Gunder Frank Contributions to Public Discussions
on list-servers
On incorporating Eastern Europe post 1989
Date: Sun, 3 Feb 2002 21:55:29 -0500 (EST)
From: Andre Gunder Frank
Reply-To: a-list@lists.econ.utah.edu
To: alist
Subject: Re: [A-List] Do euro cracks fulfil doom prophecy?
Interesting, but at least one of the premises is seriously flawed, the first one about the
costs of incorporating East Germany. The writer seems to swallow the myth that Wessies
subsidized Ossies at Wessie cost. The reality was the opposite. With re-unification taking
place during a major recession - and i have always argued as a RESULT of/BECAUSE OF the
1989-92 recession - Wessies had dire need of the Ossie market, and took it over lock stock
and barrell. After the US North won the Civil War over the South, Northerners CARPETBAGGED
[the merchants bags were made out of carpeting material. what irony that this became
fashionable again' excactly after 1990 - just remember looking around airports]. The
entire DDR was carpetbagged by Wessies, with the ''Treuhandanstaldt'' in charge
[treu>same root as true = faithful, hand=hand, anstaldt= institution/ organization] in
Orwellian double-speak = exacty the opposite, well not entirely since it just was not
''treu''; to the Ossies, but it was super-treu to Wessie BIG Capital. THAT is what cashed
in on the ''generous'' open hand of the public pruse, not the rapidly impoverished Ossies.
With different names, but essentially the same process and the IMF in charge, the same
carrpetbaggization proceded through all Eastern Europe, and as per Ann Williamson's
exxcellent Russian Crime of the Century as well. Everywhere, the myth was that the ex
-''socialiast'' industry/argiculture was ''not efficient'' and had therefroe to be closed
down. The reality was the opposite: it was sufficiently efficient to pose an enormous
threat to west european industry and agriculture - especially in the recession! - and ewas
taken over and shut down precisely to thwart/eliminate that competition [except where some
of the productive capacity was transferred to and then used by Western capital - to
produce at lower cost for its own market]. Witness, that now sooner were the brothers of
the East ''welcomed'' than Western europe hastened to UP tarriffs and quotas on East
European coal,steel, chemicals and agriculture, as well as on some other goods and
services. The poor East Europeans/Russians were left with a much weakend state no lponger
able to defend them or maintain ISI. the poor Osasies were left with NO state not state
boudaries at all, and delivered altogetehr to the tender mercies of the WEst German state.
Had it not been for the now suddenly increased avaialability of the East to/for the West,
tyhe West wold have had vastly more difficultry in weathering the storm of the 1989-92
recession and recuperating therefrom. Masstricht was hard enough to disgest as it was [and
at Maastricht of course the ostrich economic politicians still foresaw NO recession -
pardon me, in 1986 i not only predicted it but also why/how and with what econ policy
consequences it would arrive]. Without the carpetbaggization of the East, carrying out
Maastricht would have been completely impossible in the face of the recession. Irony
indeed, that now it is Germany that cannot meet the Maastricht budget deficit rules. In
fact, there was a while [will now be again?] when NO EU country could or did play by the
rules [Italy got in throhgh VERY creative accounting] except that bastion of free market
capitalism, Luxembourg - 2 banks per inhabitant with monmey from all over, especially
Germany, and 40 percent foreigners in Lux city.
So our writer may be part right about the cost of the heavy hand of the German state, the
reason for and consequences of this heavyness were and still are NOT what he sais. Maybe
he should have become Mr. Fry's understudy after all, and might have understood more about
what he is writing about.
gunder
On Sun, 3 Feb 2002, Mark Jones wrote:
Date: Sun, 03 Feb 2002 12:06:57 +0000
From: Mark Jones
Reply-To: a-list@lists.econ.utah.edu
To: alist
Subject: [A-List] Do euro cracks fulfil doom prophecy?
William Keegan
Sunday February 3, 2002 The Observer
Richard Fry, who died last week at the grand old age of 101, was financial editor of the
Manchester Guardian (later the Guardian) for 26 years. When I arrived at the great man's
office for advice about a career in financial journalism, I was immediately introduced to
one of the important journalistic arts. The appointment was for 3pm, but his secretary
calmly said: 'Oh, Mr Fry is not back from lunch yet.' When he appeared he said he had been
lunching with Lord Chandos, chairman of Associated Electrical Industries (AEI) and they
had been discussing Gibbon. 'Such a learned man,' he said 'do you read Gibbon? All
journalists should read Gibbon.' Fry did not have a vacancy at the time, but advised me to
try the Financial Times, thereby setting me on a very happy career path. Some time later
he very courteously rang up and said: 'I have a vacancy now, but I suppose you are happily
settled.' In From Empire to Europe, his authoritative history of British industry since
the Second World War, Sir Geoffrey Owen, a former editor of the FT, describes how AEI was
eventually absorbed by the General Electric Company (GEC) after a hostile takeover bid.
