[July, 1997; paper presented to the ‘Socialists and a Welsh Assembly’ Conference, Cardiff, 19 July, 1997]
When we discuss both the present position and the future development of Wales as a political and economic entity within the EU, we must always bear in mind the economics and politics of the EU. Any discussion that makes reference to ‘Europe’, but ignores the fact that the structures and politics of the EU are intended to make possible the best conditions for capitalist accumulation across Western Europe, will not be able to make an adequate analysis of the dynamics of European integration or the place of Wales in that process.
So when we talk about European integration, we must remember that the rationale behind the Treaty of Rome, the Single European Act and the Maastricht Treaty is the same: the structuring of Europe as a unified capitalist economic zone, free of trade barriers and protectionism by the member states. A unified European economic space provides the best conditions for capital accumulation because it allows for maximum economies of scale and full market access for the most productive enterprises. Centralisation of commercial control, and geographic concentration of high-value elements of production in the core regions are the salient tendencies in the European Single Market (Jacquemin and Wright, 1993).
Efficiency in a single European market requires a single European currency. And a single currency requires a common economic and monetary policy, otherwise the states with low budget deficits subsidise those states with high deficits. The convergence criteria for monetary union set out in the Maastricht Treaty are that the budget deficits of the member states should be no more than three per cent of GDP; and that their total debt should be no more than 60 per cent of GDP. It is in order to reduce their deficits and debts that most European states are making deep spending cuts, especially in social welfare provision.
The deficit and debt ratios of the convergence criteria were drawn up by the monetary advisors of the European Commission, who will shortly set up the European Monetary Institute—the fore-runner of the European Central Bank. The concerns of these advisors reflect the interests of finance capital in Europe, i.e.: the international stability of the ECU as a currency. The prime concern of the financiers of Europe is that the conversion of the ‘national’ currencies to the ECU does not lead to a loss of value against the Japanese yen or US dollar, rather than the impact that the convergence criteria (or the Thatcherite monetarist policy which underlies these criteria) will have on welfare provision or on the poorer regions of Europe.
The Maastricht Treaty specifies that European Central Bank will be ‘independent’ in that it will not be under the direction of any of the member states. Nor however, will it be accountable to any elected body of the EU, thus insulating it from the social consequences of its decisions. It will not, of course, be independent of the needs of finance capital—the more powerful banking and financial interests of Europe—the interests of which it will serve.
Common monetary policy requires centralised political institutions through which policy can be laid down. The key policy-making institutions of the EU are the European Commission (which designed the Maastricht Treaty) and the Council of Ministers (which was strengthened by Maastricht). The European Parliament has little power to take policy initiatives; rather its powers are restricted essentially to the right of veto. Bodies like the Committee of the Regions and the Committee of Peripheral and Maritime Regions have a merely consultative role.
These then, are the economic and political frameworks that we must take into account when we consider the situation of Wales in the EU. Interest in the EU has grown in parallel with the decline of the Welsh economy and the deepening crisis in Welsh society arising from mass unemployment and poverty. So we will briefly examine the Welsh economy.
The post-WWII reconstruction of the Welsh economy after the devastation of the 1930s rested on three elements: modernisation of heavy industry through nationalisation, which gave state control over the location of ‘pole’ industries; planning controls, which forced industrial development away from the crowded south-east of England; and regional investment incentives, which attracted inward investment. By the 1970s the Welsh economy was a stable, but relatively stagnant region of the UK economy.
Since 1979 privatisation and the abolition of planning controls have eliminated two instruments of regional policy; and regional assistance has declined from £2 billion in 1979 to £0.5 billion in 1990 for the UK as a whole, with a total of £124 million in Regional Preferential Assistance for Wales in 1990. The Welsh economy now has a relatively small manufacturing sector; a majority of its workforce are employed in services; there are high levels of unemployment; high levels of benefit dependence; relatively low pay rates; low rates of GDP/capita; and low rates of fixed capital formation. Industrial development in Wales is very uneven, with new industries concentrated in Gwent and on the M4 ribbon as far as Bridgend in south Wales; and along the A55 ribbon in north Wales. In short, the Welsh economy is a ‘poor’ region of the British economy.
