The pressures of globalization pose very intricate questions for the future of the European continent in the world economy. The optimistic version holds, that with NATO and EU extension, security is increased in the East of the continent, while the ups and downs of transformation produce tangible results for the great majorities of the population, stabilizing young democracies. Eastward expansion of the European Union will enhance growth and stability, while European Monetary Union will enhance Europe’s chances the international economy. Institutional reform of the Union will proceed, leading to a region of prosperity, peace and stability on the old continent. Monetary Union will end competitive devaluation circles, it will stabilize employment and growth, and will strengthen the European position in the long run.

At this stage, some general points should be permitted, that try to advance what I call here a ‘labor movement perspective’ on some of the basic problems of the future of European integration, but which, I concede, are also very well compatible with a thorough liberal critique of some of the basic assumptions of current European integration. Opinion in Europe among circles that identify themselves with ‘labor’ and with the ‘new social movements’ of the 1980s is at best divided over future integration policy, including the speed of EU eastward extension, while in America Wall Street and business is apprehensive or critical about the Union, and the left in North America largely overlooks the potential benefits of a successful European Union for the world economy. Researchers from the South, most notably Samir Amin (1997), have written committed, critical, alternative agendas for European integration. European success is necessary for an alternative agenda in world society.

To continue and develop this tradition, we start from the assumption that eastward expansion of the Union still could fail, because East European democracies become more ungovernable under the pressure of the world market; institution reform could fail, because the EU is - under the dominance of big-business and big agriculture lobbying - a stagnation-prolonging mechanism, and European Monetary Union could fail, because international capital is more and more a narco-capital that shifts around the world. Thus, this Chapter is meant to be a provocation, but it is meant as an honest provocation written by a committed European. Precisely because the present author believes in the political imperative of a social and politically United Europe, which could become an important factor of international peace and stability, east-west and north-south cooperation, trade and conflict management, a thorough critique of the ‘real existing Union’ must be allowed

The Chapter deals with the issues in a macro-quantitative fashion, trying to explain the performance of the countries of the world economy, of eastern and western Europe by their sets of initial policy-conditions. It presents evidence, based on UNDP and UNCTAD data series. It will be shown that

1. ‘dependent’ development in the East, under classic assumptions, increases rather than decreases internal relative cleavages and contradictions
2. years of European Union membership, under present circumstances, are a prime development constraint, i.e. the Union is dynamic enough only for young members; while the way, it functions, increases the societal power of mighty distribution coalitions
3. only the maintenance of some kind of ‘social element’, like education, a fair share of agriculture, will guarantee long-term economic and political stability in the long run. The growth strategy of the ‘social element’ of human capital formation and world political detente is to be combined with the liberal element of a slender and efficient state. Seen in such a way, the growth perspectives for Eastern Europe are considerable
4. the EMU, under classic Maastricht assumptions, will further increase the gaps between the North and the semi-periphery in Europe

We present here some of the first cross-national tests of the transformation policy failure or success since the end of Communism in Europe in 1989. What are the lessons to be drawn from our knowledge about world societal ascent and decline?

No one seriously doubts the necessity of world political security and market access for East Central Europe. Our view of EU eastward expansion is more somber: the end result should not be the re-peripherization of the Eastern half of the continent, that was all too familiar for the region during the capitalist development from the Long 16^th Century to 1939. Thus, a perspective is taken up again, that is a classic theme of especially Polish sociology, especially in the works of Jadwiga Staniszkis. The average incidence of poverty in Eastern Europe - as defined by a daily income of $4 or less (measured in 1990 PPP$) - increased sevenfold between 1988 and 1994, from 14 million to more than 119 million. In Russia, over 60% of all children live below the poverty line. 66% of all Russians below the poverty line have jobs. Only 40% of workers were paid in full and on time (UNDP, 1997). The incidence of chronically malnourished children in Russia rose from 9% to 14% since 1992. The life expectancy of Russian males has fallen in five years to 58 years - in fact, it is lower than that of India today (61.1) (UNDP, 1997). 9 Eastern European reform states accumulated between 1992 and 1997 a negative current account balance to the tune of around $bn 50. The basic hypothesis of this Chapter is that the East of the European continent is threatened by Latin-americanization (Amin, 1997), and that a socio-liberal transformation alternative would soon have to be found. That this is not just dependendista propaganda, is to be inferred from a commentary from the Polish Press:

Following the radical perspective, so brilliantly exposed by Claude Julien in Le Monde Diplomatique September 1996 and by Samir Amin (1997), the question cannot be how well countries like Poland adapted a blueprint, (for example, contained in the famous White Paper of the European Commission (1995)), but what contradictions, cleavages and conflicts arose within Eastern Europe and between Eastern Europe and the old West European centers in the process of globalization and the expansion of the market order into Eastern Europe after 1989. Or to put the problem in Osvaldo Sunkel’s terms: Eastern Europe saw a slow rise in the share of the gross product of foreign affiliates as a ratio to home country GDP (from 0.0% in 1982 to 1.3% in 1991), while the market-power of the transnational corporations saw to it, that the sales of foreign affiliates dominated an ever-growing share of the exports of goods and non-factor-services of the transition countries (the share went up from 0.9% in 1982 to 22.8% in 1993). The successive Governments of Poland - like the other governments of the region - have done a lot in the right directions for preparing the country for Union membership, but the framework of a semi-periphery country in the world economy creates pressures and instabilities which largely co-determine the social policy outcomes. Published social scientific evidence (UNDP, 1996, 1997 Human Development Report Poland) suggests, that the following basic and real conditions for Polish social policy still exist - the spurt of recent economic growth notwithstanding ((i) to (ix) all UNDP data). These conditions also explain the shifting cultures of protest voting in Poland - Tyminski in 1991, SLD and PSL in 1993, AWS in 1997:

(i) the number of employed in Poland is still smaller by 2.4 million persons in comparison with the end of 1989

(ii) the growth of employment in the private sector did not yet fully compensate the job losses in the public sector after 1989

(iii) 800000 to 1.1 million Poles work in the ‘hidden economy’

(iv) there was a long-term decline in the outflow from unemployment to official work in relation to the total outflow over recent years, only halted in 1997, suggesting that the hidden economy, illegal foreign labor, and other forms of existence compensated for the losses:

Graph 9.1: unemployment in Poland - total outflows and outflows to work, 1990-1995

Legend: labor market statistics in Poland. Inflows to unemployment, outflows from unemployment (total, to work, and other outflow) in thousands of persons. Compiled from Central Statistical Office, Statistical Bulletin, September 1997

(v) youth unemployment remains very high and is in fact over 30%

(vi) 280000 persons are totally discouraged from looking for any kind of work, a trend which is exacerbated by the ever more stringent requirements to receive unemployment benefits

(vii) hidden unemployment on the farms also amounts to a large number of affected people, in all 450000 to 690000 persons. The total rural underclass comprises more than 5 million people

(viii) social insurance benefits paid from the national budget consume now 1/6 of the total GDP. By 2020, the number of pensioners will increase by yet another 3 million from 9 million persons to 12 million beneficiaries

(ix) several studies suggest, that the social policy frame of reference for the disabled persons in Poland is still not satisfactory (UNDP, 1996). There are over 4000000 disabled persons in Poland. 60% of them only have the most basic educational level, making this group of people even more vulnerable on the labor market. The majority of disabled persons in Poland is professionally inactive. In 1995, the unemployment rate of disabled persons in the cities was 28.1%, while in the countryside it was only 6.2%. Young disabled male persons under 24 years of age have an unemployment rate of more than 50% (UNDP, 1996: 88). Almost 43% of the households of disabled persons assert that they can only afford the cheapest food and clothing. Over half are indebted and have difficulties with the repayment of debts. As many as 43% assert that they lack means for basic medicines and treatment. 85% of all disabled feel themselves excluded from the means of public transportation. Pollution and low access to medical care in the countryside determine, that 39% of all disabled persons live in the villages

There are widely differing estimates about poverty in Eastern Europe. Our own view is that a policy of investment in human capital could fairly quickly redress the existing imbalances, and at the same time help the country to avoid double deficits and a rising dependence from foreign capital.