Owen dismisses AEI as a 'somewhat cumbersome, slow-moving organisation'.
Familiarity with the decline of the Roman empire did not help when coming to terms with
the decline (we always called it 'relative decline') of British industry. Though a
quintessentially cultured European (he was born in Berlin of parents from Bohemia) Fry was
apparently worried about the sustainability of the single currency, believing, according
to one obituarist, that the experiment 'can only be doomed'. He was particularly anxious
about the strains a fixed exchange-rate system would put on such widely differing
economies.
It is paradoxical that, just when the Blair government seems to be measuring up to bite
the bullet of the single currency, serious strains are already appearing. In some cases
these strains are very much of the architects' own making, and no one can say they were
not warned. A pertinent example is the difficulty even Germany is having with the
so-called Stability and Growth Pact, and with the arcane rites of what is known as the
'excessive deficits procedure'. Germany has been hoist with its own petard: it was in the
run-up to the single currency that then finance minister Theo Waigel insisted on stringent
budgetary limits. Germany had its eye on Spain, Italy and Portugal. Waigel confessed last
week that he 'never imagined Germany itself' could be in breach of budgetary limits and
threatened with 'fines' (which would make the budgetary breach even worse...).
Amid all the schadenfreude about Germany's embarrassment, it seems to be forgotten that
for years the central government has been pumping the equivalent of 4 or 5 per cent of
gross domestic product into the former east Germany - so the budget deficit is more than
accounted for by the unique historical circumstances of German reunification. Former
Chancellor Helmut Schmidt once told me he thought it would not be until 2010 that the
Germany economy resumed full strength after the shock of absorbing the east. This is just
one indication of how much more pragmatic our European neighbours need to be if they are
to make the single currency work. Despite all the talk about the need for 'structural
reform' in Europe, much of the poor performance of the eurozone in recent years can be
attributed to the combination of the problems of German unification and the austere fiscal
and monetary policies pursued in the run-up to economic and monetary union in 1999 and
since. The successful working of the eurozone will require much more imaginative use of
fiscal policy, as well as a degree of regional assistance that few seem able to
contemplate at this stage. The loss of the exchange rate as a mechanism of economic
adjustment is a huge change in the way European economies work. One of Germany's other
problems is that it appears to have locked into the other currency areas at too high an
exchange rate. Traditionally the Bundesbank used to watch the real exchange rate like a
hawk. As for the European central bank, it cannot be reiterated enough that its brief, by
comparison with that of the US Federal Reserve, is fatally flawed. The Fed has to aim at
price stability and maximum employment. The ECB is concerned solely with price stability,
and flirts constantly with deflation. It is little short of pathetic that the eurozone is
waiting for Fed chairman Alan Greenspan to give a lead and arrange for some decent
European economic growth. I do not write as a eurosceptic in the hostile sense in which
that term is customarily used. In common with many on this side of the channel, I
underestimated the determination of Kohl and Mitterrand to introduce a single currency at
this point in history.
Now I should like to see it work, and Fry's fears proved groundless. Meanwhile, this
country's position vis-à-vis the Eurozone is quite fascinating. You have only to look at
the state of manufacturing to realise that our economy is not as healthy as it is cracked
up to be. But there is a really interesting difference between the run-up to the
referendum (or not) and the circumstances surrounding both our original application to
join the 'Common Market' in the early Seventies and our ill-fated entry to the exchange
rate mechanism in 1990. On both previous occasions there was a strong feeling that we had
run out of options. We had missed the European boat because of our difficulties with the
'end of empire', but empire and commonwealth were not considered sufficient by the Sixties
and early Seventies, and Europe seemed the only option. By 1990 Margaret Thatcher's
government had run out of economic panaceas and the iron discipline of the ERM seemed the
only answer to my old friend Nigel Lawson, even though it was his successor as Chancellor,
John Major, who succeeded in persuading a weakened Thatcher. I am not saying that Lawson
was a weak Chancellor, but we now have a strong Chancellor whose policies -
notwithstanding criticisms in this column and elsewhere - are widely perceived to be
'working'. Certainly, I should not myself like to try to present the ECB and the stability
pact as superior policies. My goodness, it is going to be an interesting 18 months!
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
ANDRE GUNDER FRANK
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