Draft - 25-May-04

submitted for:

International Encyclopedia of Economic Sociology

edited by Jens Beckert and Milan Zafirovski

(forthcoming Routledge 2005)

European Market

European Union (EU) – the impressive emergence in the decades since World War II of a virtually borderless internal market across the states of Europe – is a subject largely overlooked by economic sociology. This is curious given that the EU is both a huge natural experiment in the political construction of a market, and the most highly evolved example of an international *governance structure in the global economy today. If we define *globalisation as the emergence of increasingly integrated markets over ever larger territories, the European market represents the fullest example of regional economic integration, unified around specific rules, a range of novel political and economic *institutions, and an extraordinarily high degree of regional economic interdependence.

Despite all this, sociological contributions to the study of the EU have been thin on the ground. Major economic sociologists have been absent from a growing body of academic work led by scholars in law, political science, IR, economics and history. Their work charts the evolution of an ever more integrated European market, out of post-war reconstruction and a variety of intra-European free-trade arrangements, through various stages of customs union, single (common) market, and a single currency. Today, the European market is the single largest in the world, with comparable GDP and a larger population than the US. A predominantly economic rationale lies behind the process of European Union, but it has accrued diffuse political power through the supranational institutions of the European Commission (the EU’s main administrative body) and European Parliament, which are central to policy making in conjunction with the member state governments. Its laws are enforced by the European Court of Justice, which administers a body of international law which holds supremacy over the national law of all member states. The merger of what were otherwise fragmented national markets has created opportunities for European industries to develop and compete on the global stage, as well as the the liberalisation of European economies, (Rodríguez-Pose 2002), but it has been notably slower in areas of non-economic political cooperation, such as defence and foreign policy. The most impressive data concerns the marked shift of member states’ national economies from external to internal markets in the post-war decades, a fact that underlines the pragmatic economic rationale reinforcing a project initially rooted in the idealism of a generation determined to avoid the disastrous military conflicts of the recent past. Beyond the economy, the European Union can also be read (controversially) as a vast social experiment in postnational society.

Macro-dimensions of European Union

Within a global economy marked by unprecedented levels of economic interpenetration, and a political context in which there have been several attempts to institutionalise international instruments of economic governance (WTO, NAFTA, World Bank, etc.), the European Union stands out as the most advanced such example. The initial treaties relating the coal and steel sectors first bound a small group of six European nation states devastated by World War II. It was expanded in the landmark Treaty of Rome of 1957, to incorporate all sectors of the economy, and instituting the ‘four freedoms’of a nascent European common market: freedom of movement of goods, capital, services and persons. Membership of the Union expanded from 6 to 15 by the mid 1990s, following early expansion of powers during the boom years of the 1950s and 1960s, a long period of stagnation in the 1970s, and a new push towards the completion of a single market, with further treaties in 1986, 1992, and 1997, and the introduction of a single currency (the Euro) in 2001. The progressive deepening of the Union, across all kinds of policy sectors, has also set the stage for the declaration of a constitution, and the long negotiated enlargement of the EU to the countries of the former soviet bloc in 2004. The economic unit has expanded to 25 nation states, a population of nearly half a billion, and about 20% of the world’s import and export trade. Moreover, the European market represents a form of capitalism quite distinct from American and Asian varieties of neo-liberalism.

The theory of regional economic integration developed by Balassa (1961), best captures the economic logic behind the expansionary widening and deepening of a territorially integrated market, and why political actors might enter into supra-national economic agreements that ostensibly reduce their control (‘sovereignty’) over the economy. The theory accounts for degrees of economic integration, moving from a free trade area, which removes internal tariffs and barriers, through a customs union, which harmonises external trade and sets up internal regulatory institutions. A common market completes this process with the removal of all non-tariff barriers to free factor mobility (i.e. allowing complete free movement of labor and business across borders), and finally, economic union, in which members harmonise their economic policies into a monetary union, creating a common currency. Steps towards political union go beyond the final degree of economic integration. On this, Scharpf (1986) points to a canonical distinction between the negative integration of the early days, in which the market building functions of European Union were driven principally by deregulation and the removal of barriers to trade, and latter stages of positive integration, in which member states and EU institutions have more self-consciously worried about creating new instruments of integration – such as coordinated policy, harmonized directives, law, constitution, currency and so on. The elaboration of rules of trade and exchange through European law, and the highly progressive tendency of the EU to intervene to protect workers, firms and consumers from the operation of an ‘unfettered’ market, all point towards the positive construction of a socialised economy distinct on the global stage.

