european integration and new forms of uneven development - CiteSeerX

EUROPEAN INTEGRATION AND NEW FORMS OF UNEVEN DEVELOPMENT BUT NOT THE END OF TERRITORIALLY DISTINCTIVE CAPITALISMS IN EUROPE

★ Ray Hudson University of Durham, UK

Abstract Historically, capitalism developed territorially specific forms in Europe.The project of the European Union can be seen as one that seeks to erode this specificity. There is evidence of a tendency towards regulatory convergence but also of countertendencies, partly a product of the contradictory character of EU expansion and deepening economic integration. The end product has been a multiscalar system of governance and regulation, conjoining the EU, national and sub-national scales. There is also some evidence of convergence in national economic structures and performance. However, there is no

The pace of change in the political economic geography of Europe accelerated quickly in the 1990s as a consequence of EU deepening and widening, especially following the collapse of state socialism in Central and Eastern Europe (CEE). The changes have been complex and, in certain respects, contradictory, simultaneously creating processes of convergence and divergence, homogenization and differentiation. They defy easy interpretation, and so generate often heated debate as to their meaning and desirability; for they raise critical issues of theory and interpretation and fundamental questions as to the future of Europe and the character and political hue of the European Project. In particular – the focus of this paper – they raise questions as to what extent, and in what ways, this will eliminate or encourage territorial distinctiveness in economic and political life, at varying scales, within Europe. The argument of the paper, reflected in its structure, is as follows. Historically, capitalism developed territorially specific forms in Europe, at European Urban and Regional Studies 10(1): 49–67 0969-7764[200301]10:1; 49–67;032539

evidence of convergence in economic performance and structures at sub-national levels. The legacies of past uneven development, allied to the effects of intensified market competition as companies seek to exploit differences between places, have produced new forms of uneven development. KEY WORDS ★ expansion of the European Union ★ European integration ★ multiscalar governance and regulation ★ territorially specific capitalisms ★ uneven development

the national but also subnational scales. The project of the European Union – its formation, deepening and widening – can be seen as one that seeks to erode this specificity, creating a common regulatory space via processes of regulatory convergence. Some argue that this will in turn lead to convergence in economic performance and structures. A ‘strong’ version of this thesis is that the EU will (or should) emerge as a strong ‘super-state’ managing an EU economy, with the EU replacing the national as the dominant scale of regulation and economic organization as the significance of national boundaries fades. There is certainly some evidence of a tendency towards regulatory convergence and a dilution of national specificities but also of countertendencies, partly a product of the contradictory character of widening and deepening economic integration. The end product has been a multiscalar system of governance and regulation, conjoining the EU, national and subnational scales, with the national remaining a scale of regulatory significance. However, while there has been some

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degree of regulatory convergence and of convergence in national economic structures, there is no evidence of convergence in economic performance and structures at subnational levels. The legacies of past uneven development, allied to the effects of intensified market competition as companies seek to exploit differences between places, have led to new forms of uneven development.

Territorially distinctive capitalisms in Europe There are well-known relationships between the emergence of modern states and capitalism in Europe. While eastern Europe developed variants of state socialism, distinctive national capitalisms developed in western Europe in the postwar period, each with particular national couplings of modes of regulation and accumulation strategies (Lash and Urry, 1987; Esping-Andersen, 1990; Albert, 1993; Rhodes, 1996). Four such models of national capitalism can be identified (Hudson and Williams, 1999). First, a consensual ‘One Nation’ AngloSaxon model developed in the UK, based around a mildly redistributive and universal welfare state but with persistent tensions between a global financial role and national manufacturing in economic and regional policy formation. Second, a corporate Rhineland (or Bismarckian) model based on consensual agreements between employers and unions about labour markets and welfare, grounded in a high-wage, high-productivity internationally competitive economy (exemplified by ‘Modell Deutschland’ in the Federal Republic of Germany). Third, a Scandinavian model characterized by a high degree of universality, corporatism and consensus among capital, unions and the state on the need for a strong redistributive welfare state, an active employment policy and a strategy for economic rationalization and technical change. Fourth, a Southern European model characterized by peripheral, subordinate and weak economies and high public-sector deficits. As a result, welfare provision rests more heavily on civil society and on institutions such as the Church and family. There were important differences between these national models. For example, they developed distinct structures of capital, production and distribution. European Urban and Regional Studies 2003 10(1)

