Chapter 16 - The Qualitative Shift in European Integration: Towards Permanent Wage Pressures and a ‘Latin-Americanization’ of Europe? (with Rainer Kattel)

Summary

Introduction: Types of Economic Integration and Definitions of Capitalism

US economist Hyman Minsky jokingly used to claim that there are as many varieties of capitalism as Heinz has pickles, that is 57 varieties (Minsky 1991). In this paper we argue that economic integration provides a similar analytical problem: economic integration can take many forms, and some are more conducive to wealth and freedom than others. Colonialism was probably the first form of international economic integration, and a very close form of integration at that. Intuitively we understand that what the European Union has attempted to achieve – ever since Winston Churchill called for ‘a kind of United States of Europe’ in a 1946 Zurich University speech – is something qualitatively very different from colonialism.

In this paper we argue that European economic integration has made a qualitative shift from one type of economic integration to another, from a Listian symmetrical economic integration to an integrative and asymmetrical integration. We argue that this change – originating in a new definition of the nature of capitalism – is measurably threatening European welfare, first in the economic periphery and secondly potentially also in the core countries. We argue that the new and enlarged Europe is undergoing structural change towards a Latin-Americanization, including a larger spread in wages (more inequality), wages falling as a percentage of GDP (in favour of the FIRE sector: Finance, Insurance & Real Estate), and the formation of pockets of urban wealth and an impoverishment of the countryside. These phenomena, which are clearer in the EU periphery than in the core, will increase the cost of economic cohesion and increase social tension. This development is aggravated by the timing of the enlargement in the present phase of the techno-economic paradigm, a period that already under normal circumstances is characterized by deflationary and downward pressures on wages, like in the 1930s.

We argue that this analysis of qualitatively different types of economic integration escapes traditional economic analysis for three basic reasons: a) because of different definitions of capitalism, b) because of what Nobel Laureate James Buchanan refers to as the ‘equality assumption’ of standard economics (Buchanan 1979: 231ff): that economic activities are qualitatively alike as carriers of economic growth, c) because we assume that a nation or group of nations can be producing far from its production possibility curve; in other words we do not assume full employment.