Many in Wales blame the Tories for the current state of affairs. Tory strategy was intended to improve domestic profitability and international competitiveness by driving down real wages and improving productivity. This involved a shake-out of labour and closure of inefficient plant, along with cuts in public spending and privatisation of state enterprises. Likewise the Tories hostility to Europe and their unwillingness to comply with ‘additionality’ rules are blamed for the loss of significant EU funds for Wales.
But none of the opponents of the Tory strategy propose measures for a return to the situation prior to 1979, i.e.: re-nationalisation, planning controls and significant regional investment incentives. In fact Labour Party strategy is based on training, international competitiveness and flexibility of labour. Plaid Cymru and Liberal Democrat economic strategies are little different. None of the opponents of the Tories in power now favour the repeal of the anti-union laws, the major obstacle to workers being able to defend jobs and wages. The only substantive difference with Tory strategy is a regional equalising element in the form of a ‘Europe of the Regions’. There is broad agreement on the essentials of this approach, which envisages Community Regional Policy (CRP) and the ERDF as balancing out the regional inequalities that emanate from the centralising tendencies of the market. EU Regional policy will be used to best advantage through direct links between a Welsh political body—for Labour an Assembly and for Plaid Cymru a Senedd—and the institutions of the EU.
However the outcomes of ‘national’ regional development strategies of the past 30 years or of the CRP, despite the actions of the Tories, do not support the aspirations of this Europe of the Regions strategy. There are several reasons for this, but in the first instance it is because uneven development is inherent to capitalism and development strategies that do not challenge private ownership or the free movement of capital cannot overcome the tendency towards regional inequality.
Capitalist production is driven by the need to maximise profit and capitalists constantly search for profits higher than the average rate, i.e.- surplus profit. Geographic concentration of production, leading to agglomeration and regionalisation is a central feature of capitalist efficiency in that it brings about a reduction of the circulation costs of capital, labour and commodities, thereby boosting the rate of profit (see Mandel, 1968).
Surplus profit is an outcome of agglomeration and it in turn creates the social and material conditions for further growth, including higher rates of capital investment and higher rates of productivity. Once begun, the process is circular and cumulative for the period during which the initial causal factors remain since both fast growth and slow growth are self- reinforcing (see Dunford, 1988, p.44). In the search for profits higher than the average rate, capitalist competition continuously recreates a hierarchy of inter-regional disparities.
Within the hierarchy, a geographical transfer of value takes place (see Hadjimichalis, 1980; Mandel, 1987, p.102).This transfer is the outcome of the differences in the value content of commodities. The relative value of commodities produced in different regions is determined by the productivity of labour in the region which is in turn determined by the rate of productive investment (the extent to which capitalists invest in new plant). If market prices are set by low-productivity commodities, high-productivity firms producing similar commodities will derive surplus profits until such time as the high-productivity technique becomes generalised in the sector. If the output of high productivity firms sets prices, lower productivity firms will not realise their ‘share’ of surplus value and may collapse, or be forced to reduce their input costs by driving down wages.
In practice prices and profits average out over time, but in the process high-productivity firms realise part of the value created by low-productivity firms. Accelerated accumulation, i.e.—accumulation at a rate higher than would ‘naturally’ take place because of reductions in circulation costs due to agglomeration—takes place therefore, in regions of higher productivity (i.e. the core) because productivity differentials deriving from agglomeration cause transfers of value to the core at the expense of the periphery. We can see examples of this in the higher rates of growth of GDP/capita in the core regions of Europe as compared to the peripheral regions. In this respect uneven development is as fundamental to capitalism as the transfer of value between firms or as the exploitation of labour by capital is to the process of capital accumulation (Marx, 1981). For without it accelerated accumulation could not take place and the overall process of capital accumulation would slow down to zero (Mandel, 1969). Capitalist development has therefore tended to structure geographical space into regions of dominance and subordination, authority and dependency (Seers and Ostrom, 1983); and regions of enhanced accumulation juxtaposed to regions of diminished accumulation.