They also varied in their efficacy in terms of providing growth, employment and state welfare provision. However, in each of them the national occupied a critical space as a site of state regulation and of the formation of distinctive national economies and societies, although the precise articulation of state, economy and society varied between them. It is important to note, however, that there were limits to national projects in relation to creating homogeneous socioeconomic and regulatory spaces. There were persistent intranational differences in socioeconomic structure and economic performance within national boundaries and within the framework of national regulatory regimes. Intranational differences persisted despite (in the case of centralized states) or, to a degree, because of (in the case of federal states) the varying character of the national project. Subnational variations in economic performance and/or regulatory and governance structures remained, the latter because of variations in the interpretation and implementation of national regulatory structures and/or the influence of ‘informal’ and non-state governance mechanisms. Recently, there has been considerable emphasis upon the powers of place and the significance of urban and regional specificity in Europe. This emphasizes the decisive role of distinctive subnational couplings of economic structures and modes of governance and regulation. Distinctive regional institutional formations have been seen as critical in underpinning economic success. This can be exemplified by the financialservices industrial district of the City of London but more especially by manufacturing industrial districts, such as those of the Third Italy and Denmark which form internationally competitive nodes in a global economy (Hudson, 2003).1 Industrial districts are characterized as relatively self-contained, product-specialized regional economies of linked small firms, producing for rapidly changing niche markets in mature consumer goods sectors (clothing, shoes, ceramics, for example). Satisfying demands for high-quality, differentiated goods, with increasingly reduced life cycles, requires a specific production structure: decentralized coordination and control of the production process; a horizontal division of labour between independent but interlinked producers; numerical and task flexibility among workers who are required to display ingenuity and innovation at

HUDSON: EUROPEAN INTEGRATION AND NEW FORMS OF DEVELOPMENT

the point of production; and elimination of time and wastage in delivery and supply. Flexible intra-firm and inter-firm arrangements combine economies of agglomeration, scope and versatility. Other successful regional economies, such as Baden-Württemberg, also involved close collaborative and mutually supportive relations among public and private sectors but a different structure of inter-firm relations to that characteristic of canonical industrial districts.2 In Baden-Württemberg a hierarchically organized production system evolved around large ‘lead’ firms (some indigenous German, others inward-investing multinationals) and very large factories3 at the centre of regionalized supply structures involving multiple sourcing within the region. Component supply companies were themselves often substantial, with many (such as Robert Bosch) major multinationals. There was a considerable regionalization of supply chains, strong collaborative links between companies in the region, and a dense network of supportive public and private-sector institutions that supported innovation and R&D. Conversely, subnational specificity in the constitution of capitalism can also be problematic, a proximate cause of economic failure rather than of success. The problems of economically lagging regions – such as the Ruhrgebiet (Grabher, 1993) and north-east England (Hudson, 1994) – can be explained, in part, as a result of the character of their regional institutional formations that developed in the context of earlier rounds of investment and growth in industries that have now declined or disappeared entirely from these old industrial regions. As a result, they are caught in a form of cognitive and institutional ‘lock in’, which impedes a transition to new growth trajectories, sectors and activities. Cultural and social relationships that were once appropriate and supportive of economic success now have precisely the reverse effect.4

Homogenizing tendencies: the formation, expansion and deepening of the European Union to become a ‘super-state’? The East–West, state socialist/capitalist, partition of Europe in the late 1940s profoundly influenced the postwar geopolitical map of Europe. Within