What way out from the transformation trough, from poverty and dependence a country should choose? The debate about Eastern European reconstruction seems to be dominated by several fallacies. The first fallacy would concern the famous hypothesis about the 'market economy without adjective nouns' as an engine of a successful transformation process. Following the logic, already proposed by Adamczyk, 1992; Angresano, 1994 and Jenkins, 1987, a de-facto policy of mass demand maintenance might have been better adapted to survive the transformation shocks and might - in the end - have been even more profitable for large-scale TNC investment than the real 'shock therapy strategies'. The second fallacy concerns the workings of foreign capital in the region and in the development process. Simple macro-economic reasoning would already demonstrate, that a sound economy, based on dynamic export-growth and huge positive trade and service balances, tends to be an overall capital exporter and not a capital importer. However, to paraphrase current bankers’ language, Eastern Europe wants historic East Asian growth rates at African savings rates. The result is of course, neo-classics and dependentistas will agree, increased foreign capital imports in a relatively backward economic structure. The rest already has been described by Gunnar Myrdal in full detail. The macro-economic need for high net foreign investment, hence the predominance of foreigners investing at home as compared to the investments of nationals abroad on the enterprise level, precisely arises, when either export-led growth is insufficient or import-substitution strategies are in force or both. Everything that has been said over the last thirty years about globalization can also be interpreted in terms of a radical neo-classic critique of import-substitution policies and insufficient export-oriented strategies (Ernst, 1973). The East, hoping to attract foreign capital to the detriment of the relative share of the developed countries, in world investment flows must ask itself, whether or not low labor costs are a necessary let alone a sufficient condition to attract foreign capital.

The 9 most promising reform countries increased their total debt from 101 billion $ in 1992 to 127,2 billion $ in 1995. The present author thus expects a renewed East European debt cycle as entirely likely. The right wing in Poland contends - not without justification -, that the left which governed Poland from 1993 to 1997, incurred a trade balance deficit to the tune of 22 billion $ since taking power to the end of their regime. That their own policy of unilateral opening of markets, 1989 - 1993, contributed to the process, is another matter. In fact, one could even argue that there was no such thing as Western aid to the East at the early stages of the transformation, especially to some transformation economies in Europe. Talks about the Marshall plan were relatively belated on May 28, 1997; in fact, such a plan - and its philosophy - would have been necessary 9 years ago. Regimes that received real net transfers were the (former) 'real socialist' regimes of various Marxist or 'real socialist' denominations in the South and in the (former) USSR, but not all the transformation economies of Eastern Europe. Western protectionism, transfer pricing and other monopoly practices are to be held partially responsible for the fact, that aggregate net transfers to the East (after due consideration of interests paid for Western Banks, donors and profits, paid out to investors) were sometimes negative (our own compilations from Vienna Institute for International Economic Comparisons; World Bank, WDR (1994), HDR UNDP, 1994, and Business Central Europe, July 1997). Although later data (World Bank, WDR, 1996) seem to suggest a certain reversal in the trends of the international division of labor within Europe, it is pretty certain that the whole region, from 1990 to 1995, received only 15% of all total investment inflows to the tune of $1640 thousand million (World Bank, WDR, 1996). The World Development Report 1996 clearly states:

Thus, there is a certain evidence on a de-facto de-capitalization of the transition countries:

Table 9.1: The Amin hypothesis about the Latin Americanization of Eastern Europe. Current account balances from 1992 onwards in the region

Legend: CEEC 7 comprises the Czech Republic, Hungary, Poland, the Slovak Republic, Slovenia, Bulgaria, and Romania. From: Vienna Institute for International Economic Comparisons, Monatsberichte des Oesterreichischen Instituts fuer Wirtschaftsforschung, 5, 1997

Although earlier studies, among them Chase-Dunn, 1982, Szlajfer, 1977 and Tausch, 1985, already stressed the world-market dependent character of 'real socialism', the flow of direct foreign investments increased significantly only after the fall of the Berlin Wall in 1989. Russia and Hungary received the lion's share of western capital flows to the East. Foreign capital in the Polish economy, that perennial testing ground for beliefs of all sort over the last millennium, is estimated to amount to 12.0277 billion $ (Paiz); the inflows 1989-97 were small however, compared to the massive flows of TNC capital to countries like China. After the Asian crash of autumn 1997, an increased amount of speculative capital flows into the country. The Italian Mafia is said to launder 100000 $ per hour in Poland - that will not make the financial system more stable either (Polityka, 16, 1998). A repetition of the all too famous ‘tequila effect’ seems to be likely. Business Central Europe estimates, that Poland ranks fifth in terms of per-capita foreign direct investment stock in the region, surpassed by Hungary, Slovenia, the Czech Republic, and Estonia. The FDI stock as percentage of GDP in 1994 was already 5.1%, while in Brazil it was 8.0%. Poland even paid aggregate net transfers to the West during the Solidarity years 1989-1993. And here, the third fallacy about post-1989 reconstruction arises: some Eastern countries were at the crucial time of the political transition in an increasingly precarious position vis-à-vis the centers of the transnational economy, just like the predecessor regimes in the region in the 1920s and 1930s and the countries of the periphery today. Aggregate net transfers are understood as aggregate net resource flows minus interest payments on long-term loans and remittance of all profits. Aggregate net resource flows are the sum of net flows on long-term debt (excluding use of IMF credit), plus official grants (excluding technical assistance) and net foreign direct investment. That is to say, Poland (just as Hungary), in reality, were de-capitalized by the world economy, when the new elites in power would have needed Western support most urgently (World Bank, WDR, 1994). As we will show below, the workings of the transnational economy did probably contribute to the political cleavages and to the downfall of the Solidarity government in 1993. The yearly de-capitalization amounted to 27 million $. The share of foreign investment per total GDP, i.e. the value of the index, what Bornschier and Mueller (1988) call 'foreign property', was anywhere around 8.5% for the overall Polish economy in 1995 (UNCTAD, 1996). In terms of the employment effects, one finds that transnational capital now controls the most important modern, dynamic consumer goods sectors; 2.7% of the total labor force and 6.8% of all workers and employees in industry work for international firms. The private sector is dominated to a still larger degree by foreign firms; 16% of the labor force in private industry in fact works for foreign firms.

The fourth fallacy concerns the effects of 'dependent development' on the host countries. The employment effects of transnational investments were over- the socially polarizing effects of transnational investments underestimated. Regional concentration of development increases, and with that the political cleavages of a basically still semi-peripheral society. Even for the case of China, the World Bank WDR 1996 states:

Poland's position in the world is first of all confronted by the fact, that since 1989 all her neighbors have changed - only the Baltic seacoast has remained the same. East Germany to the East has disappeared and has been reunited with West Germany, Czechoslovakia to the South has separated into the Czech and the Slovak Republics, and to the East, the USSR dissolved - leaving the Ukraine, Belarus, Lithuania, and Kaliningrad oblast, pertaining to Russia, behind. The development effort of the West in such a world politically highly sensitive region - and especially TNC investment - is concentrated around the rich centers of Poland, like Warsaw, Gdansk, Katowice, Krakow, Poznan and Wroclaw. A similar picture arises from the other transformation countries. The poor rural regions of Poland are almost totally neglected by foreign capital; some run-away industries are growing up in the western regions, bordering the Federal Republic of Germany. From Central Statistical Office data we estimate, that the difference between the richest and the poorest voivodship is for:

Legend: our own compilations from Polish Central Statistical Office data

The transformation after 1989 destroyed more than 3 million jobs in the public sector and more than 150 000 jobs in private agriculture, mainly in the East and the North of the country; in comparison to that, the performance of private national and or foreign capital in creating jobs has been more than modest from 1989 to 1994:

Source: our own calculations from G.U.S. Rocznik Statystyczny Pracy 1995

In a way, development of capitalism in Poland meant first and foremost an increase of the reserve army - and of the second economy, now amounting to 43% of the Polish GDP (Economist, The World in 1998). Statistics from the Polish press indicate the following distribution of foreign direct investment in Poland in 1997 (more recent data are also to be found in Chapter 8 of this study):

Graph 9.2: MNC investments in the Polish economy

Legend: stock of MNC capital by country of origin

Legend: breakdown of foreign investors in percent. Source: our own compilations from Polish Agency for Foreign Investment (PAIZ), for December 1996, as published in Okecie Airport Magazine, April 1997, 4: 5

