The Frontier of National Sovereignty

History and Theory 1945-1992

Alan S. Milward, Frances M. B. Lynch, Federico Romero, Ruggero Ranieri, Vibeke Sørensen

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351544474
• Edition: 1
• Topic: Volkswirtschaftslehre
• Subtopic: Exporte & Importe

Many theoretical explanations had been offered for the rise of the European Community, but none had used historical analysis to draw out the deeper significance of the events that surrounded Maastricht. However, in this book, first published in 1993, the authors explored the process of European integration, and its future, drawing on extensive empirical research into the national archives of the member states. The authors brought their findings together in this consistently argued book to provide a new and coherent theory of European integration, which threw a fresh light on unexplored aspects of EC policy. The debate over the Treaty of Maastricht shows how ill-understood are the issues involved, and this book is intended to improve that understanding. It is essential reading to students of history, international relations and political science.

1 Interdependence or integration? A national choice

Alan S. Milward and Vibeke Sørensen

Since the 1950s American cold war thinking has dominated our conceptual understanding of European integration. The Cold War was first and foremost a war of propaganda. Once the unity of western Europe became a goal of US foreign policy, political theories which predicted the likelihood of that goal’s being achieved proliferated. Founded as they were on implicit celebrations of what were thought of as the best aspects of American society, their role in strengthening the nation’s will may have been at least as important as their practical value as a basis for foreign policy formulation. Nevertheless they had an important function in supporting the mission of US foreign policy abroad. A comparison can be made with W. W. Rostow’s more famous stage theory of economic growth. Theories which predicted the ‘integration’ of western Europe, like Rostow’s ‘Non-Communist Manifesto’, were essentially models of social engineering for the containment of communism and the promotion of economic growth. They were progressive and predicted the ultimate dilution of political ideologies based on redistribution by the growth of wider markets, higher levels of consumption for all, and the diminution of separate national sovereignties.¹

Most of these cold war theories of European integration have been abandoned, partly because they proved to have little predictive value, but mainly because historical research over the last decade has demonstrated the inaccuracy of their factual underpinning. Such has been the case for example with the attempts by Deutsch to explain the growth of a North Atlantic community through the increasing permeability of the frontiers of North American and West European countries to people, goods, capital and ideas and to relate the process of European integration to the particularly rapid increase in the incidence of such phenomena in western Europe itself.² Such also has been the case with the attempts to explain European integration as the inevitable outcome of the increasing range of functions of the nation-state. The force of long-run economic development, so it was argued, meant that to continue to carry out its functions adequately the nation-state inescapably had to enter into a network of international functional institutions, whose activities, although they were essentially problem-solving ones of a relatively low level of political importance, would continue to expand and so would increasingly restrict the state’s capacity for unilateral exercise of its power.³ One cold war theory of integration alone survives and has indeed undergone a recent revival as a way of explaining recent trends in Europe. That is the concept of neo-functionalism.

Whereas for early versions of functional theory the creation of integrationist international institutions was seen as an acknowledgement of the inescapable historical forces driving the state towards surrenders of sovereignty, neo-functionalists moderated this view and confined their argument to the premiss that once such institutions were created they would increasingly tend to seek integrationist solutions even if integration had not been the original purpose of creating them. The mechanism by which they were alleged to do so was the concept of ‘spillover’, which demonstrated how a cumulative integration process could acquire sufficient momentum eventually to erode the nation-state and build a new supranational state. National bureaucracies, like the rest of national government, were conceived as coalitions of divergent interests and this divergence would lead to the use of integrationist institutions like those of the European Community to claim the support of one element in these pluralist coalitions against another. This announcement in the 1950s of the operation of a self-sustained momentum in the European integration process lent intellectual credibility to the State Department’s claim that US support of European piecemeal economic integration would eventually result in the recreation of Europe in the image of the United States.⁴ During the 1960s, neo-functionalism’s interest in regional integration in Latin America, Africa and South-East Asia reflected the political preoccupation in the State Department with the growth of nationalism after decolonialization and the belief that regional integration could provide a non-interventionist model for the containment of communism in the Third World.⁵