Western Europe partition generated fears of communism spreading from the East. However, there were also strong desires to eliminate any possibility of future wars between Western states, especially France and Germany. In addition, political elites sought to create a more effective Western European political voice in the international arena. These forces combined to give rise to a series of moves to create supranational institutions to guard against the dangers they posed (Williams, 1998). The most significant of these moves was the creation of the ECSC, formed in 1951 by the six countries that were to be the founder members of the EEC in 1957. The common political-economic space of the EEC had specific rules of entry, with market capitalism and parliamentary democracy as necessary but not sufficient conditions, which delimited the initial possible boundaries of the EEC. However, several countries that met these conditions formed the European Free Trade Area (EFTA) in 1960, explicitly rejecting any concept of overt political union, while others initially remained outside both groupings.5 Over the next three decades, the boundaries between non-member states, EFTA and the EEC, originally competing economic spaces within Western Europe, were gradually redrawn especially as members of EFTA sought to join the EEC. In the first instance, this involved Denmark and the UK joining the EEC in 1973, along with Ireland, and in 1974 a free-trade agreement between the EEC and EFTA came into force (Williams, 1991). Other countries met the test of capitalism but not parliamentary democracy. Greece, Portugal and Spain were not allowed to join until the 1980s, following the ending of dictatorships, as a way of underpinning their embryonic democracies despite the weaknesses of their national economies. The entry of Austria, Finland and Sweden in 1994 increased the number of member states to 15. Each enlargement of the EU effectively drew the two sets of member states together, driven on by geopolitical considerations and by the logic of international trade, the competitive threat posed first by the USA and later Japan, and concerns over market access. The post-1989 redefinition of the relationship between East and West was intended to help insert the former state-socialist CEE states into at least the margins of the wider global economy. Consequently, European Urban and Regional Studies 2003 10(1)

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by the 1990s, the EU was contemplating extending into the previously forbidden territory of the East. Former COMECON countries were to be allowed to join, subject to meeting the economic and political criteria for entry: that is, successful transformations to capitalism and creation of parliamentary democracies.6 Consequently, ‘[at] one and the same time, the EU has appeared as a model of democratic and economic stability to be pursued by the new or newly democratic countries of Europe, and as a symbol of how far they have to go to reach the promised land’ (Smith, 1996: 6). From the outset, the proponents of the EEC (as it then was) sought discursively to construct it as a space of liberal capitalism. This assumed – contentiously – that regulatory convergence and liberalizing markets would lead to increased growth rates, convergence in national economic performance and structures, enhanced welfare and reduced spatial inequalities. Initially, progress towards deepening economic integration was reasonably rapid, with the creation of a customs union within the protective shield of a Common External Tariff (CET), indicative of the contradictory character of the ‘common market’ project (Swann, 1995). Nonetheless, national economic growth rates in the member states were consistently high (Madison, 1964; 1982), seemingly vindicating at least some of the arguments for forming the EEC. Over the next two decades, the processes of deepening slowed as the emphasis switched to widening. Even so, the regulatory competencies of the EU were increased and new areas of (weak) industrial and Research, Technology and Development (RTD), regional, social and welfare policies were developed alongside the dominant CAP. At the same time, however, international economic crises and recession in the 1970s and 1980s revealed weaknesses in the EU economies and indicated the need for change – for example, in the structures of capital and labour markets and in order to overcome barriers to knowledge transfer because of different national technical standards. The pace of the process of integration again accelerated from the 1980s onwards via new forms of supranational regulation in response to growing tendencies of globalization. The processes of deepening economic integration and creating a truly ‘common market’ entered a new phase, with the European Urban and Regional Studies 2003 10(1)