Now, Poland was hit by the worst floods in human memory during summer 1997. The most dynamic regions of the country, around Wroclaw and further to the North-west, but also in Upper Silesia, were devastated by the flood waters. Social science, under such conditions, can only guess the consequences, but they are thought to be far-reaching, insofar as the psychological impact on the population, that was about to gain the first real fruits of transformation, must be very negative and long-lasting. The floods, furthermore, have exposed many of the weaknesses of the administrative centralist structure in such fields as environmental policy, sewage disposal, garbage collection, and infrastructure. International and Polish press reports suggest that basic initiatives by neighborhood committees emerged in the South and South-west under the impression of prime ministerial arrogance, rotting animal corpses and broken sewage pipes, thus challenging again the ‘centralist’ authority of the Polish state, perhaps marking the beginning of yet another 12 to 14 year cycle of protest and dissatisfaction, that is so typical of Polish history since the re-founding of the Polish state within today’s borders in 1944/45 (1956, 1968 - 1970, 1980 - 1983). It is interesting to note, that there is a vague temporal correlation of this Polish protest cycle with the Kuznets and or Kondratieff cycle troughs since 1945 in the periphery (with the western troughs in the years 1958, 1975, 1981). Although the Polish economy seems to be still in full swing for the moment, the relationship of trust between the governed and the government tilted against the latter in the September election of 1997, and the foreign balances of the economy point in a downward direction. Again, as in 1989, a triumphant labor movement, Solidarity, is supposed to push through an austerity course while in government. Such a Polish political tango could remind us, if a lot goes wrong, rather of Argentina in the 1960s, 1970s, and 1980s. Regional unemployment in Poland is relatively stable and is a clear indicator of the semi-peripheral character of the country in the world economy:

Graph 9.3: unemployment in Poland - regional aspects

Legend: unemployment rate 1993 (x-axis) and unemployment rate 1996 (y-axis), based on G.U.S. statistics on unemployment in the 49 voivodships of Poland.

The multiple regression to explain the residuals from the above Graph works with the following variables taken from the Polish Central Statistical Office and from the daily Polish Press:

During the post-communist years, there was a clear ‘political’ economy of castigating the opposition strongholds and handing out benefits to one’s own political folk:

equation (9.1) the rise or fall of unemployment in Poland 1993/97:

Note: as in all EXCEL 5.0 outprints, first rows are unstandardized regression coefficients, second rows are standard errors of the estimate, the third row shows the value for R^2 of the whole equation and the standard deviation of the estimate for y; the fourth row are the F-value and the degrees of freedom of the whole equation; the fifth row shows the sum of squares of the regression and the sum of square of the residuals.

In Tausch (1997) it was shown that the post-communist SLD clearly emerged in the period 1993-95 as a party in regions with a high amount of environmental damage, and in rural regions with low industrialization and excessive sexist patterns of mortality. The post-communists clearly lost in 1993 and 1995 in terms of electoral support due to a higher penetration of a region by foreign capital. The radical right, not represented in the Sejm between 1993 and 1997, was especially strong in regions of low urbanization, industrialization and high external, poverty-driven migration. In 1997, this potential increased dramatically, especially in the aftermath of the Papal visit to Poland and the flood disaster, which, many people believe, was managed very badly during the first few days by the Central Government in Warsaw. With the disintegrative tendencies of the right-wing-liberal-trade-unionist coalition, formed after the 1997 election, on the increase, this protest potential will perhaps shift to other, as yet unknown formations.

Urban, less traditionally catholic, and less private-peasantry-oriented and less big landholding areas were far more attractive to transnational capital than the traditional Polish countryside, while joint ventures prefer urban low-wage areas of Poland, also characterized by the absence of a numerically strong private (and conservative) peasantry. The main results of the above analysis also hold for the constitutional referendum of May 25^th 1997. The results are a neat reproduction of the second round of the presidential elections in 1995, as is to be shown from the following graph:

Graph 9.4: The regionally constant pattern of voting in Poland - the second round of the presidential elections in 1995 as a determinant of the ‘NO’-vote in the constitutional referendum of May 25^th 1997:

Legend: the Walesa-vote 1995 (x-axis) and the constitutional vote 1997 (y-axis) as dependent variables, based on the 49 voivodships of Poland. Our own compilations from the official election/referendum results, as published in the daily Polish Press.

The 1997 referendum again showed the political cleavages of the country: the catholic, foreign-capital penetrated regions voting with the political right, while the semi-peripheral regions of the Northwest and Northeast, characterized by big landholding before 1918, voting with the political left. However, the time perspective reveals another tendency. The AWS-Solidarity alliance in the fall 1997 parliamentary elections could relatively increase its vote in regions, characterized by big landholding before 1918, and also in regions, characterized by paternalistic patterns of excess female infant mortality rates. These are the regions, where dependent development has the biggest contradictions. Precisely there, the left showed its weaknesses well before the election of the 21^st of September 1997, when four years of left government in Poland ended:

Table 9.2: the determinants of the 1997 referendum on the constitution

increases/decreases of the anti-SLD-protest vote in %

Legend: our own compilations from the above mentioned data. Anti-SLD-protest vote: 1995 presidential election vote for Lech Walesa; 1997 ‘NO’ at the constitutional referendum. As in all EXCEL 5.0 outprints in this work, first row: unstandardized regression coefficients, second row: standard errors, last row: t-Test. The values immediately below the standard errors are R^{^2} (third row, left side entry), F, and degrees of freedom (fourth row).

The 1997 general election, in turn, repeated the results of the referendum and the 1995 general election. Both large political camps show a very surprising degree of homogeneity:

Graph 9.5: Voting 1995 and 1997

Legend: Walesa vote, 1995 (x-axis) and AWS-vote, 1997 (y-axis), based on the 49 voivodships of Poland.

Legend: the Kwasniewski vote (1995) (x-axis) and the SLD vote (1997) (y-axis), based on data about political performance in the 49 voivodships of Poland.

The Solidarity-led AWS was especially strong in regions with mixed foreign capital presence, while the post-communist SLD had the following significant factors working in favor or against it:

positive influences on the SLD vote:

• percentage of employment in agriculture
• share of big estates per total agricultural area
• Human Development Index

negative influences on the SLD vote:

• religious practice
• female excess mortality rates
• foreign capital employment
• mixed capital employment

The SLD as the party of the ‘modernizing state class’ could still - relatively - hold its place in regions with high human development and in the typical northern agricultural zones, characterized before 1939 by Junker German big landholding, although a great number of their potential voters stayed at home, thus increasing the voter abstention rate; whereas the left-wing defeat in the traditional small-scale peasantry regions of the East and South-east was almost total. These regions are characterized by high female excess infant mortality rates and by traditional religious patterns. The SLD also significantly lost in the ‘modern’ regions with high foreign capital and mixed capital presence.

Table 9.3: the 1997 general election in Poland

Legend: our own calculations from the above mentioned variables and the election results, as reported by http://www.prokom.pl, the web-site of a Polish electronics company, managing the calculation of the official results for the Polish Government. As in all EXCEL 5.0 outprints in this work, first row: unstandardized regression coefficients, second row: standard errors, last row: t-Test. The values immediately below the standard errors are R^{^2} (third row, left side entry), F, and degrees of freedom (fourth row).

Thus, still 2/3 up to ¾ of Polish voting are being determined by the structural characteristics of social policy and the insertion of Poland into the capitalist world economy. On the other hand, 71% of TNC employment and 38% of joint venture employment per total employment are explained by our equations:

Table 9.4: the political ecology of foreign capital attraction to the different regions in Poland, 1993

Source: Our own calculations (EXCEL 4.0 multiple regression IBM PS 2 notebook N51 SX) from C.S.O. data

Polish unemployment is a typical phenomenon of low-wage regions with either high pollution or high agricultural employment. Foreign capital does contribute to a better employment record, but the effect is not significant. The effect on life expectancy is even negative, although not significant. We again use the standard functions for life expectancy determination. Thus, the societal expectations created by globalization are not met:

equation (9.2) unemployment in Poland = 26.02 - 4.18 * wage level - 1.50 * religious practice - 0.06 * outward migration + 0.24 * industrial waste - 0.00 private land + 0.58 * employment in agriculture - 0.08 * big estates + 0.04 * excess mortality + 0.00 * industrial employment - 0.02 urbanization - 0.15 * foreign capital penetration (t-value 1.5911) - 0.003 mixed capital penetration

R2 = 73.39%; F = 8.27; df. = 36; a (one-tailed) 5% > 1.69

External migration, the well-known function of income level and human development, and the level of urbanization co-determine life expectancy in Poland. On the other hand, there is a really perverse negative determination of life quality variables, like life expectancy and infant mortality, by the number of doctors per voivodship, indicating the gross inefficiencies of the health system of the country:

Table 9.5: human development on a regional level in Poland, as being determined by socio-political processes

Legend: as in all EXCEL 5.0 outprints in this work, first row: unstandardized regression coefficients, second row: standard errors, last row: t-Test. The values immediately below the standard errors are R^{^2} (third row, left side entry), F, and degrees of freedom (fourth row).