How is this process reflected in Europe? In the EU there are two types of regional disparities: regions of historic or long-standing underdevelopment in which agriculture predominates, typified by the south of Italy, Greece, west, central and southern Spain, south-west France, Portugal and Ireland. And those once-industrialised regions now experiencing decline, such as Nord-Pas de Calais, the ‘north’ and Wales in the UK, Walloonia, Euskadi, and some German regions including the Ruhr.
The pattern of inequality in Western/Southern Europe over the past 40 years has remained remarkably stable. Substantial disparities remain between different states. The four poorest countries of the 12 member EC made the lowest relative gains over the period from 1960-1990. Greece has had a relative decline; Ireland and Portugal have had small gains and Spain had the highest increases in income amongst the poorest countries (de la Dehesa, 1992). At the other end of the scale, (West) Germany and the Benelux countries top the ranking.
There are also marked inequalities within member states. The largest differences are between the North and the South of Italy (Mezzogiorno); the Paris basin and the rest of France; Madrid and the north-east as against the rest of Spain; and the south-east as against the rest of the UK. In (West) Germany and Belgium significant within-region disparities exist. This indicates not only a persistent high degree of productivity and income disparity, but also low labour mobility.
The tendency towards agglomeration remains, despite some dispersal of new investment. The 10 top regions of the EC are on the ‘golden banana’ running through Greater London, Belgium and the Netherlands, Paris, the Rhinelands and down to northern Italy. Capital flows within the EC have increased over the past 30 years, but not primarily to peripheral regions or those with plentiful and cheap labour (see Cutler, 1989, p.37; Hill and Munday, 1991).
The market, therefore, has not resolved the regional/national economic disparities which were evident when the EEC was formed in 1958. The general trend in the EC from the 1960s to the early 1970s was for inter-state inequalities to diminish. That trend stopped in 1976 (the end of the post-war ‘long boom’), and in some cases was reversed. In general, divergence has been in the years of stagnation or slow growth (see Dunford 1994). The CRP and ERDF (set up in 1975) have been marginal to this process.
The instruments of regional policy, the Structural Funds, were reformed under the SEA. Together with the Cohesion Fund, the 1993-99 budget proposals include an increase in EC spending of 25.7 per cent over the period, with structural measures accounting for approximately 35 per cent of the EU budget (approaching 0.5 per cent EU GDP) by 1999. The reforms specify that assistance should be concentrated on the poorest, most structurally backward regions and programmes should be developed in co-ordination with all agencies involved in structural policy, especially the regional authorities. In this respect it appears that those regions with greater autonomy at the level of regional government might fare better than those with little policy-making power. These changes strengthen the arguments of the Europe of the Regions approach.
Three issues arise however, when considering the efficacy of Community Regional Policy. The first is whether a supra-national proto-state such as the EU can take steps to qualitatively alter the tendency towards uneven development inherent to capitalism while at the same time being committed to the capitalist mode of production. The theoretical arguments presented above would suggest not.
Secondly, the outcomes of the regional development policies of the past 30 years indicate that they do not reverse trends towards agglomeration in the core regions. The EC has operated the CRP on the basis of agreement with the priorities of the member states. EC finance was used to support ‘major- project’ regional development strategies of the Italian and French governments in the Mezzogiorno and in the north and south-west of France during the 1960s and 70s.
This ‘growth-pole’ strategy aimed to reduce regional disparity via state-sponsored insertion of pole industries (mostly petrochemical and steel, with supporting infrastructure) which would in turn induce regional industrial agglomeration (Dunford, 1988). The Mezzogiorno received transfers equivalent to 20 per cent—30 per cent of its regional output for the best part of 20 years, but with little impact on income per capita or unemployment disparities between the North and South. Nor has the pattern of disparity in France changed significantly. The experience from Sweden in the 1960s-1980s is similar (see Ostrom, 1983). These programs were carried out during a period of economic expansion, when there was a surplus available for redistribution. The same cannot be said for today.
The Commission’s orientation is one of attempting to structure a ‘level playing field’ via regional infrastructural development, rather than discriminatory regional incentives which could come into conflict with EU competition policy (see Cutler et al p.81). The ERDF reforms are likely to deepen the trend away from incentive/subsidy policies. The dominance of neo-liberalism has meant that member state policies have also moved away from locational incentive schemes and employment subsidies towards business environment and infrastructural projects.