projects for the Single European Market (SEM), the Schengen arrangements to facilitate intra-EU migration and promote labour mobility, Economic and Monetary Union, and the creation from 1999 of a single ‘Euro’ currency, following the 1991 Treaty on European Union. These changes coincided with renewed pressures for expanding the constituent territory of the EU (as it became on 1 November 1993). Via these processes of deepening and widening, the EU sought to bring about a homogenization of the European space, establishing the hegemony of capitalist social relations and furthering neo-liberalism within a common regulatory framework over most of Europe.7 In this neo-liberalism space, market forces would have more scope to influence the sectoral and sociospatial distributions of economic activities, resources and income.8 The construction of a unified economic space and the creation of regulatory capacity at EU level can therefore be seen as expressions of one view of the emergence of an EU ‘super-state’, shifting regulatory capacity and political power to the EU. Servan-Schreiber’s (1968) vision embodied a normative claim that the EU could and should emerge as a super-state, with national and local levels subordinate to it, and become a bulwark against the political power and neo-imperialist ambitions of the USA. This vividly expressed a vision of the EU as a powerful political actor, formed by the mutual consent of sovereign national states in pursuit of shared interests. Seen in this way, the ‘deepening’ of the EU can be seen as simply shifting state regulation ‘up’ a spatial scale, to a larger ‘super’ version of existing national states. Rather than convergence of national political economies on a common model, the EU would become a new shared regulatory space. Within it, liberalization of markets and flows of capital, commodities and people would lead to convergence in economic performance, eliminating past national differences in economic well-being and welfare.9 However, it is important to stress that this was – and continues to be – a strongly contested vision of Europe, while the effectiveness of the EU itself as a political institution is reduced by differences in aims and priorities among its constituent organizations (points elaborated further in succeeding sections).


The erosion of national and regional specificities Convergence in national regulatory structures and economic structure and performance In addition to the pressures arising from processes of Europeanization, since the 1970s all models of national capitalism in Europe have come under intense pressure from new forms of neo-liberal globalization, competition, and increasingly mobile capital. National states are, it is claimed, fatally weakened by processes of globalization that have undermined their capacity to regulate national economies. Furthermore, the room for manoeuvre open to national states has been constrained by institutional innovations, such as the World Trade Organization, the EU Growth and Stability Pact that sets guidelines for national economic policies and performance (in relation to inflation rates, budget deficits and public debt) for member states and the Stability Pact designed to promote economic reform and growth in south-eastern Europe (Special Co-ordinator for the Stability Pact for South Eastern Europe, 2002). Globalization has both helped produce a range of environmental and socio-economic problems – rising unemployment, disintegration of extended, and increasingly nuclear, families, the ageing of society, the ecological unsustainability of contemporary economic practices – and undermined the capacity of national states to deal with them. In response, national states of all political hues have, unevenly but increasingly, embraced a resurgent neo-liberal agenda. Perhaps the most important shifts have been in macroeconomic policies, shifting priorities from maintaining full employment to countering inflation and trade imbalances, beginning to scale down welfare states, shift from universalism to selectivity and replace public with private provision, especially of pensions. These changes have been most pronounced in the UK, reflecting its Atlanticist ties to the USA (Hudson and Williams, 1995) but the signs of change are evident elsewhere (Commission of the European Communities, 1995). For example, there has been a partial dismantling of the welfare state in Scandinavia, as historic class compromises and social partnerships have collapsed; but there are also counter-tendencies, such as the introduction of the 35-hour working week in France. In fact, all

