The European Community and the World Economy

By Rybczynski, T. M. | Business Economics, October 1989 | Go to article overview

The European Community and the World Economy


Rybczynski, T. M., Business Economics


The European Community and the World Economy

FROM TIME TO TIME events occur that fundamentally alter the balance of the economic, political and military power of the world and impart a new direction and different momentum to the process of development and growth (or decline) of the world economy. Such events may occur suddenly or appear almost imperceptibly, only gradually to gain strength and exert their full influence. For example, the discovery of the new trading route from Europe to the East in the fifteenth century, together with political developments in the rich, proud and intensely independent Italian city states, moved the center of gravity from Italy and the Mediterranean to the West and North West Europe. The Declaration of Independence of the U.S. created a new political and social order based on Jeffersonian philosophy, which was the center of a new political entity whose appearance altered the course of world events. Finally, the French and Russian Revolutions are in the same group, their consequences have extended far and wide in every respect and are with us today.

Such events are a result of a complex interaction of a large number of factors, including technological change, social and legal arrangements as well as political climate and the general institutional framework that results. In the ultimate analysis, their effects can be seen in proper perspective only after a number of years. They are reflected in the emergence of powerful or influential states or groupings and a decline of others -- events that exert a decisive impact on the course of world history.

Undoubtedly the creation and growth of the European Community (which originally was termed European Economic Community, changing its official title in 1978) is in the same group of events. It falls into this category because, as is now clear, the European Community is emerging as one of the three main economic and military groupings in the world. The other two groupings are North America (comprising the United States and Canada) and the Pacific Rim grouping based on Japan. These three groups manage the world economy, are responsible for the balance of military and political power, and in effect are the basic propelling force behind the process of world growth and development. The transformation of the European Community in the past thirty years provides illuminating insight into the interaction between economic and political factions and is an outstanding example of political economy at work in its widest sense.

THE BACKGROUND AND INSTITUTIONAL

STRUCTURE

The European Community was conceived originally by its founding fathers as a political entity designed above all to prevent the occurrence of wars among the European nations with its bloodshed, loss of life and physical destruction. The remarkable growth of the Community and its emergence as an increasingly cohesive and economically and politically important grouping benefited from the Cold War and the existence of the Iron Curtain after World War II, the military umbrella extended by the U.S. involving the presence of U.S. forces in Western Europe, and a propitious world economic climate until the early 1970s. This climate reflected: (1) favorable terms of trade linked to a fall in the prices of primary products and oil; (2) a very rapid improvement in productivity because of an educated and skilled labor force using technological advances developed in the preceding fifteen years or so in the U.S.; and (3) a favorable social climate as well as the gains from the liberalization of trade both worldwide and even more so in the Community.

These advantages were neither expected nor foreseen by the original founding fathers. After the failure to create a European Defense Community in 1951, they wished to use an economic path to increase interdependence among the Western European countries to the point where it became irreversible and will require the consummation arrangements were created in the 1950s. …

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