical regulations which permits an internal standardisation of products along the lines guaranteed by producers themselves, and yet different from those adhered to by potential foreign entrants. Thus the two activities of public regulation and private ‘standardisation’ may converge and, over time, establish a kind of path-dependent technological development, based on administrative choices ratified by the public administration. It follows that countries with a broader and more consolidated regulatory system, i.e., one which explicitly declares producers’ technological preferences, and in which the ties between the public regulatory process and private standardisation process are close (for example, a system based on a set of framework regulations which are then applied and enforced through private organisations) has a significant comparative advantage with respect to countries in which individual producers are solely responsible for defining their products. In this scenario, there is no national standard to which potential new foreign entrants to the market must conform, whereas national producers are faced with exporting to countries in which the quality standards are fixed both by the government and by other operators. There is, however, the risk that the setting of national standards becomes a trap for local producers themselves, if the internal market is too small to


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allow the development of adequate economies of scale and if, simultaneously, there is an inadequate guidance of the process of technological development. In this case the danger is that the growth (in terms of either scale or technological innovation) of national firms will be blocked, the results being similar to those arising out of any other kind of protectionist action. Should trade subsequently be liberalised, for example as a result of political changes which preclude the continuation of protectionist economic policies, or simply as a result of foreign producers being able to supply goods with the required characteristics, national producers would find themselves deprived of a substantial proportion of their competitive advantage. NATIONAL SYSTEMS OF TECHNICAL REGULATION AND THE PRINCIPLE OF RECIPROCAL RECOGNITION The definition of technical regulations by the public administration and of technical standards by private organisations has the economic consequence of segmenting the market according to different technical qualities of the product, subject to the government’s authority, on which the public administration depends and which firms recognise. Inside a single regulated segment there can be cost advantages from a more efficient use of internal economic resources, from a reduction in transaction costs, and from the generation of positive externalities. Among the different segments subject to different regulations, however, these advantages turn into disadvantages, making entry into the segment in question more onerous. If the qualitative regulation is on a per-country basis, these increased demands take on the characteristics of non-tariff barriers. It follows that the means by which such regulations are arrived at has been considered extremely relevant, politically, by national governments, all the more so the greater the intensity of commercial relations among states. In Germany there are rules drawn up to guarantee health and safety standards in the work-place, which specify the technical characteristics of the capital machinery. An independent association, set up under government pressure, and which specifies the standards most appropriate to the correct functioning of industry, has existed since 1911. More recently, the whole matter was completely redefined by the law of 24 June 1968, which lays down the procedures for determining safety regulations for technical appliances. Under this law, only goods which comply with so-called ‘generally recognised rules of the art’ as well as with general prescriptions on safety in the work-place and on safety of end-use may be sold within the Federal Republic. The general requirements are laid down by the competent ministerial authorities, but the ‘generally recognised rules of the art’ are in fact those certified by the Deutsches Institut für Normung, the DIN, a private association which co-ordinates sectoral standard-setting committees. In other words in Germany the state has long been responsible for laying down the general principles, but a private association is in charge of implementing these

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principles on a product-by-product basis, granting quality certifications only to those goods which have been found by independent laboratories to comply with the requirements. In this scenario there is a kind of self-regulation by producers themselves, which is possible in a country in which the various guilds have developed, over the centuries, into the very core of modern economic society. In France, by contrast, the regulatory bodies are the Commissariat for Standardisation, AFNOR (French Association for Normalisation, established in 1926) and the sectoral standards bureaux; the relationships between the various bodies was established by a new statute which came into force on 26 January 1984. The general directives are laid down by the Ministry for Industry, which oversees the functioning of the regulatory system and ensures that the standards laid down are enforced. AFNOR and the bureaux establish the standards, inform their members of requirements, and ensure these are met. There is none the less clear public leadership in setting the overall direction of the regulatory process, in line with the French tradition of a strong presence of the technical administration in the economic life of the country. In Great Britain, the regulatory process was reviewed by the government in 1982, with the drafting of a wide-ranging White Paper (1982). It provided for a close collaboration between the government and the British Standards Institution (BSI) in the definition of national standards aimed at enabling British firms to adapt to the conditions of the global market. The government’s priority indeed was to reorientate national firms from a system of standards defined within the context of the Commonwealth (the so-called Imperial System) towards the system of international standards, in order to avert the danger of becoming trapped within a system of technical definitions different from that in force in the targeted export markets, at a time when the internal market was too small to guarantee an adequate development of industry. In order to promote by every means possible the diffusion of the new standards, the British government undertook to adopt them in defining public procurement contracts. It also ensured that its civil servants were present on BSI committees in order to facilitate rapid communications between the Department of Trade, responsible for laying down the general guidelines, and the BSI itself. In Italy the earliest regulations in this field date back to Decree no. 82 of 1 March 1945, which constitutes the main link between the compulsory technical regulations and the more consensual norms. The task of refining the norms was assigned to the National Research Council (CNR), in collaboration with the various competent administrations (Ministries of Industry, Health, Transport, Public Works, etc.) with an interest in the technical regulation in question. The CNR is further responsible for drawing up conventions with private associations such as the UNI (National Italian Unification Organisation, established in 1921) and the CEI (Italian Electronic Committee, established in 1907) in order to enable these to define specific


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technical standards in line with the guidelines laid down by the ministries. In practice, each administration produces its own directives regarding safety, the environment, health, etc. and the two private organisations, which are far smaller than their German, French and British counterparts, must adapt their own standards to take account of the new technical regulations. This leaves the CNR with a very awkward role, and the CNR has indeed faced great difficulties in co-ordinating the public and private sources of regulations. Law no. 186 of 1 March 1968, establishes that electric and electronic goods must be a regola d’arte, taking the CEI regulations as a point of reference, and therefore following the German example. The four national systems therefore differ in the extent and type of interrelations existent among the compulsory technical regulations produced by public authorities and the consensual technical standards defined by private organisations; these differences are the product of ancient traditions regarding the organisation of the state and of civil society. In France a tradition of an efficient public administration has structured a mechanism which assigns the task of laying down general regulations to a state organisation, namely the Ministry of Industry, and the task of implementing these to a subsidiary body, the Commissariat for Standardisation. The role of the AFNOR therefore unfolds within a clear institutional framework; compulsory rules and consensual standards are worked out within a ‘vertical’ continuum encompassing the Ministry, the Commissariat, AFNOR, sectoral bureaux and firms, and are guaranteed by the public administration’s efficiency. In the Federal Republic, by contrast, it is the private association which provides the main point of reference. In structuring itself as a club representing entrepreneurial interests it guarantees the constant redefinition and improvement of quality levels; furthermore, it does this in a way which is coherent with the workings of national industry, within a ‘horizontal’ continuum which encompasses consumers’ associations, producers’ associations, laboratories and experimental centres, and which the public authority limits itself to overseeing, recognising the public interest involved. In Great Britain the Department of Trade and Industry acknowledges its own role in encouraging the transformation of firms, while also giving the role of their standard-setting organisation official recognition. In Italy, on the other hand, there persists a large number of actors responsible for producing technical regulations. At the same time, the two bodies responsible for laying down detailed standards suffer from a structural weakness, due to limited membership and consequently to limited availability of funds. It follows that the four systems, set down here as an example of the variety of institutional forms which combine the public and the private, are efficient to varying degrees in protecting national interests. The process of integration at the European level when there are such different national characteristics can take place either by going beyond these national systems and replacing

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them with a European standard-setting body to which the national bodies are hierarchically subservient, or by means of a mutual recognition of the regulatory output of the various national systems. The first option has proved to be very difficult in practice. The abolition of differences in the framing and application of national technical regulations and standards is in fact provided for under Article 100 of the Treaty of Rome, which establishes that the Council, acting unanimously, shall lay down directives aimed at the convergence of legislative, administrative and regulatory measures adopted by member states and which impact directly on the establishment and functioning of the common market. Moreover, this article should be read in conjunction with Articles 30–36, which prohibit restrictive import measures, or any other measures with an equivalent effect. However, the question was not effectively put to the test until the Court of Justice’s frequently-cited ruling on the case regarding Cassis de Dijon (20 February 1979, no. 120/78). Following this ruling, the Commission sent a written communication to member states, the Parliament and the Council giving its views as to the interpretation of ‘measures with an equivalent effect’ to restrictions on exchanges, establishing that technical standards, even if applied to both national and imported products, cannot constitute an obstacle to exchange. In other words, it was allowed that ‘any good legally produced and sold within a member state must, as a general rule, be permitted onto the market of every other member state’. As previously mentioned, this interpretation implied a significant change in the interpretation of Article 100. A slow and complex harmonisation procedure has thus been replaced by a practice which tends to lead to general directives being laid down at the Community level, and to national organisations being left to establish the specific technical standards. This represents a complete acceptance of the German institutional model. The new approach, based on compulsory actions establishing only general requirements, and on the delegation of criteria of implementation to consensual standards, had already been applied in the Cremonini-Vrankovich ruling (case 815/79). This ruling reinterpreted Directive 73/23 of 19 February 1973, the so-called ‘law-voltage’ directive, which merely established the general safety objectives to be attained and left to national authorities the laying down of detailed rules. The White Paper and the Single European Act took this approach fully on board and generalised it, such that the result at present is a sort of institutional competition at the Community level which leads to a definition of the coexistence of the various standards, with a consequent segmenting of the single market into separate quality levels, guaranteed by their respective standard-setting bodies. In this context countries such as Germany and France, which have at their disposal coherent systems for ensuring communication among collective and private interests, are able to lay down technological development plans, with


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which the individual producers from countries which lack an adequate national standard-setting system must in fact comply. An evolutionary mechanism for defining technical standards is thus established, whereby the progressive adjustments carried out by a central authority are replaced by the interaction among the different subjects, with the acknowledged dominance of the subject strongest in institutional and in productive terms. To conclude, the introduction of technical standards and of certification procedures has a significant effect on the market: it segments the market as between goods of a recognised, standard quality and goods of unidentified quality. It follows that there is also a significant dynamic effect, because the introduction of certification by one group of producers displaces all other competitiors to the quality tier below. The introduction of such a system also makes a significant contribution to defending consumer rights, since it allows for a clear definition of responsibilities and thus provides guarantees not just for the user but also for the producer, who is then able to set up a relationship with the consumer built on trust. From the productive point of view, the introduction of a certification system has extremely relevant effects, because, as experience shows, one can begin with the certification of minimum quality standards expressed in terms of product performance, and then move further up the production chain to reorganise the whole production process with the goal of improving quality. This makes possible, for example, a different relationship with suppliers, building up an effective network of producer relationships based on ‘quality’. This case reaffirms the fact that the overcoming of institutional differences created by nation-states does not lead to a division-free market; instead, the old differentiations are replaced by new fault-lines in the market and, more generally, in the economic and social structure. Also in this case, the mechanism of mutual recognition bears witness to the need for actions based on the principle of subsidiarity, in order to avoid centralised actions being replaced by a decentralised but similarly narrowly based decisionmaking system. The actions for the creation of a single market thus reveal the complexity of the concept of the market as institution. A first approach, which reduced ‘the costs of a non-Europe’ to the existence of physical barriers or of apparently technical features, has gradually given way to the conviction that institutional differences are inherent within the context of a large market, precisely because this market is the result of numerous and perpetually evolving and integrating elements. The principle of subsidiarity in this case implies acting so that local attempts at self-identification do not result in the end in regressive coalitions whose objective is to defend themselves from outside threats, refusing any drawing of comparisons, but is instead a conscious attempt to become more integrated in a wider context precisely because the individual identities are well established.

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In this sense the most mature result of the actions aimed at creating a single market is reaped when the concept of integration as a forced homogenisation of differences (themselves arising out of the history of the individual European states) is overcome, making way instead for a concept of integration based on the complementarity of the different parts. In this multiple game of interaction among the various institutional levels and among the numerous public and private actors, it becomes none the less essential to emphasise the importance of guaranteeing that the rules of the game are kept to by all. Within the economic arena this task is entrusted to competition policies.

6

Policies to guarantee and promote market competition

COMMON RULES ON INTRA-COMMUNITY COMPETITION Rules on competition occupy an absolutely central position in the formulation of the Treaty, and are in fact to be found among the body of common rules which, within the context of the Community’s policies, are considered necessary for the creation of a common market. Indeed, Community rules on competition result more from a functional need—the creation of the common market—than from the need to safeguard competition within the individual states, as was usually the case with the rules of the individual nation-states (Moavero Milanesi 1993). Community rules on competition are found in the Treaty under the third part, Title III, first sub-heading, which is divided into three sections and establishes the common rules aimed at guaranteeing an integrated economic space and is applicable to both firms and governments. The first section comprises Articles 85 to 90 and concerns the rules to be applied to competition, and to their modes of implementation. Articles 85 and 86 respectively contain the provisions against restrictive agreements and those against the abuse of the dominant position. Article 87 delegates to the Council the task of establishing the detailed rules for the implementation of the previous chapters. Articles 88 and 89 refer to the respective powers of the Commission and of national bodies. Article 90 deals with public actions which may constitute restrictions on competition. The second section, contained in Article 91, concerns intra-Community dumping actions. Finally, the third section deals with public subsidies, treating them as factors which can distort competition. The rules to be applied to relations between firms in order to prevent individual or collusive actions aimed at monopolising the market are thus to be found in the first section, and in particular in Articles 85 and 86. The third section establishes the rules covering states, to prevent actions by national states in support of national firms from turning into an illicit advantage for those firms, thereby distorting the competition process. The relevance of these policies thus arises from the belief that the establishment of common rules for firms and governments is crucial in ensuring 91

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the enactment of the concept of the common market formulated in the Treaty of Rome and amended by the Single European Act and the Treaty of Maastricht. This Community discipline has evolved within a European context in which member states have none the less made use of their own individual institutions, so that there have been conflicts—particularly as regards concentration—which only recently appear to have been overcome by EEC Regulation no. 4064 of 21 December 1989. The scope of the application of the Community rules therefore covers either the actions of single firms or government interventions which cause a change in intra-Community trade, and instead leaves to national authorities the task of dealing with restrictive actions at the strictly local level. Moreover, certain special sectors are removed from the scope of these general regulations, and are instead covered by specific Community regulations or agreements. Public interventions designed to promote competition in fact cover a wide spectrum of actions, which strike at the heart of the relationship between public authorities, firms and citizens. This is of particular relevance in Europe, where the single national markets have traditionally been considered so small as to induce governments to favour internal concentration in order to produce national firms capable of competing efficiently on the European market. On the other hand, the very completion of the internal market requires a careful tutelage of the market in order to ensure that the search for conditions of individual efficiency does not lead to restrictive practices and concentration of production, which are harmful to the overall efficiency of the market and of the political system. COLLUSION AND RESTRICTIVE PRACTICES Article 85 consists of three paragraphs, which respectively lay down the following provisions: 1 concerted actions aimed at stifling competition are prohibited; 2 restrictive agreements are declared invalid; 3 exemptions to the above provisions are defined. Article 85(1) in particular establishes that all agreements among firms, as well as decisions taken by associations, and concerted actions which may have the effect of altering competition among member states and which aim to or effectively prevent, restrict or distort competition are incompatible with the single market. The following in particular are prohibited: • the direct or indirect setting of buying or selling prices or the imposition of any other type of condition to the exchange of goods; • the setting of limits or controlling of the production of technical development or of investments;

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• the setting of quotas for shares of the market or of resources; • the imposition of different conditions of sale for identical transactions; • the imposition of additional clauses which are unrelated to the subject of a commercial contract. These prohibitions are applied in cases where the implicated firms have all provided for the same type of restrictions, and the restriction has either been applied within the context of the common market or the intention thus to apply it exists, and the restrictions imply a restriction in trade between member states. In any case, in order to apply this Article it must be shown that at least two firms have been acting in a concerted fashion. In actual fact the text introduces a very general expression, undertaking, which covers a wide spectrum of entrepreneurial actors, ranging from individual firms to associations of firms and to large companies, regardless of the functions they fulfil, of their nationality or of the public or private nature of their activities. Indeed Article 90(1) establishes that public sector firms are also covered by Community rules on competition. The interpretations laid down in several court judgements and opinions have emphasised that Article 85 explicitly prohibits agreements between firms if such agreements restrict competition, in other words, if they reduce the independent decision-making capacities of competitors. Thus, for example, the agreements which bind together a firm and its agents lie outside the scope of application because the agents are not considered autonomous in relation to the firm itself (Bael and Bellis 1987). Similarly in the judgement in the case of Christiani v. Nielsen, which involved a Danish firm and its Dutch affiliate, the application of Article 85 to cases involving relationships between consociate firms was excluded, if such firms—while being legally autonomous—do not also enjoy independent decision-making. It was also established that the agreement considered to be restrictive need not have the form of a legal contract. It is sufficient for one of the parties deliberately to constrain its decision-making freedom with respect to the actions of the other (Franco-Japanese ballbearings agreement, 1974, L. 343/19). In ACF Chemiefarma v. Commission (1970, ECR 661) and in Polypropylene (Official Journal of EC 1986, 230/1) it was laid down that the agreement need not be written down or provide for official sanctions; in other words, it may also be a ‘gentleman’s agreement’ involving actors within the same or successive production phases. The rule is also applicable in cases where associations establish restrictions to competition, regardless of the form taken by the association (Milchförderungsfonds, Official Journal of EC 1985, L. 35/35). Article 85 further applies to vaguer forms of agreements or associations, and thus also prohibits concerted action in addition to formally or informally agreed actions among competitors. In the Dyestuffs and Sugar cases, the Court explicitly laid down the concepts of co-ordination and co-operation in the definition of concerted action practices, insisting on the independence

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with which an individual firm takes and implements decisions. In these two test cases, as in the Pioner case (REF 213), the Court has shown how concerted action has arisen out of the exchange of information and parallel actions which together have resulted in non-independent market behaviour which restricts competition. These restrictions, however, are due to the lead taken by government authorities, which in actual fact induces concerted behaviour among national firms. The Commission has broached the issue of the compatibility of such actions with the provisions of Article 85 in a number of different cases (Franco—Japanese ballbearings agreement, Aluminium, Zinc producer group), establishing that explicit interventions by government authorities are outside the scope of the provisions of Article 85, but are however covered by subsequent provisions which deal with distortions generated by state aids. Implicit acceptance or tolerance of restrictive practices on the part of public authorities do not however exclude the application of Article 85. In any case, Article 85 applies both to the effects and to potential competitors, in other words to cases where two or more firms limit their activities in not introducing new products (ACF Chemiefarma and Rockwell Iveco, 1983, L. 224/19). Moreover, the Commission and the Court have also concerned themselves with cases of non-price competition and with the definition of ‘relevant market’ in order to effectively define the cases in which non-independent behaviour which is restrictive of competition can be said to have taken place. This Community rule applies to interstate trade. It does not apply to the principalities of Andorra and Monaco, to the Republic of San Marino, to the Vatican City, to the Faeroe Islands and to Greenland (which belong to Denmark), to the Channel Islands and the Isle of Man, but does however apply to the French Overseas Departments, to the Atlantic islands belonging to Portugal, and to Spain and Gibraltar. Despite having repeatedly stated that the criterion is not sufficiently developed, the Court has in the Grundig case upheld the principle that the Community rule does not apply if the restrictions do not impact on trade among member states, since this latter sphere of action falls to national legislatures. Similarly, it has been further clarified that Article 85 applies where the effects on competition are significant (Volk v. Vervaercke). The second paragraph of Article 85 sets down that any agreement or practice which violates Article 85(1) is thereby automatically rendered null and void. However, this sanction is not applicable to cases for which an exemption is provided in the third paragraph of Article 85. The Commission may in fact grant an exemption of the prohibitions outlined above in cases where the agreement among firms can result in improvements in either production or distribution efficiency and/or promote technological progress, and where such improvements are in large part transferred to consumers. The exemption may be granted only if there is no other means for obtaining these positive results and only if the actions do not result in an elimination of competition in a substantial part of the market.


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Subsequent Commission regulations have specified exemptable cases in relation to the benefits which may accrue from the exemption. The clauses regarding the crucial importance of the benefits to consumers, the indispensable nature of the restrictions and the survival of substantial competition have been specified for different cases, emphasising the broad discretionary powers introduced by the Commission in dealing with individual cases, and in particular where local social or industrial policies are involved. For example, exemptions have in broad measure been granted in the case of agreements (often explicit) designed to deal with structural overcapacity, as in the case of the synthetic fibres sector. Exemptions have also been recognised for categories of agreements which comply with the prescribed conditions. THE ABUSE OF THE DOMINANT POSITION Article 86 introduces a prohibition on the abuse of the dominant market position; however, before identifying cases where such a position has been abused, it is necessary to identify the ‘relevant market’. The Continental Can case has laid down, among other things, the need for finding a definition of ‘relevant market’ before Article 86 can be correctly applied (Decision Continental Can Official Journal of EC, no. 7, 8 January 1972:25). The criterion adopted is that of the reasonable interchangeability of goods, measured in terms of the related elasticities of the goods offered by different firms. Up until 1987, Court rulings had found only thirteen cases of relevant markets (all of them clearly specified and described in detail) within which possible conditions for abuse could be identified (Bael and Bellis 1987:242). In spatial terms, the abuse must concern a ‘substantial part’ of the common market. However, even in this case the Commission has preserved for itself considerable room for the exercise of discretion in defining the precise meaning of ‘a substantial part of the common market’. In some cases it has interpreted this in a restrictive sense, in others far more loosely. In actual fact, the definition is generally taken to apply to cases which involve a territory which must at least be greater than that of one member state. The definition of ‘abuse’ was proposed in the ruling on the United Brands case as involving a position of economic power enjoyed by a particular firm, such that it is able to prevent effective competition, acting independently of competitors, suppliers and consumers. Even in this case, however, the Court has subsequently defined the content of such power in ways which differ significantly, depending on the type of dominant position being examined: in the case of Hoffman-La-Roche market shares ranging from 93 per cent to 65 per cent were considered to involve abuse, whereas in the case of Michelin these shares decreased from 65 per cent to 57 per cent. In other cases, shares of below 50 per cent have been considered as insufficient for establishing the existence of abuse (see United Brands). Shares of between 20 and 40 per cent are rarely considered for the application of Article 86; even in these cases,

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however, the definition of the market in terms of product has been extremely restrictive. The proof of the existence of abuse is further an extremely complex process. The reasons for the absence of effective and potential competitors must be established: the dominant position could result from inequalities in efficiency or from barriers erected specifically for the purpose of deterring new entrants (moreover, it is quite possible for such barriers to be set up without overtly incorrect actions in regard of individual adversaries). This however leads to circular reasoning, as in the Michelin case, where it was declared that for a dominant position to be abusive, it must have been established on the basis of abusive actions. In this case too, the Community rule is applied only where there has been a distortion in trade among member states, leaving to national authorities the task of regulating abuses whose impact does not spill across national boundaries. Nevertheless, the HoffmanLa-Roche case demonstrates that even local abuses can have repercussions at the Community level, if the abuse in question in some way segments the common market, thereby introducing conditions for the restriction of effective competition. In the Commercial Solvent case, which was based on the refusal to furnish the Zoja firm with raw materials, it was held that the abuse did not impact on the common market as Zoja exported 90 per cent of its final product outside the Community. However, the Court rejected this position, on the grounds that cases of indirect as well as direct harm to consumers should be prosecuted, thus reaffirming the general principle which rejects actions nullifying the independence of the decisions and behaviour of individual competitors. Even if Articles 85 and 86 refer to different issues, it was laid down in the previously mentioned Continental Can ruling (1973, ECR 215) that the two articles must be read together and consistently with Articles 2 and 3 of the Treaty, thereby underlining the functional character of the tutelage of competition in the construction and defence of the common market. However, in the United States the application of monopoly rules proves far more difficult than the application of the provisions regulating agreements. While in the case of collusive agreements it is possible to identify an event which in itself constitutes an infraction of the rules, in the second case it is necessary to evaluate the behaviour of an individual actor in relation to the overall functioning of the market, which implies defining the relevant market and the monopolistic scope of an entrepreneurial action. This cannot be done by looking at prices alone: it is also necessary to look at investments carried out, at growth projections, and more generally at the sectoral development model within the context of a global market which once again reaches beyond the scope of national authority. The road chosen by the Community—at least as far as the approval of the regulation on industrial concentration—is different in this sense from the traditional American approach which condemns any monopolistic action per se (Section 2 of the Sherman Antitrust Act, 1890). The Community in principle


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allows dominant positions to be constructed, while acting against abuses of that position, thus seeking to isolate specific events which represent a distortion in the relationships between individual actors, or, more precisely, which represent a specific constraint on the freedom of one operator as a result of the behaviour of another. Such coercion is considered all the more relevant if it constrains intra-Community exchanges and thus poses an obstacle to the free movement of goods within the common market. Although the Single European Act did not amend Articles 85 and 86, the White Paper presented to the Council by the Commission emphasises the absolute necessity of relaunching competition policy as an instrument first for furthering the complete creation of the single internal market, and second for preventing the single market, once all types of national barriers are removed, from being broken up through measures taken by firms acting in agreement with one another and with their respective national governments in order to establish a local dominance. On the other hand, the very nature of the relaunching of the process of European integration, based as it has been on a principle of economic efficiency, provides an incentive for agreements to be reached among firms and for industrial concentration to take place. These can be justified and indeed supported if the aim is to obtain greater efficiency, but should be ruled out if they become an obstacle to competition. In this sense, the most significant result of the relaunch of the Community in the field of competition policy has been the approval of a regulation on industrial concentration and of the related relaunch of the ‘Guardian of the Treaty’ function attributed to the Commission in relation to both firms and national governments. THE REGULATION OF INDUSTRIAL CONCENTRATION While the Treaty which set up the European Coal and Steel Communities (ECSC) explicitly provided for controls on industrial concentration in the coal and steel sectors, the Treaty which establishes the European Economic Community does not deal with the subject of industrial concentration. Such a silence cannot be considered accidental; in reality the Treaty contains provisions, such as Article 220, which favour the amalgamation of firms within the different member states. As a result of this omission in the Treaty a debate has developed within the Commission regarding the possibility, nevertheless, of setting up measures to control mergers and acquisitions on the basis of existing provisions. This resulted in 1966 in the drafting of a memorandum representing the views of the Commission on the question of industrial concentration. This view expresses doubts on the possibility of using Article 85, seeing Article 86 as a more reasonable alternative, albeit underlining the need to agree a regulation setting down the criteria to be employed in this area. In 1971 the Commission officially adopted this approach, applying Article 86 on the issue of industrial concentration in the case of Continental Can. This American firm, occupying a leading

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position in the packaging sector, acquired, through a company under its control, a competitor with a strong position on the Dutch market and which was further operating under licence to it. The recourse to the principle of abuse of dominant position in a case dealing with industrial concentration is none the less difficult in practice, since in order to prove that an abuse has taken place it is necessary first of all to define the market within which dominance is being exercised. The concept of a ‘relevant market’ has subsequently been subject to definition, the outcome being that by ‘relevant market’ is meant the narrowest product-based market compartment (in other words a good for which no direct substitutes exist). In the subsequent Philip Morris (1984) case, the Court of Justice allowed recourse to Article 85, also in cases of minority acquisitions of firms on the part of a company which none the less is able to impose common commercial policies on the two firms. At the same time, the Commission has put forward initial proposals for regulations which have been repeatedly amended and resubmitted and have finally resulted in the approval as Regulation 4064/89 of a draft proposed by Commissioner Sutherland (Moavero Milanesi 1993:106). The Regulation is based on the premise that the Treaty states that freedom of competition is one of its goals, and as an instrument to be used to promote a smooth and balanced economic development. It also considers that the completion of the single market provided for in the Single European Act requires a reorganisation of industrial activities, and that this in turn presupposes a dynamic view of competition. The objective is therefore to ensure that industrial concentration, not in itself an evil, does not lead in specific cases to a curtailment of competition (Preamble to the Regulation). Article 1 establishes that the Regulation applies to operations on a Community-wide scale. This is a new concept in Community law and refers to the size of the firms involved. In other words, it is laid down that only operations involving large firms whose activities are on the level of the common market are of interest to the Community authorities. The dimensional threshold for firms is set down on the basis of three principles: ‘the global turnover of all the firms involved must be greater than 5 billion Ecu and the individual turnover within the Community of at least two of the firms involved must be greater than 250 million Ecu’. A third negative condition is also laid down: for each of the firms involved, the proportion of turnover realised within a single member state should not exceed two-thirds of the total. A clear relationship is thus set up between interventions carried out at the Community and national levels, thus avoiding the so-called ‘double barrier’ risk—that an intervention carried out in the first instance by a national authority may eventually be overtaken by an action taken at the Community level.


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Thus defined, the concept of a ‘Community dimension’ replaces that of ‘prejudice to trade among member states’, thereby constituting an innovation in Community law which establishes the framework for a coexistence between national and Community rules, and gives the Commission specific powers over operations which establish positions of economic dominance within the single market. Having established that the Regulation is the only regulatory mechanism applicable to industrial concentration operations (Article 22, para. 1), the text of the regulation goes on to establish that firms must inform the Commission of an agreement within a week of its being reached. The Commission then assesses whether the operation is compatible with the principles of the common market, and drafts an opinion which is binding. Should the operation be found to be incompatible, the opinion may require the operation to be dissolved or may impose financial sanctions. Industrial concentration operations which ‘create or reinforce a dominant position, from which it emerges that effective competition is significantly constrained within the common market or a relevant part of it’ are thus deemed to be ‘incompatible’ with the common market itself. This implies an important qualitative leap in the new regulation: it is no longer the abuse of the dominant position which is targeted, but the creation and reinforcement of a dominant position, regardless of the nature of the actions on which such a position is based. This introduces de facto a substantial innovation with respect to the Treaty of Rome where it was not the dominant position in itself, but its abuse which was condemned (Moavero Milanesi 1993:114). This new emphasis on concentration creates a contradiction to the Treaty of Rome’s principles, repeated in the Preamble of the Regulation, which states that the affirmation of a dominant position through concentration is not in itself a bad thing (per se rule). The Commission’s role as ‘Guardian of the Treaty’ is thus enhanced by means of a regulation which greatly adds to the contents of the Treaty itself. The role of a sort of Antitrust High Authority, which already existed under the ECSC, is in some sense revived, in a form which unites the functions of initiator, executor and watchdog (EC 1994a). It should be noted that the introduction of the new Regulation on industrial concentration introduces substantial changes to the Community’s competition policy. As has occurred in the United States and in actual fact in every other national legislation, having targeted abusive actions, such as the stipulation of a cartel agreement or the proven existence of a restriction on trade imposed by a dominant firm on another company, the regulation of competition moves on to target operations which in themselves can alter the functioning of the market. As all history of antitrust policies teaches us, restrictive practices have always been prosecuted, because it was easy to identify a particular action which constrained the rights of an individual, who, in order to protect himself appealed to the law. This is in contrast to the case of the establishment of a dominant position by an individual firm which, though it does not overtly

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carry out abuses, by its very presence none the less affects economic activities within a particular sector. Traditionally, it is more difficult to have recourse to the law in such cases, because there is no single offence to prosecute; rather, a ruling must be reached on the basis of the overall goals pursued by the state authorities. If the extension of the market exceeds the state’s area of administrative sovereignty, market competition in general tends to turn into a competition between countries and in such cases national governments will act in support of their national firms, ensuring them a dominant position within the local market in exchange for their defence of the national interest on the international market. The very creation of a customs union leads to this kind of solution because, once internal markets can no longer be protected through the imposition of tariff barriers, it becomes advantageous to encourage national firms to become more concentrated in order to build up the strength necessary for facing their adversaries who identify with other governments directly. National champions are thus re-created through industrial policies which support internal industrial restructuring or which favour concentration among national firms. There is therefore a clear political exchange between government and firm, which is at the very heart of industrial and competition policies. The interventions in the field of industrial concentration are justified when it is deemed that a particular operation leads to monopolisation conditions: the firm is capable of constraining the behaviour of the competitors and of the customers. However, it is very difficult to establish the threshold beyond which monopolising actions are no longer acceptable: once again, the solution depends on identifying an event which can in itself be assumed to imply the establishment of an unacceptable degree of market power. This event is a merger or an acquisition, which leads to the establishment of the power of a firm or of a person or group of different actors, thereby reducing the pluralistic nature of the market. The state’s watchdog role thus implies the explicit exercise of discretion, for example in laying down a size threshold to define the limits to collective tolerance of reductions in societal pluralism. Clearly such a discretional action implies a series of judgements which become more complex the murkier the market’s boundaries (in product and spatial terms). In the United States, for example, industrial concentration aspects are excluded from the definition of the Sherman Antitrust Act (1890), which in its first and second sections respectively targeted cartels and monopolisations as prosecutable offences. The very outlawing of external accords, however, resulted in a wave of concentrations, which in turn led to the approval of the Clayton Act (1914) and of the Federal Trade Act (1914). These set up the physical structures of the control authorities and gave life to a public authority with a watchdog role. Section 7 of the Clayton Act, long considered ambiguous, was only amended and reinforced in 1950 with the Celler Kefauver Act, and only in 1976 was the obligation to give prior notice of industrial concentration operations introduced by the Hart, Scott,


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Rodino Antitrust Improvement Act. The Guidelines provided by the administration have been repeatedly amended, until by the 1980s no one was observing them. During this time the public antitrust authority was managed by personalities narrowly observant of the Chicago School, which favours a reduction in all aspects of public influence on the market (Briggs and Calkins 1987). Within the Community, the Regulation on industrial concentration thus offers a series of instruments which should permit a degree of control within the Community context over possible monopolisations. None the less, the protracted debate over the appropriateness of Community legislation in the field of mergers and acquisitions and of the approval of Regulation 4064/89 has had the not inconsiderable effect of inducing member sates to de facto harmonise national behaviour in the field of industrial concentrations, so much so in fact that Italy, for example, has rapidly approved its own piece of national legislation in the field, setting up a High Authority as guarantor of competition and of the market (law of 10 October 1990, no. 287) (Bianchi and Gualtieri 1993:42) (Table 6.1).

