June 19, 2003

It's a story of Liberals vs. bureaucrats and statists battling for the soul of Europe in John Gillingham's European Integration 1950-2002: Superstate or New Market Economy?, reviewed by Barry Eichengreen. From the review:

Enterprise privatization and market deregulation thus became the economic tools du choix. A single European market free of barriers to the internal movement of merchandise, capital, and labor -- Hayek's vision -- came to be seen as a solution to the problems of stagflation and high unemployment. A continental market would allow European firms to reap the benefits of economies of scale and scope, and the need to attract footloose factors of production would force national governments to remove barriers to production and innovation. A single currency, a creation with both symbolic and real value for integrating markets and intensifying competition, capped the process in 1999.

But this finale proved anticlimatic for the Hayekians, for it neither reduced the reach of the state nor led to the devolution of regulatory functions to regional and local governments. To the contrary, the creation of the single market starting in 1986 led to a greater role for the European Commission, the EU's proto-executive in Brussels. With the benefit of hindsight, this result is unsurprising. The cross-border spillovers of policies grow more pervasive as markets are integrated, creating a logic for centralizing the regulatory functions required for the operation of a single market. Even a classical liberal economy must have a trade policy and a competition policy, and an integrated international market can have only one of each. As Gillingham notes, Jacques Delors, the EU's head technocrat from the mid-1980s through the early 1990s, saw this as a convenient opportunity to expand the responsibilities of the European Commission and to turn it into the EU's central policymaking organ.

Posted by Greg Ransom