Unlike the other theories of European integration, neo-functionalism was developed by a relative small and self-conscious circle of American scholars concerned not so much with European integration as with the construction of a systematic predictive theory of international political integration.⁶ Within a short span of years they came to dominate studies in the field of European integration as well as that of international relations in general; an academic success which owed much to the fact that neo-functionalism in the 1950s and 1960s became the intellectual foundation for a hegemonic foreign policy architecture.⁷

In Europe too some policy-makers were strongly attracted by the theory’s great simplicity: its strong predictive element not only promised an uncomplicated future for European integration but also gave precise policy prescriptions for how to bring about integration. The theory’s technocratic elitism appealed strongly to European Community officials who naturally saw the extensive theorizing about the workings of the Community as a confirmation of their historical role as guardians of the European integration process.

The fact that no other theory appeared to explain the historical events associated with the foundation of the European Community probably explains why neo-functionalism, even after failing the crucial test of the historical laboratory in the late 1960s, was taken up by Europeans from Americans and spared the critical exposure of its ideological bias which other cold war theories were to suffer at the hands of revisionist critics in the 1970s. In the United States, regional integration theory was eventually pronounced obsolete in the aftermath of Vietnam. However, while American theorists quickly moved on to interdependence theory, Europeans were understandably more reluctant to accept the non-existence of a theoretical framework for the Community they were living in. Hence the tortuous inspection during the last twenty years of Community policies to detect functional linkages that can help rehabilitate the most ideologically attractive element of neo-functionalism – the self-sustaining momentum of Community development.

Seen in this perspective it is not surprising that the excitement created by the renewed political activity about European integration in the second half of the 1980s has led some scholars to suggest a partial rehabilitation of neo-functionalism.⁸ As historians of European integration we are concerned with this new development. It would be ironic indeed if the Community resurrected neo-functionalism, albeit in a modified form, as its official credo at a time when the Cold War has finally been done away with. According to our view the only purpose neo-functionalism serves today is as a reminder of how easily theorists can end up promoting the values of their political masters – a warning which seems of particular relevance in the present climate of Euro-optimism.

Neo-functionalism failed the test of history because it did not ask the crucial question about where the locus of power lay in the post-war period and, in its enthusiasm for a theory with predictive value, practically did away with the nation-state as the central unit of political organization. Drawing on system theorists like Talcott Parsons and David Easton, neo-functionalism defined the state as a political system driven by interest group pressures within a framework of over-arching consensus.⁹ Not only was the common interest a given thing, it was also best served by the pursuit of conflicting individual and group interests within an accepted set of norms. Neo-functionalism expected political and ideological conflicts to be resolved by the upgrading of the common interest and the replacement of the monolithic concept of ‘national interest’ with a complex of group and individual interest at the international level where the state, no longer a unified actor in the international system, competed with other non-state actors for the loyalties of its citizens.¹⁰ With this definition, neo-functionalism had effectively assumed away the nation-state from the very start.

The reality, as historians have subsequently shown, was that not only did virtually all power remain with the nation-state and its bureaucracy, with only limited surrenders of national sovereignty being made to integrationist institutions and only for narrowly defined purposes, but that states were also able to assert the priority of a national interest within the integrationist framework even against the wishes of large minorities of their populations or seemingly powerful interest groups.¹¹ There is in fact much to be said for the argument that the nation-state became more powerful after 1945 in western Europe than it had been before. It was oddly contradictory that theorists should have predicted the replacement of the nation-state at the exact time when European states were embarking on unprecedented programmes of intervention in economic and social life with the express purpose of shaping and controlling their national destinies. Concepts like ‘the mixed economy’ and ‘the welfare state’ reflect the recognition of this historical reality by other academic disciplines. Seen in this perspective it is difficult to escape the impression that the generous funding of American political science during the Cold War by private foundations and US government agencies to some extent explains theorists’ reluctance to ask more penetrating questions about the sources and distribution of power.¹²