Table 6.1

Breakdown of takeover activities (including mergers) involving European firms for the 1987–1995 period, by geographical area (index 1987=100)

a Activities involving firms from within the same member state b Activities involving firms from two different member states c Activities for which the purchasing firm comes from within the community, and the takenover firm comes from outside the community d Activities for which the purchasing firm comes from outside the community, and the takenover firm from within the community Source: Elaboration by Nomisma from AMDATA

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THE DEVELOPMENT OF COMPETITION POLICY AFTER MAASTRICHT Following the signing of the Treaty of Maastricht, the development of competition policy has been strongly influenced by two factors. First of all there is a contextual element: the expansive economic cycle which had accompanied the first phase of the implementation of the single market has given way to a recessionary cycle, which has accentuated conflicts over competition. At the same time, the number of mergers and acquisitions has been drastically reduced, as has the number of joint ventures characteristic of the first phase. The second relevant factor has been the development of the debate on subsidiarity, which in terms of competition policy has meant that the ‘dossiers must be dealt with at the most appropriate level’, and thus the Commission is therefore in favour of a decentralised application of competition law which, in allowing member states’ institutions to resolve those cases which have essentially national effects, enables the Commission to concentrate on those issues which can only be regulated at the European level (EC 1993a, para. 1, chap. 1). In this way a ‘one-stop-shopping’ situation has been created, based on the unambiguous designation of a single competent body for each case, such that conflicts between the Commission and national authorities are avoided precisely through the application of the abovementioned principle of subsidiarity. In the Steetly/Tarmac case the Commission agreed for the first time to a partial restoration of the case to national authorities because the markets concerned and the implications of the operation were clearly limited to a part of the territory of one of the member states. Another significant aspect is the attention paid by the Commission not only to the static but also to the dynamic effects of a merger. The Mannesmann/Hoech case is relevant here, as one in which the Commission accepted the merger in question, despite the fact that it resulted in a dominant position on the German market, because it was assumed that the position of dominance would be transient given that the advent of the single market is unlikely to leave the local position unchanged. In the Nestlé/Perrier case, the Commission has adopted an innovative stance regarding the dominant position, insofar as it has held that the survival of competition can be endangered not just by the creation of a dominant position by a single firm, but also by a dominant position enjoyed by two or more firms. In this case the Commission took on an active role, allowing agreements and exchanges between two companies which effectively dominated the mineral water sector, but requiring nevertheless that the two companies cede a part of their activities to a third operator in order to prevent a strong duopoly from coming into being. Finally the Commission has paid much attention to the demonopolisation and development of competition processes in the public


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services sector, which has traditionally been managed by public-sector firms (EC 1993a, chap. V). COMMUNITY RULES ON STATE AIDS The implementation of the Single European Act implies not just the full tutelage of the market by means of the completion of the single market and of the vigilance exercised against restrictions on trade introduced by individual firms, but implies also the realisation of actions designed to prevent governments from making distortionary interventions. The Commission has explicitly reinforced its own watchdog functions regarding states in order to prevent national policies in support of firms from causing distortions in the single market, in contravention of Articles 92 to 94 of the Treaty. Article 92 prohibits all types of state aid which favour certain firms or modes of production, and thus distort or threaten to distort competition, or impact on exchanges between member states. The second paragraph of the same article, however, introduces explicit derogations, declaring all social aids granted to single consumers as compatible, provided that they are nondiscriminatory with regard to the origin of products. Also allowed are aids designed to counter natural disasters or exceptional events, as well as the aids which the Federal Republic provides to those regions affected by the division of Germany. Moreover, the third paragraph declares that aids aimed at the development of less-favoured regions may be compatible with the provisions of the Treaty, as can be common projects which aim to remedy a serious disturbance in the economy of a member state, or to permit the development of certain economic activities or regions. Finally, other types of aid may be declared compatible following a vote of the Council on a proposal made by the Commission. We are therefore dealing with very vague formulations which leave a lot of latitude for assessing the actions of individual national governments and for the Commission to exercise discretion in assessing the acceptability of the various national regimes. Article 93 confers significant watchdog powers on the Commission. The Commission, together with member states, proceeds to the examination of existing aid regimes (para. 1). Member states are further required to inform the Commission of the aid programmes which they intend to implement, following which the Commission initiates the process of verifying their compatibility. Finally, the member state may not implement its proposed measures before the above-mentioned procedure has reached its end (para. 3). The Commission may suggest amendments to actual or proposed programmes, require the presentation of comments, and declare the aid incompatible (and thus require the member state concerned either to eliminate or reform the aid regime). Should the state not comply with the requirement, the Commission may have recourse to the Court of Justice (para. 2). On the basis of that same paragraph 2, however, the state itself may appeal to the

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Council for a derogation, automatically obtaining a suspension of the measure. Should the Council not express its opinion on the matter within the subsequent three months, the Commission may go ahead with its decision. Article 94 defines the conditions under which the Council may consider drafts of implementing regulations proposed by the Commission, and in particular the procedures for dealing with a possible conflict of views, as outlined in Article 93. It also defines the different categories of aid granted. In applying the Treaty, the Commission has therefore progressively defined the criteria for assessing the acceptability of particular aids: 1 the aids must be placed within the overall framework of a Community system, national interests alone not being sufficient for justifying an aid; 2 the aid must be indispensable, such that the programme in question cannot be implemented without it; 3 the importance and form of the aid must be proportional to the objective to be reached through the application of the aid. The main categories of permissible aid concern: • • • •

aids with a regional goal; aids with a sectoral objective; general aids; aids for research and development.

Aids with a regional objective have been carefully regulated: Article 92 in fact allows aids aimed at favouring the economic development of regions with an abnormally low standard of living, or with a serious form of underemployment (para. 3). The Commission has further refined the criteria for permissibility in a number of communications (23 June 1975; 26 February 1975; 21 December 1978). Three different levels of incentives have been identified, allowing up to 75 per cent financing of initial investments in less-favoured areas. Furthermore, criteria have been laid down for ensuring transparency (i.e., the specific identification of the subsidised investment), and for ensuring regionally specific aids (i.e., the application of different aid regimes according to the effective differences in the development of the targeted areas). Finally, the sectoral impact of the aid must be communicated to the Commission, and co-ordination procedures with Community authorities must be respected. The importance of this principle of co-ordination has been particularly emphasised with the application of the Single European Act, which has reformed the Community’s structural policies, providing a clear outline of the Community system of incentives and of the co-ordination principles which the Commission wishes to be applied where aid to less-favoured areas is concerned. Already in the ‘First Report on Competition Policy’, the Commission had explicitly stated that the aids granted by national


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governments to encourage the restructuring of firms in difficulties should be selective and temporary in nature, such as to ensure that the aid granted is used to promote the reorganisation of the firm and not prolong its normal functioning (EC 1979). The naval construction sector has been specifically regulated, in order to encourage the restructuring and closure of shipyards. The synthetic fibres and steel sectors have also been covered by regulations which allow restructuring aids and aids aimed at the removal of excess capacity. For the naval construction sector, the maximum level of financing was reduced to 26 per cent for 1989 (EC Bull. 12/88; ‘XXI Report on Competition Policy’, no. 382). In 1985, it was agreed that further investment in the steel industry would be strictly limited to research and development projects and to the adaptation of existing plant to environmental requirements; this triennial provision was extended for the following three years. In the synthetic fibres sector, the conditions for aid applicable up to 1985 were established in 1977, and rolled over first in 1987 and then again in 1989. The parameters for granting aid to the textile garments sector were established in 1971 and amended in 1977 (‘VII Report on Competition’, no. 167). Similarly, aids for the motor vehicles sector were redefined with the inclusion of strict requirements on information (‘XXII Report’, no. 437). As far as general aids are concerned, the Commission’s approach has been to allow only those aids which fall under the heading of regional or sectoral aids or of interventions at the Community level. Finally, regarding research and development aids, the Commission introduced specific provisions in 1986 (Offical Journal of EC no. C 83, 11 April 1986), declaring that fundamental research and R&D (research and development) activities carried out by higher education or research institutes lie outside the scope of Article 92, except in cases where these activities are carried out on a contractual basis by private bodies. The Commission none the less considers that aids for R&D activities and for activities aimed at the implementation of projects of common interest may also be acceptable, requiring however that states provide an annual report on the application of these derogations. The Commission can therefore be said to have followed a consistent direction in the fulfilment of its watchdog functions, allowing derogations from the general principle where the actions of member states could in some way be linked to a Community system of interventions in the economy or to a response to extraordinary events, such as particularly serious crises capable of threatening an area’s economic stability. In addition, the Commission has accepted derogations only in exchange for a willingness on the part of the member state in question to bring itself rapidly into line with the general direction laid down at the Community level. Community action has therefore not been aimed simply at controlling the overall amount of aid granted, but has concentrated on the form of the aid granted and on the nature of the intervention.

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This watchdog function over national initiatives was reinforced by the agreements signed for the completion of the single market by 1992. This new phase of Community activity is in fact principally aimed at overcoming central policies of subsidisation of individual firms, in order to promote a political vision which aims to create more favourable development opportunities for groups of firms. The Community thus favours integrated actions, focusing different structural interventions on specific areas. It also promotes research programmes aimed at creating close links between firms and institutions. The reform of the Community’s structural funds, provided for with the amendment of Article 130A—E of the Treaty, together with an innovation policy which is based on large projects such as Esprit, provide a clear indication of the overall direction of industrial policy which has been outlined by the Commission on the basis of agreements regarding the completion of the single market. The new approach to industrial policy, as outlined by Commissioner Bangemann (26 November 1990), thus pursues the objective of creating the conditions required for the development of market forces. Direct interventions are allowed in exceptional cases in order to remove abnormal disequilibria conditions and to promote integration among firms, and then only when clearly placed within the framework of an integrated action programme. This watchdog function in the face of aids granted by individual states resulted in the publication in 1989 of the ‘First Survey of State on Aids in the European Community’ (EC 1989a) which was followed by a new report (EC 1990b) which partially adjusted the previous data in the light of intensive debates carried out with the Italian government in particular. The Commission in its role of ‘guardian of the Treaty’ has initiated procedures against infractions of the rules contained in Article 92 of the Treaty, just as it has systematically amended and modified the application of all national laws on industrial policy wherever these came into conflict with the constitutive principles of the Treaty and with the criteria laid down by the Community on state aids. It should further be emphasised that the forms of the aid granted themselves tend to differ from state to state. While France mainly grants subsidised loans and the Federal Republic provides fiscal incentives, government authorities in Italy, as for that matter in the UK, support firms through direct transfers. In addition the diverse objectives pursued in the various countries are also apparent: France has mainly followed an exportpromotion strategy, Germany a strategy in support of innovation, Great Britain a mix between the two, while Italy’s overall strategy is less clear. Moreover, in France, Germany and the UK a large proportion of the aids have been granted in virtue of Community regulations (on agriculture, fisheries, transport, coal), while in Italy these account for only a third of the total on the basis of the Community survey. The German situation is particularly striking in this respect, with close to 52 per cent of the total aid being granted in Berlin and the regions damaged by the division undergone by the country, as provided for by the


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explicit exemption contained in Article 92 itself. Regional aid in Italy is also higher than that for the other countries considered, but this clearly results from national aids and not from interventions carried out in virtue of a Community action, as for example occurs in the German case. Following Maastricht there has however been an increase in the Commission’s vigilance as regards state aids granted at the national level, and this vigilance has furthermore been extended to cover the activities managed by public-sector companies or by other types of companies controlled by the public administrations (Tables 6.2, 6.3 and 6.4). PUBLIC-SECTOR FIRMS AND THE APPLICATION OF ARTICLE 90 The Commission considers that grants made by states to public enterprises (and thus, also the increases in capital provided by the state to those firms in which it owns a stake to balance operating losses) contain an element of state aid. Community provisions have also been applied in cases where the state has simply guaranteed the liabilities offered by public bodies to their partners. For example, in May 1988 the Commission initiated the procedure against an infraction of Article 88 of the ECSC, triggered by the IRI-guaranteed increase in short-term liabilities of Finsider, IRI being the Italian publicly Table 6.2

Source:

State aids in manufacturing sector. Current price 1988–1992 (millions of Ecu)

European Commission, ‘Fourth Survey on State Aids in the EU’, COM(95)365 def., Brussels

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owned group. On 15 June the whole of Finsider’s exposed position was considered to be subject to the procedure. On 23 December 1988, however, the Commission approved the aids which aimed to establish Finsider on a sounder footing by setting up a new company, Ilva, made up of Finsider’s most efficient parts. The reason for this approval was that in this case the aid granted was a selective and non-permanent aid targeted at solving a problem of inefficiency, without creating social problems. State aids to public firms are regulated by Directive 80/723 of 25 June 1980 (Official Journal of EC of 297, 1980), which implements the provisions of Article 90 of the Treaty, namely, that states may not take or maintain in regard of publicly owned companies any measures contrary to the provisions of the Treaty. This is further complemented by Directive 85/413 (Official Journal of EC of 28 August 1985) on the transparency of financial relations between states and publicly owned firms. More specifically, the Directive of June 1980 states first of all that a publicly owned enterprise is to be understood as any firm over which public authorities may exercise a direct or indirect dominant influence, by virtue of ownership, financial stake, or the regulatory measures covering it, and that for public authorities should be read Table 6.3

State aids to the manufacturing sector. Annual average for the 1990–1992 and 1988–1990 periods

a 1988–1990 average at 1991 prices b pre-unification German Federal Republic (up to 1990) Source: European Commission, ‘Fourth Survey on State Aids in the EU’, COM(95)365 def., Brussels


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the state or any other territorial body’ (Article 2). Article 3 goes on to state that ‘the financial relations between public authorities and public companies, the transparency of which is to be guaranteed, are in particular: 1 the covering of operating losses; 2 the granting of capital; 3 the making of once-and-for-all grants or granting of loans on favourable terms; 4 the granting of financial advantages in the form of non-collection of profits or of non-repayment of loans; Table 6.4

Source:

State aids to the manufacturing sector 1990–1992. Breakdown of the aids by sector and function (percentage terms)


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5 the giving up of normal revenues from the public resources employed; 6 the compensation of obligations imposed by public authorities.’ The Commission therefore holds that publicly owned companies, as defined in Article 2 of Directive 80/723, must respond to the same efficiency criteria as private firms, and should therefore cope with operating losses using their own means. More precisely, the public ownership of a firm should not place it in a position of advantage with respect to other firms, as this introduces a significant distortion in the market. Member states have strongly opposed the application of this article and of related directives. The overcoming of this exception in the Commission’s favour therefore has great political significance, in that it enables the Commission to intervene in the forms of management of public companies. This means that the entire tradition of interventions based on the attribution to firms wholly or partially owned by the state of objectives such as the protection of employment or the promotion of development, regardless of the economic viability of investments, are now to be considered as subject to controls by the Commission. On the other hand, the threat of strict Commission controls can provide an incentive for taking unpopular measures, such as cutting personnel in public companies, or refusing to intervene in loss-making situations. In this sense the strict line taken by the Commission regarding the application of these regulations creates a strong Community incentive to privatise public firms, or-at least—to move towards national and regional policies aimed at guaranteeing conditions of efficiency and transparency in firms, regardless of the nature of their ownership or control. With the Maastricht Treaty the Commission has intensified the attention paid to the provision of public services, a sector which in Europe has traditionally been made up of and managed by publicly owned firms. Significant studies and interventions have been carried out in the fields of telecommunications and postal services, energy and transport. Action taken in these sectors has aimed at the harmonisation of different national situations, in order to create effective transnational service networks, thereby putting the different national providers in competition with one another, at least potentially. On the other hand, the demonopolisation of these services has been pursued through the identification of the areas of natural monopoly and the application of competition policy to the remaining areas. A very important application of Article 90 thus refers to the so-called areas of ‘natural monopoly’, areas in which, given the technology employed in the production of the good or service in question, and given the demand for that good or service, there is space for only one producer. The theory of natural monopolies refers mainly to the provision of ‘public goods’, i.e., goods or services for which there is no competition among consumers, in so far as there can be no conflict in demand and thus no exclusion; in other words, goods which can be enjoyed but not appropriated by single individuals (Stiglitz


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1988). The most obvious example of public goods are defence and public order, but a broader interpretation of public goods can be taken to include railways, for example, if one assumes that the right to freedom of movement means that one citizen cannot be excluded by virtue of an appropriation by another citizen. The case of transport can be used to illustrate how public goods are not demanded on a casual or continuous basis, being subject instead to a demand that may build up during particular parts of the day or year, such as peak work-times in the school year. The case is relevant if one assumes that the supply curve is structured such as to rule out the presence of more than one efficient supplier, making it necessary for prices to be regulated by a public authority on the basis of its own objectives. In the absence of regulation, in fact, a situation of monopoly pricing would exist, with the obvious result that that part of the population which is unable to pay the inflated monopoly price would consistently be excluded. On the other hand, it has been demonstrated that in the absence of sunk costs, i.e., of investment costs specific to that sector, it would be possible for the sector to be regulated by competition, at least in the cases of peak demand, since operators in other sectors would be in a position to enter the sector when prices are high, and to exit as soon as they drop (Baumol, Panzar and Willing 1984). Turning again to the transport example, it is obvious that if it were possible for services to be provided by opportunistic operators prices would tend to fall, since some consumers would find alternative solutions to those offered by the institutional monopolist. However, this solution is strongly linked to the problem of basic, non-recoverable investments, and to the need to offer solutions also in marginal cases, which no private operator would consider doing. In such cases, therefore, the government authority must, on the one hand, set a price for the service, i.e., determine a tariff structure, and, on the other, must provide the monopolist with the means to maintain nonrecoverable basic investments, and to supply marginal clients. The tariff structure may be constructed according to different goals: it could aim to repay past and future investments, to implement a certain pattern of fiscal redistribution (by offering cheaper services to less well-off citizens, for example), or to regulate the modes of entry of potential operators who could offer the same good in specific situations, or who could offer complementary goods. On the other hand, as long as the average cost curve continues to fall, so that it is intersected by the demand curve above the minimum efficiency point, the tariff will be established at a level below unit cost, so that subsidies will have to be provided for the repayment of investments and possibly to compensate for the losses sustained by the operator in supplying the public good. Where this occurs, the public body often prefers to own the supplier of the public good directly, thus internalising transfers and possible conflicts. It is also possible to describe a case of multiple goods, i.e., of an individual operator offering several goods (or services), some strictly public, others not

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necessarily so. The telephone service, which can also offer the transmission of data, is an example of this; another is that of railways, which can offer high-speed links or freight transport services; public order bodies, which can for example supply banks with protected deliveries, is yet another. In these cases, the internalisation of the whole service could result in a passive burden of subsidisation for goods which benefit only certain individuals, leading to an improper transfer of resources. Within the context of the completion of the single market, the Commission has decided to deal with this rather delicate issue by not intervening on the modes of ownership and control, on the basis that the means of regulation (through ownership or the imposition of external controls) vary from country to country and cannot be homogenised. However, it has laid down that the area of monopoly must be effectively limited to the provision of basic services, and that the allocation and use of public resources must be transparent, as required by Article 3 of the above-mentioned Directive 723 of 25 June 1980. Furthermore, this directive applies, as mentioned above, to a wide spectrum of firms, taking public firms to be those over which public authorities, state and territorial bodies retain a dominant influence. While Article 4 established exceptions covering, for example, small public firms (which in 1980 accounted for 40 million Ecu), the directive introduces significant restrictions, which may be applied not only, for instance, to transport companies and to telecommunications, but also to motorway management companies. For railway, road and inland water transport companies, the Commission has already produced a complete code in the form of Regulation 1017/68 of 19 July 1968; for air transport, the relevant regulation is Regulation 3976/87 of 31 December 1987. It is clear, however, that the Commission holds that the various interventions in the field of transport are to be considered as containing mixed elements of permitted and prohibited aid. In the first survey, around a quarter of the aid granted was destined to the railway sector. The same study none the less mentioned that most of the aid granted to railways represents a reimbursement of overheads or of nonprofitable services, which the railways are required to provide (Regulations 1191/69 and 1192/69). Such compensatory aids are automatically compatible with the Treaty (Article 77) (EC 1989:26). It therefore follows that the public nature of the property of a firm which supplies a public good is not in itself considered incompatible with the Treaty. In fact, it appears that transfers granted as a consequence of the political choices regarding tariff structures made by governments (such as guaranteeing the supply of services in marginal zones or maintaining nonprofitable services which are none the less considered essential) can clearly be permissible. On the other hand, those aids which, regardless of their form, cannot be justified by considerations of this type but rather result from inefficient management or improper requirements, are considered to distort the market and are thus not permitted.


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LIBERALISATION AND REGULATION OF THE TELECOMMUNICATIONS SECTOR A sector of growing importance for the development of the economy and in particular of new production and services activities is the telecommunications sector (TLC). At the aggregate level the TLC market, comprising both manufactures and services (which make up about 80 per cent of the market for the whole sector) has been estimated to have a value of around 500 billion dollars. The European market for commuted telephone services has shown an increase of 5 per cent per annum between 1988 and 1993; that for other telecommunications has grown at an annual rate of around 10 per cent. This rapid and occasionally chaotic growth has been supported by an extremely rapid process of technological innovation, which has led to the rapid diffusion of new needs (mobile telephones being a case in point), or of new services (the use of internet being the most significant among these), with the risk that existing rules covering the supply of telephone services might constrain the growth of a sector crucial for the whole economy and for European integration. On the other hand, the links between the development of the telephone, computer and audiovisual sectors are generating a new area which we may define as the ‘information society’, nowadays including a vast network of activities, whose growth is strongly constrained by the regulatory regime for telecommunications. Taking up this requirement, the Community has sought to accompany the development of the sector with a set of broad liberalisation measures, which however prevents the creation of monopolistic blocks. The sector had in the past been rigidly regulated through the presence of public companies, or of strict public regulations. The explanation for such tight regulation was due to the evidence that the sector presented important economies of scale, linked to the significant fixed costs related to the infrastructure, and to the sunkness of such fixed costs. These costs, made up in large part of network costs, i.e., of the costs of installing and managing a basic network, characterised a sector considered for a long time to be a natural monopoly, or at least a non-contestable market because the exit costs, given the non-recoverable nature of entry costs, did not allow for an effective or potential competition to the supplier of the service. However, it should be remembered that such an assumption was based on two considerations: (1) the transmission technology was a given and essentially involved the transmission of vocal signals; and (2) the extension of the market was defined on a national basis. Thus, it was assumed that the telecommunications network was meant to guarantee a single service—voice telephony—within the national territory. For this service, it could be assumed that conditions of subadditivity of supply existed, i.e., that production by a single firm would be at a lower cost than production by different companies of limited quantities of the same good.

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The limited nature of the extension of the market moreover reduced the chances of entry by new firms, such that the only feasible structure was that of a single-firm monopoly. Furthermore, this single firm would not necessarily be able to set prices, or refuse to supply marginal clients, thereby guaranteeing for itself a position of sustainability. In Europe, the basic choice has been made almost universally in favour of publicly owned firms or even of the public administration itself, as being capable of developing networks, and offering basic services on the principle of accessibility for all citizens, even for those in remote locations. However, this kind of management, which led governments into acting as both subject to monopoly regulation and in charge of monopoly regulation, generated conditions of non-transparency as regards the supply of the service itself, whether one thinks in terms of prices or of quality, and moreover increasingly resulted in a constraint on the development of the sector. In particular, if the existence of economies of scale can provide a plausible justification for a single actor operating a monopoly system, in the presence of a multi-product company economies of scale are not a necessary and sufficient condition for subadditivity, in so far as an operator specialised in a single product can be more competitive for a given good than a monoproduct operator; on the other hand, a specialised operator can find its activities limited by whoever controls the possibilities for entry, by virtue of the control it holds over the network within which the specialised operator must offer its services. The possibility of developing multi-product activities, for example by offering additional services to those involving the narrower category of voice telephony services—a possibility which has been hugely increased by the digitalisation of the network, by the developments in information technologies and by the use of satellites—allows the development of competition between multi-product and specialised operators, provided the latter have access to the network. Moreover, the process of international liberalisation itself and of European integration, which interconnects the various networks and thus increases the overall extension of the market, allows for a greater division of labour, provided, as before, that access is possible, through a national operator who manages the network, to the entire telecommunications market. In this context, the Community’s actions open up significant development opportunities for the telecommunications sector and particularly for services with a high added value. However, this implies an action of great relevance as regards national governments, who have tightly regulated the sector, considering it to be of strategic importance with respect to the country’s needs. The liberalisation of telecommunications services was launched by means of Council Directive 90/387/EEC, which establishes (Articles 1 and 3) the principle that access to the public telecommunications network for those who want to offer telecommunications services must be granted under harmonised conditions of equity, transparency and non-discrimination, and cannot be


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limited unless for reasons of public interest (EC 1994c, 1995a). These limitations are only justified by the need to ensure the safety and integrity of the network, the inter-operability of services, and the protection and confidentiality of the data transmitted, in other words by the so-called fundamental requirements which guarantee the functionality of the network itself (Article 3). In parallel to Council Directive 90/387/EEC, the Commission, exercising the powers granted in Article 90, paragraph 3, of the Treaty, has in turn issued Directive 90/388/EEC. This Directive decrees the liberalisation of all services other than voice telephony (with the exception, however, of telex, radiomobile and radio-warning services, and of satellite communications, which are themselves regulated by Directive 94/46/EEC). The basic principle is that the network remains under the management of a strictly regulated body, operating under monopoly conditions, and which has exclusive control over the supply of voice telephony services. None the less, this network must be available to whoever intends to offer other services, which would thereby be offered under conditions of competition. Member states are therefore required to liberalise services other than voice telephony, even if this means imposing administrative obligations to the possible users in order to respond to the so-called fundamental requirements. Article 7 of Directive 90/387/ EEC provides that the granting of permits and the policing of the conditions of use are to be entrusted to an independent authority. The Commission’s Directive therefore aims to guarantee free and effective access to the public telecommunications network, and in particular to rented circuits (for which further more specific requirements are laid down in Directive 92/44/EEC). With Directive 94/46/EEC, telecommunications services other than voice telephony services, and which rely totally or in part on satellite networks, have been liberalised. These Directives have been implemented in different ways and with varying delays in the different countries. In Germany, the regulation liberalising TLC services preceded by a short space of time the Community directive of 1990, which was therefore influenced by the German approach. The guiding principle in fact embodies a choice in favour of maintaining a monopoly as far as voice telephony is concerned—and therefore as far as regards the management of the fixed network, which remains under public ownership—and introducing competition for all other services. Deutsche Bundespost Telekom has therefore been forced to grant access to the network to new operators. These are large firms already active in the information technology fields, such as IBM, GEIS, Alcatel, Siemens-Vascom, or firms operating in other sectors, such as Daimler Benz and Deutsche Bank, or companies which supplied services to specialised groups of users (DATEV for fiscal consultancy or Start for travel agencies), or which only offer some of these added value services (such as Magnet which offers network management to the banking and insurance sectors, or AG which offers Videotel services). In France, France Telecom has been formally separated from the postal

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ministry, but it remains under public ownership, and supplies basic services on an exclusive basis, while remaining services may be offered under conditions of competition on the network rented from the public operator, after having obtained the authorisation from the Ministry of Telecommunications for large circuits. In Great Britain, on the other hand, the choice has been for the broadest possible liberalisation, without distinguishing between basic and additional services; three licences have been granted for the management of a fixed network (British Telecom, Mercury and Hull), which supply the various services without differentiation. A regulatory body, OFTEL, guarantees the conditions of interconnection and inter-operability among the networks, and thus the efficiency of the system as a whole. In Italy there has been much delay in the application of the Community directive, such that in the midst of regulatory uncertainty and in the absence of an independent regulatory authority, there have been a variety of individual behaviours, each interpreting in a different way the existing national regulations in relation to the Community guidelines. First and foremost SIP, a company which forms part of the publicly owned IRI Group, and which managed the urban network under a concession granted by the postal ministry, has been reorganised and has also acquired all the other competences previously spread among other public companies and sections of the administration. The result has been the creation of a large operator, Telecom Italia, which manages the fixed network and basic services, and is also very active in the remaining additional services. The large international operators (ranging from BT to France Telecom, from Sprint to AT&T, from Olandese Unisource to Cable & Wireless) have in the meanwhile entered the market, supplying high value-added services, especially those with an international bias. Moreover, the network’s traditional suppliers (the largest ones are GEIS— General Electric—and INTESA—Fiat and IBM), as well as the network of specialised services for the banking and insurance sector, have broadened their range of services. Many publicly owned companies already present on the national territory and with their own network of internal services (the railway, motorways, ENI, ENEL, BNL) have declared their desire to enter the TLC sector. Finally, two licences have been granted in the satellite telecommunications sector, one of them to Telecom itself and the other to a new entrant, OMNITEL Pronto Italia, of the Olivetti Group (Autorità-Italian Antitrust Commission 1995). In conclusion, it should be noted that the European countries have followed different national paths, as regards both the timing and the mode in which the liberalisation process has been defined. This process has been strongly constrained by the unclear application of Article 7 of Directive 90/388, which imposed a clear separation among the functions of the public administration, of the actor responsible for managing the network, and of the independent regulatory authorities. Moreover, it has been pointed out how the actors responsible for managing the network, which generally remain publicly owned


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enterprises, have resisted in various ways to granting access to other operators, while seeking themselves to offer new services under the competition regime, exploiting the advantage of being at the same time the manager of the basic services (EC 1995a, 1994c). The liberalisation process for telecommunications therefore clearly demonstrates the considerations set forth above. In the history of Europe, governments had internalised possible conflicts among economic actors, creating publicly owned companies to manage public services through administrative means. The process of international liberalisation and of general reorientation towards competition implies a careful operation not just of making reductions in existing constraints, but of institution building, in other words, of construction of institutions which guarantee the development of independent actors capable of guaranteeing an effective market interaction. In the case of public goods, however, it is necessary to distinguish between what exactly is a public good, i.e., a good which must be made available to anyone who is a citizen of the country and who requires its use, and what is a private good, i.e., a good which is individually appropriable. This distinction emerges the moment services other than so-called basic voice telephony services are developed. At that point there is a movement towards a double regulation, for the public good provided by the network and by the right of access the principle is applied which considers that public goods are to be supplied by a single, strictly regulated firm, whereas other services may be identified as private goods and can therefore be supplied by actors in competition with one another, on the basis of the equality of their rights of access to the network. In the first case, independent authorities must be identified, in order to guarantee the efficiency of the network, its inter-operability based on the standardisation of connections among different parts of the network or of different networks, and the scope for access to those who request it. Operators on the other hand who supply private goods must conform to rules on competition. There is furthermore a strong element of discretion in the definition of public and private goods, and the Commission’s tendency is clearly towards restricting as far as possible the field considered to be public. As far as ownership of the managing operator is concerned there is no preference for privatisation, but there is a clear definition of the rules which must be adhered to in the supply of goods, whether these are labelled as public or private goods. COMPETITION POLICY, CONSUMER DEFENCE AND INDUSTRIAL POLICY Industrial policy for market development means encouraging the growth of new competitors, guaranteeing them conditions of market access. An active policy of consumer protection implies the development of an action to encourage the growth of consumer associations, of possibilities for the individual citizen to make his voice heard. Consumer protection is,

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furthermore, legislation on liability for damage done by defective products and the safety requirements in the European rules for safeguarding citizens. The EEC intervened by means of Directive 85/374/EEC, which deals with liability for damage caused by defective products, by means of Directive 92/ 59 on the general safety of products, to which must be added Directive 84/ 450 on the question of misleading advertising, as well as by means of detailed regulations regarding specific products. However, it is necessary to be clear about the fact that Community action works where it allows the creation of an effectively single market among countries with different histories, regulations and institutions. The market itself is not a pre-existing condition, but the outcome of a long process of liberalisation. This, however, implies an institution which acts to build either national or local institutions, in which the rights of citizens must be safeguarded against distortionary actions among firms. It is necessary, therefore, to grasp the overall value of this action and to specify here the constitutional nature of the appeal to the principle of subsidiarity described above, considering that the process of European integration is first and foremost a demonstration of how economic integration cannot be disassociated from a redefinition of the roles and levels of the institutions which regulate and safeguard individual and collective action in a market society. The link between industrial and competition policies is therefore a difficult and controversial matter. These two sets of policies are usually considered as alternatives to one another. In countries such as the United States, in fact, the relevant market is considered to be within the bounds of the national government’s area of authority. The national government therefore must first and foremost regulate activities within this market, in order to avoid attempts at monopolisation from altering the institutional framework within which exchanges take place. In countries such as France, Italy and Japan, however, the relevant market has traditionally been considered to be greater than the area over which national governmental authority extends, and thus the duty of national governments has been seen as that of supporting the competitiveness of national champions. In this sense, a policy of safeguarding existing modes and rules of competition is in opposition to a policy of promoting the competitiveness of one’s own operators with respect to those of others. In the United States the role of the state has indeed traditionally been limited to antitrust activities and to the regulation of sectors in which it could be maintained that competition did not exist. In recent years, however, there has been a number of authoritative commentaries which argue that even in the case of the so-called ‘natural monopolies’ it is possible to create conditions of access such that the possibility, albeit potential, of new firms entering the market can act as a control on monopolistic behaviour. At the same time, it was also discovered that many American firms were losing out in terms of competitiveness to Japanese new entrants, so that an alternative to commercial


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protectionism had to be found in the form of policies to promote industrial reorganisation and innovation. By contrast, within Europe the debate has been whether favouring certain groups of private firms or of subsidising public firms in financial difficulty might not alter the functioning of the local market, leading to a greater need for protection against possible abuses. In this context the completion of the single market has provided the opportunity for a new approach to public policy, based on the view that the internal market is sufficiently big to allow for a large number of large firms to generate an efficient internal competition. Competition policy thus assumes the functions of careful regulator of growth, with the aim of allowing industrial concentration to take place and create efficient competitors without thereby leading to a risk of monopolisation. The German influence is evident in this approach, either in the form of the so-called Ordöconomie or in the form of the traditional intervention of the Bundeskartellamt. Moreover, national authorities still have at their disposal tools for increasing the efficiency and competitiveness of their own firms. This requires an oversight function to prevent national actions from distorting not just the behaviour of the market, but especially the difficult reorganisation of the market. In this fragile equilibrium between the tasks of national and central authorities, the influence of Europe’s only federal state, namely Germany, has once again made itself strongly felt. A consistent implementation of competition policy by the Commission, with a vigorous application of the regulation on industrial concentration and of Article 90 (as regards public firms) and of Articles 92–93 (as regards state aids), provides overall guidelines for the behaviour of national authorities. These are impelled to design policies for public interventions which no longer aim to support national firms through the provision of ever-greater subsidies or by the promotion of industrial concentration, but rather which aim to reach a path of effective harmonisation among structural and innovation policies. The objective thus becomes that of improving the overall environment within which firms operate and of encouraging the collective efficiency of the industrial system and of the market. With the Maastricht Treaty, competition policy takes on a central role in the creation of a single market and an economic union, being complementary to all the Community’s active policies (regional, environmental, technological, industrial), which are all based on the promotion of co-operation among firms, and among firms and local authorities. Precisely because co-operation is being promoted, it becomes essential to ensure that it does not turn into collusion. Competition policy assumes an equally active role as soon as the demonopolisation of the provision of public services becomes an objective. Here the entry of new suppliers is encouraged, thereby supporting the increase in the number of competitors and thus also the proper functioning of the

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market. Also in this case, however, it becomes necessary to ensure that the old and new suppliers do not set up new unregulated monopolies or duopolies. This requires the development of new policies to protect the citizen, whether as consumer or as citizen making use of services, regardless of the nature of the supplying firm. Finally, a clear application of the principle of subsidiarity has been outlined, whereby only those functions which can only be carried out at the Community level are attributed to the Commission.

