Transcript Antecedents of the integration process

EU-integration knowledges
1st Semester, Academic Year 2010/2011
Written by Endre Domonkos
I. The global world economy and integration I.

The globalization of the world economy and the process of are developments of historical importance in our
time.
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In the past decades they have caused radical changes in the conditions of economic activity and production,
and the possibilities of consumption.

The development of national economies has entered a new stage. The content of the traditional economic
categories and the laws of operation and the mechanism of the economy have changed.
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The world economy must be understood and handled as an organic unit.

The changes in the globalized world economy can no longer be analyzed on the basis of the traditional
categories of international economics.
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The process in the world economy can be characterized in terms of interdependence, the globalization of
resources and markets, the expansion of transnational cooperation of the part of companies, and the
attempts at global governance.
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Levels of development are closely and mutually dependent on integration into the global world economy.

It is mainly since the 1970’s and 1980’s that we have witnessed the emergence of global world economic
structures based on the accelerating process of internationalization.

The international division of labour is becoming more complex. In addition the movement of goods the
international trade is services is growing rapidly, and these are linked to large-scale, intensive productionfactor flows.
I. The global world economy and integration II.
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The other very significant process is the formation of regional economic integrations.

The idea of regional unification is not a new one, but it has begun to be implemented only in the last few
decades.
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The forms of integration are organic parts of the global world economy structure, and their effects on the
world economy are by no means negligible.

In the present world not only the European Union is the only form of regional integration. In the present
world economy there are several dozen free trade associations and regional integrations such as NAFTA,
ASEAN, CEFTA, CARICOM.

A particularly high level of international integration has been achieved by the European Union, in which on
the basis of intensive economic interconnection and interdependence certain elements of political union
are now gradually being established.

Regional integration doesn’t run counter to the globalizing trend, but is developing in conjunction with it
and with reciprocal effects.

Integration on the micro level means the transnationalization of company structures, which is linked at
macro level with regional and global integration.

It’s important to examine regional integrations in world economy dimensions (at micro level, for example,
the individual producer’s possibilities of securing global advantage, or at macro level, the world economic
interrelations of growth.
II. The notion of globalization and its interpretation I.

Globalisation is a process rather than a completed fact, and is more than a mere economic phenomenon.

It has got many aspects and implications, including of course, social, political, institutional, and technical as
well as cultural ones.
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Globalisation in respect of knowledge, know-how, techniques had appeared in ancient times, many
thousands years ago when some innovations concerning e.g. the use of processing of various materials,
introduction of new seeds, plants, species, new methods of land cultivation, of animal husbandry, of house
and boat construction, the invention of basket-weaving, papyrus, wheel, gun-powder, etc. began to spread,
however, unevenly from continent to continent.