There is, in spite of this historical evidence, a marked reluctance to give up the idea that some kind of spillover has been and still is at play in European integration. This reluctance is to a certain degree understandable because without the concept of spillover it is becoming increasingly difficult to maintain that the Community’s institutions have a life of their own independent from bargains between national governments. This predicament causes considerable confusion in the present debate.¹³ Rather than returning to American cold war theories to explain the present dynamics of European integration, the time has surely come to base any attempt at theory on the accumulating empirical evidence of the history of the European Community. Surely the first step towards eliminating the present confusion about European integration must be to get the historical facts right. In this book we set out to look at the history of European integration from the European viewpoint and to test an alternative theory. The hypothesis we test is based on the last ten years’ detailed empirical research into member countries’ national archives as well as on our deep dissatisfaction with the normative values inherent in American cold war theories.

Our hypothesis begins with the assumption that most western European states were so weakened by their experiences over the period 1929–45 that they more or less had to re-create themselves as functioning units in the immediate post-war period. Of course, when they did so they drew heavily on pre-war policy trends and discussions. But the Great Depression of 1929–32 had shattered the frail political consensuses in many of them, especially by the fall in agricultural incomes relative to those elsewhere. The claims of ideologies and competing political systems outside their borders on the allegiance of their citizens had in many cases weakened the capacity to rule effectively. Invasion, defeat and occupation left many of their governments eventually clinging in exile to the assertion of a dubious legitimacy. In this situation their objective once they returned was to reassert the nation-state as the fundamental organizational unit of political life as vigorously and securely as possible.

To do this all states selected a bundle of policies which would achieve that goal. We hypothesize that some of these policies could only be successfully advanced, or could be better advanced, through the international framework. It depended, of course, on the chosen policies. Increases in social welfare, an almost universal policy choice, had for example only indirect, and for some countries perhaps not very strong, repercussions on a country’s international relations, although, as the study of French reconstruction in chapter 3 shows, they could become identified as a crucial determinant. Agricultural protection, another virtually universal policy choice, had, in contrast, such strong political implications for a country’s external relations as to be obviously more satisfactory from the moment it became a domestic policy choice, if it could be pursued in a framework of international agreement. Employment policies, pursued in different guises in many countries, presented few international difficulties when high levels of employment prevailed over most of western Europe. At the opposite end of the spectrum industrialization policies which depended on protection in a world where the general trend was towards a lowering of protection insistently demanded an agreed international framework for their success.

The inherited international framework through which domestic policy choices could be advanced had developed since the mid-nineteenth century as one of general agreement to uphold certain principles of economic interdependence in the general interest. This agreement however had been eroded, and by some important countries renounced, in the 1930s. One of the reasons for this retreat from acceptance of the principles of interdependence had been the increasing priority given to certain aspects of domestic policy, work-creation schemes for example, or the defence of weak industrial sectors, which, in a world where not everyone could agree to do the same thing, required a greater degree of insulation of the national economy from international economic movements. Some of the new post-war national policy choices could, we hypothesize, be advanced through this altered and less liberal framework of interdependence. Others, we hypothesize, could not and required something new – integration.

To put some historical flesh on these hypothetical bones, let us take one example, some detailed knowledge of which is now emerging from empirical research. It relates to a particularly noticeable policy concern of the post-1945 state, its concern to promote industrialization and modernization, which was eventually incorporated into the search for economic growth. Most European states became much more actively involved than before the war in promoting the development of particular industrial sectors in which it was thought a comparative or competitive advantage in international competition could be obtained, or which, it was thought, were necessary for the further development of the economy.¹⁴ Thus, French plans directed investment towards increases in the production of tractors, cement and energy and relied on high tariffs to shelter these sectors. The Netherlands protected with quotas infant industries such as chemicals, glass and electrical engineering. Norway protected with high tariffs some rapidly expanding non-ferrous metal industries. And almost all countries tried by various means to develop a larger steel industry. The different ways in which these industrial developments were attempted showed great variety, but the goal was similar. Industrialization was thought of as the basis of an increase in output, industrial modernization as the basis of an improvement in overall productivity, increases in output and improvements in productivity as the basis of economic growth, and eventually the concept of economic growth was defined as the quickest way towards consensual politics within a stronger nation.