7

Policies to foster industrial development

INDUSTRIAL POLICIES IN THE CONSTITUTIVE TREATIES The absence of explicit provisions on industrial policy in the Treaty of Rome was certainly not the result of some oversight, but a clear limit imposed by national governments on the Community’s role and powers (Moavero Milanesi 1992, 1993). This clear absence of a point of reference on industrial questions is all the more significant in that the first treaty to set up a European economic community, the European Coal and Steel Community (ECSC), was explicitly intended to be a treaty defining a common action in the industrial field (Urwin 1991:43; Mény and Wright 1987). On that occasion, coal and steel were considered so important in economic and political terms, that in order to guarantee a common security of supplies, but also in order to guarantee a balanced growth among different European countries, it was thought necessary to subject both sectors to a strict common regulation. Such public policies were conceived precisely as interventions by a centralised authority which, by issuing administrative decrees which classified the behaviours of firms as prohibited, permitted or incentivated, aimed to produce a sectoral structure which those same governmental authorities—the Council and the Commission—considered most appropriate for the achievement of their own general goals. This conception of industrial policy was clearly of French extraction, and in fact provided for a ‘constructivistic’ type of action by the central state (Neumann 1990). In the tradition of strong governmental intervention as developed in France from the time of Colbert onwards, and strongly supported from the fifties by the French Planning Commission (set up and headed by Monnet himself), it was held that the central state had the technical capacities, as well as the political legitimacy, to outline national development objectives and to implement them through the use of regulatory instruments. In this view the state, acting through one of its technical bodies, lays down strict guidelines governing individual behaviour (Maillet 1984). Internal competition among national firms is thus reduced, ensuring that internal growth targets are met, to the overall benefit of the entire Community. The fundamental principle 121

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behind this constructivistic view is that the size of the market is greater than the extension of the sovereignty of the national government and that the government must thus guide its ‘own’ industry, in order to make the country economically independent and politically strong. This assumption, however, implies the attribution of a political role to governmental authorities for industry. In the original model a political role could only be attributed to national governments; the attribution of such powers to a supra-national body was only feasible in exceptional cases, in which national governments accepted certain principles of co-determination with other governments for the sake of safeguarding their national citizens from possible destructive commercial conflicts. In other words, faced with the possibility of economic conflicts, which would inevitably have become translated into political conflicts, the idea of instituting a common governmental authority covering production and exchange was accepted among national states, in order to internalise and solve the possible reasons for conflict. Thus, except in cases explicitly affecting common security and stability, the government of industry was considered a matter for national politics. On the question of industrial policy, it was at the time considered unnecessary to include within the Treaty of Rome common rules covering common actions for promoting industrial growth. This approach was none the less consistent with a conception of structural adjustment under the conditions of a customs union, i.e., of structural adjustment carried out essentially through the reciprocal opening of markets within the framework of an agreement among the countries involved. The result was that individual countries attempted to accelerate as far as possible increases in their own internal efficiency in order to catch up as quickly as possible with the most efficient external competitor. The Treaty of Rome has none the less been presented as a necessary point of reference for the achievement of a common industrial development, aiming to prevent the appearance of divergent positions within the customs union which could in themselves pose a danger to the very survival of the common action. At the same time, precise regulations were laid down to discourage both public interventions at the national level and private actions capable of distorting the functioning of the common market. The main action in support of industrial growth was in fact the creation of the customs and economic unions provided for in the Treaty of Rome. This process of reciprocal liberalisation among the six founding members together with the common action of external closure was to take place over a period of time in order to enable gradual structural adjustments to take place within each of the countries and avoid the creation of new disequilibria among the different member states. The governments were thus authorised to intervene to favour structural adjustment of their own industries, and to encourage mergers and acquisitions of firms to produce national champions capable of competing efficiently in the new common market. As seen previously, the rules on competition contained in the Treaty of Rome apply both to the behaviour of firms which, acting singly or in groups,

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can produce conditions which damage competition, and to the behaviour of national governments which, in transferring aids to certain firms, can distort the functioning of the common market. The rules on competition provide for a series of interventions aimed at guaranteeing the correct application of the common rules to set up an effective common market. This requires the Commission, which usually fulfils political-administrative functions, to take on the role of a para-judicial body, with the power to take actions in response to those of single governments and to those of individual citizens within the Community. With regards to both groups of actors, however, the Community rules provide for significant exceptions. These exceptions can be regarded as implicit indications for an industrial policy, or at least as providing a de facto industrial policy when applied in practice. The provisions contained under the third sub-heading of Article 85 of the Treaty of Rome in fact exempt agreements which contribute to an improvement in the production or distribution of products or to the promotion of technological or economic progress from the generalised ban on agreements, associations and coordinated practices among firms. The rather broad exemption is tempered by the subsequent requirements that a significant part of the benefit derived from the agreement must accrue to end-users, and that the agreement must not impose further pointless restraints on competition or completely eliminate competition. This formulation is obviously a compromise between the German and French approaches prevalent at the time. The latter, as has been repeatedly mentioned, relegated competition policy to a secondary role, to the point where the French government had often acted as a promoter of industrial concentration and cartellisation processes aimed at producing technical efficiencies of scale. The German approach remained anchored in a real concern with ensuring a correct functioning of the market, subject to possible interventions aimed at improving social conditions. The result was a formula which banned agreements among firms and abuses of dominant market positions as contrary to the full implementation and correct functioning of the common market. However, the door was left open for exceptions in cases where it could be demonstrated that the restriction of internal competition was a necessary evil if technological, production and distribution progress, and hence also social improvement goals, were to be attained. Those exceptions were not justified on the basis of improvements in the conditions for competition and of direct appeals to the Anglo-Saxon tradition of the rule of reason, but rather on a set of parameters extraneous to the whole subject of the state of competition and instead linked to exogenous objectives such as technological progress or improvements in social conditions. The application of Article 85(3) in practice has not been constant over time. Indeed, specific applications are increasingly motivated by the desire to improve the conditions for competition. This is particularly the case for those

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products for which the extension of the market is now greater than that of the Community itself, and for which a process of concentration through agreements is considered necessary for reaching an operative scale sufficiently large to enable Community producers to face international—i.e., third country—competition. The exceptions to the provisions contained in Article 92, which prohibits member states from granting aids to firms where such aids can distort or threaten competition, complement the industrial policy indications described above. Let us recall that the exceptions provided for in the third sub-heading concern: • aids targeted at the economic development of particularly depressed regions or of certain specific activities; • aids aimed at the promotion of common projects; • aids considered necessary for tackling a serious distortion in the economy of a member state; • other categories of aid defined by a decision of the Council. The second sub-heading further permits aids granted in response to natural disasters or other exceptional events, aids of a social nature granted to individual consumers, and aids granted to particular regions of the Federal Republic to compensate for the economic disadvantages linked to the division of the country. In this case too, therefore, a principle of non-intervention in the functioning of the common market is established, subject however to a number of exceptions which allow national governments and the Commission not only to respond to particular conditions of structural disadvantage or to exceptional events, but also to set up common initiatives over and above the organisational capacities of the individual members. Reading the two categories of exceptions—the ban on agreements among firms, and the ban on state aids—together, one can describe the space within which national governments may implement an industrial policy in favour of their own firms, but also the space within which the Commission itself, particularly during the seventies, acted to defend European industry through a number of constructivistic policies. INDUSTRIAL POLICY IN THE SEVENTIES During the sixties, industrial policy was considered a matter for national governments, within the limits set at the Community level. Besides, the customs union implied that the progressive liberalisation of tariffs within the context of the union should be accompanied at the national level by coherent actions to enable firms from the individual countries to adapt to the new competitive context. In the seventies, by contrast, the Community had to face an economic


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crisis which had very diverse effects on the different countries and sectors. As a result, the Community put itself forward not only in the role of supervisor and controller of national policies, but also in the role of guarantor of explicitly ‘constructivistic’ policies. The most striking case was that of the steel sector, where Commissioner Davignon carried through a plan for restructuring, based on agreed quotas and fixed minimum prices (May 1977). This intervention, which took place while the ECSC Treaty was still in force, was accompanied by a plan for subsidising firms to achieve a reduction in their existing capacities, and in turn generated other actions: in the synthetic fibres sector an agreement was reached in 1978 among the eleven main European producers in order to divide the market up among themselves on the basis of the 1976 quotas. This agreement was also protected by subsidies and by commercial agreements to limit imports from third countries. This case was extremely important in defining the Community policy-making model for industrial issues. Commission officials, who should have been watching out against privately set up agreements, were here required to guarantee agreements promoted by the Commission itself (Curzon Price 1991). In actual fact the Commission interpreted its role during the seventies as one of extending to the Community level the traditional actions of national governments. Faced by an economic crisis which tested the foundations of economic power, and hence the national legitimacy of its national champions, the governmental authorities reacted by protecting the existing national structure, preventing structural adjustment from taking place. The line taken in the case of agriculture was reproduced in the case of industry. The sectoral crisis initially expressed itself as an excess in productive capacity with respect to demand, when in fact the excess capacity was not the result of a temporary dip in demand, but of a substantial change in the type of demand for a particular good which, as it matured, became more complex in response to more specific needs. The excess capacity was generated by the evident rigidity of producers in responding to a changing demand. What was required, therefore, was not simply a subsidisation of over-capacity or the establishment of a cartel to prevent competition, but the re-creation of a market context which would impel single operators to alter their behaviour. Each country made its own national defence the main priority, in a return to a ‘patriotism’ based on the defence of its own producers, either through the generation of administrative behaviour concerned with the creation of non-tariff barriers, or through lobbying at the Community level to advance the interests of its own industry (Mény and Wright 1987:91). Cartellisation and subsidies resulted in delays in adjustment and above all involved the Community itself in a process of petrification of competition which has rightly been described as ‘Eurosclerosis’ (Curzon Price 1991). With the Single European Act industrial policy has instead been based on the principle that the first action which needs to be taken in order to promote enterprise development is to establish a clear competitive context through an

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unambiguous application of the agreements on the completion of the single market, i.e., through the elimination of all obstacles to internal and global trade. This therefore implies a full implementation of the conditions required for the creation of the single market in all of the countries in the Community, but also a strict implementation of Community competition policy in respect of both firms and states. It also implies the removal of all obstacles to trade between the EU and the rest of the world. On the other hand, it is possible to establish, at the Community and local levels, actions to promote the development of entrepreneurial initiatives and of the capacity to adapt to international competition. However, it is important to emphasise that these actions must be ever more carefully defined, both at the regional and the sectoral levels, not as subsidies to compensate for individual inefficiencies but as horizontal actions, i.e., as general programmes in which individuals are free to participate, either on their own or (better still) by forming associations among themselves, with the goal of developing their own competitiveness. Thus the main provisions regarding industrial policy within the Treaty of Rome were, on the one hand, the numerous references to the liberalisation process of the internal market and of its progressive transformation into an economic union, and on the other the exact provisions regarding competition policy. INDUSTRIAL POLICY IN THE SINGLE EUROPEAN ACT AND THE TREATY OF THE EUROPEAN UNION This approach, based on the absence of an explicit context for industrial policy and on an implicit constructivistic approach to industrial policy has gradually been substituted, in the course of the eighties, with a more evolutionary approach of clear German extraction, which was implicit in the Single European Act, and fully taken on board in the Maastricht Treaty. The new line was pre-announced by a series of initiatives and was finally formalised with the Commission’s Communication to the European Parliament of 16 November 1990, entitled ‘Industrial Policy in an Open and Competitive Context’ (COM(90)556 final). This communication, known as the Bangemann Report, redefines the whole approach for public interventions in the economy: Community actions must aim to create a more favourable climate for entrepreneurship through an industrial policy conceived for the Community as a whole. Such actions are further centred around the search for catalysts for structural adjustment and means of accelerating the operations of the market itself. The catalysts are the implementation of the single market itself and the prospect of an opening up of this market to third countries. The accelerators are research and technological development, the training and development of human resources, the dynamism of firms, particularly smaller ones, and the development of services and industrial co-operation networks.


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This action therefore is clearly aimed at the creation of progressive coalitions in order to transform the customs union into an economic union, preventing internal structural adjustment difficulties from leading to the creation of regressive coalitions capable only of requesting protection. The Maastricht Treaty takes up this approach, and in fact it contains, for the first time, an explicit reference to the appropriateness of implementing policies for the development of industrial competitiveness. The Article in question is Article 130, which defines the environment for a Community industrial policy. In addition, numerous Articles concerning innovation and research policy (130F), Articles on infrastructure networks (129), and other Articles on environmental policies, on competition, and on the creation of the single market are also relevant. The approach to industrial policy which emerges from Article 130 is not a reiteration of a consolidated view of industrial policy as an action directed by central governments in support of national industries incapable of adjusting to international competition and thus in need of public support. The new Community approach promotes a new vision of industrial policy in the context of an open economy: a vision in which industrial policy consists of a series of actions to increase the extension of the market and to accelerate the technological and organisational transformation of firms. With this in mind, Article 130 sets out a number of different objectives: • to accelerate the adjustment of industry to industrial transformations; • to promote an environment which encourages initiatives and the development of firms throughout the whole of the Community, and particularly of small and medium firms; • to promote an environment which encourages co-operation among firms; • to encourage a better exploitation of the industrial potential of innovation, research and technological development policies (Article 130, second subheading). As is clear, this involves the combination of two heterogeneous approaches: 1 on the one hand, an approach which sees public action as essentially aimed at encouraging the development of an environment which fosters the growth of entrepreneurial subjects; 2 on the other hand, actions to accelerate the adjustment of firms and to ensure a better exploitation of their technological potential. These approaches therefore translate as: 1 in the first case, interventions to generate positive externalities which may be of benefit to firms without, however, interfering directly either with the firms themselves or with the functioning of the market;

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2 in the second case, by contrast, actions aimed at altering the behaviour of firms, putting pressure on their capacity for adjusting to external events, mainly through an acceleration of their capacities for innovation. The two approaches mesh together. They are particularly strong not so much in local actions carried out in order to enable marginal countries to keep pace with the more advanced parts of the Community, as in the capacity for forming networks of firms, sectoral groups, and transnational operational entities. By creating coalitions of common interests and, simultaneously, providing an outline for the reorganisation of production on the basis of complementary specialisations, these networks succeed in forcing the processes of economic integration and thus of institutional definitions within the environment of the Community. Thus, interventions in the field of industrial policy become actions aimed at producing conditions which enable collaboration among firms to take place, and which therefore set up institutional mechanisms for co-operation among individuals within a common environment. This view, of clear German origins, overtakes a dirigiste view of industrial policy and affirms the extremely complex idea of an industrial policy based on a series of interventions which aim to establish conditions for social development and for collective growth. This new approach permits the effective entry of new actors onto the market and at the same time establishes the possibility of generating transnational progressive coalitions. In this regard, the Treaty on European Union puts forward a method for approaching industrial policies which combines the common and intergovernmental approaches. Article 130 therefore states that ‘member states shall consult each other together with the Commission and, as necessary, will co-ordinate their actions. The Commission may take any initiative which is useful for promoting said co-ordination’. All the traits of the ‘German’ approach, which emphasises administrative actions by local bodies and attributes subsidiary actions to the common body, are evident here. In this case, however, the local subjects are still the member states and not regional bodies. A space is thus outlined for national actions, within the context of intergovernmental co-ordination, and, if necessary, for common actions, through the initiating powers granted to the Commission, which remains responsible for the extremely important task of ensuring that such actions do not imply distortions in competition. In truth the mechanism appears as one very complex to describe. None the less, it is clear that the centralised and hierarchical view of industrial policy makes way for a view of industrial policy conceived as numerous actions which must follow in the path of actions by national governments. These in turn are bound by the precise guidelines covering intergovernmental coordination—and Community co-ordination, should the former fail—and the safeguards on competition. The approach, which has relevant precedents going back to the Colonna


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Document (1970), was however only stated in detail in the Document presented by Commissioner Bangemann to the Council on 26 November 1990, which explicitly broached the problem of the formulation of industrial policies in open and competitive contexts (EC 1990a; Bangemann 1992). This document outlines a conception which is consistent with the new approach to common actions, since it tends to preconstitute at the Community level opportunities for actions whose objective, over and beyond the participation of individual firms, is to induce national and local authorities to co-ordinate their actions with those of the Commission and to harmonise initiatives among themselves. They should do so by drafting and implementing integrated plans, covering all of the actions taken at the various institutional levels. In the document, the Commission talks explicitly of ‘catalysts’ for development, referring in particular to the benefits of the internal market and of a policy of progressive liberalisation towards third countries. It also uses the term ‘accelerator’ to refer to research and technological development, understood precisely as instruments for accelerating the process of adjustment to this progressive liberalisation. In this sense the Commission takes on the role of forcing the search for progressive coalitions, pushing the Community to define a path towards a gradual international liberalisation, through the progressive and rapid capacity of internal actors to compete in an open market. This represents a profound change with respect to the past, whose intellectual consequences go well beyond the local circumstances which generated it. In other words, this blue-print for industrial policy goes beyond the European Community itself and lays down a design of global significance for the role of the state within an open market (Bangemann 1992:36). It is worth summarising here a few considerations regarding the different approaches to industrial policies available at the national level. What kind of initiatives may a state take in support of its own firms? 1 The first consists in blocking entries from abroad, either through quantitative restrictions or tariffs, or through the maintenance of nontariff restrictions. This alternative, however, is clearly excluded, within the framework of the EEC, by the ban on imposing restrictions and excise duties, or on institutional practices which in any case have an equivalent effect on the circulation of goods (and, more recently, also on the circulation of persons, capital and services). 2 The second is to provide a direct subsidy to the firm, to compensate for lesser efficiencies with respect to actors already operating at the level of minimum technical scale efficiency; this is the context within which Articles 92–94 of the Treaty apply. 3 The third is to make use of interventions which, for a given technology, enable technical scale efficiencies to be reached through associations among different firms, without however leading to monopolistic situations; this is the area controlled by the Commission, through the application of the regulation on competition and the combined use of Articles 85 and 86.

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4 The fourth is that of inducing technological transformations, or a rapid adoption by single firms of technologies capable of reducing the minimum efficient scale, such that even small firms may be efficient; this is the area of innovation policies. 5 One final policy action can be added to those outlined so far: it relates to externalities and to the possibility of acting on the whole complex of external relations of the individual firm in order to reduce the negative effects and increase the positive effects of those relations; this is the main area for action for the Community’s structural and regional policies. The typical industrial policy actions of the seventies took the form of state aids granted to individual firms to enable them to reorganise their own activities in order to become more efficient. Generally the aid was spent on acquiring new machinery with which to cut production costs. Another type of action comprised the implicit or explicit acceptance of crisis cartels, i.e., agreements reached among firms in order to guide reductions in overcapacity, and to share out the market according to historical quotas. In these cases public aids were sometimes granted for dismantling obsolete plants. In these cases the control exercised by the Community on the actions of member states was extremely lax, de facto allowing member states a great deal of room for manoeuvre. By extension, the Community attempted to create a role for itself by carrying out at the European level actions very similar to those implemented at the national level. Community action in the nineties, as defined in the Treaty on European Union, is instead based on: • the removal of any residual barriers between national markets; • the implementation of a market oversight policy against individual or collective monopolisations and against initiatives by national governments to give illicit support to their own operators; • the provision of research opportunities to transform technologies in order to make the entrance of even small new firms viable; • the promotion of collaboration among firms from different countries to facilitate entry into local markets, using reciprocal knowledge. Within this new approach, the idea of an industrial policy understood as an action by a national authority in support of a specific product sector loses importance and is instead replaced by the idea of a public action, involving the whole range of institutional actors, to define development opportunities. This implies that market liberalisation policies, market competition policies, policies to protect the consumer and policies to promote new initiatives are contextually applied within the internal market. The main Community action is therefore concerned with the development of research and the adoption of new technologies; this requires the Commission to define a framework programme with detailed specifications for different


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areas of research and development. The programme is generally linked with national programmes, such that the definition of a programme at the Community level takes on a special significance in the policy-making process, de facto also providing guidelines for national and local programmes (EC 1992b). This is an area within which the Commission has seen an expansion in its own initiating role, allowing its own directions to define a very wide range of very specific programmes to which single firms or groups of firms may adhere, with the organisational support of their respective local authorities. The possibility of defining plans of action for a particular territorial area or group of firms thus relaunches the issues already examined in the case of structural policies: the creation of networks is encouraged, with the requirement, however, that each of its actions be carefully examined in order to avoid cartellisation or, especially, discrimination among members or against possible new entrants. The creation of such networks, possibly among firms and local organisations from different countries, tends to establish transversal communication systems, which re-create elements of competition within the Community, no longer among countries but rather among different firms having different attitudes to innovation and change. Since these plans have an important territorial element, once again the capacity to innovate depends upon the capacity of firms and local authorities to come together, creating new links between production activities, private and public services, and especially public authorities, since the capacity to innovate can be greatly influenced by the surrounding institutional context. A clear example of this influence is found in the role which can be played by the link between firms and universities, in countries in which universities are effectively autonomous and countries in which they remain tied at the national level to a central administrative structure. Thus, in the new European institutional context which derives from the Single European Act, industrial policy means above all the ability to reconstruct networks of interests capable of having a strong local identification, in spite of being European in extension. This approach has been written into the Treaty on European Union, which in actual fact follows Title XIII on industry (Article 130) with the Titles on social and economic cohesion (Title XIV, Article 130A—E), on research and development (Title XV, Article 130F—Q), on the environment (Title XVI, 130R—T) and on co-operation for development (Title XVII, Article 130U—Y). These apparently different subjects are linked together by a common methodological approach, which aims to create progressive coalitions. This approach is focused on specific issues, but has a wider impact on the general situation in the European Union. The most relevant element of the Community’s attitude to industrial policy today appears to be increasingly evident, but by its very nature complex, emphasis on the capacity to promote aggregations of interests capable in turn of catalysing development, thus creating a necessary link

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between institutional changes and the institutional dynamics of economic systems. The centrality of the new attitude emerges most clearly against the background of territorial and innovation policies, since in these two contexts innovative behaviour has the specific task of driving collective action. This can be done in one of two ways: either by generating monopolistic and therefore socially sterile solutions, or by generating the momentum within which dispersed forces can fruitfully be brought together, producing the conditions required for a development based on a reciprocal specialisation of production. The Commission itself has been slow to reach this point of view, and has perhaps done so without fully realising the potential implications of the new approach itself. The process has been characterised by a series of progressive changes, strongly influenced, moreover, by the rich if heterogeneous theories developed in Europe on the growth of systems of firms. THE NOTION OF ‘EUROPEAN COMPETITIVENESS’ After the Communication entitled ‘Industrial Policy in an Open and Competitive Context’ (COM(90)556 final) of the 1990 Bangemann Report, the Commission—through a complex mechanism involving discussions with national representatives and experts—has proceeded to define programmes of action. These are aimed at giving practical substance to the idea that a long-term policy to encourage growth requires an intervention in the whole of the environment within which firms operate, and therefore requires interventions in the legal sphere, on social cohesion, on the promotion of innovation, and therefore also on educational and research systems. This clear stance, in which the expression ‘industrial policy’ makes its reappearance after a period of twenty years from the Colonna Memorandum (EC 1970), tends towards the belief that industrial competitiveness is not the individual result of an individual firm, but is the outcome of a social construct within which a variety of interventions must aim to make a territory attractive as a whole. This last notion has been taken up by several documents produced by the German government, which emphasise how such a view of industrial policy must be based on a strong consensus from the bottom up, i.e., among all the private and public institutions which ‘frame the territory’ (Marchipont 1995). It is well to remember that this Commission document was careful to remind us that the creation of the single market and its progressive opening were to be considered the first action in favour of industrial growth. This, however, would have implied structural change, which would have been accelerated by the technological changes under way, and therefore that the Community should have supported the process of change, yet without forgetting the strong implications for social cohesion and integration among different countries. These concepts were subsequently developed in a systematic fashion in the White Paper entitled ‘Growth, Competitiveness, Employment. The


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Challenges and the Ways Forward into the 21st Century’, known as the Delors Report, which appeared in December 1993 (EC 1993c). The White Paper put itself forward as an instrument for reflection and for supporting and guiding the different levels of policy-making (community, national, local) which aim to produce the foundations for a ‘sustainable’ and lasting development of the European economies. This objective can be translated as the need to create employment in an open and competitive context. Long-term unemployment could in fact undermine the European identity itself, and create large social fractures. The White Paper recalls that there are no miraculous remedies with which to face this problem, such as a return to protectionism, or an inflationary push to maintain levels of demand, or a reduction in the hours of work. Not even a drastic cut in wages, and the elimination of social guarantees, aimed at bringing us closer into line with many of our competitors, can be a solution; not just because of the politically unacceptable possible social consequences, but also because internal demand would be reduced even further. This long-term unemployment, a result of the great technical, economic and political transformations of the early nineties, makes it imperative for Europe to find a way of creating 15 million new jobs by the year 2000, maintaining a standard of living and a degree of social equity capable of stabilising the developmental path. With this in mind, the White Paper states that the preconditions for an open, competitive but decentralised economy which pays attention to social equity (this could be a translation of the German term Soziale Marktwirtschaft, which can translate simply into ‘social market economy’) must be created, so that the advantages generated by the market may be integrated into a nonconflictual social context, in which competition does not mean fragmentation between generations, between the employed and the unemployed, or between the rich and the poor. The priorities laid down in the document are as follows: • to invest in long-term education and training; • to encourage internal and external flexibility in the job market; • to develop decentralised decision-making and initiative in order to create employment; • to reduce the cost of low-skilled labour, through a reworking of social contributions; • to renew employment policies in order to favour the creation of new activities in new areas such as health, culture, the environment and education. There are two axes of development, namely information networks and transEuropean communication networks. Information networks become the keystone of development, and in this document begin to emerge as a fundamental strategic line of action for the Union. In particular, the concept of the information society gains in relevance,

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with its implications not only of massive investments in technical communications support, but also of the development of a new approach to communications problems. The development of the information society, and its role in Community policy-making, will be taken up in greater detail later on, particularly as regards the delicate relationship between telecommunications, computer sciences and television. Trans-European networks concern the scope for upgrading and integrating European networks of roads, railways, airports and sea and river ports, as well as energy networks (whether of electricity or gas). This clearly implies not simply the establishment of large investments which can act as catalysts (also in technological terms) of European development, but also a redefinition of the legal framework for public procurement and for the regulatory system covering the services offered. These themes will be returned to below. The third significant document on this long road is the Communication entitled ‘A Policy for Industrial Competitiveness in the European Union’ (COM(94)319, September 1994). To this can be added the reports of the Consultative Group on Competitiveness, under the presidency of Carlo Azeglio Ciampi, and in particular the Second Report for the President of the Commission and for the Heads of State, ‘Promoting European Competitiveness’, published in December 1995. ‘A Policy for Industrial Competitiveness in the European Union’ recalls that, among those priorities already laid down in the White Paper, stood that of dealing with the problems of the globalisation of the economy. This theme covers the need to face competition from other actors, be they developed (as in the case of the US and Japan) or developing countries, through the development of European competitiveness, the improvement of unsatisfactory performances, and the search for loyal competition both within the European Community and worldwide. This implies avoiding subsidies and other distortionary interventions on the part of states, but also developing a broad policy for industrial cooperation with the countries of Eastern Europe, the Mediterranean, and also South America and Asia. The Ciampi document, on the other hand, takes up once more the debate on the role of the state in supplying and regulating basic infrastructures ranging from telecommunications to railways, and including the promotion of an efficient use of research infrastructures. It also covers the debate on SMEs and thus on the development of a highly decentralised economy, oriented towards new fields of action, such as the protection of the environment and the consolidation of the whole range of activities which belong to a society characterised by a high knowledge content. To these documents one must also add the ‘Green Paper on Innovation’, draft, 20 December 1995 (EC 1995), which introduces a very broad definition of innovation in the context of an open and global economy, and of a society with a high standard of living which places a high value on knowledge, as will be discussed below. These documents, in which the contribution of Alexis


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Jacquemin, the Commission’s Principal Economic Advisor, has been crucial, are founded on four progressively refined and stylised principles: 1 European competitiveness is the result of the overall complex of actions by the Commission and by national governments, and not of specific actions in support of individual firms; 2 the challenges to be taken up in order to enter the twenty-first century require a broad consensus founded in a society in which human resources and the environment, and thus quality of life, find themselves at the centre of the development process; 3 the construction of large trans-European networks for the supply of services to European citizens is an extremely powerful integrative factor, but also the essential precondition for the development of European competitiveness; 4 European competitiveness largely depends upon the scope for using new technologies, and in particular information technologies, to encourage as diffuse as possible a development of society. Within this framework, there is thus a progressive re-evaluation of small and medium-sized enterprises, and thus of a decentralised view of the economy, requiring in turn a support of the growth of transnational clusters of enterprises, as well as international co-operation to spread these networks of relationships to non-European firms. What emerges therefore is a view which can in the first instance be labelled as ‘French’. It emphasises the need to support an increase in European competitiveness in response to the growth of the other giants of the global economy, the US and Japan. This view leads first of all to a reinforcement of the process of concentration among firms capable of competing on a global scale. In a second instance, however, a ‘German’ influence can be felt, according to which the ‘territory’ becomes a complex concept integrating a number of functions, ranging from education to services, in which to invest and integrate into a European, and increasingly a global, vision. This design does not always find itself expressed in the practical actions of the Commission where, with the emergence of a multiplicity of specific action programmes, there is the tendency to concentrate interventions in a few large networks, centred around firms or universities located in the central countries of the Union. None the less, the importance of this intellectual development should not be undervalued because it progressively leads to the emergence of a new industrial policy approach aimed at creating the conditions for the development of a social market economy, i.e., a society in which there simultaneously exist a competition among a multiplicity of actors and a need to develop co-operation among these actors in order to lead to the overall growth of the economic and social context. With this in mind, the relevance of the considerations on an appropriate developmental model for the Community expressed in the White Paper can

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be seen. Here, a certain distance is taken from the hyper-liberal model as featured in the US and systematically adopted by international organisations operating in developing countries. The ideological construct, therefore, is one appropriate to a complex society, in which the freedoms of citizens, including the freedom of economic initiative, must be asserted within a social market economy context, in which economic development is a result of the positive interaction of the whole social organisation. Herein lies the reason for the close attention paid within the debate on industrial competitiveness to the creation of a truly European dimension, i.e., the construction of an autonomous political entity which is more than the sum of the various nationstates, but must induce a situation in which economic integration implies an overcoming of the nation-states. DISTRICTS, NETWORKS AND INNOVATIVE SYSTEMS The numerous studies on industrial districts, and more generally on local and national innovation systems, have been of considerable weight in the debate surrounding the search for a development based on the capacity to stimulate local productive forces. The territorial aggregations of small and medium-sized Italian, German, Spanish, Danish firms have been repeatedly presented as an alternative model of production to that based on mass production. The work of Piore and Sabel (1984) in particular has drawn attention to Italian industrial districts as territorial aggregations of SMEs interacting within a single production cycle and capable of competing at the international level with much larger firms. This model is particularly attractive because it points the way to an industrial development based on endogenous forces. The capacity of small firms to exploit production advantages is due to their very agglomeration within a social structure which permits the development of reciprocal specialisations among firms and among individual workers; this requires a strong social rule which effectively targets free riders. In such circumstances it is clear that individual firms can develop dynamic economies of scale linked to the accumulation of specific learning, with the result that the district as a whole enjoys a set of positive externalities resulting from the availability of widespread knowledge and from a well-developed division of labour, which in turn reduces the cost of launching new initiatives. In other words, the classic mechanism for the division of labour itself is able to develop within an institutional context based on strong rules covering social interrelations. These rules thereby constitute the very first externality from which individual operators may benefit (Bianchi 1993). Industrial districts, therefore, are taken to refer to a production system integrated at the territorial level, made up of small and medium-sized firms specialising in the interconnected phases of a single production cycle. Moreover, this approach, centred on the analysis of the production cycle and the local labour market, links up moreover with studies more narrowly


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concerned with regional economics and urban sociology, which emphasise the role played by the patchwork of minor cities located in the so-called ‘Third Italy’ (Becattini 1987). The absence of a metropolitan centre to exercise a centripetal influence, and indeed the existence of a certain continuity among urban structures and the surrounding areas, create the conditions for a diffused development. Furthermore, these studies found echoes in the studies carried out on German development along the banks of the Rhine. To these analyses have been added other studies, strongly influenced by the Japanese integrated systems model, which emphasise the multiplicity of relationships created between large firms and more minor ones, resulting in the aggregation of ‘local constellations around a leader’. Dore (1987) in particular has repeatedly demonstrated how Japanese success is not so much to be attributed to the greater efficiency of a single large firm, as to the capacity of a large number of actors, brought together within the context of a very rigid system of rules, to interact; the rules, on the one hand, punish those who attempt to escape from their general jurisdiction, and, on the other, reward loyalty and, further, the capacity to take initiatives within the common context. Dore (1987) reminds us that Japan should be taken seriously precisely because it provides the proof that there exists more than one type of capitalism, a concept which is not restricted to an idealised version of American managerial capitalism but instead covers a variety of systems of collective regulation. Each of these systems is deeply rooted at the historical and cultural level, and each permits the development of collective and individual results far superior to those which can be obtained within the context of an exacerbated individualism. Such an approach was later also applied to the German economy which, as mentioned earlier, was also to be taken seriously because it showed the strong links between individual efficiency and the institutions which provide the framework for the so-called national innovation system. Many studies on this theme were carried out during the late eighties (Nelson 1993; Lundvall 1992). The term ‘national innovation system’ thus refers to the public and private institutions which, through their interaction, provide for the creation and diffusion of innovation (Freeman 1987:1; OECD 1992a: 80). Other definitions emphasise the institutional character of the externalities, which permits the development of technological and organisational innovation (McKelvey 1992). These definitions include vast strands of the recent literature of ‘Schumpeterian’ extraction on innovation. Under this view, technological change is treated as a historical and cumulative process, in which a specific innovative action is itself constrained within the framework of long-term technological development paths, and at the same time is rendered explicit within a context defined precisely by the institutions which regulate collective action at the national level (Nelson and Winter 1992). To such a reading of events can be added a territorial reading of ‘neoMarshallian’ inspiration, defining not just national but also local innovation

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systems (Becattini 1987). This latter theory emphasises how even at territorial levels below that of the national state patterns of interaction among firms can be generated, within the limits set by a particular historical context, and further circumscribed by a set of private and public institutions which either permit or limit the aggregation of such firms. The work of Coase and Williamson, who concentrate on the transactions among individuals and on the advantages of using organisations to internalise conflicts and thereby reduce transaction costs, has been extremely influential. However, the literature is not so much interested in the polarisation between market solutions and hierarchical solutions, as in the search for intermediate solutions capable of bringing together the advantages both of the market and of hierarchies. The phenomenon of the aggregation of different actors, all of whom are concerned with the problem of innovation, can be examined from a number of different points of view. The so-called networks of innovators then become the subject-matter of studies from a number of different perspectives. These take into account the different possible forms of collective action, either in the form of the establishment of groups of firms, or of clubs of actors linked to the use of a collective good, or of a clan in which the dominating element is cultural or historical in nature (De Bresson and Amesse 1991). Finally, this last set of studies is consonant with the significant developments which have taken place in the field of development economics, where the need for going deeper into the issue of endogenous development, i.e., spontaneous growth generated through local interactions and in the absence of external impulses, has become even clearer. As Hirschman (1958) had already shown, it is the links which explain the start of a process of change, and it therefore becomes possible to stimulate the development of local forces by acting on the network of relationships and rules which structure a social group. This vast literature on endogenous development, on innovation, and on industrial districts has therefore looked at aggregations of firms from two different points of view: • as a territorial and historical phenomenon, emphasising in particular the social and environmental aspects of such an agglomeration; • as a productive and technological phenomenon, emphasising the organisation of production as a prime factor affecting the aggregation among firms. These two sides to the literature on industrial districts and more generally on networks of innovators can be brought together harmoniously in an analysis of specific cases, in which historical forces have resulted in a particular local aggregation of capacities and experiences which constitutes the common glue holding specific productive activities together.