Some early signs of the beginning of globalisation in cultural sense and in respect of religions had also been
witnessed long time ago when one or another ancient culture had been extending over larger areas, to other
territories and continents, and when a certain religion had been disseminated and made dominant over
alien societies.
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Economic globalisation, i.e. globalisation in economic terms, did also have various sporadic manifestations,
such as the long-distance trade connecting, although occasionally and superficially only, remote areas and
continent many centuries before the rise of the capitalist market economy.
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Globalisation of the economy, the substance, content, driving forces and effects of which are interpreted in
various ways in literature, is obviously related to the development, unfolding and expansion of the world
capitalist economy.
II. The notion of globalization and its interpretation II.
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Globalisation in economic terms is nothing but a process making the world economy an organic system by
extending transnational economic processes and economic relations to more and more countries and by
deepening the economic interdependencies among them.
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In other words, it is a process that integrates the world economy both „horizontally” (in the sense of
territorial expansion) and „vertically” (in the sense of creating lasting functional relations among its parts).
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The „organic” nature of the world economy means that the economic contacts between countries are not
limited to international trade only (even less to the occasional exchange of products or to the flows of
products and money among „independent” national producers or customers), but factors of production
(particularly investment capital) do also flow across the state borders and international division of labour
and transnational ownership relations make interdependent all the partners.
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There are foreign assets within national economies; firms of individual countries are linked by international
joint ventures, sub-contracting, mixed properties and „strategic alliances”; multinational joint-stock
companies are operating; and networks of transnational corporations are extending; foreign workers are
employed by local enterprises and foreign employment facilities open for (some of) the labour force of
nations; foreign tourists make use of local services; the state-borders are crossed also by information and
data flows, TV and radio broadcasting, Internet-services ; and so on…
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All these mean that the already mentioned economic (both real and monetary) processes are getting
increasingly transnationalised, along with the economic relations between countries, namely ownership,
division of labour, decision-making and –implementing as well as income distribution relations.
II. The notion of globalization and its interpretation III.
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It is to be stressed again that resulting economic interdepencies are not symmetrical at all, which means that
the partners in them are not of equal position.
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Insofar as economic globalisation has been proceeding under the conditions of large-scale inequalities
between partners, and no counter-balancing mechanism, counteracting measures of appropriate
institutions exist, one can hardly be surprised if it tends to reinforce inequalities and asymmetries of
interdependence between those involved.
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The „horizontal” expansion of the world economy, i.e. its extension to more and more, finally all the
countries of the globe, a historical yardstick is represented by the re-opening of the former „socialist”
economies, their re-linking with the world economy in the wave of system-transformation of the former
„socialist” countries, which has put an end to the former practice of individual or collective isolation of these
countries.
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As to the „vertical” deepening of economic interdependencies in the world economy, it has been primarily
promoted (particularly recently) by the „revolution” in communication and information technologies.
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The transnational companies are the vehicle of the globalisation with their world-wide activities, which
follow a global strategy by means of their networks of production, services, marketing.
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The recent acceleration, however, of economic globalisation is most likely attribuable, besides the above,
also to the world-wide spread of economic liberalism, to the wave of a neoliberal economic policy,
„deregulation” and privatisation in the economy (i.e. the reduction of state interventions and public
ownership, of „dirigisme” and government regulations, of the protectionist measures, foreign exchange and
import control, of the size and role of the public sector and the cut of welfare measures and expenditures,
etc.)
III. The notion of integration
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A general semantic interpretation of integration itself present no special difficulty.
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Expressed in the most general way, integration is a process of unification, the merging parts into a whole,
becoming a unit, fitting together, melting into one another, linking up.
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It can be understood as the cooperation of parts, the harmonization of their operation, their reciprocal
influence and their becoming interconnected.
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According to the definition François Perroux „integration is the uniting of two or more economic units into a
certain whole”.
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The integration is a process, which leads to larger communities (Marjolin).
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Integration in the general sense is the adaptation and interweaving of parts in a higher whole (Predöhl and
Jürgensen).
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According to the theory of Jan Tinbergens we have to distinguish the concept of negative and positive
integration.
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Negative integration means measures consisting of the abolition of a number of impediments (elimination
of customs, quantitative restrictions and liberalising the market) to the proper operation of an integrated
area.
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Positive integration means the creation of new institutions and mechanism and their instruments or
modification of existing instruments.
IV. Transnational companies and global integration processes
I.
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In the global world economy an important part is played by transnational company systems, in the
framework of which new possibilities have opened up for exploiting the advantages to be gained from
international cooperation, through direct foreign capital investments, joint ventures etc.
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Particularly since the 1960’s, in the developed countries there has been rapid and significant expansion of
the transnational company division of labour.
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In the arena of today’s world economy a transnational company, with its internal and external cooperational
and business relations, is a modern producing and commercial organization that is in close connection with
the demands of present-day technical and social progress, and which strives globally to optimize its
resources and activities.
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Global company structures are developing organically from the cooperation of the developed countries,
while their relations with certain areas of the world economy (e. g. developing countries) are less intesive
and contradictory.
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Transnational company means a comprehensive, general category, in which the various forms of
multinational or „international” company are concreted in manifestations by them.
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The transnational company integrates and optimized in a comprehensive way the process of re-production.
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The research and development capacities of the developed countries are chiefly concentrated in the hands of
the transnational companies, and they have profited the most from the accelerated product-innovation and
technical modernization of recent decades.
IV. Transnational companies and global integration processes
II.
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Companies that manoeuvre and do business on global scale are best able to minimize costs and achieve
rational, global allocation of resources and factors of production (capital, technology, labour etc.).
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In today’s world economy the advantages and efficiency gains of direct international cooperation in research
and development, production and sales („transnational competitive advantage”) can to a large extent be
exploited in the global division of labour.
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The transfer of production capacity from one country to another is accelerating very markedly, especially in
cases when technology is easily movable, the fixed cost of buildings is not too high, and a skilled workforce is
available.
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An important development concerning transnational companies is their „internalization” of international
relations.
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This means that the international division of labour is becoming to a greater extent internal to the company.
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According to estimates, roughly one-third of international trade is carried on within companies, and direct
cooperation between companies is even more widespread.
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Transnational company structures internalize research and development in particular, direct cooperation in
production (component outsourcing) and the infrastructure.
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The most modern technology on the market tends not to be for sale, but flows within companies with
increased intensity, on the international level as well.
IV. Transnational companies and global integration processes
III.
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It is estimated that more than one-third to one-half of international technology transfers take place within
companies.
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We are witnessing the emergence of new forms of cooperation (e. g. cooperative relations in computerorganized production).
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International production has become an important characteristics of economic structures.
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The transnational company division of labour is playing a major role in the globalization of national
markets.
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An organic relationship has developed between trade and capital flows, and the transnational companies are
also the chief vehicles of technology flows.
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In recent decades the increased opening up of certain countries to external trade has been achieved mainly
by transnational companies.
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Capital flows are many times greater than the trade in goods and services.
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The capital markets represent the main sphere of global integration.
IV. Transnational companies and global integration processes
IV.
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One of the main characteristics of the global world economy in the 1980s was the enormous, rapid flow or
capital.
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On a daily basis, in that period cross-border capital movements were about 20 times bigger than trade flows.
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The foreign direct investments have become major components of the world economy, and they represent a
qualitatively new structure of international economic relations.
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The complete picture of global integration and competitiveness includes not only import and export but also
the turnover of foreign-owned companies, which in the given case acts as a substitute for import or export.
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Since the 1970s the global infrastructure of the international division of labour has been taking shape
(transcontinental transportation systems and space communications), with far-reaching consequences from
the point of view of production costs and competitiveness.
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The infrastructural costs of international cooperation, thanks to the developments in communications
technology and transportation, have decreased significantly.
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This has been a decisive development particularly as regards modern „global” company organization and
management, and cooperation in component supply.
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By the 1980s the infrastructure of international company integrations showed qualitative improvement, and
the new technology of the coming years promises further development.
IV. Transnational companies and global integration processes
V.
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World economic processes cannot be dealt with in isolation.
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In the last few decades, revolutionary changes have taken place in the whole socio-economic structure.
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Undoubtedly in this a major part was played by the technological revolution that after the World War II
renewed the whole structure of technology, from basic materials to automated production systems.
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This process accelerated from the 1970s on, with microelectronics, biotechnology and robotics, resulting in
completely new means of production and techniques of organization, management and communication
(computerization).
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All this has made possible unprecedented growth in productivity and efficiency, as well as real incomes.
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In the political sphere, in every area we have witnessed extensive democratization.
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One decisive development was the fall of the Iron Curtain, bringing to an end the period of a confrontational
bipolar world.
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With the disappearance of artificial confrontation, the unity of the world economy can be raised to a higher
level, and the obstacles to real globalization can be removed.
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The global world economy also means that traditional bilateralism will be replaced more and more by
multilateralism, and instead of being confrontational, the multipolar world economy has a better chance of
becoming cooperational.
Conclusion
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World economics has got an „organic” nature.
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It means that world economics embraces not only the economic contacts between countries and
international trade (even less to the occasional exchange of products or to the flows of products and money
among „independent” national producers or customers), but also factors of production (particularly
investment capital) as well that flow across the state borders and the international division of labour and
transnational ownership relations, which make interdependent all the partners.