In a country like Austria, France or Norway, where such policies were more systematically pursued, it had to be accepted that prolonged international deficits on commodity trade would be a likely outcome until the newly implanted and developed industrial technologies could themselves contribute a regular stream of exports. This looked to be extremely difficult in the more open framework of interdependence for the post-war world whose principles the United States and the United Kingdom had laid down at the Bretton Woods conference in July 1944. The system of fixed exchange rates with only infrequent alterations which Bretton Woods foresaw would be difficult to adhere to in a country where imports and investment had so high a priority as to make devaluation an acceptable choice for coping with persistent deficits in the foreign balance. The International Monetary Fund (IMF) was not designed to provide international credit on the scale on which France was to need it, and in fact France was excluded from access to it for a period because of its exchange rate policies. As chapter 3 shows, French governments sought one solution to this problem as early as 1948 by trying to develop agricultural exports to ease the balance of payments difficulties, but this only posed even more insistently the need to find an international framework in which those exports could be sold. As chapter 5 shows, the task of developing a larger and more modern steel industry faced both Italy and the United Kingdom, and France too, with crucial choices about the nature of the international order as early as 1950, to which they came up with different answers.

The European Payments Union (EPU) substituted in 1950 a European framework of multilateral interdependence for the worldwide one originally envisaged at Bretton Woods. It substituted, too, a much more generous provision of international credit for deficits on intra-western European trade and payments than anything envisaged at Bretton Woods. Long-term debtors in the EPU, such as Austria, Denmark, France, Greece or Iceland, were able to continue to run import surpluses on their trade with the other members because of the generous settlement terms in force before 1956, which required only partial payment of deficits in gold or hard currency. Those, like Austria, Greece or Iceland, who could not meet even these generous settlement terms were treated as ‘structural debtors’ and received American aid to allow them to stay in the union.¹⁵

When the EPU was first proposed some American bureaucrats saw it as an integrationist device, the first step on the road to a common West European currency, a common central bank and a common monetary policy. Every suggestion that these aspirations might be forwarded by the agreement to create the union was rejected by the European states. A condition of the union was that all hint of any such radical change in the nature of the international framework should be banished. All that the members of EPU would accept in the face of strong US pressure was the insignificant gesture of calling the unit of account in which the settlements were made the écu – while their central banks guarded carefully against any possibility that the écu could actually become a currency. To a certain extent therefore national industrial and development policies could be advanced, and imaginatively so, through the translation of the inherited and modified principles of interdependence into the post-war world, for the EPU was far more appropriate to the precise needs of western European countries in the post-war world than the abstractions of Bretton Woods. However even with this context the protection needed to ensure the success of industrialization and modernization policies proved inadequate when it had to be combined with the overall objective which all western European countries pursued of encouraging the growth of foreign trade as a stimulus to higher rates of economic growth.

Two accepted methods of protection on the frontier were handed down from the pre-war world, tariffs and quantitative restrictions. National tariffs had been the main instrument of control of imports on the frontier from the mid-nineteenth century to 1931. They were a cumbersome device and in many countries subject to close parliamentary scrutiny, which limited the capacity of governments to adjust them quickly or rationally. The tendency had been for tariff bargaining to relapse in all periods of difficulty into bilateral bargains, and the general evidence from their use was that they accelerated the tendency for the value and volume of foreign trade to fall in times of economic recession. The experience of the great slump of 1929–32 had, furthermore, demonstrated that the protective effect of tariffs was also inadequate, unless they were so high as to d...