Religious practice - as an indicator of the absence of modernization in a particular region - is lamentably enough one the most robust indicators of regional infant mortality rates in Poland, while the concentration of doctors in a region does practically nothing to increase life expectancy:

Graph 9.6: the number of doctors and life expectancy in Poland

Legend and source: number of doctors per 10000 population (x-axis) and life expectancy at birth, measured in years (y-axis) for the 49 Polish voivodships. Our own calculations from regional development statistics, contained in Rocznik Statystyczny, 1996, Polish Central Statistical Office

Life expectancy is also being negatively, but not significantly, determined by foreign capital penetration. The negative trade-off, well known from cross-national policy planning and development research (Tausch and Prager, 1993), can be shown to be existing for the transformation country Poland, although the long-term negative effects of mass foreign migration on the health situation of the population in the 'guest worker export periphery' Poland are stronger than those of the direct foreign capital penetration. Here we should recall, how a guest-worker economy, in the end, can destroy the social fabric of the sender-country (see also: Chapter 10). Environmental decay is related to the general life expectancy situation in Poland, but the directly observable statistical effect is weak and below the usual significance levels, because the other intervening variables, like the social and biological stress of a guest-worker economy, are stronger. It will be expected, that especially cardiovascular-vascular diseases increase under the pressure of migration and family separation. The typical urban/rural cleavages, so well-known from policy planning and development research about the capitalist periphery (Lipton, 1977), again emerge to be relevant for the post-communist capitalist periphery. Urbanization is a positive significant determinant of life expectancy. Infant mortality rates, however, are being mainly determined by traditionalist socio-cultural patterns that express themselves in religious practice rates. Our equations explain over 70% of life expectancy and over 29% of infant mortality rates.

Again, it is being confirmed that dependent capitalism creates growth and employment only to some extent, but that its effects on the social sphere are contradictory and connected to socially long-run disintegrative tendencies. Ceteris paribus, the control of foreign capital over overall employment is even slightly negatively related to life expectancy at the voivodship regional level. Our results about Poland should also be seen in the more general context of our results about the transformation dynamic of Eastern Europe.

Up to now, the leading elites did not question the basic principles of Western integration. Political constellations might arise now, which will be more nationalistic in orientation, reflecting the peripheral role that Poland still plays in the world economy, especially when Poland should suffer a crisis like other emerging market economies suffered in 1997. Yet it would be wrong to portray the protest against the contradictions of state-class dominated, centralist, dependent capitalism, that is growing in strength in Poland over recent months, as only a backward and fundamentalist reaction against the ‘benefits of Western integration’. As Jadwiga Staniszkis has shown already for the old, 1991-1993 parliament, 100 members of parliament were at the same time members of the boards of various, state-class dominated companies (Staniszkis, 1998). By mid-1998, 17% of the assets of the 500 largest companies in Poland were in foreign hands, another 8% were in the ownership of mixed capital, the state controlled 26% directly, and another 6% via the national investment funds, while Polish private capital owned only 43%. Again and again, the Polish and the international press link some of these private entrepreneurs to shady business dealings, and their enterprise history back to the days of the communist institutions in Poland in the late 1980s. In addition, the power of illegal foreign capital inflows is enormous; Italian crime groups alone (we mentioned this already above) are estimated to launder 100000 $ an hour in Poland (see Polityka, 16, and above). A Staniszkiean picture of the Polish political landscape would look like the following: the present set-up of the centralist state, dominated by the state class, mainly recruited from the banking sector and foreign trade companies, in alliance with transnational capital, which has remained relatively stable since 1989, is challenged on various fronts, and not only by the nationalists at the URSUS tractor works and from the catholic right-wing radio station ‘Radio Maryja’:

• by a growing regionalist movement, which is also a reaction in the context of the effects of flood waters on Poland’s South. Not all manifestations of regionalism need to be ‘backward-looking’
• by a growing environmentalist movement
• by a new generation of the labor movement, that is demonstrating especially against the lack of safety at work. An appalling number of major industrial accidents remind us of the fact, that ‘the cage’ of the ‘Polish tiger’ often releases poisonous gases, or that parts of the cage crumble and bury miners
• the protest movement in the state sector, especially in the health sector
• to this one has to add the crisis of the education sector and
• the disintegration effects of ‘westward integration’ on Polish agriculture, brought about by large-scale imports of highly subsidized EU-produced food, with whose price level and economies of scale Polish agriculture cannot compete

It is thus no wonder, that according to a recent standard random-sample poll by the usually very reliable social scientific public opinion research institute CBOS, mentioned in the Polish press, only 21% of Poles consider their country today as a full democracy, while 32% see it on the way to democracy, and a staggering 35% consider Poland to be still un-democratic (Polish News Bulletin, British and American Embassy, Warsaw, 27^th calendar week, 1998).

Just as during the world depression of the 1930s, democracy could not survive in the region (Polanyi, 1944), today the danger arises, that instability and not democratization will triumph in the end especially on the Balkans and in the countries of the former USSR in the long run. The turning points in the long economic waves between the ascents and decline phases (B-phases) were always the beginnings of political decay in the region as well, while the ascent phases were associated with authoritarian modernization; time-lags between the Western cycle and the Eastern semi-periphery and periphery have to be admitted (Tausch, 1997). The decisive-kairos-years are:

1509

1539

1575

1621

1689

1756

1835/42

1884

1933

1975/1982

Source: our own compilations from Goldstein and our own data interpretations after 1740, based on Goldstein. It should be recalled, that there is another tradition - based on Braudel - to view the cycle, that begins in 1689, as ending in 1747, to be followed by a 1747 - 1790 cycle, and a 1790 - 1848 cycle (for a debate about these issues, see especially Amin, 1997).

The logic of the Kondratieff waves from 1756 onwards are given as follows:

Table 9.6: The logic of the Kondratieff waves in the world economy since 1756

technological change

Unresolved problem freedom of association

international regime

-------------------------------------------------------------------------------------------------

technological change

new technologies steel petrochemicals chips

emerging during

prosperity re-

cession

international regime

dominant economic

political economy

of

The danger is of course, that the Cold-War structure will be substituted by a new power rivalry between the former members of the winning coalition of World War II:

Hegemonic wars in the world system from 1495 onwards

Table 9.7: hegemonic cycles in the world economy since 1450

The former hegemonic contenders slowly slide into an acceptance of their status in the international system. The real power struggle erupts already soon after the great hegemonic war, and through the ups and downs of the history of the system evolves slowly into the hegemonic challenge. Seen in such a way, not 1989, but Korea and Vietnam could become rather the benchmarks of the future W-structure of conflict in the international arena. For the foreign policies of the European Union, it is also important to notice the following tendency: German-Russian alliances tend to happen during depressions, and they break up during the economic upswings of the world system, when, especially during waning hegemonies, conflicts over spheres of influence set it (Amin, 1997, partially based on Bergesen):

The relationship of the Kondratieff and Kuznets cycles with Russian history is the following:

Table 9.8: world economic cycles and internal instability in Russia since Iwan the Terrible

Seen in such a way, there is little that the West seems to be able to do to stabilize democracy in Russia. However, the return of East Central Europe towards a ‘middle of the road’ and sensible philosophy - whatever the color of the government (Orenstein, 1996) - seems to be an urgent necessity, after the ups and downs of central planning and ‘the central market principle’.