Establishing a typology of stages of integration is an easier task than establishing a theoretically satisfactory explanation for the actual historical forms that European Union has taken. Debates on European integration have centered on archetypal IR preoccupations about realism versus idealism in the motivations of national political actors. They ask why such actors would commit themselves to such an extensive and binding range of international agreements and institutions. Liberal intergovernmentalists have stressed the ultimately convergent national interests behind this construction, while neo-functionalists and institutionalists point towards the unpredicted or unexpected dynamics in integration. Neo-functionalists argue that ‘spillover’ occurs of certain functions of economic cooperation into non-economic areas, whilst instututionalists underline the emergence of effective autonomous actors in both European law, and the European Commission and its orbit in Brussels (home of the main European institutions). The alleged sui generis nature of the European project, and hence its non-generalisability to other regional integration projects, has led to much characteristically post-hoc theorising in the literature, which is often better on commentary than explanation.

Despite this fertile territory for macro-sociology in general, and any economic sociologist interested in the global political economy in particular, sociologists have not contributed to the literature on the common market and European Union. Only one major figure, Neil Fligstein, has attempted to apply the theoretical tools and sensibilities of contemporary economic sociology to this important empirical topic. In a series of both solo and co-authored papers (1996, 2003), he has argued for a sociological reading of evidence about the EU’s emergence, that emphasises the deliberate political construction of this market: in terms of property rights, governance structures, rules of exchange and conceptions of control. Fligstein thereby portrays European Union in classic economic sociology terms, looking at how markets emerge, stabilise and are transformed. This kind of theory offers a great advance on many of the specialist Europeanist accounts. It portrays the emergence of a European market as parallel to the history of economic organisation that could be found in any of the major European nations, and which he, in particular, has traced in the US; only here it is a process taking place at supra-national level, and absent of many of the features of national political integration that gave this task nation-centered form and coherence in the past.

In the case of the EU, the emergence of complex regulation and a body of European law, has enabled a market based on the free movement of goods, capital, services and persons comparable only to the federal United States of America. The EU has removed trade barriers and tariffs; eased competition across national borders over products and services that used to be protected and/or subsidised nationally; developed rules of exchange about common standards, insurance, liability, ownership across borders, as well as health and safety standards, and standards of employment practices and workers’ rights; and promoted a convergence on more open, liberal ideas of economy, the liberalising of business practices, and the transformation of economic organisations along less hierarchical lines. To these ends, the Commission has been able to successfully mobilise state and business actors in specific sectors (especially export oriented industries, such as food, transportation, pharmaceuticals, chemicals) where competition and more open markets were desirable, and ground this in a cultural project legitimised by both political idealism about a unified Europe, and the neo-liberal agenda of multinational corporations. Fligstein substantiates the corporate influence on the EU, charting the highly proactive lobbying and consultation role of major multinational business interests from the early decades onwards, and tracing the impact of various business ideas on deregulation, standardisation and modernisation. Much of the building of a European market has indeed been about the opening of Europe for global firms, enabling the implantation of American and Japanese firms. Yet this self-evident facet of globalisation is complicated by the fact that many of the EU’s stated positions on corporate takeovers, social rights, the environment, privacy, and so on, differ sharply from the norms promoted by successive US administrations. Notably, too, the EU has not got directly involved in the reform of national European welfare systems – that remain the bedrock of European economic exceptionalism – except indirectly through rules on government debt and spending imposed on those who signed up to the single currency.

These aspects point towards the somewhat paradoxical outcomes of European Union. Despite its remarkable supra-national dimensions, European Union has not so much undermined member state sovereignty, as reinforced it by enabling a far greater degree of collective national control over the economy than might be the case in a wholly US dominated global economy. At the same time, the building of the internal market has both reinforced certain ‘neo-liberal’ conceptions of the market, and yet has also broken many of these rules, via substantial welfare redistribution at a supra-national level – through its policy on regional development, and the common agricultural policy, for example.

Micro-dimensions in the sociology of Europe

Another fertile area for research on European integration would be the move towards disaggregating sociologically (and spatially) the measurements of the actual transactions and flows that (presumably) constitute the macro-economic data about, say, trade or GDP by which by which market integration is typically reckoned. Beyond postmodern speculation, there has been precious little exploration of the sociology of globalisation in this sense, and the lack of sociology of European Union is even more striking. Some fine ethnography of cross-national labour markets and other forms of mobility have been made, and economic geographers have produced interesting work on regional development, spatial inequalities across the Union, and commodity chains within Europe. But, as ever, the sociological vision of these inherently transnational topics seems hampered by the discipline’s tendencies to methodological nationalism.