The globalization of world economics is the extension of transnational economic processes and economic
relations to more and more countries and the deepening of the economic interdependencies among them.
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Asymmetrical interdependencies (the partners in the world economy haven’t got equal positions) are to be
established and deepened in world economics.
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In this context integration means a process of unification, the merging parts into a whole, becoming a unit,
fitting together, melting into one another, linking up.
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Integration embraces the economic and political sphere as well. It’s a complex notion.
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Another important attendant phenomenon of globalisation is the regionalism.
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In the contemporary world economy the manifestation of regionalism can be experienced through the
establishment of economic and commercial blocks such as NAFTA, Mercosur, CARICOM.
Glossary
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Factors of productions are human, intellectual, natural, material, technological and financial conditions
that are necessary in the production process.
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International enterprises (ventures) are such companies that are created at least by two sovereign states or by
natural or legal persons as common property, to provide the common operation and controlling of them so
that the competences and sharings are divided in contracts.
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Interdependencies: in the world economy the economic partners haven’t got equal position, they are
mutually dependent from each other.
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Internalization of production: practice of the transnational daughter companies in there they are capable to
organize the production, consumption and selling.
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Multinational organizations, institutions, enterprises are created by more than two sovereign states or by
natural and legal persons in such way that the shareholders of the companies have different citizenship, but
there aren’t any ownership division and sharing of competences in the functioning of the enterprise.
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Transnational companies: enterprises and companies that have daughter companies in more than two states
and have 100 million USD income annually. Their peculiarities are the followings:
1. Their scope of activities are extended in two or more countries;
2. They have centralized structure and apply global strategy (internalization of production, selling, research
and development)
3. The information and resources are allocated between the daughter companies.