The emphasis is now put upon training and ‘innovation’, business linkages and SMEs as key to regional development. Dunford argues that there is little relationship between skills base and capital investment. Nor it there any indication that the new strategy will be any more successful than the ‘growth- pole’ approach. However the ‘additionality’ criterion means that states in receipt of ERDF funds for infrastructure must make budget cuts elsewhere so as to ‘match’ EU funds while not increasing their budget deficits. In Greece and Ireland such cuts have been from social and welfare budgets.
Third, the scale of regional transfers reveals the inadequacy of the attempts to seriously address regional inequality. De la Dehesa (1992, p.40) estimates the 1992-93 transfers to Ireland, Greece, Spain and Portugal to be around 2 per cent of their combined GDP which approximates to 5 per cent of their government expenditures. He contrasts this to the rate of transfer within the USA, where in 1987 Federal transfers to state budgets represented 21 per cent of states’ expenditures.
It is clear that EC and member state transfers do make a contribution to poorer regions, but the amounts are not enough to make significant differences to regional disparities or to induce private capital investment at a rate which would alter the geographic distribution of production. The same is true regarding location of production in the USA. Recent industrial growth in the USA has been in the Florida, Texas, Georgia and the Carolinas. North Carolina has a higher per cent of its workforce in manufacturing than any other state; Charlotte is the third largest US banking centre after New York and San Francisco; regional unemployment is well below the US average, with 23,000 job gains in the south-east while California lost 175,000 manufacturing jobs in 1993; and foreign investment is flowing into the south-east, where wage rates are 33 per cent of German wages and 75 per cent of Japanese wages. (The Guardian, 9 April, 1994)
Growth is in both traditional industries (steel, textiles, etc.) and in advanced, high-tech industries. Key locational factors are greenfield sites, cheap labour and an absence of worker organisation in the mainly rural production sites—factors that make for a higher rate of profit. This new pattern of agglomeration and regional development is taking place at the expense both of the "old" industrial regions of the North-east and Mid-west and post-war industrialised California, despite the existence of a system of Federal transfers that are of a much bigger order than those of the EU.
It is evident, therefore, that neither regional nor central state measures can direct regional agglomeration based on accelerated accumulation while operating within the framework of capitalism. To do so would require subsidies involving taxation and state expenditure at a rate which would remove almost all super profits from the dominant/advanced sectors in the national economy. The unwillingness of governments to contemplate such measures was evident in the resistance by member states to the relatively modest EU Budget increases proposed in the Delors II plan leading up to the SEA. Not only would such taxation and subsidising be politically unacceptable to capitalists in general, it would ensure a flight of capital to other countries where the prerogatives of capital to maximise profit were held in higher respect.
What then is the function of regional policy? Both member state and EU Regional policy is aimed towards the maintenance of social stability and to stem support for regional or national movements based on dissatisfaction with the status quo. The needs of the ‘national’ economy, which is not necessarily undermined by regional disparities, take precedence in the decisions of central governments over the social impact of regional disparities. Government and EU policies may at times coincide with the interests of particular regions, but this will necessarily be at the expense of other regions.
The Committee of the Regions will be plagued by such conflicts, since little common ground can exist between advanced regions whose wealth derives from the very existence of less developed regions, and the poorer regions which need massive transfers if equalisation is to be achieved. Current examples of such conflict taking political form are the Northern League in Italy and the Flemish separatist movement in Belgium. Such conflicts can only increase as the EU expands to the East, with the implication that regions like Wales will appear quite ‘rich’ by comparison with parts of Poland or Hungary. Conflict between the regions and nations of Europe can only be resolved by a plan that ensures that the gains of one region are not dependent on poverty in another. Such a plan necessarily means a challenge to private ownership and the free movement of capital. By contrast the CPR and ERDF, framed by the needs of capital, will have but a marginal impact on patterns of regional disparity.