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Two strands of public policies are thereby generated, both of which have become central to the very development of the Community: • structural or territorial policies which aim at the aggregation of the territory, the latter understood in the broadest historical and cultural terms; and • innovation policies, in which the goal of aggregation is the creation of networks of innovators, linked by both common and complementary technological and cognitive endowments. In both cases the network is created by acting upon the variety of actors which interact within a given territory or specific sector, i.e., by aggregating social forces and inducing them to regulate themselves, thereby putting pressure on the consolidated regulatory mechanisms which were unable to develop collective action outside of the standards and guidelines laid down by national institutions. SECTORAL POLICIES WITHIN THE EUROPEAN CONTEXT Following the adoption of the Communication on industrial policy, the Commission has none the less turned its attention to certain sectors considered to be relevant and significant for the development of the Community. In the ‘Communication on the Electronic and Computer Industry’ (April 1991), the Commission underlined the need to develop research and technological development activities in an industrial sector with significant influence in determining the competitive capacity of European industry as a whole. In the ‘Communication on Biotechnology’ (May 1992), the concept was further developed, underlining the need to maintain growth processes in those sectors which constitute the leading edge of technological development of industry as a whole. In these two cases, the goal is to guarantee a correct competition among operators, while allowing the establishment of conditions for the development of co-operation in the sector of research and technological development. Such co-operation should help to put firms in a position to withstand competition from large international operators, thereby generating and spreading innovations which have implications for all other industrial compartments. By contrast, the ‘Communication on Aeronautics’ (May 1992) and on cars (June 1993) clearly demonstrate how it is not possible to withstand international competition (American in the former case, Japanese in the latter) without promoting projects for technological development, for the training of human resources, and for the diffusion of knowledge. These Communications are especially relevant because they concern sectors in which competition now takes place on a global scale, and within which there is a strong tendency among European producers to press solely for protection against the stronger American or Japanese competitors. The strong impetus for the creation of regressive coalitions, which have a negative effect on the

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very credibility of the Commission, has been obvious for example in the car sector, where in addition to the demand for positive actions to sustain innovation there have been numerous requests for a renewed commercial protectionism in relation to Japan. The risk of these Communications remains that of in effect following the previous path of creating national champions at the European level, by favouring the concentration of firms in order to oppose world leaders, or by protecting them should they be incapable of withstanding competition. Even more critical from this point of view has been the report on telecommunications (July 1992). Following on from the publication of the ‘Green Paper on the Development of the Common Market for Telecommunications Apparatus and Services’ (June 1987b), the Commission has worked towards a gradual liberalisation of the telecommunications market, favouring standardisation and thus helping to foster competition among national systems, and supporting a reduction in the areas directly managed by the public sector, opening up procurement tenders to national competition. In this case, however, the creation of a single market clashes with the existence of national monopolies, within which managers from the public sector or in any case heavily regulated managers have historically interacted with a single national producer of telecommunications apparatus. The progressive emergence of two dominant operators, the German Siemens and the French Alcatel, puts the other countries in a delicate political situation: the four remaining producers are small and would be eliminated or absorbed by the two larger operators, which are still viewed as national champions and not as ‘flagless’ operators. However, the most significant aspect of the new sectoral policies is the growing attention being paid to the so-called information society. With the ‘White Paper on Growth, Competitiveness and Employment’, published in June 1993, the approach to sectoral policies did in fact undergo a major change. Sectoral industrial policies had been essentially regarded as actions with which to tackle possible conflicts of interest among states, arising around sectors of great strategic and employment importance within the context of individual countries, such as the car and aeronautics industries. With the 1993 White Paper there emerged a concern with recovering the design and implementation capacity for sectors themselves capable of affecting the development of industry and society as a whole, and the biotechnology, information technology and audiovisual sectors were singled out as especially significant. In fact, it is this complicated nexus made up of telecommunications, information technology and audiovisuals, increasingly referred to simply as the ‘information society’, which has more and more become the focus for a vast programme of action on the part of the Community, cutting across the whole range of interventions undertaken by the Commission, and by national and by local governments. As we have seen, Community market tutelage policies have been aimed in particular at liberalising access to the telecommunications and audiovisuals networks. None the less, many positive actions have been launched both on


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the subject of industrial production co-operation (General Direction of the EC Commission III), and on matters of industrial research co-operation (General Direction of the EC Commission XII) and on the diffusion and exploitation of the results of such research (General Direction of the EC Commission XIII). We can in fact state that all of the Commission’s Directorates have developed programmes which relate to the application of the results of the information society to the life of individual citizens, to the development of cities, and to the growth of new services. The 1993 White Paper emphasises the creation of a common information space, conceived as a whole made up of different yet inseparable levels: • information itself, codified and reconstituted in electronic form so that it may be communicated; • the equipment, components and software which guarantee the user the possibility to acquire, process and transfer information; • the physical infrastructure, ranging from cable to radio and satellite links, each permitting the communication of the information; • the basic telecommunication services, which make up the very structure of communication and of communicative interaction; • the applications based on the different needs of individuals, groups of individuals, and institutions; • users informed of the different options available for exploiting the information and thus having differing degrees of access to the informational system, derived from the previously listed elements and levels (White Paper 1993:98). It follows that the complex of actions capable of stimulating this variety of levels is huge, and must be calibrated by taking into account two crucial factors: 1 in any case, these actions must now be undertaken from a global perspective, i.e., Europe itself is too small to be able to define regulations and incentives capable of controlling the evolutionary path of the information system as a whole; 2 European society is characterised by a variety of linguistic, cultural and economic differences which must be taken into account in order to prevent the transformation of the information society into an instrument for the exclusion of vast social areas, with the negative effect of creating a society which is unified in territorial terms, but fragmented in terms of effective access to the new opportunities for growth. It should be noted that the actions of the Commission as regards the information society overlap with the initiatives undertaken by the G7 in this same field, in the belief that the information society today is a truly global phenomenon.

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Turning back to the chapter on policies for innovation and the diffusion of innovation, it is worth recalling here that the most interesting part today, from a purely sectoral point of view, is the launch of numerous pilot projects exploring the possible application of the information society to the different productive environments, and in particular to the development of SMEs. The most significant aspect none the less remains the evidence that, in a highly developed society, the new employment and wealth generating opportunities are to be found in the provision of services to people, in the fields of education, the environment, health, urban life, culture and entertainment. These sectors, considered in the past to be some kind of residue, have today turned into the foundations of the new knowledge, and also of new production. What becomes interesting, however, is that these sectors were once largely managed by central and local public administrations, and can today be managed by private actors or by institutions which function as private actors, while remaining within the realm of public goods, i.e., goods the access to which has an overwhelming impact on the very quality of collective life. EMPLOYMENT, COMPETITIVENESS AND GROWTH Unemployment nowadays is considered to be the gravest problem facing the European Union. After a long period of growth, during which unemployment levels had dropped to between 2 and 3 per cent in the six countries of the Community, in the 1970s unemployment began to rise in Europe until it reached around 11 per cent in the early eighties. This figure, however, expresses an average encompassing widely disparate situations. Unemployment is generally very high among the young and among women, and reaches its peak in the marginal areas of the EU, such as Spain, Ireland and Southern Italy. It concerns mainly long-term unemployment, for which there exist a number of interpretations. One interpretation given at the macro-economic level, put forward by an influential group of academic economists, compares job tendencies in Europe, where the labour market continues to be strongly regulated, with job tendencies in the US, where a laissez faire system operates instead. This view holds that long-term unemployment in Europe is the equilibrium outcome of an institutional context which European voters seem to have no intention of changing; in other words, unemployment is to be imputed to the excessive social protection accorded to employed and unemployed, which results in the young and women in search of a first job being unable to enter the job market, adding up to a growing long-term unemployment. The excessive protection has further prevented the downward adjustment in wages required to absorb the decrease in demand for unskilled labour induced by technology. While it would not be possible to deregulate the labour market completely along the lines of the American model, the most adequate economic policy response to this tendency would be to favour a reduction in social protection,


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a fall in wages, and an increase in social mobility through a reduction in the costs of hiring and firing, with the support of macro-economic policies to support this stabilisation process (CEPR 1995). However, since in many European countries there undoubtedly remain regulations which might encourage a corporativist set of attitudes on the part of workers already in jobs, it must be remembered that there are many causes for the increase in unemployment of the seventies. First and foremost, during the 1970s countries with serious problems of backwardness in terms of economic development, such as Spain, Portugal, Greece and Ireland, joined the European Community; countries which later had to be provided for through the setting up of a special Cohesion Fund. Second, rates of growth in Europe slowed down after the long postwar phase, with long periods of restructuring linked among other things to the transformation of national markets into a market of at least European-wide dimension. Moreover, precisely this large reorganisation of the whole of European society has pushed vast sections of the population to change their attitudes towards work, with on the one hand a greater tendency for women to enter the job market, and at the same time a huge increase in the levels of basic education. There is further an unemployment effect induced by a restructuring which encourages the acquisition of highly labour-saving technologies, such that the accumulation of all these phenomena, which differ greatly in nature and in duration, create a situation which can no longer be adjusted and controlled through macro-economic manoeuvres alone. The Community has for a long time assumed this to be the problem which must be dealt with using a variety of tools, which include macroeconomic policies aiming to create a climate of stability and certainty for investment, and institutional actions aimed at reducing the rigidity which results from an excessive regulation of the labour market and which can be translated into constraints on employment. The road towards increasing employment, however, is also founded upon an intense action to regain competitiveness in a rapidly changing global context. It should in fact be remembered that all this has taken place during a period in which the global economy has become extraordinarily more competitive. The whole of the Far East region is in fact growing at a rapid and sustained rate, with the benefit of plentiful supplies of cheap labour and of the high technology supplied by Japanese industry, supported by a national innovation system strongly oriented towards industrial applications. The whole of North America is moreover reorienting itself towards a productive mix which adds a new output in sectors related to the information society to a vast low-skilled output supported by low wages. Furthermore, the combination of liberal trade policies, the insertion of excluded countries into the economic context (such as the countries of Central and Eastern Europe), and the strong acceleration by ‘new’ countries (such as the countries of Asia), all lead to delocalisation policies, which inevitably have an impact on employment in Europe.

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In this context, an action which aims to allow Europe to be competitive at the global level requires that the whole complex of common actions must be aimed at the objective of ensuring a level of growth capable of guaranteeing European citizens employment and well-being, without engendering elements of social fragmentation among different areas of Europe itself, or among different social groups, thereby making the construction of the European Union very difficult. In this sense, policies in support of growth regard first and foremost the creation of a single market of continental dimensions, increasingly open to the outside world. In the Smithian reading to which we have frequently recurred, we could say that this policy of the creation of a single market becomes the action of extending the market which is necessary in order to permit the reorganisation of production on a scale capable of producing an effective increase in competitiveness. The second action concerns the promotion of competition, and thus involves a market tutelage policy which guarantees that the opening-up of the market does not result in monopolistic actions or in actions which are distortionary of the market as a whole. Finally, there is a set of policies to encourage the reorganisation of production in relation to the increased and modified extension of the market. As mentioned above, these policies concern territorial relations and technological production relations, and thus the so-called structural and cohesion policies, and innovation policies. However, it is clear that the concept of European competitiveness implies common actions to equip the whole European territory with adequate infrastructures for an effective creation of the single market, and the reorganisation of networks of productive relations capable of competing at the world level. A great deal of attention is thus paid to information technologies because of the structuring power they have not only in relation to production but in relation to society as a whole. It is also clear that the new jobs must be sought in the service sector, and in particular linked to sectors such as health, education and the environment, where the impact of the positive aspects of new technologies and of information is the greatest. Equally, much attention is focused on an alternative to the great corporation model; there is a rediscovery of small firms and diffuse entrepreneurial systems, and there is an ever-growing appeal in each specific action to the role which can be played by networks of SMEs in consolidating an environment which favours the creation of new activities. We cannot, therefore, isolate a single policy to reduce long-term unemployment, but can assert this to be the objective of all individual common actions, which together are aimed at supporting the transformation of the whole of European society. In this sense, the ‘White Paper on Growth, Competitiveness and Employment’ framed these issues in the more general problem of ‘entering the new century’, i.e., of prefiguring a new social structure. In this sense too, the Intergovernmental Conference, which is to rewrite the Treaty to adapt it


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to the new internal and global situation, requires a European confidence pact for employment, growth and competitiveness, in which the actions required for the social transformations in line with an open and competitive context are to be defined. They are, however, to be implemented in a context of consensus and social dialogue and not in a situation characterised by conflict and confrontations among social groups (Turin European Council, 29 March 1996, Presidency Conclusions). To conclude, the Commission has identified a new approach to industrial policy, based on the possibility of creating, at the sectoral or territorial level, processes of interfirm co-operation, particularly in the field of research and development. This approach is considered relevant because it is taken to accelerate the process of structural adjustment, implied in the goal of liberalising the markets of the Union both internally and internationally. The approach is therefore one which tends to emphasise economic dynamics and to link them to precise institutional changes. The EU, in this view, thereby favours the creation of progressive coalitions, and in order to do this needs to draw up a timetable for internal integration and external liberalisation, in turn preventing these coalitions themselves from becoming obstacles to the development of the market. This mechanism, however, can run into many obstacles because it exacerbates the internal conflicts among those who are able to withstand the change, and those who consider themselves incapable of adapting within the available timescale. The passage from the conception of a general approach to industrial policy, whose design goes beyond the historically specific conditions found within the European Community, to specific reflections concerning the chances for adjustment and liberalisation of the various industrial sectors or of the different local contexts has drawn attention to these social conflicts. The absence of solutions for these conflicts was largely responsible for the crisis of the Community itself in the last decade of the century. The principle of subsidiarity finds its most characteristic but also most ambiguous expression within the field of industrial policy, as will also be shown in the following chapter. The Commission has, in fact, multiplied the number of programmes of interventions for specific subject areas, favouring in every possible way the transnational aggregation of local firms. None the less, the participation of these local actors is de facto guided by the strongest actors, i.e., by those who can participate in the specific project, exploiting the externalities offered by the system of local relations in which they are inserted. Thus, in many of the programmes the functions of co-ordination are taken on prevalently by the strongest firms, i.e., by those firms from the strongest areas which thereby also become the leaders of transnational developments in their field of activity. On the other hand, for firms from the weakest areas this can provide the means for getting out of stagnant local situations. The real problem is how to use these relations to stimulate the most backward contexts and thus to induce these local contexts to participate in and not merely to suffer the process of economic integration.

8

Structural policies and cohesion

REGIONAL DISPARITIES, REAL CONVERGENCE AND COHESION From the perspective of European integration and cohesion, the territory becomes a necessary and privileged element for intervention at the Union level. The term ‘territory’ here takes on two meanings, the first effectively geographical-economic (the existence in Europe of areas with very different economic contexts, particularly as regards income, employment and opportunities for development), and the second historical and cultural (the existence of regions, local communities and social groups having different cultures, representative institutions and models of responsibility— cultural models which, over the centuries, have been stratified in different ways). The broader the Community becomes, letting in new members—as has occurred in the past—the more relationships are extended towards the East and towards the countries of the Mediterranean, and the more factors of territorial diversity emerge as crucial elements for governing integration processes and therefore for establishing the credibility and feasibility of common projects. The Community has tackled these issues following a pragmatic approach, which has developed over time out of themes strictly relating to the management of limited areas in industrial crisis either within the Union or in countries outside the Union which turn to Europe as a reference point in a new world economic order. On the other hand, all debate on the question of developing European competitiveness finds an objective limit in the large disparities which subsist among European regions. Whether in terms of income or of employment, of infrastructures, or of the provision of services to persons and to firms, Europe today bears the signs of significant territorial disparities. These are large when measured in terms of national accounting, but are huge when based on region-to-region comparisons. For example, thinking in terms of per capita gross domestic product expressed as purchasing power, in the early nineties the disparity among countries was defined, with respect to a European average of 100, at the one end by Greece with a purchasing power of 54 and at the other by Germany with 112. This difference did not take 146


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into account the reunification of Germany, but when looked at from the regional level grew to above 170 and below 40 when comparing the regions of Hamburg and Macedonia (EC 1987a, 1991a, 1994d). The map is equally complex as regards employment: average unemployment in Europe stands at around 11 per cent, varying from 8.6 per cent in Germany to 24 per cent in Spain; however, if one considers youth unemployment the differences shoot upwards, with less than 8 per cent of young workers unemployed in many areas of Germany but with levels of over 50 per cent youth unemployment in almost all Southern European countries. Similarly, infrastructural endowments are clearly different from region to region, emphasising the existence of a vast, highly developed area and of a series of increasingly marginalised peripheral areas. Experience also demonstrates the lack of automatic territorial rebalancing mechanisms capable of re-establishing an equal distribution of wealth, just as locational incentive policies can compensate for locational disadvantages, due to the lack of infrastructures and communications. On the other hand, if the process of growth is linked to the possibility of accumulating opportunities for investment, generating opportunities for specialisation and complementarity, industrial development is polarised in areas in which significant agglomeration economies arise. In this sense, peripheral areas can have structural limits which have no agglomeration economies and which reduce the possibility for individual specialisation and collective complementarity. Thus, in labelling the whole complex of territorial interventions, the Community has preferred the term ‘structural policies’ to the term ‘regional policies’, thereby designating actions which intend not so much simply to compensate for existing local disadvantages by encouraging a greater capital mobility, but rather to remove the structural causes of the relative backwardness of many European regions. These structural policies therefore take on a central role in the European experience because the success of a political agreement which aims at economic integration depends on the scope for the different partners to find reciprocal advantages in remaining associated among themselves, advantages which will progressively make them competitive at the world level. The previously pointed out paradox, however, is based on the evidence that the most backward would have to accelerate their adjustment process to the point where they no longer risked being captured by the relatively more efficient partner. In such a case, the consumers of the more backward of the two countries could be led to wonder whether their interests were served by staying in a situation characterised by ever more unequal conditions of exchange within a customs union, rather than for example opening up completely to international trade: this would at least permit them to import goods at lower prices. On the other hand, these same countries would accept such an agreement only in exchange for subsidies from the richer partners to enable them to maintain the level of demand for imported goods, sparking off not

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only the rejection of the rich who, in the long term, will refuse to pay for the consensus of the poor, but also the rejection of the poor, who are likely to react against feeling dependent on the rich. Structural policies are thus actions to accelerate the capacity for adjustment of the less-favoured regions, and therefore to increase the effective scope for integration within a common context. This vision has been integrated into the Treaty of Maastricht through the concept of ‘cohesion’, spelled out in Article B of the Treaty, which makes the promotion of economic and social cohesion one of the fundamental objectives of the Union. There is therefore the idea that the Union will work better the more the divergences between the different areas of the Union in terms of living standards are reduced. The existence of relevant differences in the basic living conditions of citizens of the Community is in fact considered an obstacle to effective European integration because marginal areas, with scarce infrastructures, poor environmental conditions and even scarce access to basic services, such as water and electricity, are likely to find it very difficult to participate in an evolutionary and interactive process involving regions and countries which, by contrast, benefit from long-standing structural conditions, and which set for themselves more advanced goals of social and economic integration. This principle, already enshrined in the Single European Act as one of the key guiding lines of Community policy, is a prerequisite for an action aimed at monetary integration. Convergence is the key to European integration; to be understood not only in terms of nominal convergence, as defined on the basis of macro-economic criteria established at Maastricht in order to define the guidelines for convergence among countries (levels of national debt, stabilised inflation and exchange rates), but also in terms of ‘real convergence’—as stated by Commissioner Wulf-Mathies (Palmela, 26 April 1995). The latter instead defines the conditions for reducing differences in the living conditions of citizens, in the opportunities for finding work, and more generally in the possibilities there may be to allow a marginal region or country to participate in the game on an equal footing. This approach, which considers the Union as the result of a process, in which real convergence becomes the fundamental factor guaranteeing nominal convergence, is also applicable to the Union’s expansion towards the East and South. In these cases the real differences are enormous, and are, moreover, the result of historical, institutional and cultural paths which are different from and even in conflict with those which have characterised the historical development of Western Europe. The Commission has therefore defined specific instruments for tackling particularly severe cases of economic backwardness, such as those typical of the Mediterranean countries—establishing a cohesion fund and specific Community initiatives for tackling serious problems linked to particularly complex restructurings in the central areas of the Union. From the point of view of method, however, policies for real convergence imply an action having as its objective the creation of the greatest possible


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number of jobs which remain stable over time, which are skilled, and which are capable of acting as catalysts to further development in the area. It is for this reason that a great deal of attention is paid to the improvement of the environmental conditions of the territory in order thereby to allow a transformation in the basic conditions for development themselves. This implies, for example, the improvement of local endowments in opportunities for research, for technological transfer, and for the diffusion of knowledge. This however in turn implies paying careful attention to the scope for encouraging the growth of clusters of small and medium-sized firms. These policies require the participation and cooperation of all the institutions involved in the task of reconstructing the local context, ranging from firms, to central and regional governments, to local councils, to social partners, and to educational structures. This, however, is the most difficult aspect because in many situations of backwardness, the economic lag is the result of fragmentation and conflict within the local community, such that the real objective to be reached is that of inducing all actors bearing some kind of responsibility for collective action to find common objectives. STRUCTURAL POLICIES AFTER THE SINGLE EUROPEAN ACT The Single European Act outlined new procedures for political and economic integration, which were later on taken up and formalised in the Maastricht Treaty. To the removal of residual non-tariff barriers, which aimed to produce a Single European Market, was added a substantial revision of the Community’s policy-making approach. The reform of the Community’s structural policies has played a crucial role in this new European approach, which explains the considerable attention paid to the development of Europe’s Southern regions. The European Commission defines as ‘structural policies’ those policies aimed at the support and development of less-favoured areas and sectors, with the overall goal of ‘promoting a harmonious development of economic activity throughout the Community, a continuous and balanced expansion…narrower relations with member states’, as required in the Treaty of Rome’s preamble. These policy instruments consist of the following: 1 the so-called structural funds—the European Social Fund (ESF) and the guidance part of the European Agricultural Guidance and Guarantee Fund (EAGGF); 2 the interventions of the European Investment Bank (EIB) and in particular of the so-called New Community Instrument; 3 the integrated Mediterranean programmes; 4 the integrated development operations, The European Initiatives, the programmes in support of the modernisation of industry and interventions

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in areas hit by natural disasters, other interventions in the training field, and promotion and information related to the previous programmes. The Community’s priority objectives have been initially indicated as follows: 1 to promote the development and structural adjustment of economically backward regions; 2 to reconvert border regions or regions suffering from severe industrial decline; 3 to fight long-term unemployment; 4 to facilitate the entry of young workers into the labour market; 5a to accelerate the adjustment of agricultural areas; 5b to promote the development of rural areas; 6 to promote the development of areas having scarce population. Each fund specifies these general objectives in detail and further sets down which areas may benefit from Community financing. What role do these policies play in the creation of a European economic union? The White Paper (1985) and related studies, such as The Costs of Non-Europe’, take efficiency as their core principle. The benefits which can accrue from the removal of residual internal barriers concern the opportunity for reducing production costs, as a result of a better exploitation of the economies of scale generated by the reorganisation of firms within a more competitive market. The elimination of barriers among member states in fact creates a larger market, forcing firms to increase their production (Cecchini 1988; Emerson et al. 1988). As stated earlier, residual non-tariff barriers (so relevant that they dictated the very tough line taken in the Single European Act) actually derive from the institutional and administrative set-up in each of the different member states, and are linked to the relationship which connects the state with the economic activities which identify with it (Tables 8.1, 8.2a and 8.2b and 8.3). Given that the establishment of the Economic Community was considered to be part of a broader general process of political unification, economic integration was to be achieved, as stated in the early chapters of the Treaty, while maintaining a certain balance and stability among the member states. This was to prevent an integration of the market from leading to a collapse of less efficient productive structures and thus to a political disequilibrium among member states. Therefore the crucial decisions taken by the Community institutions, and particularly by the Council as regards legislative harmonisation (an essential step in the establishment of a common market) were to be unanimous decisions. The unanimity rule provided less efficient governments with a powerful veto. On the other hand, in order to maintain a political balance among member states, it was designed to provide those governments endowed with less favourable development conditions with guarantees, and to promote a balanced expansion of all activities throughout the Community.

Structural policies and cohesion Table 8.1

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Structural contribution in millions of Ecu (at 1994 price)

CI *=Community Initiatives Note: This table does not include Objective 2 allocations for the period 1997–1999 and contribution for Innovative measures Source: European Union, ‘Regional Policy and Cohesion’, EADF Guide

The Community therefore played a supra-national role only as regards those questions for which a collective consensus actually existed. Such a view resulted in a block on decision-making within the Community institutions, which became accentuated during the period of economic crisis, when individual governments sought to legitimise their actions by ensuring the survival of their own productive structures. In so doing they resorted to both internal subsidies and to institutional types of protection, mainly due to a passive resistance to regulatory harmonisation. In this second phase, which lasted from the late sixties to the early eighties, the process of European integration in fact slowed down, while the EEC expanded in territorial terms from six to twelve member states.

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Table 8.2a Community annual expenditure (millions of Ecu)

(1) payments; (2) commitments; (3) part corresponding approximatively to the concept of aid as laid down in article 92 of the Treaty; (4) part aimed at large firms and at SMEs

Moreover, the new members were countries which tended to aggravate the Community’s internal conflicts: on the one hand, there were the UK, Ireland and Denmark, already linked among themselves through EFTA; on the other hand, were Greece, Portugal and Spain. With the exception of Denmark, all of these countries had considerable internal problems relating to industrial restructuring, as well as large backward areas, such that the disparity among different regions within the EEC, and consequently the need for structural interventions, grew considerably. The European developmental map became much more complicated and thus the need for interventions aiming to increase the Community’s internal cohesion also grew. It also became necessary to equip the Community with a set of policy-making instruments capable of designing and implementing complex interventions, specified in terms of the different local situations being tackled. This new set of problems gained even greater significance with the Single European Act and the espousal of the new approach to Community decisionmaking. Once the basis was laid for a legislative harmonisation ‘from


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Table 8.2b Other Community instruments (loans granted) (millions of Ecu)

Source:


above’, and the decision-making and implementation phases of this harmonisation were refined within the fragile and adversarial Community institutions, a new vision of the role of the Community institutions was reached. In this view, they were to guarantee equal opportunities and market conditions to all subjects under their jurisdiction, encouraging local authorities’ capacity for taking initiatives. As was pointed out earlier, the transition from a ‘French’ to a ‘German’ policy-making approach is based on a greater emphasis on the evolutionary features of the decision-making process (a reciprocal recognition of subsidiarity) and, simultaneously, on the overcoming of the principle of unanimity for Constitutional matters. This, however, leads to a need to ensure a balanced expansion of the Community system, not through a reinforcement of the power to veto, but by offering the means for accelerating the development of the weaker actors. It should be underlined that this is not a case of subsidising productive activities in less-favoured areas, but of inducing a profound change in the very administrative organisation of these areas’ local authorities. The new approach in fact includes elements of institutional competition between national and regional governments in establishing the right context for industry and for commerce. This includes setting down standards, formulated in such a way as to support the area’s local producers while remaining applicable within other contexts, thus creating a comparative advantage for those actors which already comply with them. This means having a public administration at one’s disposal capable not simply of managing its own day-to-day business, but capable of laying down complex plans in support of the acceleration of local development. The completion of the single market has thus implied a profound reform of the EEC’s structural policies, with greater emphasis being laid on the Community’s ‘ground-breaking’ role as concerns the organisational transformation not just of the productive activities of less-favoured areas, but also and perhaps above all of the relationship between the public administration and private enterprises in defining and implementing integrated actions to accelerate local development.

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Table 8.3 Community expenditures by member state (1990–1992) (millions of Ecu)

Source:


* It has not been possible to disaggregate the data by member state

TERRITORIAL INTERVENTIONS AND LOCAL GOVERNMENTS During its first phase, the Community’s approach to policy-making was sectoral rather than territorial, in response to an accentuation of the disparities in the economic development among many of the regions of the member states. The overcoming of these disparities was considered a problem to be resolved through the independent initiatives of the single member states, while at the national level it was considered necessary to tackle them through interventions enacted by the central state. The Community could not, however, ignore the territorial implications of its sectoral policies. Policies covering coal, steel, agriculture, transport and the ship-building industry have thus also contained provisions aimed at resolving regional problems deriving from the structural readjustment taking place in these sectors. The only instrument provided for in the Treaty of Rome—Article 3(J)—for carrying out explicit regional policy interventions


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was the European Investment Bank (EIB), which, however, limited itself to granting to individual member states loans for the development of basic infrastructures. During its first twenty years’ worth of activity, from 1958 to 1977, 65 per cent of the EIB’s loans went to regional development projects in the lessfavoured areas of the Community. In 1978, it created the New Community instrument for supporting small and medium-sized enterprises in making productive investments. The constitution of the Fund for financing development projects in less-favoured areas had not been provided for in the Treaty of Rome, but by the mid-1970s it became untenable to delay its implementation any longer. In 1975 a fundamental premise of the European Regional Development Fund was that regional policies were to be considered a matter for national governments and not for Community-level or regional-level authorities. Funds were allocated on the basis of fixed quotas directly negotiated between national governments. The first reform of the Fund, in 1979, took place in order to introduce the principle of co-ordination between the Commission and national authorities. A new phase of reform began in 1984, when the system of fixed national quotas was abandoned and a mixed system, based on a fixed minimum quota plus an extra amount to be negotiated with the Community, was introduced instead. A more substantial reform has resulted from the approval of the Single European Act which, particularly by introducing Article 130A—E into the Treaty of Rome, has: • reinforced the Community’s equity and stability objectives, and defined the instruments to be used in order to fulfil them (130A and B); • recognised the regional development Fund as an instrument designed to correct regional imbalances (C); • reformed the structural funds (for regional, social and agricultural development) in order to use them, together with the EIB’s and the Community’s other resources, to promote the development of lessfavoured areas (D and E). The reform of the structural funds, which came into force on 1 January 1988, is to be considered one of the most significant changes in the Community’s approach to policy-making. As mentioned above, in 1984 the Community abandoned the fixed quota system, replacing it with a mixed system consisting of a fixed part and a part which has to be negotiated between the Commission and the national government. The new model allocates funds on the basis of national plans presented by national governments to the Commission for approval. Since regional governments must be involved in the drawing up of these plans, the most important result of the reform is the explicit recognition of the role to be fulfilled by regional and local administrations.

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Within this general reformulation of structural policies, the Commission has drawn substantial advantages from the experience of the Integrated Mediterranean Programmes (IMP), which are to be considered the precursors of the new approach based on trilateral relations between the Commission, national governments and regional administrations. The innovation consists in the integration provided for among the three policy-making levels. A complete analysis of the twenty-nine IMPs launched by the Commission in Greece, France and Italy emphasises how the most relevant impact of the IMPs has been the impetus they provide for implementing a planning approach at the local level, based on the collaboration between public and private actors. This is particularly true for Greece, where the decentralisation process has been very slow (Leonardi 1995). The reform of the structural funds is thus based on a territorial concentration of integrated interventions managed by different political actors. The new strategy for integration established by the Commission aims to overcome the dominant role previously played by national states, turning the regions into major players in the new policy-making game. During the first phase, the end use of structural funds was decided by national governments; during the second, the end-use was established bilaterally by the Commission and national governments, within a rigid framework of national balances; in the third, the Community (and now the Union) is moving towards a multilateral game, based on a fairly complex intergovernmental understanding which involves the Commission, and national and regional governments. A large and, in recent years, rapidly increasing proportion of Community funds has been transferred to local firms and authorities; the most important feature of the new phase, however, has been that Community transfers have had a strong influence on national interventions. This has been made possible by reinforcing Articles 92–94, but also by the fact that the structural funds’ financial resources must be jointly allocated by national and regional authorities, on the basis established by the Community itself. Another recent reform, which resulted in the adoption of six new regulations published on 31 July 1993 (Official Journal of the EC. L. 193) has further emphasised the relevance of integrated action, explicitly setting down that the territory must not be understood as a simple administrative unit, but rather in terms of its complex set of different values and specific circumstances. In this sense, then, an indication of the emerging policy is increasingly given by assigning the diverse situations within the Community their full value in order to promote processes of integration through complementarity. Within this view, regional governments carry out their own activities, creating an environment which is friendly to industrial development, by directly involving all public and private actors in the establishment of common development programmes. These programmes must then be taken forward through an integrated use of complementary policy instruments at the regional,


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national and Community level and aimed at the promotion and development of industrial innovation, such as training programmes, the formation of export consortia, service centres, and common research and technological application projects. Local partnerships represent the key feature of the reform of the structural funds (EC 1989b: 14–15). This is a crucial principle not only as regards the regional development Fund interventions in less-favoured areas; it becomes the basis of any Community action aimed at small and mediumsized enterprises and, by extension, of any action with a territorial impact. The new approach turns national governments’ previous practice, which consisted in granting financial resources to single firms to compensate for structural imbalances, on its head. The objective is now that of achieving a progressive structural adjustment, by reinforcing the local network of productive and service relations in order to stimulate the market’s endogenous forces. This policy approach is coherent with the Community’s (and now the Union’s) more general behaviour in respect of market forces, and introduces competition among European regions, based on the local supply of environmental and institutional conditions for industrial development. The objective of the reformed structural funds is to help less-favoured areas to take part in this game. However, it is necessary to emphasise that the concept of ‘region’ itself and the degree of regional power varies from country to country. The regionalisation process within Europe has in fact been the result of different tendencies: some countries have accepted regionalisation as a response to the political pressure of ethnic groups and to the more general pressure to recognise the multiplicity of national communities co-existing within a single state (Belgium and Spain); in other cases it has resulted from a division of political powers, without, however, implying any ethnic conflict (France and Italy); other countries remain heavily centralised (Portugal and Greece); the UK is internally divided into large areas which cannot be reduced to regions, and Germany is by constitution a federal state. The most significant goal of the new Community approach is the harmonisation of the administrative organisation of member states, which is to be achieved not through imposing legislative convergence ‘from above’, but gradually, through the effective reinforcement of regional administrations which must be involved in the political dynamic, and through the support of the internal restructuring of these administrations. It should also be noted, however, that regional governments are not equally active even within the same country. In every European state, the most active regional governments are those which administer the most advanced regions (Catalonia, Lombardy and Emilia-Romagna, Baden-Württemberg, RhôneAlpes). These regions affirm and defend their autonomy at the national level, seeking transnational alliances with other strong regions and a direct relationship with the Commission; they are used to managing their own

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administrative organisation efficiently, and their local environment in such a way as to stimulate a widespread entrepreneurship (Cooke and Morgan 1994). On the other hand, the economic crisis of the less-favoured areas generally comes hand-in-hand with weaker local administrations, which are traditionally dependent on central authorities and which are in the habit of tackling local problems by requesting direct support from the national government, rather than by autonomously implementing new development projects. Thus, the success of the new approach is seriously threatened by disparities among the new regional actors: those which are effectively capable of participating in the game are already at the head of the Community’s strongest regions, and national governments could seek to consolidate their own positions further by taking on the role of defenders of the less-favoured areas, by relaunching central initiatives. This seems to be the case of Italy’s Mezzogiorno. Following many years of interventions directly controlled by central government, the current situation is very complex and differentiated. Some regions have experimented with forms of programmes for ‘diffuse’ development based on encouraging the birth of small and medium-sized enterprises (particularly in coastal areas on the Adriatic); other regions have industrialised ‘islands’ which result from having attracted public and foreign investment; other regions have experienced serious failures both in attempting to attract foreign investment, and in stimulating endogenous forces. Further, regional governments, after a long period of centralised development policy, do not seem able to interact at the European level, as required under the new Community’s approach. OBJECTIVES, ACTORS AND INSTRUMENTS OF THE NEW STRUCTURAL POLICIES Let us now take a more detailed look at recent developments in the field of regional and cohesion policies. After the 1993 reforms, the objectives of the structural funds were partly redefined. In particular, Objectives 3 and 4 have been redesigned in order to adapt to the new situation. The new Objective 3 encompasses both the integration of the young into the labour market and the fight against long-term unemployment, already contained in the old versions of Objectives 3 and 4; the new Objective 4, on the other hand, is intended to guarantee the new tasks envisaged for the Social Fund, namely to facilitate the adjustment of workers in industrial transformations and in the evolution of systems of production, thereby giving priority status to the support of the transformation of the means of production. Following the entry of the Northern countries, a new Objective 6 for the development of areas of scarce population was added, expressly designed for the marginal areas of the new member states. Objectives 1 (regions whose development is lagging behind), 2 (industrial regions in decline), and 5b (rural regions’ development) remain unchanged, except for alterations to take into account the enlargements of the Community


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in recent years. In particular, the entry of the five Eastern Länder has significantly altered the distribution of funds, lowering the reference threshold for structurally backward areas. The size of the reference areas for the different objectives is, however, significant in underlining the nature of the different interventions: Objective 1 considers areas defined as NUTS (Nomenclature of Territorial Units for Statistics; see below) at level I, Objective 2 identifies smaller areas—NUTS at Level III—in line with its duty to intervene in specific industrial restructuring situations. The Community has had to carry out considerable statistical homogenisation in order to make national and regional data comparable. In particular, a new nomenclature has had to be introduced for statistical territorial units—NUTS—in order to define effectively comparable subnational territorial units. Thus each state has had to be divided into macroregions called first-level NUTS. Seventy-one of these exist throughout the EU as a whole. Each is in turn sub-divided into smaller secondary-level units, NUTS2, of which there are 183. These are further sub-divided into smaller units, NUTS3, of which there are 1,044. The European Regional Development Fund (ERDF) concentrates on the areas defined under Objectives 1, 2, 5b and 6. Objectives 3, 4 and 5a on the other hand can be applied to the whole territory of the Union and are financed out of other structural funds. The so-called Community measures, or innovative measures, can be added to the above actions. The Community Initiative Programmes are instruments for intervening in tackling specific problems. We can identify five groups of problems which are tackled with the following specific programmes: 1 cross-border co-operation between states which are different from one another but may be brought closer through the stimulation of common actions; 2 innovation and rural development, to stimulate the finding of innovative solutions in the agricultural and environmental sectors; 3 ultra-peripheral regions, to support the integration process of the most marginal areas; 4 development of initiatives for creating employment for the worst-off social groups; 5 management of industrial change, isolating specific problems for certain sectors or certain timely issues. The specific nature of these programmes resides in their attempt to create transnational networks of experiences which would otherwise remain isolated and marginal. The Innovative measures provide support to initiate pilot projects, the exchanges of experience and studies aimed at stimulating the experimentation of new policies.