Practically, only Poland recovered its pre-transformation real income level of 1990 (Fischer Weltalmanach, 1998: 1019). Our analysis from the world of transformation shows, that a rapid privatization is not in itself a precondition of a more rapid socio-economic development, and that a policy oriented towards human development and democracy will be successful, while extreme egalitarianism also has certain growth limits in the region (Osteuropa-Institute Munich, Working Paper 186 (GDP growth, privatization); Stiftung Entwicklung und Frieden (Political Rights Violations, based on Freedom House); UNDP, 1995 (urbanization, Human Development Index); Fischer Weltalmanach (GNP per capita)). In good Aristotelian tradition, the truth is thus - again - in the middle. The multiple regression results from the available data are given below. The first test generally supports a socio-liberal interpretation of the Matthew’s effect:

Table 9.9: The determinants of economic growth in the transformation countries

Note: as in all EXCEL 5.0 outprints, first rows are unstandardized regression coefficients, second rows are standard errors of the estimate, the third row shows the value for R^2 of the whole equation and the standard deviation of the estimate for y; the fourth row are the F-value and the degrees of freedom of the whole equation; the fifth row shows the sum of squares of the regression and the sum of square of the residuals. The sixth row is the t-test, calculated from row (1) and (2)

59.5% of growth in the world of transformation are explained by our equation. Thus, it emerges that the best strategy would be a policy of thorough-going reform, that assured a high human development index and a fair amount of political and civil liberties. A socio-liberal reading of recent experiences is also supported by the second analysis. The region seems to be beset by an excessive amount of egalitarianism, that becomes a stumbling block against long-run economic growth, when the share of the top income earners in total incomes falls below 35%, when taxes - compared to development level - are very high, and when the social services consume a percentage of total expenditures, that is already comparable to the most advanced welfare states in the world. The reform of social security thus becomes an all-important necessity.

The share of the richest 20% in total incomes in the region, with the notable exception of Russia, is even lower than the respective share in most developed welfare democracies, like Sweden, Finland, the Netherlands, Denmark, and Norway, or - for that matter - in the market economies of Asia. Tax rates per total income in Eastern Europe skyrocket and savings are generally low, as materials from the World Bank WDR, 1996 for the former or continuously communist countries show by international comparison. Up to a certain point, social security expenditures of the state stabilize mass demand and contribute to economic growth. High inequality rates, like in Brazil, where the top income earners received 67.5% of total incomes in 1989, are certainly growth-inhibiting as well (Tausch/Prager, 1993). But when income differentiation is below a certain limit - as in some countries of Eastern Europe and the former USSR - also negative consequences arise. The egalitarianism of movements like Solidarnosc might have its deep roots in East European history, but economically, it is counter-productive beyond a certain point. East European and transformation country inequality is positively related to economic growth, and it lowers unemployment; while transnational investment dependence brings about higher inequality and - ceteris paribus - it does not alleviate unemployment due to the capital intensity of most investments. For Eastern Europe, the choice is not the one between Latin American inequality rates (towards which Russia seems to be heading) and the former communist egalitarianism; rather the choice is the one between continuing present rates of egalitarianism (like in Belarus) at the price of stagnation or to opt for distribution and growth patterns like in the more egalitarian developing countries of East Asia before 1997. Foreign capital penetration only insignificantly contributes to the employment record, but significantly increases transformation country income inequality. Economic growth in the transformation countries is influenced significantly by two processes: political freedom and economic incentives, large enough, to overcome the vested egalitarianism of the communist years. There is little, that foreign aid will be able to do to maintain growth in the more advanced countries of the region or to shorten the transformation recession in the laggard countries of Eastern Europe. Aid dependence - beyond a certain point - rather seems to contribute to the stagnation path of the laggard countries. The internationally comparable economic and social data from the World Development Report 1996 by the World Bank make our point for the transition economies very clear. Poland, with its recent spurt of economic growth already often termed the ‘European tiger’, achieved a per-capita-income in internationally comparable $ of 5480 $. The current account balance amounted to $bn -1.1, and the trade balance -2.2, and the gross foreign debt 40.7 (GDP at 115.7). On the positive side for Poland, official development assistance amounted in 1994 to 2.0% per GNP, the highest value for all the transformation countries in Europe with complete data except Albania. But the 27% of population, who live from agriculture, just receive 6% of the total GNP - an expression of the perennial structural heterogeneity of Polish society, that characterizes the country from the Long 16^th Century onwards. The empirical cross-national evidence is presented below:

equation (9.3) economic growth =

equation (9.4) GINI income inequality =

equation (9.4) unemployment rate =

Source: our own calculations with EXCEL 5.0 multiple regression routine from the above mentioned data. As in all EXCEL 5.0 outprints in this work, first row: unstandardized regression coefficients, second row: standard errors, last row: t-Test. The values immediately below the standard errors are R^{^2} (third row, left side entry), F, and degrees of freedom (fourth row).

Eastern Europe cannot be ‘saved’ by external means or by external means alone. The mobilization of savings and exports, a clear-cut policy of human capital formation and technology, and various other reforms would achieve much more lasting effects than transfers - even on a scale like in East Germany (estimated at $bn 700 since 1990).

The World Bank has developed a liberalization index, which measures the extent to which policies supporting liberalized markets and entry of new firms prevailed. The index is a weighted average of estimates of liberalization of domestic transactions (price liberalization and abolition of state trading monopolies), external transactions (elimination of export controls and taxes, substitution of low to moderate import duties for import quotas and high tariffs, current account convertibility), and the entry of new firms (World Bank, WDR, 1996). The weights on these components are 0.3, 0.3, and 0.4, respectively. Our equation now summarizes our final research results about the transformation success/failure in Eastern Europe and the former USSR:

equation (9.6) economic recovery in Eastern Europe and the former USSR:

Source: our calculations from the above Tables on the basis of the EXCEL 5.0 multiple regression program. As in all EXCEL 5.0 outprints in this work, first row: unstandardized regression coefficients, second row: standard errors, last row: t-Test. The values immediately below the standard errors are R^{^2} (third row, left side entry), F, and degrees of freedom (fourth row).

The indicators, which affect transformation in a significant and positive direction (at 10% error probability) are liberalization and the freedom from political repression. Foreign aid is only marginally efficient in promoting growth, while a policy of human development has a positive effect on growth, and net inflows - ceteris paribus - even a negative effect. Thus it has been established again, how important it is for the transformation countries to carry on with political transformation and reform. Without political pluralism, economic transformation will definitely fail. Our results, by and large, confirm the conventional UNDP wisdom on the transformation process, already expressed in the UNDP 1992 and 1993 Human Development Report. Confronted with the ‘market frenzy’ of the early transformation years, our results do not explicitly contradict, but they do correct much of the conventional neo-classical wisdom prevailing at that time. Recently, Finance Minister Balcerowicz spoke about his plans to reduce the state sector in Poland to just 10% of the national product - but even in one of the remaining market economy ‘superstars’ Chile we have a central government share of 21%, and only in some developing countries, like Guatemala and Myanmar, we reach such proportions. In the USA, the central government share was 23% in 1994, to which we have to add the often powerful economic influence of the other federalist entities.

Measures aimed at maintaining and building up democracy and human development are just as important as the fight against local monopolies, expressed in the liberalization index. Privatization, external development assistance and capital inflows, under due consideration of these factors, are not so important as these, more immediate goals, which find their ultimate aim, above all, in the rule of law.