brands of European national capitalism face similar challenges in delivering economic growth, jobs and welfare provision. Faced with ageing populations and growing environmental concerns and a seeming diminution of their capacities and resources to tackle such issues as processes of globalization seemingly take on a life of their own, national states are left with no option but to adapt their policies and structures to them in recognition of this. Thus national states are less significant political actors and act in more similar ways than in the past. In summary, while significant national and regional variations remain in the forms in which capitalist social relations are constituted and governed within Europe, the combination of the forces of neo-liberal globalization and the project to both widen and deepen the EU and create a common regulatory framework over its territory is reducing this variability, especially in the context of monetary union constraining macro-economic policies. Within the EU, the partial erosion of national specificities results from the prioritization of the neo-liberal market project over political concerns with cohesion. Similarly, in CEE after 1989, there were neo-liberal pressures to reduce social protection as part of the ‘sharp shock’ stabilization programmes and to help break what was termed the ‘culture of dependency’. These emanated from the EU and IMF, with the intention of creating or strengthening national economies and states in order that they could be judged to have met the criteria for EU entry, but were also encouraged and seized upon by some in CEE who saw in them opportunities to advance their interests. This shifted CEE towards the neo-liberal conception of capitalism that was gaining ground in the EU. However, and not surprisingly, this sharp policy shift initially weakened national economies in CEE. They only began to recover from around 1993 (somewhat earlier in the case of Poland: Dunford, 2002) but by the later years of the 1990s several of them were adjudged to have made sufficient progress as to warrant serious discussion of their entry to the EU.

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Hollowing out regional economies: from territorially integrated production systems to nodes in wider corporate systems of production? Industrial districts such as the City of London remain strongly ‘sticky’ places (Markusen, 1996). However, other formerly sticky places in Europe have become much less cohesive as the socioeconomic glue of beliefs and material practices (rather than simply something ‘in the air’) that previously held them together strongly in place has, to varying degrees, dissolved. As such, their previous distinctiveness as integrated place-based production systems has been eroded. Former industrial districts have been or are being ‘hollowed out’. As early as the beginning of the 1980s, the larger or leading clothing firms in Italian districts such as Carpi and Prato initiated a far-reaching process of de-localization of selected labourintensive and unskilled stages of production.10 Conversely, they increasingly concentrated upon high-quality products and those stages of production requiring skilled labour and, more importantly, upon design, marketing and brand development activities that were less sensitive to labour costs, as well as key HQ strategic functions. Similar processes of ‘hollowing out’ production to surrounding localities with abundant cheap labour occurred in the 1980s elsewhere in the EU (for example, see Hadjimichalis, 1998). The boundaries of clothing industrial districts have therefore become more permeable. Furthermore, there have been significant changes in the character of inter-firm relations. A previously egalitarian horizontal division of labour has become much more hierarchical. Powerful ‘lead’ firms or ‘gruppi’ have emerged, either as a result of organic growth or, more often, merger and acquisition (M&A) activity among local firms, and of larger externally-owned firms’ entry shaping local growth and development (Coró and Grandinetti, 1999; Whitford, 2001). This had two important effects. First, it created more complex structures of ownership, radically re-shaping the geometry of power relations between firms sharing the same location. Second, it led to the establishment of relationships with suppliers and subcontractors beyond the boundaries of the district, fracturing the former territorially bounded coherence and integrity of the production system. Consequently, European Urban and Regional Studies 2003 10(1)

these districts were increasingly transformed from territorially integrated production systems and recast as nodes in wider European or global corporate systems of production and learning. In addition, however, these changes were also a consequence of wider geopolitical developments beyond the boundaries of the districts which enabled – and indeed were necessary conditions for – shifts in corporate behaviour, removing previous constraints on location. The opening up of the formerly forbidden territories of CEE to capitalist investment has been critically important in this regard.11 Two examples illustrate the point. Herning-Ikast in Jutland developed as a sophisticated industrial district, based on the production of high-value-added woollen clothing (Maskell et al., 1998). During the 1990s, however, production tasks, especially the most labour intensive ones, were subcontracted to firms in Poland. Around the same time, in the metal-working industrial district around Brescia in northern Italy, basic steel-making activities were increasingly subcontracted to firms in Bulgaria and Rumania. In both cases, there was a ‘hollowing out’ of the production structure in response to newly available locational opportunities and increasingly fierce pressure on global product markets, while key decision-making, design and marketing functions were retained in the ‘home’ location. In this way indigenous European SMEs become enmeshed in evolving global production systems. Other forms of regionalized production systems within Europe are also increasingly seeking to ‘hollow out’ routine production activities in response to growing competitive pressures. For example, Baden-Württemberg’s formerly very flexible and competitive regionalized production structure has become increasingly rigid, inflexible and uncompetitive. As a result companies such as Daimler-Benz, Audi, Robert Bosch, IBM, Hewlett Packard, and SONY ‘have in fact begun engaging in [the] process of killing off the old regional division of labour that they were embedded in. This has involved a sharp winnowing of the number of suppliers that firms engage with not simply in general but also within the region itself.’ Moreover ‘multiple sourcing has been replaced with long-term contracting with smaller numbers of intimate firms. These firms can be local firms, but they need not be’ (Herrigel, 2000: 296, emphasis in original). As part