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The Cohesion Fund was agreed at the European Council In Edinburgh in December 1992, and formally established by a Council Regulation which came into force on 26 May 1994, to provide financial support to investment projects in member states having a Gross National Product below 90 per cent of the Community average; these states in practice are Greece, Ireland, Portugal and Spain. Projects must be targeted at environmental and transport infrastructures. The Cohesion Fund contributes 80–85 per cent of total public expenditure for these projects, but requires that member states keep public deficits under control. It should be noted that eligibility for Cohesion Funds is determined at the level of member states, so that the Fund cannot be used for very poor regions (such as the entire Mezzogiorno in Italy) of member states having an overall GNP above 90 per cent of the Community average. The Tables illustrate the breadth of interventions per quota of inhabitants in the areas eligible for intervention, demonstrating how the various funds nowadays cover very general typologies. Implementation of this wide range of measures is quite complex. The reform of 1988 and the further revision of 1993 have laid down five guidelines for the implementation of the structural funds, and more generally of any Community policy action. The five principles are as follows: 1 Concentration, i.e., different resources must be employed in order to obtain adequate volumes of financing for large projects capable of actually inducing significant structural changes. 2 Planning, i.e., procedures for specifying not just projects but also the means for managing such projects must be reintroduced; under the 1988 reforms, member states must submit regional development or conversion plans, the Commission is responsible for adopting Community Framework Support plans, and member states are required to present requests for financing contributions for pre-established types of interventions (in the form of operative programmes or of global subsidies for a particular area). 3 Partnership, i.e., the involvement at different levels of all actors with governmental or representational responsibilities in the area of intervention, and also of social partners and of the firms themselves. Such partnership expresses itself concretely during the drafting of plans, during the negotiation of the Community Framework plans, in the implementation of the different forms of support, and in the monitoring and evaluation of the actions undertaken. 4 Additionality, i.e., the participation of member states in the financing of projects, with at least a matching of Community funds, though national funds need not necessarily come from the Treasury. 5 Monitoring and evaluation, i.e., the introduction of instruments for analysing the specific situations for intervention, and for ex ante and ex post evaluation. This is accompanied by a downwards redistribution of monitoring and


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evaluation functions, with the redefinition of the relationships between the public authorities set up at each level with economic planning functions (for example between the Ministry of Finance and the regional economic planning bodies), and the reidentification of relationships between public authorities at the same level having different functions (for example, the Ministry of Finance and the Ministry of Industry). This approach has many advantages and many risks. First and foremost, regional and cohesion policies have had an important role in establishing the conceptual framework, the actors and their degree of autonomy, and the relationship among administrative levels in formulating, implementing and evaluating the Community’s public actions. These are complex actions involving different actors at different levels, no longer related in hierarchical but in functional terms. In actual fact, structural policies have thus redesigned administrative functions within the Community, investing local administrations with an analytical function covering economic policy within their territory, specifying the co-operation obligations among different authorities (themselves frequently administered by different political parties and coalitions), and redefining the tasks to be carried out in national planning, which had for a long time fallen into disuse. Moreover, they have invented a new bureaucracy responsible for the management of development actions, with all the negative aspects linked to the risk of petrification of the administrative functions inherent in growth. The risk is thus that a vast bureaucracy will be re-created around these interventions which, in specifying cases and eligibility conditions, and having access to a framework of Community intervention programmes as broad as it is difficult to comprehend in its entirety, encourages not so much the search for the conditions for development but simply a search for public subsidies. The very same multiplication of programmes combined with a fragmentation of objectives represents more of a response to emerging problems than a long-term vision regarding the transformations taking place. The multiplicity of programmes runs the risk of transforming the local growth project on which the relaunching of an area was to be based into a ‘Community subsidy engineering’, in which a knowledge of the Community bureaucracy counts for more than the participation in and consensus around a local project. There is therefore a very high risk of losing a coherent view of development policy as an essential instrument for integration. Moreover, real convergence implies that a great deal of attention must be paid to social factors and to the conditions for the development of new entrepreneurial actors. There is therefore a growing interest in small and medium-sized enterprises, and in the environmental conditions which characterise industrial growth as a factor for catalysing development. None the less, the very scope of Community action has been greatly broadened in recent years.

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COHESION, DEEPENING AND WIDENING The relaunching of the Community took place in the second half of the eighties, when the international context seemed to find a renewed sense of serenity after the great tensions of the oil crises and the large industrial restructurings of the seventies, when the long economic cycle which began during the thirties, with the definition of so-called mass-production, finally seemed to exhaust itself. This phase of extremely profound reorganisation of the economic structure took place in a political context which seemed destined to remain unchanged, with the world divided into two blocs, each undergoing transformations but each capable of withstanding the transformation processes under way. Instead, the area of the planned economy did not pass the test of its internal regeneration. The Community thus went to its appointment for revising the Treaty in a rather different situation from that originally envisaged. Whilst the Treaty of Maastricht was essentially aimed at tackling the problem of deepening internal Community relationships in order to create a deeper and more solid Union, the nineties have required the Community to take on a leadership role in the redefinition of a new world geography. First and foremost, Europe itself is now different. For years, in fact, the same Europe has been divided into a Western and an Eastern Europe, cancelling out Central Europe, which had however played a determining role in the history of the old continent. Germany itself had lived through the drama of being, for decades, no longer the centre of the continent, but the West’s frontier with a hostile East. With the crisis of the Soviet Union and the ending of the era of Soviet control over Eastern Europe, Germany has once again become the centre of this vast continental Europe, and the countries between Germany and Russia once again turn towards the West to return to their own growth and security paths after a long interruption. The more the policies of rapid opening and economic liberalisation, inspired by a banal reading of the market economy, prove themselves incapable of resolving the economic and social problems of vast regions, the greater the leadership role of the European Union becomes. In this sense regional and cohesion policies offer a methodology for action which is significant and useful for sustaining processes of real convergence with countries which would in any case be incapable of sustaining processes of nominal convergence. As regards the countries of Eastern Europe, different programmes of intervention have been launched, calibrated differently on the basis of the scope for integration with the Europe inside the Community. Moreover, treaties have been signed, setting down the different phases for the integration of some of these countries into the European Community. Thus, many programmes of action have been developed, and many Community programmes have been extended to partners from the Eastern European countries, covering in a short space of time the whole broad range of interventions which characterise Community action in member states. In


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this case too, the risk is that of transforming these programmes into instances of technical co-operation, designed along the lines of the typical regional development bank model, or on the World Bank model, losing sight of the overall significance of an action aimed at European integration: the to-ing and fro-ing of experts can end up by turning every action into a piece of subsidisation engineering. In this phase, however, the objective of an enlargement of the Union involves a deepening of the integration among member states. The aim is to prevent this extension in Community action from simply translating into the re-establishment of privileged economic circuits, which, in linking some of the countries of the Union, and specifically a reunified Germany, with the Eastern countries closest to their borders, generate a fracturing of the Union as a whole. In reality, in the new world geography the European Community is no longer a coalition of countries which have been defeated or severely downsized as a result of the Second World War, and therefore in need of mutual protection for reconstructing their own economies. The Europe inside the Community is an economic giant, whose economic power is not matched by an equal capacity for political action, but to whom the new political realities which have emerged from the large political reshaping of the end of the century necessarily turn. For this reason, a greater real convergence inside the Union allows an extension to be faced without risking an internal break. This set of problems also emerges in the new policy launched at Barcelona on 27–28 November 1995 in favour of Mediterranean Third Countries (MTCs), in other words, the countries of North Africa and the Near East. From the Barcelona documents, it emerges clearly that the objectives of the Union are to turn the Mediterranean into an area of peace and stability, and that in order to reach this political objective it is necessary to support a policy of economic integration among countries with different convictions in order thereby to induce also an institutional convergence (1995d). What we are dealing with is the reapplication of the model actually adopted by the European Community, which, faced by the stalemate imposed on political union, proposed a method for common action in the field of economics. This method is oriented to create a need for legislative harmonisation, for common programmes for opening and liberalisation, and for support for the industrial restructuring actions made necessary as a result of the change in the extension of the market (Club de Bruxelles 1996). Thus the plan for establishing a free trade zone between MTCs and the EU by the year 2010 has been laid down, at the same time also providing for the development of association agreements with some of these countries and for the start up entry procedures for other countries. Within this action a number of programmes have also been established, to promote legislative harmonisation, to provide support for industrial development (especially in the field of SMEs), and for infrastructure modernisation. These programmes, even though not supported by a clear political plan for integration, can be

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translated into plans for technical co-operation not very dissimilar from those enacted by regional development banks. I would hold instead that the extensions of Community action towards the East and South have a chance of succeeding if mechanisms for redefining the organisation of production are put into place over the whole of the area of exchange, with, for example, significant industrial relocation among countries. On the whole, therefore, both the Intergovernmental Conference—seen as a constitutional interval during which member states decide upon the new objectives for the Union—and the Commission and the Council, as the Union’s executive bodies, must lay down the preconditions for a subsequent enlargement of the Union with respect to the countries of Central and Eastern Europe, and with respect to some of the countries of the Mediterranean, such as Cyprus and Malta, which have requested full membership of the EU. On the other hand, they must also establish the way forward for developing privileged relations with other areas, which seem to prefer regionally based modes of integration to a process of international liberalisation based on a unilateral opening within the context of a single world agreement. The so-called ‘open regionalism’, which the EU advocates, would imply, for example, establishing privileged relationships with Russia and the other countries of the CIS, in addition to the Central and Eastern European countries, guaranteeing them assistance for growth, and guaranteeing them exchanges for their goods; it also requires an external relations policy which necessarily has significant politicaldiplomatic implications; equally this new policy approach is necessary as regards Latin America, the Far East and Central and South Africa (EC 1996). Undoubtedly, such a vast action becomes important for our ends only if it implies once again a gradual and evolutionary method for guiding the opening of the EU itself, towards a global situation in which not only are there no obstacles to trade, but in which in fact it becomes possible to guide the process of relocation of production, minimising internal fragmentations within Europe itself, without resorting to economic protectionism and thus to political isolationism. A common foreign and security policy thus becomes a necessary support for a new phase of fracture-less growth. It is clear that the maintenance of a transatlantic relationship with the United States becomes a prerequisite for developing such a gradual approach, but at the same time it becomes necessary to reinforce the political capacity of the EU to act in the name of Europe as a whole, and this implies the simultaneous relaunching of the legitimacy of the Community bodies to represent the overall interests of Europe and of its citizens.


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COMMUNITY POLICIES FOR SMALL AND MEDIUM-SIZED FIRMS Community actions in favour of small firms are an especially relevant example. In many countries, the subsidy policies traditionally developed for small firms have been based on the simplistic assumption that small firms should be considered either ‘infant’ firms or fragile firms incapable of autonomous development. From the early eighties onwards, the Community has instead applied its new approach to the small firms sector, encouraging co-operation and the creation of a local environment which promotes endogenous development. The policies in favour of small and medium-sized enterprises are in fact the result of a fundamental action for the development of less-favoured areas, where there are no already-consolidated large firms capable of inducing the development of small firms of suppliers, and where there is not the diffusion of services capable of sustaining the autonomous development of endogenous productive forces. From the early eighties, the Commission developed its own explicit set of policies for small and medium-sized firms, at a time when it became generally apparent that the industrial reorganisation process, following the crisis in large firms, would not have led Europe back to full employment conditions. The policies in support of small firms and of craft are thus aimed not just at reinforcing at the European level those firms usually limited to a local scale, but also at promoting the birth of new firms. The actions are therefore implemented to reinforce competition, and thereby to promote the development of market forces. In June 1986 the Commission’s ‘Small Firms’ task-force was set up and assigned the following jobs: 1 the co-ordination of all internal Commission activities relating to small and medium-sized firms; 2 the promotion of a rapid convergence between national legislations and Community policies; 3 the establishment of links among all of the small businesses’ representative bodies and associations; 4 the launching of the Community’s new policies, including the development, together with national and regional governments, of examples of integrated interventions (EC 1993b). In August 1986, the Commission presented the European Council with a resolution relating to the action programme for small and medium-sized enterprises (COM(86)445 final), which the Council adopted in November of the same year. In subsequent years the Commission has presented reports on the state of the implementation of these programmes. The objectives of these action programmes are as follows:

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1 to create a legal, administrative and regulatory context sufficiently open for the promotion of minor and new firms; 2 to accelerate the process of modernisation and growth of small and mediumsized firms with support in the areas of: • • • • • •

management and personnel training management; information on the market, on processes and on products; export; the creation of new firms and in general of innovation; co-operation among firms and regional administrations; facilitating access to the financial channels necessary for operating at the European level.

Community policy can thus be seen to fall into four different categories: 1 2 3 4

the promotion of the activities of small and medium-sized firms; the development of relations among small and medium-sized firms; the provision of financing, through loans and aid; the supply of information about the different aspects of industrial and commercial activities.

This policy is therefore based on different instruments, which can be put together according to the differing needs of individual firms and, more especially, groups of firms. Central to the Community’s policy is the principle of not limiting action to individual firms, but of acting on the intrafirm context in order to create the local conditions for development. This approach is taken up in the Maastricht Treaty, where Article 130 itself emphasises that industrial policies must promote an environment which encourages initiative and the development of all firms within the Community, and particularly of small and medium-sized firms (Article 130 para. 1.4). Policies for small and medium-sized firms then become a set of targeted actions, to be implemented in a co-ordinated manner by local, national and Community authorities. We are no longer dealing, therefore, with a marginal industrial policy action in support of marginal firms, but with a vast action aiming to re-create local conditions and sectoral (and possibly transnational) networks in order to overcome the traditional isolation of smaller firms (EC 1995g). The Commission considers that the action to support the development of SMEs is the result of a variety of policies, devoted to re-creating a positive environment for economic and social growth. Therefore, the new approach of the Commission overcomes the traditional view that considers industrial policy as an act of law, to be managed centrally in order to direct certain individual behaviours or make up for certain inefficiencies which cannot be eliminated, to be managed through a central administration, solely concerned with verifying that the conditions determining the eligibility to receive government support are met. As regards small and medium-sized firms, therefore, the Community:


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• is opposed to the use of unselective incentives, which result in market distortionary aids, essentially because they compensate for and do not remove the factors which lower competitiveness; • is not opposed to fiscal breaks or to certain incentives to promote innovation; • supports and promotes, through many means, integrated actions which aim to re-create the conditions for local development and the integration of individual firms within co-operative contexts at the international level. It is in favour of a genuine co-operation between all involved in the process of creation of an inducible local environment. Small and medium-sized firms have, however, assumed a greater relevance in Community policy-making than that of support to marginal firms. In all Community programmes, ranging from structural funds to policies of integration with Central and Eastern European and Mediterranean countries, to the actions for the diffusion of innovation, the role of promoting SMEs acquires an increasing importance: it becomes the basis of a development based on an industry diffused throughout the whole of the territory, as well as an instrument for the creation of new productive activities, and as a means for creating networks of relationships strongly linked to the territory and at the same time capable of being inserted into a multi-national context (Tables 8.4 and 8.5). Clearly this vision, which today has become so insistent within the context of Community debate, tends to treat the multiplicity of productive and social situations which can be grouped together under the general label of ‘SMEs’ superficially. In truth there is a very great difference between small productive units strictly based on the family, linked mainly to agriculture and workshops, and whose production is aimed solely at the local market, and highly skilled medium-sized firms, producing parts and components with a high technological content and inserted into an unquestionably international context of production and market relations. Both of these two extreme characterisations, and the multiplicity of inbetween cases, can contribute to the growth of a local reality, but the first can be sustained in many high-unemployment contexts as a first consolidation of growth with the aim of guaranteeing the survival of a vast population, while the second can be used as the technological engine of systems undergoing growth. What is required therefore is to imagine policies for small firms as parts of a broader plan of action, with which to intervene in local contexts, and to be considered in all their social and cultural complexity. In fact, a system of small and medium-sized enterprises can grow if there are positive externalities, permitting firms to concentrate exclusively on activities of production. For this reason, it becomes increasingly important to consider social policies, educational policies and human resource policies as an essential part of a modern vision of industrial policy.

Table 8.4 Community’s actions in favour of SMEs


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Source:

European Commission, ‘Maximising European SMEs’ Full Potential for Employment, Growth and Competitiveness’, proposal for a Council Decision on a Third Multiannual Programme for Small and Medium-Sized Enterprises (SMEs) in the European Union, 1997–2000, COM(96)98 final-96/0087 (CNS), Brussels. * For more details see ‘Report on the co-ordination of activities in favour of SMEs and the Craft Sector’, COM(95)362 final of 8.9.1995

SOCIAL POLICY, HUMAN RESOURCES AND EDUCATIONAL SYSTEMS The establishment of a customs union and, particularly, of an economic union, is an institutional instrument for controlling the progressive liberalisation of the national market, within a limited international context which excludes competitors commonly held to be stronger. In any case, a customs union and an economic union require different degrees of reorganisation of internal production; these requirements are more onerous the longer a country’s internal productive structure has enjoyed protection from international competition. Table 8.5 Policies in favour of small and medium-sized enterprises in Europe

Key: B-Belgium; Dk-Denmark; F-France; FRG-Federal Germany; Gr-Greece; Ir-Ireland; IItaly; L-Luxembourg; N-Netherlands; P-Portugal; S-Spain; UK-United Kingdom; ECEuropean Commission

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Within this context, from the very beginning the establishment of the European Coal and Steel Community was accompanied by a set of measures to ease the social costs of the albeit controlled opening up of national coal and steel production to European competition. Thus, while the common rules for the economic integration of the sector were being established, interventions were being planned to facilitate the re-employment in new jobs of those workers made redundant by the industrial reorganisation resulting from the integration programme. Provisions were thus made for a European Social Fund, which began to operate in 1960 and which until the 1970s came to be explicitly considered, within the contexts of both the ECSC and the EEC, as being complementary to actions relating to the opening up of the common market, in order to control and contain its negative effects on employment. The Treaty of Rome acknowledged these needs (Articles 44–48), and extended the scope of social policy to guaranteeing job security and defending the rights of the Community’s internal immigrants, as well as to affirming equality of rights among men and women in the work-place (Article 119). In the early seventies, these issues were given a more systematic basis with a first reform of the Social Fund (1972), the publication of a social action programme (1974), and the passing of numerous directives (Leonardi 1995). These interventions, however, came into force during a very delicate phase in European life: in the first instance, during the worst phase of the world recession, and subsequently in a phase of Community enlargement through the adherence of countries with vast employment problems, initially the UK and Ireland, and later the Southern European countries in which unemployment was linked not just to the restructuring of sectors in crisis but also to a relative industrial underdevelopment. The resulting view of social policies was strongly distorted towards actions to ease unemployment, with an emphasis on subsidising sectors in crisis. Social policy was thus strongly opposed by those who maintained that government authorities should encourage structural change through the use of market policies. This would necessarily carry social implications which should not be eased in order not to reduce the incentive towards the organisational transformation of industrial activities. This position found its strongest voice in the British Conservative government, which clearly opposed any action in support of employment, as it consistently opposed any form of Community industrial policy aimed at ‘freezing’ the sectoral crisis. In the eighties, within the context of an economic recovery, the issue of the need for a social policy was once again raised. However, this time around social policy was relaunched as an integrated action within the framework of policies for the completion of the single market. Indeed, the aim was to render policies which were radically different in their relevance and orientation none the less compatible, in order to make movement from one country to another an effective option for Community citizens. The case of the protection of


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maternity, through the regulation of maternity leave, can be taken as an example. Maternity leave provisions vary greatly from country to country, such that a harmonisation action, which should not be taken to mean a reduction to the lowest common denominator, represents a far from simple adjustment in the social organisation of the different countries (Tsoukalis 1991:133). In this case social policy takes on a different connotation than in the past, no longer being a surreptitious form of subsidy for firms in crisis but rather a redefinition of general rules, taking as a starting point the actual state of affairs as regards civil rights in the various countries. It thus becomes in a certain sense a prerequisite for guaranteeing effective access to the market, and therefore for supporting the dynamism and thus the efficiency of the economic system. Social cohesion thus becomes the core of social policies, and the possibility thereby arises of acting directly on capabilities, transforming the official rights of citizenship into effective ones. On the other hand, the new approach to industrial and structural policy requires that much more attention be paid to positive actions to create opportunities for growth in the less-favoured areas and for the least advantaged social groups, such as women and the young. Even in this form, however, the Community’s social policy has been significantly opposed by the British government, which continues to maintain that these are not areas for regulation but for the market. This policy approach, which aims to induce ever more co-operation among individual local situations, and thus to promote integration from below, has progressively been taken on board also in the case of the EEC’s technological innovation policies. Early on, these policies were formulated along the model of national technology policies, in the belief that only by supporting technological process would development be induced. As indicated in the next chapter this approach has gradually been replaced by one based on a wider perspective of integration among local innovation systems, which therefore pays increasing attention to the historical, cultural and institutional factors which determine the nature of development. With the Single European Act, the Community gained a new formal area of action in matters of innovation policy. This new competency was confirmed in the Maastricht Treaty, and was reset within the framework of that long Article 130 which redefines the very conception of industrial policy. This clear evolution in the very definition of Community innovation policies is consistent with the more general rethinking of common policies for the development of market forces. These are more and more aimed at the definition of instruments for promoting bottom-up integration, that is, instruments for creating networks of actors, each rooted in its own national system, but which come together for specific projects, creating progressive coalitions strong enough to push for convergence from below. By the early eighties, therefore, the Community had already felt the need

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to co-ordinate the various common policies in support of innovation within the context of a framework programme, which would provide a clear overall direction to a series of otherwise contradictory interventions. The analysis of these framework programmes themselves demonstrates how the emphasis has progressively shifted from a constructivistic point of view aiming to create European champions, following the French approach, to the promotion of ever-vaster networks of research and training relationships at the European level, in order to move towards a European innovation system, or at least towards a context characterised by highly intercommunicative national innovation systems. In fact, it is obvious that after forty years of European integration national innovation systems remain very different from one another, with well-defined boundaries. Taking into account a small number of relevant factors, and in particular the organisation and results of the different university systems, it is clear that the ways in which knowledge in Europe is accumulated and transferred remain strongly national in character (OECD 1993). This tendency was significantly reinforced from 1970 onwards because in almost all European countries strong social pressures, accompanied by significant demographic growth and increases in average incomes, forced the universities to change their entry requirements. None the less, the productivity of the different universities varies tremendously: in France, 25 per cent of the population between the ages of 20 and 24 had a first- or second-level diploma (levels 5 and 6 of the ISCED classification, equivalent to a Bachelorate and to a Master of Science in the Anglo-saxon system) (OECD 1992b). Bearing in mind the three levels, the average proportion of young people in Europe having a university degree was 22.3 per cent. However, Greece, Ireland, Spain, Italy and Portugal were clearly below this average, while Belgium, Holland, Denmark, France and Germany were above, clearly emphasising the historical and institutional differences between the different national university systems, which remained untouched by thirty years of economic integration. Equally clear differences exist, furthermore, in the distribution of degrees in sectors oriented towards science and technology (OECD 1992b: 105). It is also evident that such strongly disparate results are themselves the consequence of organisational and institutional differences among the national educational systems. These appear much more complex and developed in Northern Europe, where advanced educational institutes geared towards production co-exist side by side with the universities; examples of such institutes include the German Fachhochschulen, which have as their goal the provision of qualified personnel for industry (EC 1992d). These relevant differences also exist as regards the organisation and results of Research and Development (R&D). For example, analysing the rate of growth of R&D expenditure as a proportion of GDP, it becomes clear that both the level and the trends of investments in innovation within Europe are highly differentiated.


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Furthermore, innovation enjoys varying support from the different governments. For example, in France and Italy the public sector provides over half the funding of total R&D expenditure (54 per cent in Italy, 52 per cent in France). By contrast, in the UK and in Germany the state limits itself to supporting 39 per cent and 35 per cent respectively of R&D expenditure. The direct role of the state is on the decrease in the UK, Germany and France, but not in Italy, such that the European situation appeared to be more convergent during the mid-eighties than it did by the end of the decade. The regional and cohesion policies of the European Union are therefore policies which are structural in nature, which aim to create a favourable environment for development which takes account both of situations which in practice already exist, and of the possibilities for growth contained in a context with a significant state regulatory presence. The state, however, explodes into a variety of actors, partly in competition with one another and partly forced to co-operate. In this design for an industrial policy, which results from a variety of autonomous actions, which must none the less find an overall coherence within single programmes for action, the new innovation policies of the EU acquire an increasingly important role.

9

Policies for industrial and corporate innovation

THE COMMUNITY’S OLD AND NEW TECHNOLOGY POLICIES Technology policies in the Community are nowadays oriented towards setting up networks of relationships among European firms: they can properly be considered to be networking policies. It should once again be emphasised that the term ‘networking policies’ as used here covers public actions aimed at the establishment of external relations among firms in order to generate a co-operative grouping capable of acting jointly in activities producing large economies of scale, and capable of generating positive externalities for every individual participant carrying out its own activities. In other words, the goal is to internalise economies of scale in an organisation within which individuals having their own autonomous strategies may survive. Networking therefore means inducing European firms to co-operate in matters of research and development, thereby generating a volume of activity sufficient for producing those results that could not be attained by simply ‘adding up’ the research activities of the network’s individual members. Rather than inducing a complete fusion among the firms concerned, or bilateral joint ventures, a common programme is launched, in the context of which co-operation projects can be developed. This approach, which has become the general approach adopted for all of the Community’s structural policies, has undoubtedly been heavily influenced by the vast debate on the development of alternatives to the large firm development model, with its vertical integration; the German vision of the social market economy has also provided an important contribution. The models for the aggregation of small and medium-sized firms, such as the Italian districts, or the various forms of functional groupings developed in Japan, have convinced European decision-makers to support solutions based on specific aggregations even in the case of large firms. The proposed solutions are limited to the field of research and development, and are based on general programmes within which to re-create co-operative relations. This tendency to emphasise functional integration was supported during the eighties by the Commission’s renewed capacity for launching initiatives, 174

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which found ample room for manoeuvre precisely within the proposal for sectoral research programmes. The previous approaches, which attempted to guide the convergence of national innovation systems from above, had led to very poor results because those institutions which interact in defining innovation conditions are strongly constrained by their national historical legacies. Thus the development of national university systems has until the eighties clearly followed separate national paths, without any signs of convergence either in terms of performance or of decision-making procedures at the European level. Equally, the transmission mechanisms between university research and industrial research have developed differently, depending on the nature of relations and on the rules internal to each of the national innovation systems. An ever-clearer intention to create specific networks thus emerges within the Community’s initiatives. Within these networks, traditionally different actors are induced to work together, and progressive coalitions are formed which are able to change from below the rules specific to each of the national innovation systems. A progressive reversal in the Community’s innovation policies from a top-down to a bottom-up approach is therefore taking place, with the clear intention of inducing integration among different systems, and the awareness that it is, however, impossible to guide this transformation process directly (Guzzetti 1995). The clearest example of this transformation is the Esprit programme itself, which in its initial formulation (1983) appeared to be a typical specimen of a scientific development programme to encourage the diffusion of new technologies through the promotion of agreements among the large European industrial groups. The logic behind the programme was clearly constructivistic. Later on, the programme gradually changed into a general programme for promoting aggregations of firms within an evolutionary context (Mytelka 1991). In 1975, the balance of exchange of information technologies for European countries was still positive, but from then on a gradual decline began, which resulted in a significant inability on the part of European firms to compete with the large American and especially Japanese complexes in activities for which the real entry barrier was research and development. Faced with this situation, the typical reaction of European firms was to resolve their individual difficulties by individually joining up with American firms. The traditional links which existed between German and British firms had, by the early eighties, generated a series of collaboration agreements, essentially based on licences for the production of components and parts. The result of these agreements was none the less increasingly to fragment European industry and to lead to the adoption of different standards on the European market, such that the development of collaboration between Community firms became more and more difficult. An alternative path, taken up in France and Italy, consisted in promoting

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national groupings. These, however, remained too small and too fragile with respect to international producers, thus resulting in continual requests to national authorities for protection and aid. The initiative of launching a common research and development programme in the field of information technology was taken by Commissioner Davignon who, on the basis of Article 235 of the Treaty which encourages intra-Community co-operation, asked twelve large European firms to outline common needs for the development of the sector. The following emerged as the main needs: (1) the promotion of pre-competitive research in five strategic areas (advanced micro-electronics, software, advanced information processing, office systems and computer integrated manufacturing); (2) the supply of basic technologies and applications specific to European industry as a whole; (3) the development of European standards. The main result of the project was to enlarge, but also to redirect, scientific co-operation activities among firms. Intra-Community co-operation has increased not so much at the expense of co-operation with the US, as at the expense of co-operation within a single country. One can ask whether there is not the danger of this promotion of agreements turning into a support for the creation of closed circles, thereby reinforcing European oligopolies. Article 85 of the Treaty does indeed permit agreements among firms, provided they encourage the development of technological and economic progress. These programmes, at least in their first and second phases, have demonstrated themselves capable of laying the foundations for interfirm collaboration, while maintaining conditions of competition among these firms, and leaving open the possibility of co-operating with other firms in the US or in Japan. However, it should be remembered that the Community policies for the creation of European technological co-operation networks have remained marginal with respect to the development strategies of European firms operating in the computer and electronics sector. The sectoral crisis, which in the eighties had a strong impact on the development of the sector’s turnover and profitability, actually induced many European operators to leave the sector, giving way to Japanese operators. Further, it put pressure on national governments to act in support of their own national champions, and to look with favour upon fusions with American and Japanese firms, thereby implicitly considering these European networks to be irrelevant in strategic terms for individual firms. Subsequent Community programmes have developed to the full this emphasis on the possibility of linking among themselves local actors participating in a particular common project. In many cases, apart from the Community’s financial contribution, the really crucial aspect of such projects has been precisely the progressive consolidation of a new approach to defining public action, which no longer aims to substitute for market actors, but rather aims to encourage the growth of new actors through the creation of co-operation procedures and through the search for practical


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complementarities between firms and institutions. It has been precisely the possibility of identifying co-operation mechanisms within a European context which has allowed many local actors to review their own specialisations from a wider point of view, repositioning themselves at the European level. Many specific actions have proliferated along these lines, launched by the different branches within the Commission, with the aim of identifying the opportunities for developing ever more sophisticated networks. A clear evidence of this attitude is the refocusing of Esprit. The Esprit Programme for 1994–1998 has been devoted to creating the infrastructure for the emerging industries, which provides the basis of the global information society. It promotes user-supplier collaborations by supporting joint research projects oriented to develop usability of technologies, best practices, training, dissemination and technology transfer actions. The methodology of action is based on the creation of networks of excellence bringing together industry, universities, research centres and users throughout Europe. The approach of the Commission is oriented to create focused clusters of activities, covering a number of different technologies and users needs, but with well-defined goals in terms of problems to be solved. The technical content of the Programme reflects the attention given to the usability of information technologies by a variety of firms and institutions in order to improve the competitiveness of all industry in Europe, not just the industry producing electronic devices. A big emphasis is devoted to the possible use of information technologies by small and medium-sized firms, working in the traditional sectors, but having new needs for relations with other companies in order to create clusters of innovators (Coroyannakis 1995). Thus, the Programme pays attention to the development of basic technologies—software technologies, technologies for components and subsystems, multimedia technologies—but it also addresses application technologies—technologies for business processes, integration in manufacturing, high-performance computing and networking, and open micro-processor system initiatives. The Programme also pays attention to long-term research projects and projects devoted to promoting the participation of users coming from the less-favoured regions in order to avoid concentration simply on the emerging problems of the most advanced local situations. The evolution of Esprit clarifies the distinctive emphasis given to innovation by the Commission, but also the progressive refinement of the policy approach. Innovation policy action has to involve a variety of actors, playing different roles in society. The usage of new technologies has to favour the development of the organisation of society; it is surely important to stress the technical content of innovation but it is also necessary to emphasise its social aspect. All industry in Europe has to improve its performance in order to avoid the risk of creating a modern sector which uses the new technologies, but is

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isolated within a traditional society, which has no access to the new opportunities. THE CREATION OF NETWORKS OF INNOVATORS This new approach to innovation policy was reinforced with the agreement of the Fourth Framework Programme. In 1984, the Community decided to make decisive improvements to its role in promoting research, innovation and the optimal exploitation of human resources, through the formulation of a Multi-annual Framework Programme (MFP). The first MFP covered the years 1984–1987, the second 1987–1991, the third 1990–1994 and the fourth 1994–1998 (Table 9.1). In 1987, the Single European Act considered research and technological development to come within the scope of Community action, and the Treaty of Maastricht has reinforced this formal competency. The MFP thus became a basic instrument of Community policy, and the Fourth MFP clearly outlines the strategy which the Commission intends to pursue in the sector. Following the principle of subsidiarity, the Commission considers there are four possible areas of intervention: • first, ‘basic science’ activities, which call for a supra-national dimension in order to develop actions on an adequate scale, either because a large structure is required or because a network of closely integrated laboratories is needed; • second, activities concerning technological priorities which are likely to benefit a large number of industrial sectors, but which require long-term investments and a vast network of co-operation between private and public laboratories; • third, common policies with the task of stabilising the single market through the consolidation of various networks of innovators; • fourth, pre-competitive research activities, which aim to support common actions to set standardisation, and harmonisation; this is in order to develop a common network of research aimed at industrial innovation, and thus to stimulate the creation of an effectively European scientific community (EC 1992b and 1992c). In this context, too, the key word is networking, i.e., the capacity for stimulating the creation of technical and production co-operative networks. It must be borne very clearly in mind, however, that research and development activities currently continue to be based on institutions clearly defined along national lines, and that national innovation systems are extremely rigid, precisely because schools, universities and research laboratories had an important role in structuring national communities. The new approach further emphasises the very great difficulty in trying to get these innovation systems to converge through the application of ‘top-down’ actions. For this reason the new approach, supported by the Fourth Framework


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Table 9.1 Fourth Framework Programme budget breakdown

Source: CORDIS, Community R&D Information Service, 1996

Programme, aims above all to create a variety of networks in order to promote the mobility of researchers and of students. This creates homogeneous groups of academics who, by working together, induce ‘bottom-up’ convergence

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actions: in working together on common projects, groups from different countries are forced to define integration procedures which are effectively exploitable and practicable. A great deal of attention has thus been paid to the promotion of mobility programmes, such as the ‘Erasmus’ programme for university students, the ‘Human Capital and Mobility’ programme for researchers and Ph.D. students, and ‘Commett II’, which aims to support mobility between universities and firms across the different European countries (EC 1991b). The need to improve and develop human resources becomes the focal point of the new approach, by promoting common projects which are based on local innovation systems but which at the same time are framed within the wider context of European co-operation. This approach requires a change from the traditional model of individual efficiency to a broader concept of social equity in order thereby to develop the multiplicity of competitors capable of encouraging co-operation among complementary firms and institutions without leading to collusion. Thus a clear conviction is emerging that co-operation must be based on diversity (understood in both productive and cultural terms), and therefore on specialisation and complementarity. The strong emphasis on the development of both information and social sciences within the Fourth Framework Programme should therefore be underlined; there is a need to relaunch at a global level a science which is strongly rooted in the history of European countries (Newby et al. 1991; Bangelmann et al. 1994). To conclude, the EU’s new approach to industrial policy underlines the crucial role played by research and development, but links this to the promotion of human resources, and to the development of the local environment, making the most of the local culture and of the historical specificities of the territory within which it is intended to operate. The principle of convergence is based on complementarity, and thus on the mass use of reciprocal recognition in order to define an evolutionary path as an alternative to a process of convergence which relies on a regulatory harmonisation imposed from above, and thus on the adherence of individuals to an external rule. CHALLENGES OF INNOVATION AND ROUTES OF ACTIONS The Commission has progressively developed a global approach to innovation. Innovation is considered as the result of a complex dynamics, given by the interaction of a variety of subjects coming from both private and public sectors. This approach, outlined by the White Book and the following documents on European competitiveness and the Framework Programmes, has been finally defined in the ‘Green Paper on Innovation’ (Draft, December 1995). In this document, the result of a very complex set of meetings involving national representatives and experts, the Commission assumes a very wide definition of innovation: ‘the successful production, assimilation and exploitation of novelty in the economic and social spheres. It [i.e., innovation] offers new


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solutions to problems and thus makes it possible to meet the needs of both the individual and society.’ This wide definition implies that technological factors are key elements in innovation but they are parts of a complex of elements, which identifies an innovative environment. According to the ‘Green Paper on Innovation’ this environment ‘is the sum total of firms in an industry, the fabric of economic and social activities in a region, or even in society as a whole’. Therefore, the human resources and the institutional framework are the essential factors to identify the efficiency of the innovation systems. Public authorities are stimulated to exercise their responsibilities to promote development of future-oriented markets and to anticipate changes rather than react to them (p. 2). Therefore, the capacity to develop innovation is not limited to strictly defined technology innovation support, but it involves the entire range of policies we have analysed in this book, from the public actions oriented to creating the single market and promoting competition inside this market, to the policies for developing a positive environment for market forces. Within this framework, a strong emphasis on small and medium-sized firms emerges. For this reason, it is necessary to strengthen the technology absorption capacity of the SMEs. This means to strengthen the role of the regions in diffusing and supporting innovation, and in creating local innovation systems which are inducive of innovative practices. The ‘Green Paper’ sums up thirteen sets of actions, called routes, to overcome the obstacles facing innovation in Europe. These are: 1 2 3 4 5 6 7 8 9 10 11 12

develop technology monitoring and foresight; better direct research efforts towards innovation; develop initial and further training; further the mobility of students and researchers; promote recognition of the benefits of innovation; improve the financing of innovation; set-up fiscal regime beneficial to innovation; promote intellectual and industrial property; simplify administrative procedures; develop a favourable legal and regulatory framework; develop ‘economic intelligence’ actions; encourage innovation in enterprises, especially SMEs, and strengthen the regional dimension of innovation; 13 update public action for innovation. This approach, which pays attention to a variety of social and institutional problems, is clearly aimed at the diffusion of technological, organisational and methodological innovation through the entire frame of European society. It does so in the context of seeing society as a very complex fabric of central and local administrations, associations of interests, private groups, clubs of individuals, social parties and groupings of individuals according to different

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historic and cultural pathways. Thus, the adoption of these novelties is not simply defined by a common path, but the common path results from a variety of different experiences. From this perspective, I believe that the most interesting aspect offered by the European story is the possibility to work on diversity, and to develop these diversities into specialisations in order to define possible complementarieties, rather than to try to reduce the historic diversities into one generic context without roots. Nevertheless, the Commission has set up a restricted number of task forces to face specific issues in sectors which are considered relevant for European industry. Five task forces have been established in the automotivetransport sector: • • • • •

the car of the future the train of the future new generation aircraft maritime systems of the future intermodality of transport

and three in other sectors: • multimedia didactive software • vaccines and viral diseases • environment-friendly water technologies. In this sense, it is clear that the automotive-transport sector is still considered the core of the manufacturing sector in Europe, and its innovation is reputed as the engine of a large-scale production system. Larger firms in Europe are still concentrated in this sector and it would be dangerous not to take into serious consideration their innovation capacities; nevertheless, the relevant declaration in favour of a diffused vision of innovation is limited by the pressure of supporting the innovation efforts of large firms. Assuming a broad definition for innovation, special attention has to be devoted to the dissemination and the optimisation of the results of the research activities. The third activity of the fourth innovation programme has aimed to: 1 promote an environment favourable to innovation and absorption of new technologies by enterprises; 2 stimulate the creation and consolidation of an open area for the diffusion of technologies and knowledge throughout Europe; 3 supply this area with appropriate technologies. The third activity reorganises previous programmes such as Sprint and Value, and introduces new measures, mainly oriented to giving a territorial perspective to technology diffusion.