Our analysis of the trajectory of the transformation countries should be concluded by an assessment of the realistic possibilities for EU-eastward expansion. On the one hand, Western Europe should avoid illusions about its own weak position in the world economy. Germany’s tragedy always seems to be a ‘sandwich’ position between the dominant centers of maritime capitalist accumulation and the temptation to squeeze the East European ‘hinterland’ in order to be able to challenge the world hegemonic leaders (Arrighi, 1995). Wait a moment: this is not anti-German talk by an Austrian, but a sincere preoccupation about the future political economy of that former European work bench, that now occupies only rank 19 of the world-wide human development index scale, whose unemployment rate reaches 5 million people, the worst figure since the days of Weimar, and that has 12% of its people living with less than 14.40 $ a day (UNDP, 1997). After the integration experiment of the new Laender, that under Kohl’s 1:1 exchange conditions ruined eastern exports and cost DEM bn 150 to 200 a year, Germany continues to pay up to 70% of the European Union entire budget and will risk to pay another DEM bn 150 to 200 a year for European Monetary Union (Watzal, 1997). Germany’s current account balance after German unification, and even more so after European Monetary Union, could and can only increase at the expense of the East European current account balance - a potential of economic nationalism and conflict in the new European house after 1989. The sharp world political conflict over spheres of influence in Eastern Europe between Germany and Russia, that is predicted by world system theories during each world economic upswing, threatens to become a reality again under such circumstances. And that is the situation, with which we are already presented: Germany comes out from its current account deficit, while America’s balance deteriorates further and Japan will recover. A trilateral split of the world economy into three major currency blocks will be the most likely outcome under such circumstances:

Graph 9.7a: current account balances in the capitalist world economy, 1991-98 in % of GDPs

Legend: current account balances in % of the GDP since 1991. Our own compilation from Le Monde (1998), ‘Le Bilan du Monde’ Paris: Le Monde

Secondly, the environmental strains, already existing in the Union, will increase. But thirdly, and above all, eastward expansion of the Union will be first and foremost a test of Europe’s ability to stand by its commitment towards democracy on the European continent. A small number of nations - in terms of the current account balance - are becoming again the winners of the international system, while a great number of other nations (in our map in lighter shades) are the losers of international exchange. Our map summarizes the tendencies of the current account balance in the world system:

Map 9.1: current account balance in the world system

Source: our own compilations from Fischer Weltalmanach, 1997 and EXCEL 7.0 maps. The darker, the higher the positive current account balance.

A well-designed policy of Eastern European integration into the Union, that stresses the elements of democracy, savings mobilization, liquidation of local monopolies (also for the sake of the environment!) and early market access for the East Europeans in the agricultural sectors, could be successful; however, this policy would imply, that the European center itself adapts rapidly to the contemporary challenges. Eastern Europe’s case during the negotiations with Brussels will be, that at present, its overall social performance is not worse than that of the European Union periphery. Poland, the Czech Republic and Slovenia have still a relatively favorable growth record, and the democracy scores in 1993 were as good as those in Italy and Greece. The question is, however, how many more European peripheries the ‘real existing Union’ can reasonably afford. Considering the negative current account balance tendencies and the pressure that they exert in the direction of a ‘weak state’, I think it is most likely that the negative part of the Barta and Richter-scenario (1996) about the integration process of the East European new democracies into the European Union will come true:

1. the fragile domestic CEEC markets will be exposed to unrestricted competition from the large European MNCs. The transformation countries would need a decisive western market opening, especially for East European agriculture, where unskilled labor migration propensity and structural unemployment are highest
2. the Union will even work towards eliminating the agricultural trade surpluses of individual CEEC nations
3. the massive capital inflow to the new member states will be especially destabilizing for national development in the long run, because as yet there is no real network of established firms, banks, entrepreneurs, and national upper and middle classes, to confront the competition of Western countries
4. land acquisition will become a sensitive issue
5. the degree of foreign penetration will render many measures of national adjustment policy practically useless
6. migration will be a brain-drain of skilled people, whose activities will be missing in the modernization and adaptation process
7. huge transfers in the wake of membership will lessen the capacity for problem solving (the Greece-effect), so that ‘expensive adjustment’ will set in
8. coalition-building among the EU-‘have-nots’ will lead towards a de-motivation of the ‘haves’ and towards increased protectionism in the EU relations with the rest of the world

On the other hand, the internal European Union development blocks (see below) create a situation, were Union enlargement brings one of the few dynamizing effects for the Union itself. Whether or not Poland and the other accession countries will be able to follow the more dynamic paths of Ireland or Spain, which today has a higher human development index than Germany or Austria, is of course open to question. But social scientific experience tells us that Poland will become rather a sort of Greece in the enlarged Union, with long-term slow growth, high unemployment, a large negative current account, a high dependence from labor migration, and high debt ratios.

There is a growing awareness in labor-oriented and ‘social movement’ circles around the world that state expenditures are, more often than not, directed towards the rich and even the crooks benefit from them by subvention and customs fraud, while the poor are marginalized. Neo-liberal theory created the concept of distribution coalitions: people, who by political pressure or worse cut out their slice from the market which otherwise would not have been as big. Just to name a few figures from the current international press: the shadow economy now comprises up to 45% of Polish GNP; and fraud and other criminal practices determine that up to 5% of the EU yearly budget end up in the pockets of gangsters. Distribution coalitions block, while new market opportunities dynamize the social system of the European Union. The message of this Chapter is thus simple: the European Union has very powerful internal distribution coalitions at work, that make its whole policy-set up non-competitive in the world economy (see, amongst others, Nollert, 1997; Nollert and Fiedler, 1996; as to the argument about European law and democracy by two Austrian diplomats, Thun-Hohenstein and Cede, 1996; also, from an Austrian Green perspective, Voggenhuber, 1995). Without enlargement, the Union is doomed even more to stagnation. Enlargement is a great opportunity and chance to realize a socio-liberal model on a European scale. Without question, the future of the European project of integration is of vital importance for the perspectives of the forces of change in the other regions of the world economy (Amin, 1997). With the dominating Wall Street counter-project of financial and economic globalization in full swing, the European project - that could start out from a still significant share of global economic resources - is seen by many as the only and last realistic chance to transform the world economy. The race to the bottom, US-style, will never be the perspective of European Labor. But suppose, the eurocrats with their strange mixture of monetarist dogma and interventionist expenditures for narrow distribution coalitions and consultants were right, what would follow from this? Clearly, if the Union were to be an instrument of world economic ascent and growth (as the euro-crats would have us believe, for - why else - should we have the Union at all), then the countries most integrated into the system should be the real tigers of the world. The very geographical center of the Union, Belgium (then a haven of growth, political and social development and freedom from scandals and corruption), with the Union capital Brussels, would have to be on an equal footing with Hong Kong before 1997, and the founding member nations, like Germany, France and Italy, should have unemployment rates well below the outsiders, like Japan, Switzerland, Iceland, Malta, or Norway. But average EU unemployment stood at 11.1% by 1995 (UNDP, 1997: 210), while outsiders as different from each other as the USA, Canada, Japan, Australia, Norway, Iceland, New Zealand, Switzerland, Malta, and even the transformation countries Czech Republic, Latvia, Lithuania and Estonia, were all below, sometimes significantly below this average unemployment rate. Looking at the figures of unemployment in the 1980s and 1990s of the European Union and the OECD countries, one has to arrive at the depressing conclusion that unemployment in the OECD region now stands at 7.6%, while in the EU it reaches 10.9% (Le Monde, 1998).

The harsh critique by the growing number of eurosceptics among professional social scientists now precisely is, that the Union, as it is structured, is not the answer to the problems, but the very reason for them. Wait a moment, you might say: is that really so? What is that correlation between unemployment and European Union membership on the level of the industrialized countries? The data-base is UNDP, 1997 and Federal Ministry of Labor, Health and Social Affairs of the Republic of Austria:

The correlation between unemployment (1) and the dummy variable Union membership (2) is +0.44; the R^2 is above a depressing 19%. That is dramatic enough. The political right in Europe, especially in German-speaking countries, has reacted to the growing (socio)liberal and left critique of the essence of the Union by disbelief and even recurrence to old slogans like ‘Volksgemeinschaft’ while sectors of the political left reacted and reacts in an almost fundamentalist way by denouncing growth itself, castigating it as Wachstumswahn and Wachstumsfetischismus.

We move to the very center of the EU debate in its present form - is the Union an engine of capitalist ascent? The political project of transformation from communism in Europe is not only endangered by the contradictions, globalization creates in its host countries, it is also threatened by certain negative developments in the European 'anchor economy'. Almost all the big issues, like agriculture reform, institution reform, structural funds, let alone a real strengthening of the Third Pillar against transnational crime, more rights for the European Parliament, a real common foreign policy, reform of the institutions of the EU, are blocked, and there seems no way out. And the real existing Union, with all its deficits, and without a profound reform, won’t be able to absorb a 15 + 5 + 1 membership, let alone millions of extra agricultural producers.

