Divergence and Peripheral Fordism in the European Union

By Arestis, Philip; Paliginis, Eleni | Review of Social Economy, Summer 1995 | Go to article overview

Divergence and Peripheral Fordism in the European Union


Arestis, Philip, Paliginis, Eleni, Review of Social Economy


I. INTRODUCTION

The progress toward the creation of the Single Market and the European Monetary Union (EMU) brought new dimensions in the European Union (EU). For the first time in recent history, we are experiencing the voluntary and gradual dissolution of nation states and the emergence of a new formation with widespread powers of regulation and control.

The internationalization of capital in the late 1960s created serious problems, as production became international while regulation remained national. With the expansion and changing role of the EU it became possible to resolve this anomaly. Within this new "super-state," protected by high tariff walls, it became possible to reorganize and expand production taking advantage of increasing returns to scale, while the transfer of regulatory powers to the EU represented an effort to bypass narrow national frontiers, reinforcing effective control over this enlarged Community.

At present, the EU does not yet possess the legitimacy necessary for assuming the full regulatory role and powers of the nation state. Nonetheless, significant degrees of power have already been transferred and more are expected to be transferred in the near future with the completion of the EMU and the creation of the European Central Bank. It ought to be noted, however, that recent events in Europe concerning the operation of the Exchange Rate Mechanism (ERM) have delayed the move to EMU, and the progress toward the establishment of the Independent European Central Bank (IECB), despite the fact that the second stage(1) has already commenced (January 1994). The turmoil in the financial markets in September 1992 forced the UK and Italy to leave the ERM, while similar events in July 1993 resulted in the introduction of wider bands for exchange rate fluctuations from the central rates on August 2, 1993. Both of them indicate that the first stage on the road to the EMU was not quite successful, with the clear implication that the third stage to EMU may have suffered irreparably.

Convergence between states is regarded as a necessary basis for a coherent regulatory process. With the enlargement of the EU and the membership of Ireland, Greece and later on, of Spain and Portugal, the Community faced a serious challenge due to the greater degree of heterogeneity in its economic structure. The EU aimed to correct it and assist the "convergence" of states through the creation and administration of the "Structural Funds." The term "convergence" as has been used in relation to the EU, has referred to discrepancies in the real economy. Disparities in the rates of inflation, rates of interest etc. are monetary epiphenomena, whose magnitudes are determined by developments in the real economy. This paper proposes that convergence within the EU will be determined by the economic relationship between core and periphery and, especially the growth of the peripheral countries.

The prerequisites for convergence are both quantitative and qualitative. On the quantitative side we argue that the funds generated within the EU, even after the reform of 1988-1993, are not sufficient to address the problem, while on the qualitative side, there is insufficient effort to use these funds in order to improve the productive side of the peripheral economies. Our main thesis is, therefore, that economic developments within EU are such that divergence rather than convergence should be expected. We begin from a theoretical angle, so that in the section that follows we deal with the theoretical views of the "Core Fordist" model, which enables us to bring into the analysis what has been termed as "Peripheral Fordism," the focus of our analysis. Section III defines "peripherality" more closely as it relates to the EU, with section IV discussing the type of policies required for convergence in the EU in view of Peripheral Fordism. A final section summarizes and concludes the argument.

II. THE CORE FORDIST AND PERIPHERAL FORDIST MODELS

The Core Fordist model describes a situation whereby capital concentrated in the postwar period into large multiplant enterprises taking advantage of economies of scale provided by big markets. …

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