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From this perspective, the novel innovation view of the Union, which is so strongly oriented to strengthening a positive attitude to change of the entire fabric of European society, is coupled with the territorial approach heralded by the structural policies. It stresses that not only firms are competing but also regions, and local networks, where enterprises, but also local institutions, are involved in order to group local interests in direct competition in an open context. And, once again, we have to face the political issue of the impact of economic dynamics given by economic integration and new technologies on the social cohesion of the Union. INFORMATION TECHNOLOGIES AND EMPLOYMENT A relevant aspect of the introduction of new information technologies is linked to their impact on employment. There are different analyses of the impact of the new technologies on employment, both as regards the combined effect of job losses and the creation of new jobs, and as regards the non-neutrality with respect to the relationship between skilled and unskilled workers (CEPR 1995; Freeman and Soete 1994). In actual fact, the process of job destruction by the new information technologies is varied, and ranges from the direct substitution of labour with automated instruments of calculation and execution, to the real suppression of activities which were justified under a previous form of social organisation. However, this is neither a new phenomenon, nor can it be strictly attributed to information technology. Social resistance to technological change has a long history and Ricardo (1817) himself reminds us that the effects of the introduction of machines cannot be seen in static terms. The introduction of machinery is carried out by an entrepreneur in order to gain advantage through an increase in the productivity of his entire productive organisation. This has an impact on overall competitiveness and on the capacities for accumulation and savings, such that the general effects of the introduction of new machinery are the result of a complex structural dynamic, which can in the final analysis have a positive effect on the overall demand for labour (Ricardo 1817:396). The problem is thus one of exploiting all of the possibilities for creating new activities and new jobs which result from the development of new information technologies. It is in this direction that the development of information technologies acts on the very relationships which structure a society, such that it is not possible to analyse the potential positive and negative effects of such an activity without first prefiguring the changes in the social structure itself (Carnoy and Castells 1996). Without getting involved in difficult predictions, it seems evident that the development of the information society implies the development of new activities of production and provision of services to firms and persons. This involves a more intense action of diffusion and of development of new applications of the new communications technologies, as well as the need to create an adequate regulatory and political context for such a diffusion.

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It also involves the scope for providing the Community with adequate networks of telecommunications, and to exploit to the maximum the potential of European industry in the fields of information and communications technologies. It is necessary, however, to experiment with applications in new sectors, through a series of pilot projects and general programmes, to allow firms of every size, and families and institutions to adopt the new technologies and to supply new goods generated through the use of such technologies. In this sense, it should be remembered that in Europe today there exists a population with a high level of education, on average no longer young, which can certainly finance the purchase of new goods in the above-mentioned sectors in the fields of education, health, the environment and leisure. The Commission, acting on the guidelines of the G7, has indeed launched many pilot projects for the application of information technologies to these sectors. For example, elderly and disabled users present a variety of specific problems, which could generate new products, new services and new technology applications; they are expected to represent nearly 30 per cent of the European population by the year 2020. The Technology Initiative for Disabled and Elderly People Pilot Action’ is devoted to applying this set of technologies to these emerging and relevant social problems, which also represent a crucial market for future industrial growth in Europe. This design, however, follows a particular model of social development in which social solidarity itself guarantees the development of a demand for goods with a high technological content, and thus of a growth for European industry which is not overly dependent on goods on which the cheap labour of the Eastern countries can have a large impact. In this sense industrial policies become once again part of a vast design for social transformation, which can be carried out in diametrically opposed ways. On the one hand, a policy of drastic cuts in wages, in social security and in collective guarantees can be followed in order to enter into direct competition with countries which still have labour costs and levels of social protection hugely different from those found in Europe; this would in any case lead to a highly conflictual and differentiated situation. On the other hand, and this is the path continually advocated in Community documents, a gradual transformation path can be followed, in which social mobility is encouraged while at the same time substantial levels of social protection are retained, and firms are forced to move continually towards the production of goods with a higher knowledge and services content. This implies that decisive action must be taken as regards educational levels, the capacity for adapting the social organisation to the new open and competitive context, and significant investments in territorial infrastructures, with the ensuing risk of an overly heavy presence of the state in the economy. This risk in turn leads to a need for institutional reform, to bring the Union closer to citizens, and at the national level to push a substantial amount of power towards lower institutional levels which are closer to the individual


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citizen, as laid down in the principle of subsidiarity which is enshrined in the Maastricht Treaty as one of the fundamental principles of the Union, and as has been forcefully reasserted during the Intergovernmental Conference (Turin European Council, 29 March 1996, Presidency Conclusions). TRANS-EUROPEAN NETWORKS OF INFRASTRUCTURES AND EUROPEAN COMPETITIVENESS The Treaty of Maastricht devoted great attention to the creation of a single network of basic infrastructures for transport, for energy, and for telecomunications. Articles 129B, 129C and 129D establish the principle that the creation and the development of the European single market must be supported by externalities having the same extension of the network of relations that we want to establish throughout Europe. In fact, infrastructure networks have been established by nation-states with the aim of strengthening the territorial extension of the central government; thus, the railways networks were developed according to a polar scheme having the national capital at the centre. Each national system of infrastructures was established according to its own standards, and in several cases maintaining different standards with respect to other countries’ national infrastructure systems. This was the way to guarantee the existence of local monopolies and to defend and protect national interests. The old design of infrastructural national networks generates nowadays a patchwork of sub-systems, which are badly interconnected and therefore not operable by competitors working on the entire area of the European market. Further, there is a serious problem of cohesion as established by Article 130A. National networks were defined with the purpose of strengthening a political geography of the nation-state, e.g., the convergence of the transport system on the capital town. In this sense, regions which were marginal, such as the border regions, became more peripheral to the centre. The risk is therefore that the single market regions can exacerbate this polar dynamics by accelerating the relations among the present central regions, making several areas more and more marginal. Finally, the debate on the concept of European competitiveness shows quite clearly that competitiveness depends not only on individual efficiency but also on a system efficiency that involves all the institutional subjects which frame the territory. Following our Smithian approach, competitiveness depends not only on the capacity of an individual company to organise its own production, but also on the possibility of developing a variety of productive and market relations which allow the firm to be part of a more advanced division of labour. Therefore, the possibility of having a large network of infrastructure reduces the costs of production, in terms of the cost of transaction, but allows the creation of production and market relations which increase specialisation and complementarity among firms, and therefore stabilise the common interests for collective growth.

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The meeting of the Heads of State and Government in Brussels at the end of 1993 accelerated the common projects for Trans-European Networks (called TENs) for transport, energy and telecommunications, in order to establish a system of externalities having the same extension as the single market, but also to relaunch a programme of public works having the capacity to cut unemployment at the European level (Table 9.2). The role of the Union in building TENs is based on the application of the subsidiarity principle. The Union has to identify projects of common interest and provide financial guarantees and subsidies to stimulate the national governments to start them. These projects, such as High Speed Railways, can be managed only if private investors decide to take part in the venture; as this investment can have a crucial impact on territorial organisation, regional governments and municipalities have to be involved as well because they have to provide urban regulation and proper support to these projects in term of local interconnections. Thus, we can consider TENs as a mega-exercise in collective policymaking based on the subsidiarity principle: the entire project works Table 9.2 TEN priority projects

Source: European Union, ‘Regional Policy and Cohesion’, ERDF Guide


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according to the capacity of the institutions operating the different issues at different levels to work together for growth, by assuming their own specific responsibilities and considering that their own interests depend crucially on the success of the entire project. In this multiplayer, co-operative game the Union has to assure the rules of the game. Thus, a first duty is to work towards guaranteeing interconnectivity and inter-operability of the existing national networks. In this case as well, the Union overcomes the idea that integration means becoming the same, i.e., becoming one network managed by one authority. Rather, it means creating, according to a principle of inter-operability, the condition for making compatible both the existing networks and their regulation; that is to say, ensuring that an individual operator can enter the system in each local gate and navigate thoughout the entire system towards any other local gate without intermediate barriers given by national regulations. Interconnectivity and inter-operability need to work on technical standards and communication protocols but they do not necessarily need to specify the nature of the individuals who can use the networks; it is simply necessary to establish rules for entry to the systems, to guarantee that all the users can use the network on an equity basis to avoid monopolisation, and to prevent any action that can damage the network, therefore limiting the rights of the other users. In any case, interoperability of TENs induces the need for convergence of different national innovation pathways in order to assure not only technical standardisation but also harmonisation of organisational practices. The development of TENs has, therefore, a relevant antitrust aspect, given by: the specification of the rules to guarantee and manage the public good; the network operability itself; and the guarantee of access to all the users. It also has a competitive aspect, given by the possibility of establishing new activities by using the opportunities offered by the network. The telecommunications case, presented above, underlines this problem. Nevertheless, TENs have a crucial relevance both for territorial development and for innovation policy. The development of the less-favoured regions, cross-border co-operation and the relaunch of cities and areas of prolonged decline depend crucially on the possibility of being interconnected with the main lines of communication. The development of High Speed Railways, for instance, could polarise the economic and social life in a restricted number of big towns if the High Speed Railways station is not interconnected with a local network of urban and regional transportation, making an entire local area a sort of ‘diffused city’ framed by a variety of transport systems (cars, buses, trains, airplanes) which are interconnected. The impact of these projects on innovation is also very important. We have outlined above the fact that most of the task forces established recently within the innovation policy of the Union are oriented to so-called ‘intelligent mobility’, involving projects of telematics applications to transport problems. An example is the project to improve passing information and signalling in order to make road, rail, vessel and air traffic safer and faster. As each transport

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communication network can be considered as a complex, evolving system, innovation applied to identify and solve logistics and information problems can be extremely useful for other applications. Thus, there is a great task to experiment, implement and diffuse new technologies, new organisational solutions, and new problem-solving approaches which cross different disciplines and professions, according to the general approach offered by the ‘Green Paper on Innovation’. ENERGY NETWORKS AND THE EUROPEAN UNION’S NEW ROLE Among the TENs that the EU must promote there are also energy production and distribution networks, which are considered of top strategic importance for Europe. Energy was the first area of common interest for Europeans with the creation in the early 1950s of the European Community for Coal and Steel and later the European Community for Nuclear Power (Euratom) (Guzzetti 1995:7). We have to remember that ECSC was created in order to manage jointly the energy sources of the national European countries after the end of the Second World War. Various opinions consider that it was necessary to keep control of German energy sources in order to prevent new conflicts among European countries. The creation of the ECSC was promoted by Shuman and Monnet according to the functionalist approach so as to isolate a possible conflict, to identify a superpower to manage the conflictual matter, and to co-ordinate the individual action to avoid further conflicts. This was an extraordinary instrument to tackle extraordinary problems (Urwin 1991:43). The new approach, based on considering energy as a trans-European network means—as clearly indicated by Commissioner Papoutsis (1996)— that energy is a strategic isssue for Europe, but it is no longer a conflictual matter amongst Europeans. Energy becomes directly linked to environmental protection and this requires that the European Union acts on behalf of the common interest of Europeans. From this perspective the energy network can be treated as other issues, considering it as a magnet for investment, as a necessary contribution to create and enforce the single market, as a competition and regulation policy issue, as a regional policy and a social cohesion argument, and finally as a catalyser for technological innovation and organisational novelty. The electricity and gas networks must exploit better the existing energygenerating capacity, i.e., develop more efficient, secure and flexible energy-generation capacities. In this case there are also s of standardisation, interconnectivity and inter-operability. The Commission promotes a wide range of programmes for efficiently operating the internal market for energy, for organising energy co-operation among European nations and among the EU and other areas, especially Eastern Europe and Mediterranean countries, for guaranteeing transparency in


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operation and investment, and for assuring security of supplies, efficiency and innovation (EC 1995f). Two important issues have to be noted: environmental protection and the external dimension of globalisation. Following the ‘Fifth Action Programme for Sustainable Development’, the ‘White Paper. An Energy Policy for the European Union’ assumes that a priority for Europe is to guarantee a sustainable development through a variety of actions oriented to demonstrating that improving competitiveness and protecting the environment are not necessarily in conflict. The Commission is in favour of creating a legal context to promote a drastic reduction in pollution and external costs of energy technologies, through fiscal measures, emission limits and safety standards. Moreover, it asks the various actors—national governments, municipalities, energy producing and distribution firms, business communities, and consumers’ associations—to promote voluntary agreements experimenting with measures which might guarantee environmental protection goals and which could be extended to the entire Union. In this respect, we believe that the Commission could be more explicit in promoting new technologies not simply for protecting the existing environment, or for reducing the external costs of pollution, but for improving the environment, and in some cases for re-establishing wide areas of protected environment (Table 9.3). The second issue is given by the evidence that the trend towards globalisation of the energy market has been reinforced by the end of political bipolarism. As Commissioner Papoutsis mentioned (Vienna, 29 January 1996), energy offers a good starting point for extending relations with Central and Eastern European countries because it offers financial means to growth, by exchanging energy and basic commodities for general assistance. THE RISKS OF INSTITUTIONAL COMPETITION The redirection of the Community’s policy-making process has enabled many national and regional-level actors to maximise their chances of interacting at Table 9.3 TENs for energy

Source: European Union, ‘Regional Policy and Cohesion’, ERDF Guide

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the Community level. The Community’s new industrial policy orientation in fact overcomes the vision of a centralised authority in charge of planning sectoral development or of intervening to compensate for the liberalisation of international trade, or alternatively of keeping faltering firms alive. A more explicitly market-orientated view has come to the fore, supported by an ideology which we will call ‘neo-institutionalist’ and in which common rules of behaviour are not so much dictated from above as the result of the continuous interaction between the different actors in the game. As far as industrial policy is concerned, this has led to the definition of a view in which the Commission is given a crucial role in overseeing and guaranteeing the creation of the internal market on the one hand, and in guaranteeing competition on the other. Conversely, the Commission’s functions in the industrial field have been limited to the promotion of co-operative relationships among firms, associations and local institutions on specific matters which are considered to be pre-competitive, such as research and development and the training of human resources. This conceptual model has also been applied at the territorial level, and thus the old approach which only considered territorial issues if these were linked to the reorganisational effects of the customs union has been replaced by a view in which the support of structural adjustment of less-favoured areas becomes crucial in order to allow firms in these regions to participate in intra-Community competition on an equal footing. This view, within which the common institutional context is the result of an action which is no longer established a priori by a central authority, but is rather centred on local communities’ capacity to organise themselves, is strongly German in inspiration. It is also strongly linked to a well-ordered civil society, in which both productive forces and institutions tend to work together and to be well-connected. The paradox of this approach is thus that less-favoured areas are not only characterised by economic and social conditions which are less developed than those of stronger areas, but that this condition of unease is linked to an actual institutional situation, which has proved itself incapable of sustaining an endogenous development. The case of Southern Italy is the most obvious example of this: the regions which have been most active in taking advantage of the opportunities provided by the new Community context have been those same regions in the North of Italy which have historically been maintained by a diffuse economy and a civil structure capable of guaranteeing the kind of web of productive and institutional relations which can most easily be integrated, at the European level, with similar French and German structures. Southern regions do not seem to be capable of taking full advantage of these opportunities, partly because interventions in support of development have always been managed centrally, thereby weakening precisely those institutions which should now be playing an active role in creating interconnected relationships at the European level.


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The Community’s framework of structural policies must therefore be seen as a relevant part of the economic integration programme, along with policies to guarantee access to the single market even for those who are less fortunate (in spatial or dimensional terms), and policies to promote the technological progress of European firms by favouring co-operation within the bounds set by regulations on competition. There is the risk however that this approach may not allow actors who are economically or politically more fragile to participate effectively, and that therefore a mechanism may be restored which, rather than accentuate actions in support of greater opportunities for growth, reintroduces a system of reciprocal vetoes, or else delegates to national governments the search for a solution to the development problems of less-favoured actors. This approach, when extended to innovation policies, offers a number of opportunities to the more dynamic players, but also poses a number of limits and risks directly linked to differing capacities for participating in an evolutionary process of this kind. The main risk is in fact that such policies will further strengthen those who already find themselves among the most dynamic actors, encouraging their trans-European aggregation. The creation of a network among local leaders could in fact lead to the strengthening of an elite at the European level, which may not be prepared to act as the starting motor of the various different local situations, thus leading to the risk of broadening the differences between a strong and even more cohesive centre, and an even more fragmented periphery. Similarly, a second risk is that of creating islands of co-operation among local leaders, who are however incapable of leading the process of transformation of their respective national innovation systems. In other words, the most dynamic local experiences are not capable of inducing a process of revision of the main rules governing the national innovation system (for instance, the means by which teaching staff is recruited or industrial research is financed). At the industrial level, such groups are able to adjust their own needs in the light of the strong new relationships established at the European level, but most universities, research centres and firms are unable to improve their own capacity for action because they are constrained by a local innovation system from which the most active and dynamic have in fact disassociated themselves. The third risk is that the process of creating trans-European networks, drawing the most dynamic actors into systems of relationships focused on specific sectoral problems and issues, could in fact lead to the break-up of systems of local relations which are instead focused around environmental and cultural themes. To prevent these negative effects from occurring, it becomes essential therefore to place the greatest possible emphasis on the actions of subsidiarity which the Commission must be able to carry out in order to support the process of growth and the greater participation of the historically weakest

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actors. From an integrationist point of view, the principles of reciprocity and subsidiarity thus become crucial if one wants to create that multiplicity of actors which prevents co-operation mechanisms from turning into opportunities for collusion. Supporting the entry of new competitors, as well as the effective participation of all internal actors, becomes essential in order to prevent industrial policy interventions from actually turning into a support for the creation of new regressive trans-European coalitions, instead of creating progressive coalitions to end the previous situation of national fragmentation. In any case, the Commission has launched a number of industrial policy experiments, centred on the attempt to create relationships among actors different from one another, in order to create ever-greater networks of practical, operational relationships between research centres, firms and universities. There exists the risk of encouraging the proliferation of more and more new experiments, without ever reaching the position where the new rules at the national and common levels can be drawn.

10 Conclusions

EUROPEAN INDUSTRIAL POLICIES Let us now try to draw a few lessons from the considerations which have been made so far regarding the Community’s industrial policies over the last ten years. This decade has seen the relaunching of the integration process, beginning in the mid-eighties with the Commission’s White Paper on the completion of the single market, and continuing into the mid-nineties when, within a completely changed international context, the governments ratified the new phase of European integration, giving life to the European Union. These ten years have first and foremost involved substantial changes to the Community’s policy instruments, sanctioned by the relevant amendments to and numerous enlargements of the constitutive treaties, which as a whole define a sort of constitution of the European Union. In these amendments of the Treaty of Rome and in the subsequent supplementary acts, described in chapters 4 and 5 of this book, a constitutional change in the way the Community formulates policy is outlined. Without doubt, the character of the Union’s executive vertex has been emphasised, with the explicit specification of the central role of the Council of heads of government in guiding common actions, and with the relaunching of the Commission’s power to propose, which fragments this common action into a myriad specific programmes. However, a mechanism is also activated from below, in which the individual local requests become the real point of reference for common action, through the specification of mechanisms of clear federalist extraction. Within this new approach, there is a confirmation of the evidence that a process of international liberalisation regulated within the context of an agreement among countries implies structural policy actions to facilitate the adjustment in the organisation of production. Without this adjustment, the liberalisation mechanism is unable to make the institutional transformations proposed in a socially acceptable way. None the less, there is a discontinuity between customs unions, in which the adjustment takes place within countries, and economic unions, in which the adjustment must take place transversally, across countries, to the point where the strictly national identification of the production apparatus is undermined. 193

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During the phase of the Community’s relaunch towards the European Union this discontinuity has been given substance and has been underlined by a reversal of the mechanism for collective action. We can describe it very briefly as a transformation from a French-derived top-down approach in which a central authority with the capacity to coerce and command lower hierarchical levels defines an action in the common name, with which individuals then bring themselves into line, to a German-inspired bottomup approach in which, within a framework of common rules and of opportunities for collective action, individuals may outline their own actions, which in the course of interaction with others can lead to new common rules being defined. This approach can be clearly seen in the policies defined for the creation of the single market, where a procedural mechanism entirely defined through high-level negotiations on the elimination of non-tariff barriers—in this respect similar to tariff barriers—is replaced by a mechanism of reciprocal recognition, in which the more dynamic participants outline their own course of action; remaining partners must respond either by coming into line with such an action or by proposing their own alternative. This approach is also beginning to be seen in industrial development policies, be they for the acceleration of the capacities for innovation or for the growth of a particular territory. There is therefore a more markedly evolutionary inspiration, with the Commission being assigned a subsidiary role, generating opportunities for interaction which however can only be taken up by individuals according to their own specific capabilities for action and aggregation. In this context, the really valuable aspect of the Community’s policies for industrial development in this new phase is the progressive emergence of networking as the basic procedure for formulating political action. The Commission’s subsidiary role consists in exercising a power of initiative to channel the requests of individuals, generating procedures however in order to ensure that those least favoured are placed in a position to take an active part in the common game. Networking means that a single problem is identified and responded to not so much by generating general rules from above, but rather by providing opportunities for co-operation among a restricted group, in the conviction that members of this group, in interacting with one another, will be able to define rules and procedures for integration, which can then be taken on as a standard of general applicability. This way of thinking about industrial micropolicies goes beyond the European experience itself, because it forces a careful study of the relationship between individuals and the collective, which currently comes within the scope of sociology and of political science as well as of economics. Networking in fact means favouring a new type of aggregation among individuals, which can only take place, however, once these individuals feel themselves to be a part of a new collective entity, with its own rules and procedures as well as sanctions to exclude free riders. In other words, networking means promoting the reaction of progressive

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coalitions, leading the process of industrial change connected to trade liberalisation. This identification of a method of industrial policy which concentrates not so much on selections but rather on broadening the scope for co-operation, must be fully understood in all its importance, and all its limitations. In the absence of a common framework for interpreting these specifications as forming part of a plan for political integration, there is the risk that these programmes will lose their significance in terms of collective action and become reduced to simple incentive schemes for the creation of closed and defensive interest groups, which oppose the objective of the creation of a context which encourages growth and participation, that is to say, regressive coalitions. Initially these programmes were formulated following an approach of neofunctionalist derivation, such that the continuous generation of Community programmes appeared to respond to the emergence of individual problems to be separately isolated and resolved. Subsequently, these programmes have become increasingly interlinked within general reference frameworks, so that, for example, all of the programmes for research, technology and human resources have been organised within a single framework programme, just as territorial policies have in turn been brought under the heading of structural policies, despite the fact that these territorial interventions are explicitly subdivided by country by reason of the typologies of the backward areas themselves. This need to reconstruct reference frameworks becomes essential in the process of defining a policy which is justified by the direct participation of local actors in the common action. A relevant characteristic of these policies is thus the weakening of the essential trait which had characterised the formulation of public policies at the national level, in other words the existence of a state which, by virtue of its organisation, was able to assert a power to command, in terms of guiding and controlling individual actions in the name of common objectives and principles which took on the form of national interests. Under this formulation, the state acted in order to alter the organisational structure of production, in order to arrive at an arrangement more conducive to the achievement of a common interest, itself defined in the very terms used to characterise the state, i.e., precisely the nation. In the phases of international liberalisation, it was supposed that the productive structure maintained its own national characterisation, and thus that by reinforcing this structure or altering the internal organisation it was possible to reinforce the nation in its conflicts with other nations. All of the policies based on increasing technological capacities at the national level—namely the policies for the creation of national champions, as well as the policies to provide aids for enterprises otherwise destined to be defeated in the conflict among nations—implied this clear identification of a central authority capable of interpreting the collective interest, of guiding the process of change, and of compensating the losers. The policies put into place by national

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governments during the first phase of the implementation of the Treaty of Rome remained traditional in this sense, since the creation of a free trade area or of a customs union essentially remained a political agreement among countries, aimed at guiding each country’s internal process of adjustment and at regulating the relative specialisations among the different countries. The industrial policies implemented by the Commission during the seventies attempted to transpose these same national policies to the Community level. The policies launched by Commissioner Davignon concerning the creation of a crisis cartel in the steel sector, the agreements to limit textile imports from third countries, as well as the formulation of large European projects for technological development entrusted to consortia of large firms, all fall under this category. That phase largely failed, because each of the firms which participated in this European plan for the creation of European champions in fact remained a national champion, thus carrying its own specific set of nationally defined interests. The next phase, characterised by the proliferation of specific programmes, has in many cases turned into a race by individuals to acquire the monetary incentives provided for the actions, creating a sort of public aid political economy, transferred from the national to the Community level. The measure of efficiency of individual administrations has often been reduced to the ability to acquire European funds. In this sense the Community has been weakened in its capacity to legitimise its own actions not just as those of a bureaucratic organisation but as those of a democratic engine guiding the institutional transformation of an event as extraordinary as that of the overcoming of the nation-state as the point of reference for collective action. This is where one can measure the Community’s so-called ‘democratic deficit’, and the disaffection which has been repeatedly expressed with respect to a European Community is nothing other than an expression of the collective need to base all of these common initiatives on a more solid consensus than that which currently exists, and within which the basic elements of the institutional architecture of the European Union remain national governments and a Commission headed by figures nominated by national governments. NEW APPROACHES, NEW OBJECTIVES The transition towards economic union none the less implies a substantial change in the general approach, but this approach, which has in actual fact been developed inductively and which has been more justified ex post than effectively theorised ex ante, implies that the individual actors must busy themselves in order to reap the opportunities laid out by the Commission. This is the most valuable element in the change which has taken place over the last years, and which must therefore be understood in all its importance. There is no coercion; instead, a set of conditions is created which, however, must be grasped from below, in a sort of attempt to guide collective action

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through the stimulus provided by an advanced group of explorers, whose behaviour will later be taken up as the standard for any future action. Such an intervention is undoubtedly full of risks. First of all, there is the risk that those who turn out to be capable of grasping the opportunities made available by the Commission also turn out to be those who, already advantaged, find themselves in the best initial set of conditions, such that over time (this being a cumulative process) the disparities tend to increase and the leading role of the most active players is consolidated, leaving the weakest facing the alternatives of either not participating in the game or of taking on a following role. The complementary risk is that of not being able to learn from individual experiences, with the Commission losing itself in the bureaucratic management of individual programmes, such that the overall picture fails to evolve because the principles and characteristics common to the whole of Community action are lost. Here lies the crux of the problem of the industrial policy action of the European Union. What are the principles and the objectives which form the basis for common action, and which in any case lend value to the actions of the Commission and of the Council, as being the kind of actions which properly belong to an authority which tends to take on a statist character in a context which goes beyond the national level? The response is far from obvious because the policies belonging to this phase have essentially been expressed in ‘neo-functionalism’ terms, i.e., in terms first of all of the creation of the single market, and then of the achievement of economic union which had the objective of reaching, by an implicit route, that political union which could not be reached directly, since it was clear that the legitimacy of democratic representation remained anchored at the national level. The problem of the legitimacy of collective action, which has repeatedly manifested itself in relation to the Community, is therefore raised. And here therefore we find ourselves facing the problem of what the Union is today, and of what it should be in the future. In this sense, the problem which was raised from the beginning of the Community’s relaunch in the mid-eighties is today once again crucial, now that, with the new phase of intergovernmental negotiations started in Turin (March 1996), the goal is effectively to consolidate the European Union. Already in the past it seemed clear that there were two ways in which the process of integration could be understood. The first, according to tradition, set the creation of a single market as a prerequisite for the construction of common institutions—this was an inductive path which entrusted to the market the creation of that common context which was taken to be the real common goal. The second, by contrast, considered it necessary to make explicit from the very start the fact that the market is itself an institutional construction, which must respond to relevant social objectives. In this latter case the search for the sort of efficiency which is characteristic of the market was to be

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combined with a common search for the conditions of equity and stability, and also for democracy, which enabled the market to operate effectively as the engine not just of economic but also of institutional change. The European path, much influenced by the German experience, turns out to be strongly oriented towards the search for the social meaning of the market economy. In this sense it has held that the creation of the single market was to be understood as an action aimed at increasing the extension of the market but also at regulating the market power of existing leaders and at encouraging structural adjustment, in order to reach beyond consolidated national organisations. To make use of the frequently invoked Smithian stylisation, industrial policies for integration thus concern: • policies to increase the extension of the market; • policies to regulate market power; • policies for encouraging a more efficient division of labour, and thus a greater specialisation and more explicit complementarity among industrial activities, on both a local and a transnational basis. The set of actions is thus aimed at accelerating a structural transformation, which as it takes place nevertheless defines new power relationships, new modes for interaction among individuals and among individuals and the collective, and thus new institutions. In this sense, the structural and institutional changes mutually reinforce each other, legitimising and enabling a transformation of collective action, which would otherwise run into obstacles in the shape of individuals themselves, who could feel harmed by such a transformation, or at least not capable of sustaining the conflict linked to the change. As Smith teaches, the market is a social construction, which works all the better the larger the number of those who are effectively capable of actively taking part in it. If the roots of efficiency are to be found in the capacity for accumulating knowledge, then a greater group of independent, but reciprocally related individuals—this is the market as the opposite of the feudal organisation of society—allows individuals to specialise, enabling them to accelerate their capacity for accumulating knowledge on specific activities, and thus enabling society as a whole to grow, exploiting the complementarities of the knowledge of the different actors present. In a small village, says Smith, the restricted number of individuals restricts the possibility for specialisation and thus for the development of individual knowledge, while in a large city this complementarity of functions and thus of competencies can best be developed. The first action for accelerating the growth in competencies is thus to increase the extension of the market, whilst guaranteeing the continuation of an effective market context and preventing the power of some from being imposed on others, and simultaneously privileging the condition that the greatest possible number of actors must be able to take part in collective action. For this reason Smith, the ideologist of the market society, offers a

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broad justification for the role of the state in developing those public goods which serve to identify the sense of community, and thus to identify the rights of citizens, such as defence, justice and order, as well as schooling and healthcare. If the market is based on the recognition of individual property rights, collective action which enables the development of social efficiency requires the affirmation of collective rights, allowing the individual to develop his or her own capabilities, in a context of trust among the different members of the community. The broadening of the market results in different communities coming into contact with one another, requiring them to start up a process of mutual integration. This implies not only the reciprocal recognition of different individual property rights, but also a reassessment of common public goods. These public goods in fact provide the basis for citizenship rights and thus for the scope to develop that kind of collective trust which enables the individual to specialise in one particular activity, in the knowledge that others are involved in other activities, and that those activities which support and make collective life possible are collectively guaranteed. It follows, however, that in the European situation, which historically has been so heavily characterised by the nation-state, an action of such a type requires an agreement among countries to establish not only rules but also procedures for change, as well as actions to break up existing national regressive coalitions which favour closure, encouraging instead the creation of transnational, progressive coalitions in favour of liberalisation and thus of the ensuing structural and institutional change. In other words, a process of liberalisation carried forward by the increase in the extension of the economic market implies not only a structural transformation, resulting from the reorganisation of individual activities, but also a substantial institutional change. This involves, firstly, a transformation of the administrations which manage public goods and provide citizenship rights with content. Second, it involves a reordering of the entire set of relations linking private and public interest at the local community level. Thus, institutional change implies the transformation of both government and governance of societies, developed within the rigid guidelines of nationstate, and now challenging the globalisation process. In this sense the European experience, in spite of its explicit limits, of the accumulation of bureaucratic encrustations, and of the expenditure of energy, represents a useful point of reference even for other situations which are developing at the international level, ranging from those found on the American continent from Nafta to Mercosur, to those in the countries of the former Soviet Union. In all of these situations, but more generally in every situation in which a country opens itself up to international relations, the national government becomes increasingly unable to impose rigid modes of behaviour on its own citizens, in particular in the field of the development of market initiative. In all these cases, the new path leads to a variety of actions to restore the

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relevance of the local levels, respecifying the modes for citizens to participate in collective growth, through the identification of collective goods which enable the development of a progressive type of collective action. The rediscovery of the local level, ranging from districts to the intense new attention focused on systems of small and medium-sized enterprises, variously referred to as clusters or districts, implies an upgrading of the cultural and institutional values which identify a local community and determine its degree of openness. The emphasis on real local situations, which becomes necessary in a federalist-inspired transformation, involves not just the definition of means for stimulating private initiative, but also of ways of guaranteeing public action in a context characterised by complementary historical experiences, which in going ahead with the process of integration must be capable of complementing each other, in order to avoid a return to a position of closure. This rediscovery of the local community necessarily requires the identification of a supra-national level which enables the fostering of a non-conflictual dynamic among the various areas. This means fully accepting the idea that, in an evolutionary context, procedures for change become as important as the final result, since the way in which different subjects interact defines the rules for collective action, establishes those elements which are then taken on by the group as public goods, and thus redefines the institutions which characterise the new whole. Supra-national authorities have above all a fundamental procedural role in defining new institutions capable of representing the new whole. The crucial characteristics of this transformation process must therefore be made clear in order to prevent those who in any case feel excluded from the evolutionary mechanism from joining together to block the proposed change. It follows that if the market, as a selective and dynamic institution, is to be the engine of the transformation, then a political union which takes the market to be the instrument of integration must at the same time declare the values which unify and legitimise such a selection, and therefore concentrate particularly on the routes of entry into the system, in order to prevent the market from turning into an economic or a political monopoly. Efficiency, equity and stability then become identified with the definition of a democratic rule which guarantees not just entitlements or formal rights but also capabilities or effective rights. Such an imposing transformation, based on an accentuation of market mechanisms, implies a respecification of the role of the state over and beyond its national identification. The state, which has apparently been expelled from the market, re-enters it, because the economic dynamism cannot but be based on capabilities linked to knowledge and participation, and thus to the existence of societies which decide to invest collectively in those public goods which enable an accumulation of knowledge and a development of the participation of individuals in collective action. The supra-national level thus takes on a character which must necessarily fully restore the political value of

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integration, and as such must not disguise itself as a disarmed national state but rather exalt the innovative character of the common institution which is being built. In this sense, an integration policy requires industrial development policies supporting the process of structural transformation and thus the evolutionary mechanism underway, continually re-creating progressive coalitions in favour of the opening. In this case too the issue is not only that of using the appropriate instruments of industrial policy, but especially that of identifying new means of participation for using these instruments to guide collective action. Much of the democratic legitimisation of a European Union which seeks to go beyond the political bequest of nation-states hangs in the balance of the search for this new way of conceiving collective action as a democratic procedure.