of this process of restructuring, foreign expert collaborative suppliers, such as the Canadian firm Magna, have been encouraged to establish green field operations in the region. Furthermore, other expert collaborator firms can be accessed from their locations elsewhere in Germany and in Europe (including CEE), without requiring relocation into Baden-Württemberg. Thus ‘re-regionalisation occurs but it does not have to occur within the old geographic boundaries of the traditional district’ (Herrigel, 2000: 297). In summary, there are increasing tendencies to ‘hollow out’ the production structures of a variety of regions that until recently were regarded as archetypal examples of systems of regionalized production organization within regionally specific forms of capitalism within Europe. Responding to growing competitive pressures, and taking advantage of the opportunities offered by technological and/or geopolitical changes, established or emergent ‘lead’ firms in these regions are reorganizing the organizational and spatial structures of production systems, decentralizing much of the material transformation stages of the production process to other locations. As a result, the home regions of these lead firms are increasingly becoming systems integrators, sites of key decision making, design and marketing within wider, spatially dispersed production systems that link a variety of other firms and places. Thus the reorganization of production creates distanciated production systems, within a global or Europeanlevel spatial division of labour. However, the reorganization of production may also produce a rescaling of production, which may become reregionalized as new scales of spatial organization are produced as a result of changes in corporate strategy – a point taken up in the subsection ‘Redefined economic geographies’ below.

Counter-tendencies: resisting homogenization and (un)intentionally creating differentiation The contradictions of deepening Deepening economic integration continues to be a contradictory and incomplete process, generating

divisions, inequalities and tensions within the EU. Not least, this is because of sharp differences between the rhetoric of EU policy championing the virtues of market competition and practices and policies that work in the opposite direction. Several points can be made in this connection. First, the major collective policy, the Common Agricultural Policy (CAP), was and is strongly interventionist, designed to insulate European farmers from the effects of global market forces. This reflected the power of the political lobby for agriculture and a political preference for rural under-employment rather than urban unemployment. Despite shrinking, the CAP still absorbs the largest share of EU expenditure, a recognition of the political constraints on free-market policies. Second, the formation of the EU can in part be seen as a conscious attempt to counter the threat of European markets being dominated by multinational companies (MNCs) based in the USA. Such multinational capital was increasingly penetrating key sectors of the national economies of Western Europe from the 1950s onwards. By the 1980s the EU was one of the three key macroregions of the Triad within a globalizing economy, in competition with Japan as well as the USA (Ohmae, 1990; 1995). Paradoxically, the creation of a common European space had an unintended effect in that it was of greatest advantage to capital based beyond its boundaries because it was less tied to a national base within them (Williams, 1991: 102–9). Furthermore, the EU responds – Janus-like – to the challenges of neo-liberal globalization in contradictory ways, simultaneously encouraging and resisting it. First, through protectionism, the CET and via other tariff and trade policies, it mediates trade relations between the EU and other parts of the world. The dominant ideology of free trade and liberal capitalism applies, selectively, only within the CET wall, which creates a significant degree of closure and protection from external competitors. Second, by creating a space in which capitalist processes of competition and market allocation of resources could flourish, it seeks to facilitate the emergence of globally competitive European-based MNCs, especially in key sectors of technologically sophisticated manufacturing. In part it has done so through strategic industrial policies designed to shape market conditions confronting all firms in a sector, promoting inter-firm cooperation in order to European Urban and Regional Studies 2003 10(1)