The micro-level challenge is to put a human face on the economic flows and transactions behind macro-data sets. Studies of European identity are one way this has been operationalised (often using data produced to this end by the European institutions), but new qualitative research is needed on the novel social/spatial trajectories experienced by a new generation of European citizens. These economic actors are now living out their lives in a different conceptual space: pursuing studies, careers, consumption patterns (as tourists, retirees, cross-border shoppers), and perhaps even relationships and family lives across national borders, that would have once defined the norms and outer limits of their social worlds and social mobility. A remarkable growth in personal mobility across borders has accompanied the increased business interactions. Both phenomena underline how individuals are willing to personally transcend the still often sharp sense of national distinction which most European societies continue to preserve, indeed embellish, with their domestic media, and cultural or political preoccupations. Yet it is less clear that such mobility is leading to more migration (i.e., movement plus re-settlement). In fact, the long term stability of Europe’s internal migration figures, and only equivocal evidence on increased intermarriage and naturalisation, suggest the opposite. The localistic, regionally rooted notions of ‘home’ and ‘belonging’ held by most Europeans, point to a longer standing historical reluctance to move among Europeans. This rootedness perhaps lies behind the stable affluence of the numerous mid-sized cities that make up the central swathe of the wealthiest parts of Europe, from northern Italy to the North Sea. In this respect, not much has changed in the economic geography of the continent since the Renaissance.

What has changed has been the populations of lower class workers who provide the dynamo for these economies. The majority of West European nations now have predominantly middle class populations, and a disappearing working class, less willing than ever to take menial, lower end employment. Moreover, European’s high rates of female workforce participation have also created many openings in the service sector. The solution as elsewhere has been immigration, but the migrants on the labour market have changed. Whereas once positions would have been filled with workers from the south of Europe, these flows have largely dried up, as economic differences between north and south evened out, and more generous welfare regimes were extended to even the poorest parts of the Mediterranean Europe. Migrants in Europe, nowadays, are typically non-European immigrants, from all over the planet, many of which are undocumented. Europe’s wealth, in fact, rests now on an informal economic dynamo, and structural reliance on the black economy in agriculture, manufacturing and service sectors, comparable to the extraordinarily open North American economy. This is the case even in countries such as Denmark or the Netherlands with far more ostensibly regulated social regimes – although there is an economic clash here that is leading to great political tensions. The demographics of migration are also linked to the chronic ageing of the European population, and the apparent long term non-sustainability of its post-war welfare regimes, that are perhaps the most distinctive claim there is to there being a distinctive version of ‘European modernity’ (Therborn 1995). It is not yet clear how enlargement will affect all this, although it seems most likely that the likes of Poland, Hungary, Lithuania, or even Bulgaria and Romania, will follow the formerly backward economies of previous accession states like Portugal, Greece, Spain and Ireland, into the ranks of the wealthier in Europe.

These dimensions of the European economy point to real concerns about the compatibility of elements of neo-liberal dynamism and openness, to the somewhat distinct forms of capitalism found historically, albeit unevenly, across all of Europe. As it is, Europe’s own exceptionalisms – its welfarist conception of capitalism, commitment to redistribution, high levels of social benefits, corporatist union-government relations, conceptions of participatory citizenship, and the rejection of extremes of income inequality that have been settled on in the US and elsewhere in the developing world – continue to offer a reminder of the diversity of forms of capitalism possible in the world today.

Further reading

Belassa, Bela (1961) The Theory of Economic Integration. London: Allen & Unwin.

Fligstein, Neil (1996) ‘How to make a market: reflections on the attempt to create a single market in the European Union’, American Journal of Sociology 102 (1): 1-33.

Fligstein, Neil (2003) ‘The political and economic sociology of international economic arrangements’, in Smelser, Neil and Swedberg, Richard (eds.) Handbook of Economic Sociology (2^nd ed.), Princeton, NJ: Princeton University Press.

Rodríguez-Pose, Andres (2002) The European Union: Economy, Society, and Polity. Oxford: Oxford University Press.

Scharpf, Fritz. (1986) ‘Negative and positive integration in the political economy of European welfare states’, in Marks, Gary, Scharpf, Fritz, Schmitter, Philippe and Streeck, Wolfgang (eds.), Governance in the European Union, Sage: London.

Therborn, Göran (1995) European Modernity and Beyond: The Trajectory of European Societies, 1945-2000, Thousand Oaks: Sage.

Adrian Favell

University of California, Los Angeles