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Index

Abramovitz, M. 40 abuses: dominant market position 91, 95–7, 98, 99, 123; possible, protection against 119 accumulation 28, 38, 183; diversity of the model 28; mechanism for 2; resources 39 acquisitions 100; appropriateness of Community legislation in 101; encouraging 122; number drastically reduced 102; setting up measures to control 97 added value 114 additionality 160 Adenauer, K. 65 administration(s) 116; autonomous 38; central 32, 38, 53; concerned with the creation of non-tariff barriers 125; decentralised 31, 81; functions redesigned 161; local 155, 158, 161; management of countries with different institutional backgrounds 77; national 28, 75; obstacles 72, 74; organisation harmonisation 157; power of interdiction 55; regional 155, 156, 157, 166; relations among European countries and ex-colonies 48–9; small but efficient 38; sovereignty 100; structural funds 49; technical 86; weaknesses 65; which manage public goods, transformation of 199; see also public administrations Adriatic 158 advertising 72, 74 advocates general 51 aeronautics sector 139, 140 AFNOR (French Association for Normalisation) 86, 87 Africa: Central 164; North 12; South 164 AG (Aktiengesellschaft, Germany) 115 agglomeration 136, 138, 147 aggregation 4, 31, 131; can no longer be identified 76; capacities and experiences 138; entrepreneurial and intellectual forces 38; explicit specific interests 55; firms within evolutionary context 175;

individuals 40; international 30; political 35, 36; rules 71; SMEs 174; social 5, 37; social forces 139; territorial 136, 139; trans-European 191 Agricultural Guarantee Fund 56; see also EAGGF agriculture: adjustment 150; innovative solutions 159; ministers of 50; policy 45, 70; producers of goods 42; production 54; protection 56; regulations on 106; sectoral crisis 125; tariff for products 56; see also CAP aid 103, 166; continuous requests to national authorities for 176; granted for dismantling obsolete plants 130; market distortionary 124, 167; spent on acquiring new machinery 130; state 47 aircraft 182, 187 airports 134 Alcatel 115, 140 alcoholic drink 60, 79 aluminium 94 amalgamation of firms 97 Amesse, F. 138 Andorra 94 antitrust activities 49, 72, 101, 118; careful supervision 73; common policies for 45; efficient substitute for policy 73; TENs and 187; watchdog function 74; see also ECSC application technologies 177 Argentina 38 Asia 143; industrial co-operation with 134 Assembly of the EC 46, 49, 50, 54 assets 39 AT&T (American Telephone and Telegraph) 116 audiovisual sectors 113, 140 autarky 18, 34 autonomy 66, 161; affirmed and defended at national level 157; countries which ntent to maintain 6; national governments reciprocally reduce 35; political entity which is more than the sum of nation-

209

210

Index

states 136; strategies 174; variety of actions 173 Autorità-Italian Antitrust Commission 116 Azeglio Ciampi, C.D. 134 backward areas: development and structural adjustment 150; large 152; structurally, reference threshold for 159 backwardness 143, 147, 148 Baden-Württemberg 157 Bael, I.V. 93, 95 Bain, J. 72 balance of payments deficit 15 Balassa, B. 17 Bangelmann, M. 180 Bangemann, M. 106, 129; Bangemann Report (1992) 42, 126, 132 banks 60, 61, 112; central 50; network of main firms and 75; regional development 163, 164; see also Deutsche Bank; EIB; European Bank for Reconstruction and Development; European Bank for Investments; World Bank Barcelona 163 barriers 59, 72; between national markets 130; elimination of 150; entry 175; erected specifically for deterring new entrants 96; external 7, 20, 24, 73; fiscal 77, 78; internal 24, 150; intraCommunity 73; national 97; operators not capable of meeting standards 83; physical 89; regulatory 78; technical 60; see also institutional barriers; non-tariff barriers; tariff barriers Baumol, W.J. 73, 111 Becattini, G. 137, 138 Belgium: multiplicity of national communities co-existing within 157; protectorates 49; universities 172 Bellis, J.F. 93, 95 benefits 80, 150; consumer 95 Bianchi, P. 5, 101, 136 big businesses 66 biotechnology 140 Birmingham 62 Bismarck, Otto von 65 BNL (Banca Nazionale del Lavoro, Italy) 116 Boltho, A. 39 bottom-up approach 39–41, 171, 175, 179– 80, 194 Briggs, R.J. D. 101 Britain 65, 152; Conservative government’s opposition to Community industrial and social policy 170, 171; Department of Trade and Industry 86, 87; entry to EC 49; funding of R&D expenditure 173; industrial revolution 3; internally divided into large areas which cannot be reduced

to regions 157; liberalisation of telecommunications services 116; regulatory process 86; support of firms through direct transfers 106; traditional links between German firms 175; unemployment 170; White Paper (1982) 86 British Commonwealth 49, 86 British Telecom 116 Brussels 186 BSI (British Standards Institution) 86 budgets 33, 51, 52, 56–7, 78 Bundeskartellamt 119 bureaucracy 3, 50, 52, 60; accumulation of encrustations 199; neutral, highly qualified 54; responsible for management of development actions 161 buses 187 Byé, M. 17 Cable & Wireless 116 Calkins, J. 101 CAP (Common Agricultural Policy) 45, 46, 50 capabilities 39–41; collective, for production and trade 37 capacity excess 95, 125, 130; removal of 105 capital 28; attracting 22; circulation of 129; effects on the single market 21; free circulation of 22, 45; freely reallocated 6; granting of 109; market functioning of 29; mobility 147; mobility/movements 4, 23, 46, 71; provided by state to firms 107; regulation of 74 capitalism 2; continental, developed within confines of nation-states 68; development of 27, 58; imposed by decree 37; managerial 137; national 20, 71; proof that there exists more than one type 137 Carnoy, M. 183 cars 139, 140, 182, 187 cartels/cartelisation 99, 100, 123, 125; avoidance of 131; crisis 130, 196 Castells, M. 183 Catalonia 157 Catholics 65, 66 CECA see ECSC Cecchini, P. 72, 74, 81, 150 CEI (Italian Electronic Committee) 86, 87 Celler-Kefauver Act (US, 1950) 100 Central Europe 143, 162, 164, 167; extending relations with 189 central planning 35, 162 CEPR (Centre for Economic Policy Research) 81, 143, 183 certification procedures 82, 89 change(s): different firms having different

Index attitudes to 131; economic 75; evolutionary 44; failure of the proposed process of 12; industrial 159; institutional 16, 38, 41, 43–9, 74, 132, 145, 199; links which explain the start of a process of 138; political 75; social 4; structural 10, 170 Chicago School 101 choices 33, 70, 112; administrative 84; collective 33, 70; made by the economy 38; political 112; public 33, 35; substantial 54 Church social doctrine 65 CIS (Commonwealth of Independent States) 164 cities: ‘diffused’ 187; large 198; minor 137; relaunch of 187 citizenship 2, 46, 171 civil rights 171 Clayton Act (US, 1914) 100 closed circles 176 closed economy 4; economic and political effects of opening 14–16; moving towards a market economy 38 Club de Bruxelles 163 CNR (National Research Council, Italy) 86, 87 coal 54, 106, 170; see also ECSC coalitions: negative 40; potential losers 19; single common interest 12; see progressive coalitions; regressive coalitions Coase, R. 138 codetermination 65, 122 cohesion: serious problem of 185; social 183, 188; structural policies and 146–73 Cohesion Fund 143, 148, 160 Colbert, J.B. 121 Cold War 54 collaboration agreements 175, 176 collective actions 9, 10, 29, 39, 66, 71, 74, 81, 118; capabilities for production and trade 37; choices 33, 70; complementarity 147; consensus 150; consolidated regulatory mechanisms unable to develop 139; decision-making 32, 33; different possible forms 138; driving 132; economic integration influences the rules that define 41; efficiency 25; evolution 41; goods 5, 200; growth 26, 39; guarantees 184; interests 55, 64; legitimation/legitimacy of 35, 64, 197; new way of conceiving 201; procedures which define 38; progressive type 200; public bodies covering all sectors 77; quality of life 142; regulation of 137; representation 21, 34; reversal of the mechanism for 194; rules 34, 36, 68, 71–2; structures

211

39; suitability of 40; transformation of 198; welfare 23 collusion 91, 92–5, 96, 119, 180 colonies 49 Colonna Document (1970) 128–9, 132 commercial policies 68–9 Commissariat for Standardisation (France) 86, 87 Committee of Regions 51 commodity movements 23 common actions: conception consistent with new approach to 129; objective of all 144; to set standardisation and harmonisation 178 common interest 58, 186, 188; achievement of 195; coalitions of 128; projects of 186 common market 61, 91, 93, 98; abuse 95, 96; creation 26, 45, 81; distorting 122, 123; EIB task of contributing development without shocks to 47; enactment of the concept 92; establishment 21, 31, 48, 88, 150; extension of 20; free movement of goods within 97; functioning of 59, 88, 122, 123, 124; neoclassical analysis of 22; passage from customs union to 57–8; subsequent programmes of interventions 46; unlimited access of all suppliers to 63; whether operation is compatible with the principles of 99 common obligations 51 common rules 54, 59, 65, 68, 69, 123, 194; behaviour 190; economic integration 170; intracommunity competition 91–2; Treaty of Rome 122 communications; development of a new approach to problems 134; lack of 147; technologies 184; transversal systems 131; trans-European networks 133, 134 communist regimes 11 communitarian institutions 49–53 comparative advantage 84, 153 compatibility 83, 84, 99 compensation 8, 112; damages derived from extra-contractural responsibility 52; need to review mechanisms 19; obligations imposed by public authorities 110 competition: accelerating normal mechanisms of 7; actions implemented to reinforce 165; aids which distort or threaten 124; among European regions 157; among nations 21; conditions which damage 123; correct 139; desire to improve conditions for 123; development of policy after Maastricht 102; direct, in an open context 183; distortions in 128; effective 73; fiscal 81; foreign 34, 68; institutional 62, 153, 189–92; internal 5, 38, 121; international 38, 124, 126, 127, 169; loyal 134; national 140; opening up

212

Index

national coal and steel production 170; petrification of 125; potential 73; preventing 3; price 83; regulations on 130, 191; restraints on 123; rules on 91–2, 123; safeguards on 128 competition policies 49, 69, 74, 90, 117–20, 126; to deter the formation of monopolies 74 competitive advantage 60–1, 85 competitiveness 20, 71, 142–5, 177; developing 126, 127; European 132–6, 185–8; factors which lower 167; improving 189; industrial 127, 132, 136; international 5; no longer based on price 61; of national champions 118; overall, impact on 183; tools for increasing 119 complementarities 41, 90, 180, 198; creation of production and market relations which increase 185; decisional 65; generating opportunities for 147; integration through 156; possible 182; practical, firms and institutions 176–7 complementary goods 83, 111 computer sector 113, 176 computer integrated manufacturing 176 concentration see industrial concentration concerted action 93, 94 conflicts of interests 18; among states 140; political and economic 35 consensus 145, 150, 161; building 79; collective 150 consociate firms 93 constitutional mode 59 constitutive treaties constructivistic view 121–2, 126, 172; policies 124, 125 consumers: associations 117, 189; defence 117–20 consumption 28, 78, 79 contracts: commercial 93; legal 93; private 3; stipulated by Community institutions 52 control(s) 50, 60; antitrust 73; Commission not intervening on the modes of ownership and 112; common 54; efficient capacity of 65; external 76, 112; monopolistic behaviour 118; more systematic 56; network 114 convergence: decision-making 175; different national innovation pathways 187; general rules 40, 41; institutional 34, 76; integrated mechanisms 40–1; interests of nation-states 71; key to European integration 148; legislative 47, 157; macro-economic policies 23; national innovation systems 175; nominal 162; path towards 40, 75; policies 45; principle based on complementarity 180; progressive coalitions strong enough to

push for 171; ‘real’ 146–9, 162, 163; returns to factors of production 22 conversion 84, 48 convertibility 23 Cooke, P. 158 Cooper, C.A. 17, 19 co-operation 174, 176, 177, 180, 190; broadening the scope for 195; creating islands of 191; cross-border 159, 187; energy 188; favouring 191; industrial 42; private and public laboratories 178; technical 163 copyrights 64 COREPER (Committee of Permanent Representatives of the Member States) 50 Coroyannakis, S. 177 costs 111; entry 113; exit 113; external 189; factor 69; fixed 72, 113; hiring and firing 143; labour 133, 184; network 113; new entrant can enter and leave the market without 73; ‘nonEurope’ 74, 150; plant and production management 69; production 130, 150; resulting from persistence of non-tariff barriers 72; social 19, 170; sunk 111, 113; transaction 83, 84, 85, 138 Council of Ministers 46, 54 Council of Prime Ministers 43 Council of the Heads of State 54 Court of Auditors 52 currency: common, to facilitate trade 64; fixed and irrevocable exchanges of 23; single 23 Curzon Price, V. 125 customs duties 56 customs union 6, 7, 25, 28, 41, 71; based on the abolishment of internal tariffs 45; can work if it evolves progressively towards economic union 26; could lead to everbroader progressive coalition 34; creation of 100; demands the removal of tariff barriers 59;establishment of 31, 169;passage to common market 57–8; policy mechanism 58; procedure for the founding of 46; regulating 29, 73; reorganisational effects of 190; structural adjustment and 16–20, 122; study of the effects of 72; transforming into economic union 127; unequal conditions of exchange within 147; unworkable policy 69 Cyprus 164 Dahrendorf, R. 39 Daimler Benz 115 DATEV (fiscal consultancy telecommunications service) 115 David, P. 82–3, 84 Davignon, E. (Commissioner) 125, 176, 196

Index De Bresson, C. 138 decentralisation 38, 89; decision-making 10, 31, 65, 66, 81, 133; slow 156; economy 133, 134 decision-making 49, 53–6, 63; block, within Community institutions 150; centralized 31; centre of Community 51; combined/ collective/common 30, 32, 33, 40, 53, 57; Commission’s capacity 36; convergence 175; decentralised 10, 31, 65, 66, 81, 133; independent 93, 94; internal 44; narrowly based system 89; new approach to 152–3; Parliament’s powers 50; power of veto over 33; SEA 46; subsequent, definition of applied rules left to 47 defective products 118 defence 64, 110 delocalisation policies 143 Delors, J. 11, 66 demand 79; aggregate 80; changing, rigidity of producers in responding to 125; directly managed by the state 75; domestic 80; excess in productive capacity with respect to 125; goods with a high technological content 184; imported goods 147; increased 85; inflationary push to maintain levels of 133; internal 21, 24, 133; labour 183; peak 111; public 80; public goods 111; will not expand 18 demand curves 17, 111; Marshallian 14 De Melo, J. 17 democracy 9, 36; central issue for any further development of the Union 13 demographic growth 172 demonopolisation of services 102, 110 Denmark 93, 152; SMEs 136; universities 172 dependence: economic 3, 22; mechanisms 34; political 16; single government 37; technological 3 derogations 103, 105 Deutsche Bank 115 Deutsche Bundespost Telekom 115 developing countries 134 development: aim to create a favourable environment for 137; alternatives to the large firm model 174; areas having scarce population 150, 158; autonomous, ‘infant’ firms or fragile firms incapable of 165; basic conditions for 149; capabilities 37; centralised policy 158; co-operation 49; ‘diffuse’ 158; economic 98, 124, 138, 143, 154; encouraging 38; endogenous 138, 165, 190; factor for catalysing 161; factors which determine the nature of 171; guaranteeing 42; harmonious 149; historical 148; industrial 68, 69, 121–45,

213

147, 156, 157, 163, 201; intellectual 135; interventions in support of 190; lasting 133; less-favoured regions 103, 187, 191; local 38, 80, 153, 167; market 117; market forces 165; more favourable opportunities for groups of firms 106; opportunities for the telecommunications sector 114; policy 161; progressive polarisation of 22; promotion of 110; rapid 24; regional projects 155; research and technological 127, 129, 139; rural areas 150, 158, 159; social 184; sustainable 133, 189; technological/ technical 84, 85, 88, 92, 126; see also R&D differences: cultural 77; ethnic 77; historical 77; homogenisation of 90; institutional 89 differentiated products 72 digitalisation 114 DIN (Deutsches Institut für Normung) 85 directives 52–3, 60, 80, 81, 108, 112, 114–16 passim, 118; aimed at convergence of legisative, administrative and regulatory measures 88; capacity of a country to assimilate 62; delays in enforcement 77; general 88; harmonisation 60; related 110 discrimination 76; norms that could lead to 47 disequilibria 106; political 150 disparities 81, 158; regional 146–9 distribution 189; agreements which contribute improvement in 123; funds 159; networks 188; possible for a firm to control 74; wealth 147 divergence 22, 24, 148 diversity: model of accumulation 28; national 74–8; possibility to work on 182; social 74 division of labour 2, 3; development of 12; economic union and reorganisation of 20–3; greater 114; increased beyond national borders 37; intra-industrial 41; limited by the extent of the market 73; more advanced 185; redefinition of 16; social 5; well-developed 136 dominant market position 102; abuses of 91, 95–7, 98, 99, 123; operations which create or reinforce 99 Dore, R. 137 dumping 47; intra-Community 91 duopolies 102; unregulated 120 EAGGF (European Agricultural Guidance and Guarantee Fund) 149; see also Agricultural Guarantee Fund Eastern Europe 143, 164, 167, 184, 188; economic renewal 52; ending of the era

214

Index

of Soviet control over 162; extending relations with 189; industrial cooperation with 134; openings towards 12 Eaton, C. 72 EC (European Community)/EU (European Union) 43–9; actors and instruments of policy-making 8–10; aims and perspectives 11–13; budget 56–7; Constitution 44; enlargement 163, 164, 170; favours creation of progressive coalitions 145; Fourth Framework Programme 178, 180; Framework plans 160; Green Paper on Innovation (1995) 134, 180–1, 188; Initiative Programmes 159; institutional structure and decisionmaking process 53–6; institutions and their functions 49–53; marginal areas 142; new role 188–9; old and new technology policies 174–8; policies for SMEs 165–9; process aimed at creating an economic union 42; rules on state aids 103–7; see also Council of Ministers; directives; European Commission; European Council; European Court of Justice; European Parliament Economic and Social Committee 46, 51–2, 55 economic crisis 75, 125, 150; less-favoured areas 158 economic cycle 102 economic integration: industrial policy and 1–13; institutional barriers and 28–9; institutions to regulate 29–34; political economy of 14–27 economic liberalism 42 economic policy 142 economic progress 123, 176 economic union 7, 25, 41, 47, 122; central administration of 32; consequences of transition from customs union to 71; creation of 50, 70; customs union can work if it evolves progressively towards 26; developing, with clear political motives 11; establishes common market 31; establishment 169; industrial policy 8; meaning 68; progressive transformation into 126; regulating 29; reorganisation of division of labour 20–3; seen as the most secure means for pushing governments towards integration of policies 45; transforming customs union into 127; transition to 59; unworkable policy 69 economies of scale: adequate, development of 85; better exploitation of 150; dynamic, individual firms can develop 136; goal to internalise 174; greater, overall homogenisation which allows for 83; important 113; large 174; negative

impact on 84; not a necessary and sufficient condition for subadditivity 114; statistical and dynamic 19 ECSC (European Coal and Steel Community) 44, 51, 97, 107, 188; establishment 170; first treaty to set up a European economic community 121; High Authority 49, 50, 53, 99, 101; infraction of Article 88, EU Commission procedure against 10 Edinburgh 62 education 64, 135, 144; basic, huge increase in the levels of 143; creation of new activities 133; long-term 133; population with a high level of 184; qualifications 76; systems 169–73 EEC (European Economic Community) 44, 51, 53, 54, 97, 129, 170; conflicts overcome by Regulation 92; constructivistic type of industrial policy 70; disparity among different regions within 152; expanded in territorial terms 150; ‘groundbreaking’ role 153; institutional relationships within 66; intervention 118; technological innovation policies 171; see also EC/EU efficiency 45, 116, 200; collective 25, 38; competitive process, measures to guarantee 74; criteria 110; definition of objectives of 36; distribution 94; divergence in 24; economic 9, 97; exchange 35; full 21; growth 10; guaranteeing 117; individual 38, 92, 137, 180, 185; inequalities in 96; internal 122; market 42; minimum 111, 129; national systems 41; overall, increase in 34; production 10, 35, 94; productive 72; regional policies aimed at guaranteeing 110; security of 189; social 199; system 185; technical scale 72, 129; tools for increasing 119; what it actually means 24 EFTA (European Free Trade Association) 152 EIB (European Investment Bank) 47, 48, 155; controversies regarding 52; interventions 149 El-Agraa, A.M. 60 electricity 134, 148, 188 electronics sector 176 Emerson, M. 23, 72, 74, 80, 81, 150 Emilia-Romagna 157 employment 140, 142–5, 183–5; act which has negative effects on 28; common policies for 45; countries with vast problems 170; defence of 47; European confidence pact for 145; full 165; generating opportunities 142; information technologies and 183–5; initiatives for creating 133, 159;

Index interventions planned to facilitate 170; opposition to any action in support of 170; protection of 110; see also jobs; work employment relations 52 endogenous forces 136, 157 ENEL (Ente Nazionale per l’Energia Elettrica, Italy) 116 energy 110, 186; basic infrastructures for 185; networks 134, 188–9; policies 56 ENI (Ente Nazionale Idrocarburi, Italy) 116 entitlements 2, 40, 200 entrepreneurial activities 29, 87, 93, 158; development of initiatives 126; local 81; monopolistic scope 96; new actors 161 environment 62, 144; creation of new activities 133; improving 149, 189; policies 127; poor conditions 148; protection 189; requirements adaptation of existing plant to 105 equilibria 79, 119; internal 66; political 29 equity 9, 36, 47, 187, 200; harmonised conditions of 114; negative effects on 45; social 133, 180; wealth distributed according to principles of 42 ‘Erasmus’ programme 180 ERDF (European Regional Development Fund) 155, 157, 159 ESF (European Social Fund) 46, 47, 48, 149, 170 Esprit Programme 106, 175, 177 ethnic conflict 157 EU see EC/EU Euratom (European Community for Nuclear Power) 44, 51, 188 European Bank for Reconstruction and Development 52 European Bank for Investments 46 European Commission 9, 10, 44, 46, 47, 59, 88, 94, 121; action of members 49–50; action programme for SMEs presented to European Council 165–6; approved aids 108; ‘Communications’ 126, 139; Community Framework Support Plans 160; consistent implementation of competition policy 119; co-ordination 128, 155; crucial role in overseeing and guaranteeing the creation of internal market 190; Directives 115; distinctive emphasis given to innovation 1 European competitiveness the result of complex of actions by 135; favours decentralised application of competition law 102; ‘First Report on Competition Policy’ 104; forcing the search for progressive coalitions 129; framework programme for different areas of R&D 131; fundamental R&D activities 105; General Directions 141; general reformulation of structural policies 155–

215

6; global approach to innovation 180; Green Paper (June 1987) 140; ‘Guardian of the Treaty’ 54, 97, 99, 106; industrial policy 70, 145, 192, 196; intervention 48, 178; losing itself in the bureaucratic management of individual programmes 197; negative effect on the very credibility of 140; new objectives for 164; new technologies promotion 189; not intervening on modes of ownership and control 112; not the ‘government’ of the Community 54; oriented to create focused clusters of activities 177; pilot projects for the application of information technologies 184; pollution reduction 189; power of initiative in Community policymaking 54; powers 91, 99; procedure against infraction of Article 88 of ECSC 107; programmes of action 132; public goods 117; publicly owned companies 110; recourse to Court of Justice 103–4; regional governments’ direct relationship with 157; regulations 80, 95, 98; renewed capacity for launching initiatives 174–5; required to take on the role of parajudicial body 123; response to particular conditions of structural disadvantage 124; role during the seventies 125; ‘Small Firms’ taskforce 165; strict controls 110; structural funds 156; subsidiarity 120; subsidiary role 194; support of the process of growth 191; task forces 182; vastly ranging power of initiative 60; watchdog functions 103, 105; White Book 54, 60, 61, 180; see also White Papers European Council 43, 55, 59, 88, 91, 97, 121, 197; budget creation and approval 51; Cohesion Fund agreed, Edinburgh (1992) 160; Commission action programme for SMEs presented to 165–6; common decisions of Parliament and 51; Directives 114, 115; each member represents the interests of his own government 50; guiding the Community 50; legislative harmonisation 150; Milan meeting (June 1985) 60; new objectives for 164; powers 50; state may appeal for derogation 103–4; tasks redefined 49 European Court of Justice 46, 51–2, 53, 103–4; cases: ACF Chemiefarma 93, 94; Cassis de Dijon 60; Christiani v Nielsen 93; Commercial Solvent 96; Continental Can 95, 96, 98; Cremonini-Vrankovich 88; Dyestuffs 93; Franco-Japanese ballbearings agreement 93, 94; Grundig 94; Hoffman-La-Roche 95, 96; Mannesmann/Hoech 102; Michelin 95, 96; Milchförderungsfonds 93; Nestlé/ Perrier 102; Philip Morris 98; Pioneer

216

Index

94; Polypropylene 93; Rockwell Iveco 94; Steetly/Tarmac 102; Sugar 93; United Brands 95; Volk v. Vervaercke 94 European Initiatives 149–50 European Parliament 46, 53, 54, 88; change from Assembly to 50; Commission’s Communication (Nov. 1990) 126; decision-making powers 50; legislative powers 51; role strengthened 49; see also Assembly of the EC ‘Eurosclerosis’ 8, 125 evolutionary mechanisms/processes 40, 55, 59, 66, 70, 180, 191, 201; action 6; collective 41; criterion which gives competitive advantage 61; defining technical standards 89; information system 141; institutional change and 43–9; institutional integration 62; nature of the process of integration 57; procedure 30; TEU accentuates 58 exchange rates 148; manipulation of 23 exchangeability 23 excise duties 78, 129 exclusion 110; external operators 17 executive branch 82 exogenous objectives 123 expansion 21, 68, 80, 150 expenditures 56, 84, 173; obligatory and nonobligatory 50; public 160; R&D 173 exports 21; consortia 157; stimulating 23; trade policies to favour or sustain 21 externalities 130, 185; evolution of 40; network 83; positive 3, 85, 127, 136, 174; productive system 25; system having the same extension as single market 186 Fachhochschulen 172 factors of production 22, 33 free circulation 22 Faeroe Islands 94 Far East 143, 164 farmers 54 federal states 53, 54, 64, 157; legitimation of public action 55 Federal Trade Act (US, 1914) 100 federalism 6–8, 35, 49, 61, 78; approach maintains that economic and political problems are not divisible 30; fiscal 81; path towards integration 81 ‘Fifth Action Programme for Sustainable Development’ 189 financial channels 166 financial guarantees 186 financial integration 47 financial services 60 financing 105; projects for improving lessfavoured areas 48; provision of 166 Finsider (Italian steel company) 107–8

‘First Survey of State on Aids in the European Community’ 106 fiscal measures 189; breaks 167; harmonisation 78–81; incentives 106; policy 47; redistribution 111; taxation on consumption 28 fisheries 106 foreign policy 164 foreign ministers 50 France 7, 55, 60, 65, 88, 190, 123, 135, 153; convergent approaches 75; ethnic conflict 157; export-promotion strategy 106; funding of R&D expenditure 173; IMPs launched by the Commission in 156; Overseas Departments 94; Planning Commission 53, 121; promoting national groupings 175–6; protectorates 49; regulatory bodies 86; relevant market 118; strong interventionist tradition 69; subsidised loans 106; tradition of efficient public administration 87; universities 172 France Telecom 115–16 franchises 79 free exchange agreement 19 free riders: capacity to sanction 40; guarantee against 72; strong social rule which effectively targets 136 free trade 64, 65 free trade zone 6, 31; between MTCs and EU 163; creation of 12 freedom: citizens 136; competition 98; decision-making 93; economic initiative 136; movement 111; specific constraint on 97 Freeman, C. 137, 183 functional integration 174 functionalist federalist approach 6–8, 53–4 funds see structural funds G7 countries 141, 184 gas 134, 188 GATT (General Agreement on Tariffs and Trade) 82 GDP (gross domestic product) 172 GEIS 115; General Electric 116 General Council 50 gentleman’s agreement 93 Georgakopoulos, T. 17 Germany 3, 7, 60, 87, 102, 107, 190; aids granted to particular regions 124; Basic Law 65; bottom-up approach inspired by 194; Constitution 65, 157; convergent approaches 75; core of rearmament 54; decentralised administrative system 77; development along the banks of the Rhine 137; Eastern Länder 159; energy sources 188; European path much influenced by 198; evolutionary

Index approach 126; free-tradism 65; fiscal incentives 106; funding of R&D expenditure 173; health and safety standards in the work-place 85; institutional model 88; Länder 65, 66; once again centre of the Old Continent 11; only federal country in Western Europe/EC 55, 66, 119, 157; policy approach 153, 123, 128, 135; purchasing power 146; regions affected by division 103; regulation liberalising TLC services 115; reunified 163; SMEs 136; strategy in support of innovation 106; ‘territory’ view of industrial policy 132; traditional links between British firms and 175; unemployment 147; universities 172; vision 55, 174; West’s frontier with a hostile East 162 Gibraltar 94 globalisation 134, 189, 199 GNP (gross national product) 56, 160; Community 80 grants 106; once-and-for-all 109 Greece 143, 152, 160; IMPs launched by the Commission in 156; purchasing power 146; remains heavily centralised 157 Grossman, G.M. 19 growth 142; access to new opportunities for 141; accumulation for 2; actions in support of greater opportunities 191; alternative paths, incapability of proposing 15; big business interests 66; collective 26, 39, 128, 185; common capacity for 26; constrained 113; demographic 172; different European countries 58; economic 166; efficiency of 10; endogenous 38, 39; equitable 12; European confidence pact for 145; financial means to 189; fracture-less 164; giants of the global economy 135; guaranteeing assistance for 164; industrial 48, 161, 184; institutions working together for 187; internal targets 121; maintaining 11, 139; occasionally chaotic 113; policies in support of 144; possibilities for 173; projections 96; rapid 24, 113; slowed down after the long postwar phase 143; social 166; spontaneous 138; technological engine of systems undergoing 167 Gualtieri, G. 101 guarantees 48, 83 Guzzetti, L. 175, 188 Hallstein, W. (Commissioner) 54 Hamburg 147 harmonisation 171; common actions to set 178; different national situations 110;

217

directives 60; effective 71, 119; fiscal 78–81; legislative 152–3, 163; macroeconomic conditions 32; normative 57, 59; organisational practices 187; regulatory 150, 180; slow and complex procedure 88; technical 60 Hart, Scott, Rodino Antitrust Improvement Act (US, 1976) 101 Hayward, J. 75 health 62, 144; creation of new activities 133; standards 85 Helpman, E. 19 hierarchies 138 High Speed Railways 186, 187 Hirschman, A.O. 138 Hobsbawm, E.J. 3 Holland 93, 98; protectorates 49; universities 172 Holtman, G 39 homologation 82 Hull 116 ‘Human Capital and Mobility’ programme 180 human resources 169–73; development of 126, 180; optimal exploitation of 178; training of 126, 190 IBM (International Business Machines) 115, 116 identity: collective 11; European 133; national 33, 58, 75, 77 ideology 190 Ilva (Italian steel company) 108 imperfect substitutes 28 imports 28, 196; demand for goods 147; explicit prohibition on 14, 18; goods from third countries 56; limiting 23; prohibition of restrictive measures 88; quantitative restrictions on 83; textile 196 IMPs (Integrated Mediterranean Programmes) 156 incentives 104; Community system 104; locational policies 147; privatisation 110; unselective 167 income 16; average 172; derived from internal production 15, 18; distribution 29; equalisation of 22; farmers 54; growth in 80; realisable volume of 73; redistribution of 22, 78; state 78 income tax 78 individual rights 10;legitimation of 37;to trade 36, 37 individualism 137 industrial concentration 73, 74, 177; allowing it to take place 119; conflicts regarding 92; internal 92; policies which favour 100; promotion 119, 123;