Likewise the Committee of the Regions, having only a consultative role, will be marginal in relation to the fundamental decision-making processes, in which the Council of Ministers remains supreme. Its significance is political and ideological, based on a recognition by the Commission of the need to create mechanisms to integrate political movements which are potentially hostile to the EU as currently structured.
The Dublin Stability Pact and the Amsterdam Treaty, despite the stalemate on increased political integration and the enlargement of EU membership, takes us further down the monetarist road. The regime being created by these treaties is anti-social and anti-democratic. It is designed to serve the interests of multinational companies rather than the peoples of Europe.
The consolation prize from Amsterdam of an unemployment summit in Luxembourg this October is a sop to the recently-elected Socialist Party government of France. A solution to mass unemployment in Europe, which ranges from 4 per cent in Bavaria to 25 per cent in Andalucia, must be posed at a continent-wide level. There is no ‘national’ solution to unemployment any more than there is a ‘national’ solution to regional disparities. But while a unified European economy and a single currency are necessary to improve productivity and plan production across Europe, the present proposals for EMU raise the prospect of permanent austerity and deepening of existing patterns of inequality.
So while socialists should not in principle oppose a unified European economy, we must clearly oppose what the European Commission and the Council of Ministers are attempting to put in place. A regional development strategy that accepts the Maastricht/Amsterdam framework on the basis of increased regional consultation through the Committee of the Regions will not deliver any substantive gains. The EU is committed to the capitalist mode of production, in which uneven development is inherent. The structures of the EU and especially the Council of Ministers give precedence to central state interests over regional interests, which in any case differ from region to region. Drip feeding by the EU may prevent starvation in Wales, but it will not eliminate hunger and poverty.
Those seeking to defend Welsh interests must develop a strategy that also addresses the class conflict in Wales, Britain and Europe. For example unemployment should be challenged by a campaign for a 35 hour week with no loss of pay rather than a beggar thy neighbour competition for inward investment involving huge subsidies to multi-national companies. The right to strike should be guaranteed, along with the upward harmonisation of social benefits, etc.
Nationalisation and protection of key industries facing closure may be necessary to avert the further impoverishment and ruin of the working class, especially in backward or declining regions.
While these demands would be raised initially at the national level, campaigns for international solidarity should be quickly extended across Europe. Demands should also be raised for democracy in Europe: for the secretive Council of Ministers to cease being the supreme body; for political control of the banking system; for democratisation and accountability in the European Parliament.
Finally and fundamentally, to accept the argument that we must go along with the Maastricht/Amsterdam framework of European integration is to accept that the EU and its regional institutions can and will meet the needs of the people of Wales. This is not the case at present. Neither will EU macro-economic policy nor regional policy (from which we can expect approximately £200 million over the coming 2 years) meet Welsh needs in the foreseeable future. In the search for a Welsh salvation socialists must reject the false offerings of Maastricht and embark upon a strategy of defence of working class interests and for international solidarity in the face of EU driven austerity and the denial of democracy.
Amin and Tomaney (eds.) (1995) Behind the Myth of European Union; Routledge
Bachiler and Michie (1993) ‘The Restructuring of Regional Policy in the European Community’, Regional Studies Vol. 27.8
Cutler et al (1989) 1992: The Battle for Europe; Berg
de la Dehesa, G. and Krugman, P. (1992) EMU and the Regions; Group of Thirty, Washington.
Dunford, M. (1988) Capital, the State and Regional Development; Pion
Dunford, M. (1996) ‘Disparities in Employment, Productivity and Output in the EC’, Regional Studies Vol. 30.4
Hadjimichalis, C. (1980): Quoted in Forbes and Rimmer (1984) Uneven Development and the Geographical Transfer of Value; The Australian National University, p.73
Hill and Munday (1991); Applied Economics No.23
Jacquemin and Wright (eds.) (1993) The European Challenges Post-1992: Shaping Factors, Shaping Actors; Edward Elgar
Mandel (1968) Marxist Economic Theory; Monad
Mandel (1987) Late Capitalism; Verso
Mandel (1969) Capitalism and Regional Disparities; Socialisme No.17
Marx (1981) Capital Vol.3; Penguin
Seers and Ostrom (1983) The Crisis of the European Regions; Macmillan
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