We concentrate here on these issues, which have a long-term strategic and theoretical relevance for the policy formulation in the new Europe. In order to provide a valid strategy to its member countries, the Union has to be an association of world economic ascent and not a club for joint world economic decline. Very early on, a group of European policy planning and development researchers, headed by the late Dudley Seers, challenged head-on the reigning visions of the development strategy of the Commission in Brussels towards the Third World and towards the European periphery (Seers, 1978; de Bandt et al., 1980). This theoretical challenge, still worthwhile reading today, was the first real and systematic question mark behind the policies of the Commission since 1958. The authors of that critique were a European-wide group of committed students of development and committed Europeans at the same time. Its leader, Dudley Seers, as one of the doyen of development and distribution theory among the world-wide profession of economists, having influenced the course of Keynesian economics over the whole post-war years in Britain, and above all a passionate Scotsman, took up the issue of the center-periphery relationship that characterizes the South, Northwest and eastbound relationship of the Union (Seers, 1978). Several authors, most notably Inotai and Malcolm, developed these arguments from a later, liberal perspective. With its emphasis on structural protection, Inotai maintains, the Union increases rather than decreases the long-term cleavages between the centers and the peripheries inside and outside the boundaries of Europe. Today, it is no secret, that 90% of all EU expenditure, union-wide, must be categorized as subventions. With each expansion to semi-peripheral regions, the protective element increases. Simple, as the diagnosis might sound, it strikes at the very heart of the conventional Union wisdom on matters of external economic relations. A good part of professional economists the world over, liberal and radical social scientists alike, have later taken up this theme. They maintain that the Union, by its market protecting arrangements with the outer rim of its orbit of influence leads to a secular negative balance of trade of the periphery regions with the Union, and thus prolongs structural underdevelopment (amongst others such divergent authors as Hickman, 1994; Inotai, 1993; Kennedy, 1993; Amin, 1994). The arguments of such Union critics cannot be dismissed a-priori and out of hand. Western Europe lost in terms of world market shares in a secular trend vis-à-vis the countries of the Pacific; the dynamics of growth in the world economy seemed to work to the detriment of the old European centers. Le crash, 1997 - we still have to wait and see. Asia’s ‘basics’ are healthier than expected, and the tide might still turn to the detriment of the Europeans, especially when in summer 1998 there could be a speculative crash in Europe, for example against the Lira or the Zloty, against the very US $, or perhaps against the EURO, after 2004 or 2005, when the initial positive effects of European Monetary Union fade away and transnational capital flows again to the Pacific region.

The European Union shortcomings vis-à-vis the Pacific in terms of world export markets for manufactured goods, in terms of comparative labor costs, in terms of technological and scientific development and in terms of employment are all too obvious and were described in the literature in all detail, the crash of 1997 notwithstanding (for a debate on these issues see Inotai, 1993; Kennedy, 1993; Tausch and Prager, 1993, IFRI 1998). I strongly agree with Andre Gunder Frank’s statements on the University of Colorado’s ‘world system network’ via the Internet: it is the first time in world economic history, that an economic crisis began in a center outside Europe or the United States. The fundamentals of the European Union still reflect the realities of the late 1950s and still comprise the following sectors (i) the coal and steel community (ii) agricultural self-sufficiency (iii) the customs union. The new international division of labor, that characterizes the world economy since the late 1960s, is the prime challenge to the logic of the Union, built around and evolving from the Franco-German alliance of the late 1950s (Inotai, 1993). Precisely these sectors are most seriously affected by world economic and technological changes. The annual cost of the common agricultural policy of the Union is now estimated to be $ 45 thousand million, more than 10% of this is believed to be paid to criminal channels (Malcolm, 1995: 57). It dominates the Union's external trade policy, distorting the world market and preventing the poor countries from exporting.

A major problem, which has to resolved first and foremost, is Germany's apparent inability to comprehend and play its role as a highly developed Mexico in the world economy. Similar in population size to that of Mexico, and with a share of roughly only 8% of world GNP, Germany's first and foremost role would be that of a highly specialized trade and current account surplus economy in the heart of a Europe, oriented towards the West and towards the Atlantic and the Pacific, still the major centers of the world economy. Germany is estimated - via its share of Brussels expenditures - to have spent up to $bn 30 thousand million alone to prop up in vain - in concert with the other Europeans - the Italian Lira on Black Friday, 1993. In that disaster year, Germany poured another 9.1 thousand million $ down another sink - this time German aid to Russia. Insiders estimate, that only 10% of Western aid to Russia reached its targets. How Germany projected in vain her dreams to become a democratic 'Weltmacht' (world power) is to be judged from the fact, that it took over 43.7% of the burden of reconstruction of former communism - from Frankfurt at the Oder to Wladiwostock during the period 1990-1993. If Lohengrin only were to be an economist, after all: Germany's official and private Eastern flows amounted to 32.7 thousand million $, out of a total of 74.8 thousand million $ (our own compilations from OECD, GD (95) 41: 'Aid and other resource flows to the Central and Eastern European countries and the new independent states of the former Soviet Union in 1992 and 1993', Paris 1995). But the foundations of Germany's dreams to become a Weltmacht were shaky indeed, as the meager position of Germany's transnational corporations vis-à-vis their international competitors, and the losses of even companies like Mercedes-Daimler-Benz to the tune of more than 1 thousand million $ and the economic malaise in the middle of 1990s all too clearly showed. Only of lately, German transnationals could recover some of their positions (Le Monde, 1998). Add to this the recent disaster of the new Mercedes car, developed at great costs, but practically knocked off from the market by a single test series of an automobile magazine in Sweden. $bn 700 for German unification, DEMbn 160 for Russia’s pullout from East Germany - enough is enough. For the transformation countries nearer to the European center, such economic mismanagement means lost opportunities to stabilize democracy at a vital moment of world history: the Polish GNP amounted to just 75 thousand million $ in 1992 and is today $bn 135.8 (UNDP, 1995; Malcolm, 1995; Business Central Europe, May 1998), viz. about double the sum that Germany lost in the casino of world finances in 1993. Germany with its current account balance of $bn -18.5 in 1996, $bn -5.5 in 1997 and Sbn +10.0 in 1998 is in a too weak position to be the European ‘growth engine’ anymore:

Graph 9.7b: current account balances in the world system, 1996/97, in millions of $

Legend: current account balances in the world system, 1996/97, in millions of $; compiled from the international press

Graph 9.7c: the structure of world trade (in % of total world trade; for the ‘triad’ of Asia, North America, and Europe: percentage of regional per total trade of the ‘triad’ countries)

Legend: intra-triad trade in percent of total triad trade and international trade in % of total world trade. Sources for the above graphs: current Account Balances, 1997. Compiled from Economist, June 7^th - 13^th 1997, and world trade statistics in Le Monde, 1998: Le Bilan du Monde. Paris: Le Monde

Several authors, including Chase-Dunn and Hall, are fairly pessimistic in this context about the future trajectory of the United States of America. They cite international capital investment abroad in those countries, where profit rates are highest, as the main reason, why the ‘internationalized capitalists’ in the core no longer have a vested interest in their home economy. Capital investment abroad becomes, the argument goes, the driving force for hegemonic decline (Chase-Dunn and Hall, 1997). America’s current account balance as a percentage of GDP performed in the following way over the years:

Source: IFRI, 1998

The hegemonic decline of the USA will most probably set in slowly, cushioned by the present weaknesses of Japan and of the European competitors. In Europe, economic stagnation and unemployment will significantly rise due to rent-seeking that is enhanced by the way European institutions are built at the present. In terms of the environment, government subventions to declining productive branches will increase technological backwardness and preserve transport intensity, and hence, pollution. Economic inequalities threaten to increase with such a structure, and in turn will form a block of its own against world economic ascent. The expenditure for research and development in the Union budget 1994 was just 3.6%; general and professional education received only 0.8% of the total Union expenditures; the energy sector, EURATOM and the environment another meager 0.2%; while expenditure for agricultural subventions consumes 53.5%, and structural policies for regions, for (big) agriculture, traffic systems and fisheries another 30.7% of the total budget (our own compilations from Fischer Weltalmanach, 1995). Not only the internal set-up needs urgent reform, also the relationship to the outside world.

Inexorably, the centers of gravity of the world economy are shifting towards the LDCs, here most notably during the 1970s and 1980s to the countries of the Pacific, and after the Asian currency crisis 1997, most likely to India and China. The effect of the Europe-agreements between the EU and the countries of Eastern Europe seem to repeat the experience of Lomé and can be summarized in one word: a massive positive balance of trade in favor of the Union and to the detriment of the partners in the East, that leads to political and economic friction (Hickman, 1994; Inotai, 1993). A growing number of academic critics of present Union economic policy maintain that the EU-approach to foreign trade and relations with the semi-periphery and the periphery is based on two fatally erroneous assumptions. First, the gradualism of trade liberalization; second, the protectionist answer to the current economic malaise in Western Europe.