218

Index

regulation 96, 97–101; through agreements 124 industrial policy 23–7, 117–20; constitutive treaties 121–4; development 121–45, 201; dirigiste view of 128; economic integration and 1–13; European 193–6; macro 36; micro 36; SEA and TEU 126–32; structural adjustment and 23–7 industrial revolution 3 inefficiency 17, 18, 108 inequalities 45, 46, 96 inflation 148 information: advanced processing 176; common space 141; exchange of 94; possibility to acquire, process and transfer 141; risk associated with asymmetries in 83; strict requirements on 105; see also information society; information technologies information society 113, 133–4; growing attention being paid to 140; new output in sectors related to 143 information technologies 114, 115, 140; balance of exchange of 175; common R&D programme in 176; employment and 183–5; great deal of attention paid to 144; usability of 177 infrastructure 45–6, 141; basic 134, 155; development of 155; emerging industries 177; endowments clearly different from region to region 147; environmental and transport 160; modernisation 163; research 134; role of state in supplying and regulating 134; scarce 148; territorial, investments in 184; transEuropean networks 185–8 innovation 51, 159, 166; acceleration of capacities for 128; broad definition of 134; creation of 137; demand for positive actions to sustain 140; development of 156–7; different firms having different attitudes to 131; diffusion of 137, 167; Germany strategy in support of 106; local 136, 171; promotion of 106, 132, 156–7, 167; public regulation of 64; security of 189; social 4; systems 136–9, 172; technical/ technological 61, 84, 85, 113; TEU develops 51; varying support from different governments 173; see also innovation policies innovation policies 8, 48, 56, 119, 130, 144; Articles concerning 127; based on large projects 106; common, in support of 172; industrial and corporate 174–92 institutional barriers 71, 75–8; economic integration and 28–9; elimination of 74 institutional integration 40; mutual recognition and 57–62 institutions: capable of governing structural

transformations 34; federal 55; local 8–9, 190; national specificity of 29; regulating economic integration 29–34; rules and 43–67; structure and decision-making process of 53–6; transformations 68; weakening 190; working together for growth 187 insurance 115 interaction 8, 25, 54, 89; collective 10; communicative 141; co-operative and conflictual 42; different groups 24; encouraging the multiplicity of subjects in 41; legislative 55; local 138; market 117; pluralism of subjects endowed with equal capacities for 71; public and private institutions 137; rules emerge from 66; selfconscious 77–8 interchangeability of goods 95 interconnection/interconnectivity 116, 186, 187, 188 interest groups 2, 15; opposing 33 Intergovernmental Conference (Turin 1996) 1, 43, 144–5, 164, 185 intergovernmental issues 32, 35, 54; accord 33; agreements 30; co-operation 44; coordination 128; negotiations 197 internal market 19, 21, 47, 59, 60; benefits of 129; can no longer be protected through tariff barriers 100; Commission’s crucial role in overseeing and guaranteeing competition 190; completion of 92; energy 188; liberalising 73, 74, 126; policies to promote new initiatives contextually applied within 130; single 97; sufficiently big 119; too small to guarantee adequate development of industry 86; international integration 37, 40, 41 international trade 58, 83, 190; basic condition for defining the advantages of 20; countries 17; country closed to 21; liberalisation of 190; opening to 41; opening up completely to 147; relevant barrier in 84; unilateral and instantaneous opening to 15; unilateral liberalisation of 73; unilateral opening to 19 Internet 113 inter-operability 116, 117, 187, 188 interventions 6, 37–8, 63, 69, 98, 105, 107, 119, 125, 128, 132; aimed at improving social conditions 123; areas eligible for 160; Commission 49, 110, 112, 140, 178; common market, subsequent programmes of 46; communitarian 48; contradictory 172; different, underlining the nature of 159; distortionary 134; generating positive externalities 127; government 92, 94; industrial concentration 100; innovation 56;

Index national 156; outside the Community 52; planned to facilitate re-employment 170; programmes for Eastern Europe 162; public 27, 119, 122, 126; reciprocal 55; state 5, 64; structural 106, 152; territorial 147, 195; training 150; variety of 54; vast bureaucracy re-created around 161 INTESA (Fiat and IBM joint venture) 116 investment(s) 92, 96; accumulating opportunities for 147; economic policies aiming to create a climate of certainty for 143; economic viability of 110; financial, new opportunities for 22; growth in 80; innovation 172; less-favoured areas 104; magnet for 188; non-recoverable 111; past and future, aim to repay 111; private, financing of 29; public and foreign 158; subsidised 104; technical communications support 134; territorial infrastructures 184; transparency in 188–9 Ireland 142, 143, 152, 160; unemployment 170; universities 172 IRI Group 107–8, 116 Isle of Man 94 ISO (International Organisation for Standardisation) 82 Italy: districts 174; ethnic conflict 157; funding of R&D expenditure 173; High Authority 101; highly centralised administrative system 77; IMPs launched by the Commission in 156; Mezzogiorno 158, 160; North 190; promoting national groupings 175–6; protectorates of 49; regional aid 107; regulations 86, 87, 116; relevant market 118; SMEs 136; Southern 142, 190; support of firms through direct transfers 106; universities 172 Jacquemin, A. 134–5 Japan 135, 175; car sector 139; competition from other actors 134; functional groupings 174; high technology supplied by 143; integrated systems model 137; loyalty to work and group 29; MITI (Ministry of Industry and International Trade) 69; possibility of co-operating with firms in 176; relevant market 118 job market 142; external flexibility 133; greater tendency for women to enter 143 jobs 149; destruction of 183; new 170, 183; see also job market Johnson, H.G. 17, 19 joint ventures 174 Kapteyn, P.J. C. 65, 66 Katz, M.L. 83

219

Kelly, M.R. 17 Keynes, J.M. 64, 79 Kindlerberger, C.P. 83 knowledge 200; accumulation of 38, 39, 40, 172; common 39; complementary 40; diffusion of 39, 149, 182; high, society characterised by 134; individual 39, 198; new, foundations of 142; reciprocal 130; strongly national 172; transferred 172; transformed into competencies and capacities for producing 40; widespread 136 Krugman, P. 17 labour 21; cheap 143, 184; direct substitution of 183; free circulation 45; freely reallocated 6; low-skilled, cost of 133; overall demand for 183; unskilled 142; see also division of labour; labour market labour market 142, 143; entry/integration of young workers into 150, 158; local 136; regulation 152, 143 Landes, D. 3 large firms 75, 182 Latin America 164 law(s) 44, 74, 98, 99; competition 102; difficult to have recourse to 100; goods capable of meeting standards set by 82; member country 60; national, industrial policy 106; private, associations set up under 82 learning 136 legislation: convergence of 47; harmonisation 150, 152–3; liability 118; national 46, 61 legislatures 82, 94 legitimation 11, 21; actions of public authority 70; collective 64; democratic 201; individual rights 37; legitimation reciprocal 30; national sovereign powers 55; supra-national organisation 53; unitary state 65 Leonardi, R. 156, 170 less-developed areas 69 less-favoured areas/regions 48; aid to 104; development of 103, 187; economic crisis 158; financing development projects in 155; investments in 104; opportunities for growth in 171; policies aimed at support and development of 149; productive activities of 153; projects devoted to promoting participation of users from 177;regional development Fund interventions in 157;structural adjustment of 190;structural policies 148 liabilities: legislation on 118; short-term 107; state guaranteed 107

220

Index

liberalisation 130, 199; blocking 34; commercial 69; common programmes for 163; customs 46; economic 68, 162; external 145; internal market 73, 74; international 26, 27, 68–70, 114, 129, 164, 190; outcome of a long process of 118; progressive, towards third countries 129; reciprocal 122; regulated 27, 69; services 115; short-term effects 19; tariffs 124; telecommunications sector 113–17, 140; too-rapid, harmful political effects of 16; trade 31, 190; with an uncontrollable outcome 34 licences 79 Lintner, V 30 Lipsey, R.G. 17, 72 List, F. 3 litigation 52 living standards see standard of living loans 48, 106, 166; EIB 155; non-repayment of 109 local authorities/governments 61, 65, 129; administrative organisation of 153; interventions 140, 154–8; organisational support of 131 localisms 77 Lombardy 157 losers 70, 195; potential 19, 33 losses: compensation for 111; operating 107, 109 Lundvall, B. 137 Maastricht Treaty see TEU Macedonia 147 McKelvey, M. 137 macro-economic policies 37–9, 71, 142, 143; conditions must be harmonised 32; convergence 23 Maillet, P. 121 Malta 164 Mansell, B.F. 17, 19 manufacturing/manufacturers 4, 182 Marchipont, J.F. 132 marginal areas 158, 159 marginal clients 111, 114 maritime systems 182 market extension 35, 41, 68, 70–4, 80, 100, 113, 124, 163, 198; actions to increase 127; enlarging 24; limited nature 114; new 26; modified 144; reorganisation of 59 market size 69; increased 71, 73, 74; large 72, 89; small closed 19; variety of instruments to enlarge 3 markets 2, 81; access to 39, 73, 74, 117, 171; actions to regulate power 6; advantage of 138; commonality of rules 42; competition policies 91–120, 130; conditions which permit effective

competition 73; contestable 73; continual introduction of new products 72; controlled opening of 26; crucial 184; customs union 19; difficult reorganisation of 119; distortion of 110, 112, 119; division-free 89; energy 189; export 86; final 74; financial 48, 74; foreign 84; functioning of 38, 123; future-oriented 181; global/international 10, 19, 86, 96, 100, 123; liberalisation policies 130, 140; local 100, 119, 130, 167; more competitive, reorganisation of firms within 150; mythical 42; noncontestable 113; non-independent behaviour 94; obstacles to development of 145; opening up to third countries 126; oversight policy 130; perfectly accessible 73; public influence on 101; reciprocal opening of 122; redefinition of strength 21; reducing the pluralistic nature of 100; relevant 94, 95, 98, 118; segmenting 60, 61; shares 95; social policy an area for 171; telecommunications 113, 114, 140; tutelage policies 140–1, 144; unification of 81; unitary context for 76; see also common market; internal market; market extension; market size; national markets; open market; Single European Market Marshallian curves 14 maternity leave 171 Mazey, S. 30 Meade, J. E. 17 Mediterranean countries 12, 146, 148, 167, 188; becoming the possible fault-line dividing the old and rich North from a vast world 11; co-operation with 134; programmes 149; see also IMP; MTCs Mény,Y. 121, 125 merchant-importers 15, 18 Mercosur 199 Mercury 116 mergers 100; appropriateness of Community legislation in 101; dynamic effects of 102; encouraging 122; number drastically reduced 102; setting up measures to control 97 MFP (Multi-annual Framework Programme) 178 micro-economic industrial policies 39–41, 71 micro-electronics 176, 177 Middle East 12 Milgrom, P. 72 Mill, J.S. 3 Miller, L.M. 5 Mitteleuropa 11 Moavero Milanesi, E. 91, 98, 99, 121 mobile telephones 113

Index mobility: capital 71, 147; ‘intelligent’ 187; people/persons free 46, 71, 75, 76; physical goods 74; programmes 180 modernisation: industrial 48, 149; infrastructure 163; SMEs 166 Modigliani, F. 72 Monaco 94 monetary policy 47 monetary union/integration 6, 23, 47, 50; prerequisite for action aimed at 148 monitoring 160–1 Monnet, J. 53, 121, 188 monopoly/monopolisation 16, 72, 115, 129, 144; attempts to alter the institutional framework 118; avoidance of 187; collusive actions aimed at 91; competition policies to deter the formation of 74; creation of conditions 73; economic 200; generating 26, 132; individual or collective 130; internal 69; internal economy 18; limited to the provision of basic services 112; local 185; market integration being distorted by 6; national 28, 140; ‘natural’ 21, 110, 118; particular operation leads to 100; political 200; possible 83; possible, degree of control within the Community context over 101; preventing 38, 113; pricing 111; rights 2; risk of 3, 119; scope of entrepreneurial action 96; single-firm 114; trend towards 74; unregulated 120 Morgan, K. 158 motor vehicles sector 105 motorways 112, 116 movement see mobility MTCs (Mediterranean Third Countries) 163 Mueller, D.C. 33 multimedia 177, 182 multiple goods 111–12 multi-product activities 114 mutual recognition 64, 89; institutional integration and 57–62 Myrdal, G. 22 Mytelka, L. 175 Nafta (North Atlantic Free Trade Area) 199 nation-states 64; agreements between 71; authority of 8; bond between development of capitalism and 58; centralised 13; conflicts among 54; construction of 3; continental capitalism developed within the confines of 68; crisis of 77; economic integration implies an overcoming of 136; European, integration among 62; institutional differences created by 89; institutional organ representing 53; institutions 56; interventions 5; legitimacy of action of

221

10; link between firms and 27; overcoming the limitations of 79; parliament 51; responsibility of deciding on the form directives will take 52–3; significant transfers of power from 43 national champions 122; legitimacy of 125; support of 176 national debt 148 national institutions 56;procedural mode for integrating 60 national interests 5, 69, 185;defence of 100; relationship between economic interests and 36 national markets 54, 81; barriers between 130; point of entry into 60; single 92; structural adjustments connected to opening up of 54; transformation of 143 natural disasters 103, 124; interventions in areas hit by 149–50 naval construction sector 105 Nelson, R. 137 neoclassical economics 19, 22 ‘neo-functionalism’ 197 ‘neo-Marshallian’ inspiration 137 networks/networking 136–9, 175, 191, 194– 5; audiovisuals 141; banks 75; basic, costs of installing and managing 113; control over 114; creation of 131; developing 114; digitalisation of 114; energy 134, 188–9; ever more sophisticated 177; firms 37, 75, 128; fixed 116; industrial co-operation 127; information 133; infrastructure 185–8; innovators 138, 139, 178–80; interconnection and inter-operability among 116; policies 174; relationships 40, 89, 138, 167, 172; rules 138; safety and integrity of 116; satellite 115; sectoral 166; service 110; SMEs 144; standardisation of connections among different parts 117; technological cooperation 176; telecommunications 113, 141, 184; trans-European 133, 134, 135, 191; transnational 8, 41, 110, 159, 166; universities 76 Neumann, M. 69, 121 New Community Instrument 149, 155 new competitors/entrants/firms 72, 73, 74, 118; barriers erected specifically for deterring 96; chances of entry 114; discrimination against 131; encouraging the growth of 117; supporting the entry of 192 new products 94 new technologies 130, 135, 144, 175; absorption of 182; Commission could be more explicit in promoting 189; great task to experiment, implement and diffuse 188; impact of economic dynamics given by 183; pilot projects

222

Index

and general programmes 184; usage of 177–8 Newby, H. 180 non-discrimination 114 non-public goods 80 non-tariff barriers 28, 29, 32, 85; administrative behaviour concerned with the creation of 125; elimination 194; principal 81; problem posed by 70; removal/dismantling of 59, 61, 71, 149 norms 75; ameliorative 62; common 29, 32, 47, 55, 59, 64; communal 30, 36; consensual 86; diverse sets of 29; European 60; general 31, 32, 49; governing functioning of public activities that make common rules manageable 39; harmonisation in 59; internal 29, 65, 76; local 66; mutual recognition of 32; national 30, 59, 60, 61; new 31, 32; technical 61; that could lead to discrimination 47; Treaty of Rome 44 novelties 181, 182, 188 nuclear power 54 Nugent, N. 44, 55 NUTS (Nomenclature of Territorial Units for Statistics) 159 OECD (Organization for Economic Cooperation and Development) 137, 172 OEEC (Organisation for European Economic Co-operation) 53 office systems 176 Official Journal of EC 93, 95, 105, 108, 156 OFTEL (Office of Telecommunications) 116 oligopolies 176 Olivetti Group 116 Olson, M. 33 OMNITEL Pronto Italia 116 open market 16, 18, 19, 129; implies social turmoil 4; role of the state within 70 ‘open regionalism’ 164 opening economy 28–42 openness 200 opportunistic operators 111 Ordöconomie 65, 119 output: freedom of movement of 28; full mobility of 20; movement of 32; vast low-skilled 143 overheads 112 overseas territories 48–9 Owen, N. 72 Padoa Schioppa, T. 61, 63 Panagariya, A. 17 Panzar, J.C. 73, 111 papal encyclicals 65 Papoutsis, C. (Commissioner) 188, 189 partnership 160;local 157

patents 64 paternalism 65 ‘patriotism’ 125 peace 11, 163; instrument for achieving a more general plan for 12 petrification 161 petrol 79 Piore, M. 136 Pius XI, pope 65 planning 160, 161; central 35, 162; centralised authority in charge of sectoral development 190 pluralism 100 police forces 76 political economy: common 23; technical standards 81–5 political union 200; impossibility of creating on a vaster scale 11 politics: bipolarity 10; integration 34, 53; isolationism 164 pollution 189 poor people 148 population 150, 158 ports 134 Portugal 4, 143, 152, 160; Atlantic islands 94; remains heavily centralised 157; universities 172 postal services 110 potential operators 111 power(s) 35, 49, 50; balance of 41; commanding and coercing 10; discretionary 95; economic 95, 163; exercise of 64; internal 5; lower institutional levels 184; market 100; political 2, 3, 4, 157; significant transfers of 43; social 2; structuring 144; supranational organisation 53; transferred 33 preferences: consumers 28; local administration 28; technological, producers’ 84 pressure groups 19 prices 18, 56, 83, 114; competitiveness no longer based on 61; direct or indirect setting of 92; fixed minimum 125; international 14, 15, 16, 18; lower 17; monopoly 111; relative 14 private goods 117 privatisation 38, 110; no preference for 117 privileged relationships 163, 164 problem-solving approaches 188 product performance 82, 89 production 113–14; accelerating normal mechanisms of 7; agreements which contribute improvement in 123; agricultural 54; capacity of small firms to exploit advantages 136; coal and steel 170; collective capabilities for 37; creating new links between activities 131; creating the conditions which

Index consolidate relations based on mutual interest 12; economy depends on 16; effective integration of 12; efficiency of 10, 35, 69; endogenous 165; energy 188; fractionalisation of the process 84; goods with higher knowledge and services content 184; industrial 42, 141; internal 15, 16, 17 18, 21, 169; international 17, 167; large-scale 69, 182; launch of a process for organising 41; less efficient 18, 150; local of 22, 136, 167; mass 11, 162; national 15, 17, 18, 19, 28, 68, 75, 80; organisation of 3, 33, 35, 59, 66, 73, 164; problem of what it means to intervene in the structure of 10; prohibition of state aid which favours certain modes of 103; public intervention in support of the development of 27; relative specialisation in 24; reorganisation of 20, 24, 59, 73, 75, 128, 144; reproducible goods 2; technological 144; technology employed in 110; third country with more efficient processes 58; transformation of the means of 158 productivity 22, 183 professional activities 60; freelance 76; regulated 75 profitability 176 profits 18, 109 progressive coalitions 19, 25, 192; action clearly aimed at the creation of 127; capable of sustaining proposed structural and institutional changes 71; Commission forcing the search for 129; common methodological approach which aims to create 131; continually recreating 201; EU favours the creation of 145; ever-broader, customs or economic union could lead to 34; policies enacted to encourage the formation of 26; reactivating internal mechanisms which lead to 39; strong enough to push for convergence 171; transnational 74, 128, 199; various public or private subjects interact to form 37 projects: common 180, 186; devoted to promoting participation of users form less-favoured regions 177; large, resources must be employed to obtain adequate volumes of financing for 160 property 28, 38 property rights 3, 39, 199 prosecutable offences 100 prosperity 11, 12 protection(ism) 18, 21, 56, 77, 189; agricultural 56; alternative to 118–19; common 19; consumer 63, 117–18; continuous requests to national authorities for 176; demand for 16;

223

developing the necessity of 3; economic 164; economic policies 85; environmental 189; indefinite 16; individual 24; institutional types of 150; international competition 169; maternity 171; mutual, for reconstructing economies 163; plan for defining customs and economic union can be established for reasons of 25; possible abuses 119; renewed 140; return to 133; social 142, 143, 184; stronger competitors 139 protectorates 49 public administrations 75, 84, 85, 87, 107, 114, 153; acting on the organisation of 38 public goods 142; common 199; definition of 38; identification of 40; necessary to distinguish 117; need for 64; provision of 110–11; role of the state in developing 199 public interest 114; identified with ‘national interest’ 70 public ombudsman 52 public order 64, 111, 112 public ownership 116 public policies: and governmental objectives 34–6; for industrial development 20; in opening economy 28–42 public procurement 74, 80, 134; opening up tenders to national competition 140 public-sector firms 93, 103, 107–12; reduction of competition in areas directly managed by 140 public services sector 117, 102 public utilities 38 public works 28, 64, 80; programme having capacity to cut unemployment 186 purchasing power 146 quality 61, 81, 89, 114; certification of 64; constant redefinition and improvement of 87; goal of improving 89; guarantee of a specific level 83; minimum standards 89; official seals 82; superior 83; unidentified 89 quality of life 45, 142 quotas: fixed 155; historical 130; setting for shares of resources 93 R&D (research and development) 38, 48, 104, 126, 131, 145, 190; access to 42; common programme in information technology 176; Commission to define a framework programme for different areas of 131; crucial role played by 180; expenditure 173; inducing European firms to co-operate 174; investment in steel industry strictly

224

Index

limited to 105; organisation and results of 172 railways 111, 112, 116, 134 recessionary cycle 102 reciprocal recognition 61, 65; activation of mechanisms of 66; mass use of 180; national systems of technical regulation and 85–90 productive system based on 40 reciprocal specialisations 26, 34; conditions required for development based on 132; social structure which permits development of 136; stabilising 37, 38 reciprocity 192; adjustments 34; conditioning 35; interest 19; see also reciprocal recognition; reciprocal specialisations redistribution: downwards 160–1; fiscal 111; income 22, 78 reform 155, 157; constitutional 57; evolutionary 66; institutional 184 Regional Development Fund see ERDF regional governments 157 regional integration agreement 19 regional policy 110, 130, 188 regionalisation process 157 regressive coalitions 4, 5, 8, 25, 34, 39, 195; based on the maintenance of national identifications 74; customs union 19; development of 16; formation of 15; objectives to defend themselves from outside threats 89; potential ‘losers’ come together in 70; strong 26; strong impetus for the creation of 139–40; trans-European 192 regulation(s) 112, 139, 171; absence of 111; agriculture 106; antitrust 42; capital 74; coal 106; collective 137; common 59, 121; competition 130, 191; consumption 79; double 117; economic integration pursued through common forms of 41–2; fisheries 106; general 92; industrial concentration 96, 97–101; labour market 143; monopoly 114; mutual integration 76; obligatory 52; private sources of 87;public 113; safety 85; supra-national level 10; telecommunications sector 113–17; trade 19; transport 74, 106; which might encourage a corporativist set of attitudes 143; see also technical regulations religious traditions 28 rents 79 representation 35, 36 research: common 157; industrial 175; longterm projects 177; opportunities for 149; policies 48, 56; pre-competitive 176, 178; sectoral programmes 175; university 175; see also R&D reserves 23

resistance 41, 55 resources 48; accumulation of 39; adequate distribution of 39; allowability of, first verification of 52; Community budget constrained by 56; financial 156, 157; improper transfer of 112; must be employed to obtain adequate volumes of financing for large projects 160; public 110, 112; scarce, availability of 2; setting of quotas for shares of 93 restrictions 46, 129 restrictive practices 92–5 restructuring 152, 162, 163, 170; complex 148; duty to intervene in specific situations 159; internal, administrations 157; plan for 125 retraining 47 Rhône-Alps 157 Ricardo, D. 4, 71, 183 rich people 148 rights 37; access 39; association 82; citizens 38, 118, 199; citizenship 2, 171; collective 36; consumer 89; effective 200; equal 71; formal, transforming 40; individual constrained 99; internal immigrants 170; limiting 187; men and women in the workplace 170; monopolistic 2; property 3, 39, 199; veto 59; voting 34; work 47; see also individual rights risk 8, 66; associated with asymmetries in information 83; ‘double barrier’ 98; institutional competition 189–92; monopolisation 3, 119; petrification 161 roads 112, 134 Robbins, L. C, Lord 3 64 Roberts, J. 72 Rome, Treaty of (1957) 7, 20, 43–4, 56, 62, 92; Articles 123, 170; based on six sections 45–9; body not provided for in 54; common rules 122; constitutional mechanism 59; contradiction to principles 99; convention on the common institutions combined 51; first phase of implementation 195–6; industrial policy 121, 126; instrument for carrying out explicit regional policy interventions 154–5;national technical regulations and standards 88;preamble 98, 149 rule of reason 123 rules 138; action 25; aggregation 71; coexistence between national and Community 99; collective 34, 36, 39, 68, 71–2, 200; competition 117, 123; compulsory 87; ‘constitutive’ 71; developed endogenously or adopted exogenously 29; diverse 28; entry 187; external 180; general 36, 40, 41, 171; historically different, products sold in

Index different countries regulated by 84; infraction of 96; institutions and 43–67; market requires a commonality of 42; network of relationships and 138; new 31, 192; procurement 80; safeguarding citizens 118; social 39, 41–2; social interrelations 136; specific to national innovation systems 175; supply of telephone services 113; transparency of 25; unwritten 29; very rig see also common rules rural areas 150, 158 Russia 16, 38, 162; capitalism imposed by decree 37; privileged relationships with 164 Sabel, C. 136 safety 76, 85 salt 79 San Marino, Republic of 94 sanctions 93; financial 99 sanitary measures 76 satellite networks 115 savings 183 Schaefer, G.F. 65, 66 Schmalensee, R. 72 Schuman, R. 188 Schumpeter, J.A. 137 science 178 Scitovsky, T. 17 SEA (Single European Act, 1987) 1, 7, 43 52 passim, 55, 59, 62, 70, 76, 80, 88, 92, 98, 148; approval of 54; Commission’s White Paper leading up to 72, 97; Community gained a new formal area of action in matters of innovation policy 171; co-ordination particularly emphasised with the application of 104; crucial moment of institutional reform 57; implementation of 103; industrial policy 126–32; new procedures for political and economic integration 149; new set of problems gained even greater significance with 152; reference to the principle of subsidiarity 66; reform resulting from the approval of 155; research and technological development 178; structural policies after 149–54; very tough line taken in 150 Second World War 163 sectoral policies 139–42 security 62; common 122, 164; job 170; minimum standards of 63; efficiency 189; innovation 189; supplies 189 self-regulation 86 Sen, A. 37 service centres 157 services 60, 61, 81; basic 114, 116, 117, 148; circulation of 129; common 64;

225

demonopolisation of 102, 110; development of 127; exchange of 75; formerly managed by state 38; guaranteeing supply in marginal zones 112; inter-operability of 115; large transEuropean networks for supply of 135; liberalisation of 115; movement of 71; new 113; non-profitable 112; private and public 131; provided by opportunistic operators 111; restrictions on mobility of 46; sale of 82; scarce access to 148; telecommunications 114, 141; telephone 113, 117 Shackleton, M. 56 Shapiro, C. 83 Sherman Antitrust Act (US, 1890) 96, 100 shipyards 105 Siemens 115, 140 Single European Act see SEA Single European Market 61, 149; common institutions 197; concerted actions which may effect 92; development of 185; distortions in 103; economic dominance within 99; extension of 20; immediate effects 21–2; implementation 102, 126; necessary contribution to enforce 188; opportunity for new approach to public policy 119; preventing 97; products having different levels of quality 60; system of externalities having the same extension as 186; see also single market completion; single market creation single market completion 98, 103, 112, 153; agreements signed for 106; Commission’s White Paper on 193; framework of policies for 170; unambiguous application of agreements on 126 single market creation 118, 144, 185; Articles on 127; necessary contribution to 188; policies for 8, 68–90; prerequisite for construction of common institutions 197; public actions oriented to 181 small countries 21, 80 small firms 130 SMEs (small and medium-sized enterprises) 127, 135, 174; absorption capacity 181; aggregations 136, 174; basis of any Community action aimed at 157; community policies for 165–9; debate on 134; development of 142; encouraging the birth of 158; growing interest in 161; growth clusters 149; intense new attention focused on 200; networks 144; New Community instrument for supporting 155; strong emphasis on 181; support for industrial development 163 Smith, Adam 2, 3, 24, 25, 34, 37, 41, 63–4, 70, 73, 144, 185, 198–9 social action programme 170

226

Index

‘Social and Economic Cohesion’ 48 social classes: dominant 3; emerging 15; governmental authority traditionally supported by 16; internal power relationships between 2 social conditions 123 social contributions 133 social dialogue 145 social fragmentations 12 Social Fund see ESF social market economy 65, 133, 135, 136, 174 social mobility 143 social organisation 75 social policy 47, 169–73 social security 184 social traditions 28 social transformations 145, 184 socialism 66 Soete, L. 183 software 176, 177, 182 South America 134 sovereignty 43; abdication of 23; administrative 21, 100; complex division of degrees of 64; delegitimation of 36; extension of 10, 64; international 32; limited or planned 55; national 21, 30, 68, 122; problem of 35, 63; surrender of 30 Soviet Union 199; dramatically changed international scenario which followed the collapse 9–10; ending of the ear of control over Eastern Europe 162; staterun firms 15; see also CIS; Russia Soziale Marktwirtschaft 133 Spain 94, 142, 143, 152, 160; multiplicity of national communities co-existing within 157; SMEs 136; unemployment 147; universities 172 specialisation 114, 180; complementary 5, 16, 20, 71, 128; creation of production and market relations which increase 185; developing diversities into 182; development of 71; generating opportunities for 147; new 25; possibility for generating ever greater advantages of 22; pushing towards 41; relative 25, 34; restricting the possibility for 198; sectoral 41; see also reciprocal specialisations Sprint programme 116, 182 stabilisation process 143 stability 42, 47, 150, 163, 200; common 122; economic, threatening 105; minimum standards of 63; negative effects on 45; policies aiming to create a climate of 143 standard of living 11, 133, 148; high 134 standards 185, 188; compatibility 83; consensual 87; design 82; detailed 87;

differing from country to country 84; European, development of 176; interface compatibility 83; internal, reform of 61; international 82, 86; minimal admissible attributes 83; minimum 62; national 61, 74, 82, 84, 86; performance 82; proposed new 62; quality 83; reference and definition 83; safety 189; setting 85, 88, 89, 153; see also technical standards Start (travel agency telecommunications service) 115 state aids 94, 103–7 steel 54, 105, 170, 196; see also ECSC Stiglitz, J.E. 110 Stoffaes, C. 69 structural adjustment 16, 70–4; connected to opening up of national markets 54; customs unions and 16–20, 122; encouraging 198; industrial policy and 23–7; international agreement to regulate 5; international liberalisation and policies 68–90; lengthy 28; less-favoured areas 190; preventing from taking place 125; progressive 157 structural funds 149, 155, 159, 167; administration 49; distribution 50; end use decided by national governments 156; key feature of reform of 157; objectives 158; reform 106 structural policies 8, 131, 130, 139, 144, 174, 191; and cohesion 146–73; funds available for 56 structural transformation 201 subadditivity 114 subsidiarity 55, 62–6, 89, 118, 178, 184–5; application of 120, 186; crucial 192; development of the debate 102; essential to place the greatest possible emphasis 191; most characteristic and most ambiguous expression within the field of industrial policy 145; no room for 53; reciprocal recognition of 153 subsidies 68, 91, 170; agreement protected by 125; avoiding 134; direct 129; evergreater 119; global 160; individual firms 106; internal 150; investment 104; passive burden of 112; policies 165; public 161; public firms in financial difficulty 119 substitutes 98 Supple, B. 2 supply 114, 135; increasingly concentrated 16; internal 18; limited 16; rules which must be adhered to in 117; security of 189; subadditivity of 113; under-efficient conditions 80; voice telephony services 115; world 17 supply curves 17, 18, 111; curves Marshallian 14 survival 21

Index sustainability 114 Sutton, J. 72 Sylos Labini, P. 72 synthetic fibres 95, 105, 125 Syrquin, M. 40 tariff barriers 100; elimination of institutional and 74; internal markets can no longer be protected through 100; removal of 59, 72, 77 tariffs 129; common 24; customs, progressive rebate of 54; determining structure 111; dismantling of 7; external 19, 45; internal 7, 19, 31, 45, 46, 70; liberalisation of 124; reduction of 6; removal of 46; structures made by governments 112; see also non-tariff barriers; tariff barriers taxation 28; direct and indirect 78; import 18; income 78; local communities empowered to use 81; reducing the burden 81 technical regulations 72; common interest in establishing a system 84; national systems 85–90; setting 82, 83 technical standards 28, 60, 82, 88, 187; introduction of 89; political economy of 81–5 technocratic executive body 53 technological progress 94, 176, 191; promotion of 123 ‘Technological Research and Development’ 48 technologies: application projects 157; appropriate 182; basic 176, 177; communications 184; development 84, 85, 88, 126;126; diffusion 182; employed in production 110; information 135; laboursaving 143; multimedia 177; old and new policies 174–8; transfer 149, 177; transformations 130; transmission 113; see also information technologies; new technologies ‘Technology Initiative for Disabled and Elderly People Pilot Action’ 184 Telecom Italia 116 telecommunications 110, 112, 140, 186; basic infrastructures 185; delicate relationship between computer sciences, television and 134; liberalisation and regulation of sector 113–17; networks 184 telematics applications 187 telephone service 112; see also voice telephony tenders 80, 140 TENs (trans-European networks) 133, 134, 135, 185–8, 191

227

territorial issues: culture and historical specificities 180; development 187; interventions 147, 154–8; relations 144 TEU (Treaty on the European Union, Maastricht 1992) 1, 7, 20, 43, 44, 70, 92, 110, 119, 149, 162, 176, 178; accentuates evolutionary character of Union 58; aftermath of 76; amended/ changed Articles of Treaty of Rome 47, 48, 49; atypical acts not foreseen by 53; capital mobility throughout Europe 46–7; ‘cohesion’ spelled out 148; Committee of Regions introduced 51; industrial policy 126–32, 166; innovations 51; integration 8, 11; new competency confirmed in 171; one of the fundamental principles of the Union 185; public ombudsman role introduced 52; subsidiarity and 62–6 textiles 105, 196 third countries 46, 56, 58 ‘Third Italy’ 137 tobacco 79 top-down actions 175, 178 Torre A. de la 17 trade: advantage of 4; collective capabilities for 37; common currency to facilitate 64; deficit 16; directed towards another country 19; distortion in 96; elimination of all obstacles to 126; external 58; foreign, opening to 14; individual rights to 36, 37; international theory 71; interstate 94; intra-Community 92; liberalisation 4, 6, 31, 85; obstacles to 164; opening 14, 17; policies 21, 47, 143; prejudice to 99; regional agreement 3; regulation of 19; restrictions on 46, 94, 99; see also international trade training: human resources 126, 190; interventions in 150; long-term 133; personnel management 166; programmes 157 trains 182, 187 transfers 112; internalising 111 transnational alliances 157 transparency guaranteed 109, 110; harmonised conditions of 114; ininvestment 188–9 transport 74, 110, 111, 186; basic infrastructures 185; common policies 45, 47; communication network 188; freight services 112; inland water 112; intermodality of 182; regulations 74, 106 treaties see constitutive treaties; Rome; TEU trust 89 Tsoukalis, L. 171 Turin 1, 43, 145, 197 turnover 98, 176 UK see Britain

228

Index

ultra-peripheral regions 159 unanimity rule 150 unanimous vote 59, 62 underdevelopment 170 underemployment 79, 104 UNECE (United Nations Economic Commission for Europe) 82 unemployment: actions to ease 170; high 167; increase in the seventies 143;longterm 133, 142, 144, 150, 158;programme of public works having capacity to cut 186; youth 147 UNI (National Italian Unification Organisation) 86 unification 70; market 81; political 36, 150 Unisource 116 unitary state 64; French-style, centrally administered 54; well-consolidated tradition of 65 United States 135, 136, 175; acceptable for an entrepreneur to fail 29; aero sector 139; application of monopoly rules 96; competition from other actors 134; industrial concentration aspects 100; laissez faire system 142; maintenance of transatlantic relationship with 164; political integration can precede economic integration 35; possibility of co-operating with firms in 176; regulation of competition 99; relevant market 118; role of the state 118 universities 135, 177; effectively autonomous 131; entry requirements 172; Green 172; link between firms and 131; ‘marginal’ countries 76; mobility between firms and 180; national systems 175; operational relationships between research centres, firms and 192 Urwin, D.W. 121, 188 use of force 64

Vatican City 94 vetoes: mutual 71; power to 153; powerful, less efficient governments 150; reciprocal 191; right to 33, 59 Videotel services 115 Vienna 189 Viner, J. 17 viral diseases 182 voice telephony 113, 114, 115, 117 wages 133; downward adjustment in 142; drastic cuts in 184; fall in 143; low 143 watchdog role 99, 100, 103, 105 water 148, 182; mineral 102; inland transport companies 112 wealth 142, 147; distributed according to principles of justice 42 welfare 23; collective 23; personal losses in 19; social, loss of 72 well-being: conditions required for 42; ensuring a level of growth capable of guaranteeing 144; material 42 White Papers (European Commission) 72, 88, 97, 134, 135; ‘Completing the Internal Market’(1985) 1, 150, 193; ‘Growth, Competitiveness and Employment’ (1993) 11, 133, 140, 141, 144; ‘An Energy Policy for the European Union’ (1995) 189 Williamson, O. 138 Willig, R.D. 73, 111 Winter, S. 137 women 171; greater tendency to enter job market 143; unemployment 142 work: conditions 47; hours of 133 World Bank 163 Wright, V. 121, 125 Wulf-Mathies, M. (Commissioner) 148 young people 142, 150, 158, 171

vaccines 182 Value programme 182 Vanni D’Archirafi, R. 80 VAT (value-added tax) 56

Zinc producer group 94 Zoja firm 96 ZollVerein 3

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