Samir Amin (1994, 1997) puts a heavy blame on the Europeans for prolonging the underdevelopment and stagnation of their own ‘backyards’. The experience of East and Southeast Asia during its heyday has precisely shown, that ceteris paribus three conditions for successful capitalist development hold (i) the existence of a reliable anchor economy (ii) substantial net transfers (iii) free market access to exports (Inotai, 1993). The failure to realize such a strategy vis-à-vis the CEFTA-countries results in the growing trade balance problems of the transformation region (Hickman, 1994). By enlarging the Union to the South, the protective tendencies precisely in those sectors, which are also important for the semi-periphery and the periphery, have grown. The effect of this was a growing world economic inefficiency (Nuscheler, 1993). The most visible result of this is the high unemployment in many Union countries (almost 17 million people in 1995; UNDP, 1997, at the beginning of 1998, more than 18 million people); in the Eastern European countries most likely still to join the Union early on, another 3.7 million unemployed persons would have to be provided with jobs. The new Union members Austria, Finland and Sweden, which joined the Union on January 1^st 1995, are not free from employment problems themselves and had a stock of 992000 unemployed persons of their own, that is to say, almost another million, within their own borders by 1995 (UNDP, 1997). Most notably, unemployment in Finland is very high and reached 18.2% (Fischer Weltalmanach, 1998). To put the proportions of unemployment in even more drastic words: the unemployed workers of the EU - excluding their families - would already be the 6^th biggest state in the Union - bigger than each of the 10 smaller European Union countries. The up to 40 million persons, affected by unemployment (i.e. the unemployed and their families), probably would form the 5^th biggest state in Western Europe, only surpassed in size by Germany, the UK, France, and Italy. With around 40 million inhabitants like Spain, this 'country' should play a major role in the EU and should one day be in a position to take up at least the EU-Presidency...

Globalization affected to a differing degree the 21 most developed and still relatively stable long-term democracies of the world, Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, New Zealand, Norway, Sweden, Switzerland, the Netherlands, the UK, and the United States of America. Of course, the term 'stable democracy' is only relative. In future, the increase of new populist or neo-fascist parties in Europe will become an even more significant phenomenon, while old parties disappear. On average, populists drum up 7.4% of West European votes; neo-fascists 2.2%. Countries with well-known populist phenomena are Austria (23%), Denmark (16%), Italy (21%) and Norway and France (both at 12%), while neo-fascists are strongest in Italy (14%) (Taggart, 1995: 45). Regionalism and other centrifugal tendencies will increase in other parts of the continent.

Nollert (1996) has shown that the efficiency of an interest group at the Union level is largely determined by the age of an interest group, by the relative efficiency of internal decision making mechanism, by the low number of members, restricted to Union countries, and by the ‘Unionization’ of the central policy concern of the respective interest group. The basic democracy deficit of the Union, that is evident in the powerlessness of the European Parliament, actively enhances the power of these narrow distribution coalitions. Among the most powerful ones, the European Roundtable of Industrialists emerged, closely linked to Etienne Davignon, the long-term EU Commissioner for the Internal Market, linked to key Western capital groups like Rockefeller, Standard Oil, Asea-Brown-Bovery, Deutsche Bank, Fiat, Volvo, Renault, Societé General, Unilever, and later on also to the Trilateral Commission (Nollert and Fielder, 1997). The case of the Roundtable shows, that European capital integration is far more advanced than that of its countervailing power, organized labor. Johannes Voggenhuber, an Austrian member of the European Parliament for the Green Party, and an impassioned - if perhaps not always error-free critic of the ‘real existing Union’ - , has summarized the development blocks that the Union faces as follows:

The very center-piece of the European Union is its agricultural policy, which, throughout the ups and downs of European integration, swallowed more than 50% of its budget. 6% of grain producers produce 60% of Union grain; 15% of milk-producing entities produce more than 50% of total production. 10% of cattle breeders possess 50% of all cattle in the Union. 20% of producing units receive 80% of all subventions.

Such a monopolistic system, Voggenhuber correctly argues, has its heavy economic price: stagnation. 50 million poor people, three million homeless, millions of unemployed, a threatening and recurring tendency towards a growing gap between the rich and the poor regions. Over the last years, there has been a certain shift in real wealth from the North to the South, aided by a policy of soft currencies in countries like Italy or Spain, thus counterbalancing the inherent internal tendencies of the Union. One of the main arguments for the EURO was that it will rule out once and for all such a world economic adjustment; the wage rate, or worse, if that is inflexible, the unemployment rate or migration will be the only adjustment mechanism left open for the European mezzogiorno after introduction of the Euro.

We now start our multivariate analysis of the basic problems of the European Union (as to the variables used, see Appendix, Variable list). The basic equation can be expanded in the following fashion:

equation (9.7) stagnation and development blocks in western democracies (lack of economic growth; inflation; lack of human development; unemployment) = constant + b1 * age of democracy + b2 * state sector influence (like state sector expenditures per GDP), t_n-1 (+ b3 * years of European Union membership (like state sector expenditures per GDP))

The original data for a repetition of Weede’s original exercise (i.e. the terms age of democracy and state sector strength), based on stable world politically guaranteed boundaries, were:

equation (9.8)

equation 9.8 (cont.) economic stagnation as a consequence of the interaction between a strong state sector and an aging democracy

Legend: as in all EXCEL 5.0 outprints in this work, first row: unstandardized regression coefficients, second row: standard errors, last row: t-Test. The values immediately below the standard errors are R^{^2} (third row, left side entry), F, and degrees of freedom (fourth row).

Economic growth is blocked by the interaction between a strong state and growing democratic age: the European predicament, all the European attempts at advances in the field of human development, sustainable agriculture, environmental protection, and gender empowerment notwithstanding.

The empirical results now show the effects of years of European membership on growth with relatively new data, relating state sector expenditures not to the preceding, but to the current measurement period of economic growth. Results, which are significant at the level of 10%, are printed in indented type, and results, significant at the 5% level, are printed in bold type . Some of the reform needs of the Union are omnipresent. The longer you stay inside, the more rent-seeking, and stagnant your economy and society could become in comparison to the other Western democracies. Human development is influenced in a negative, but not significant fashion by membership years, while inflation - as part of the still existing ‘social partnership’ in Europe - is somewhat lower than in other OECD democracies. Old democracies tend to have lower inflation rates, while a high state sector influence increases inflation rates:

equation (9.9) 21 stable OECD democracies (before the Union enlargements 1981, 1986, 1995)

Legend: as in all EXCEL 5.0 outprints in this work, first row: unstandardized regression coefficients, second row: standard errors, last row: t-Test. The values immediately below the standard errors are R^{^2} (third row, left side entry), F, and degrees of freedom (fourth row).

Our following analysis is a scenario for the effects of EU-enlargement. Several newly stabilized democracies, like Greece (1981) Spain and Portugal (1986) have entered the European arena, and processes ever since their democratic transformation suggest that these countries must be considered as stable as the ‘old’ core of the European Union. In addition, Germany’s globally recognized borders have shifted after the fall of the Berlin Wall, thus suggesting that we have to consider Germany in the new borders as a relatively young democracy, that leaves behind many of the characteristics of the old Federal Republic.

Our enlargement scenario now shows, that - under proper control for the effects of the ‘socio-liberal’ policy variable ‘human development index’, - the negative significant growth effects of Union membership years disappear, and although the negative direction of the effects on growth does not disappear, the Union contributes positively towards stabilizing inflation and towards decreasing the level of absolute poverty. The positive development experience of countries like Spain, Portugal and Ireland after Union integration must be mentioned here. Significant transfers, intensified trade and economic restructuring, along with a well-designed policy of economic management and human development in these three nations, have flattened the European North-South divide considerably, while Greece’s record must be regarded as rather mixed.

Economic growth and employment creation continue to be the darker, negative sides of the present European constellation. The 10% significant stagnation effects against growth and pro higher unemployment by the state sector expenditures and by the years of Union membership must give pause for thought in Brussels:

equation (9.10) European Union enlargement scenario