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ensure competitive success by using RTD initiatives such as ESPRIT to encourage collaboration over pre-competitive technological innovation in hightech industries (Mytelka, 1993). In addition, the EU has encouraged the emergence of ‘Euro-champions’ through its permissive and non-interventionist attitude towards acquisitions of EU companies by other EU companies and to intra-EU mergers (Ramsay, 1992).12 Furthermore, the immanent SEM encouraged increased Foreign direct investment (FDI) into the EU but also a wave of cross-border M&A activity (Hudson, 1999) and this subsequently rose to record levels in 1999 and 2000 as European companies sought pan-European alliances following the creation of the Euro-zone. As with the Common Agricultural Policy, encouraging and facilitating the emergence of globally dominant oligopolies in these ways sits uneasily with (neo-)liberal claims about the virtues of competition and ‘free markets’ as superior mechanisms for resource allocation that champion the rights of consumers. This relates to a third point. EU policies have often had unintended effects in exacerbating intraEU inequalities (Hudson, 1996). For example, the CAP has contributed to the widening of income differences within and between rural areas while policies to encourage the emergence of ‘EuroChampions’ often exacerbated qualitative as well as quantitative regional inequalities by encouraging knowledge-intensive economic activities to locate in the core regions of the EU. The Euro has recently created an important division between the 12 states that have become members of the Euro-zone and those three that have not.13 The latter group comprise countries that fail to meet the convergence criteria for entry and those that have met them but choose not to exercise their right to join.14 The inclusion of some EU states within the Euro-zone and the exclusion of others from it, as well as the continuing significant differences in national economic performance within the former group,15 are contributing to the emergence of a multi-speed EU. Furthermore, ‘some important causes of differences are likely to remain. They concern essentially disparities in various structural features, such as dissimilar potential growth rates and propagation mechanisms’ (Commission of the European Communities, 1999: xi). Continuing divergences in national, regional and sectoral economic performance and wealth (Dunford and European Urban and Regional Studies 2003 10(1)

Hudson, 1996; Hudson and Williams, 1999) sat uneasily with the claims of convergence. Such divisions endanger sociospatial cohesion and equity within the EU (Molle and Cappellin, 1988). Expansion into CEE will further exacerbate such ‘structural features’ of inequality and uneven development within the EU, but it remains an open question as to which applicants meet the criteria for entry and when they will do so.

The persistence and ambiguities of the national The view that the significance of the national state is declining has been increasingly challenged (Boyer and Drache, 1995; George, 1999; Weiss, 1997) and there is no doubt that national states remain of critical importance within much of Europe. Globalization of the economy is leading ‘neither to the disappearance of nations nor a minimalist state’ (Aglietta, 1999: 64). Although the process of unbundling territoriality has gone further in the EU than elsewhere (Ruggie, 1993), national states in Europe are neither dying nor retiring but have merely shifted functions (Mann, 1993); hence, one can point to ‘the exaggerated death of the nationstate’ (Anderson, 1995). The mix and balance of forms of national state involvement and policy making have qualitatively and significantly altered but the claim of ‘neo-medievalists’ that the national state is largely rendered redundant in Europe is misconceived (Anderson, 1996). The distribution of public expenditure within the EU would certainly seem to support such views. Public spending by national governments accounts for between 40 percent and 60 percent of national GDP in the countries of the EU, whereas the Community Budget is capped at a level equivalent to only 1.2 percent of Union GDP (Markopouliotis, 2002). National state regulatory and institutional arrangements remain significant and influential, while national cultures of capitalism persist, with often significant differences among them as well as between them and the aims and policies of the EU Commission. The national state and its territory remain an important locus of accumulation, with national institutions continuing to structure economic space (Wade, 1990) and to influence economic actors via their rules and regulations.


While there has been a diminution in capacity to control monetary and fiscal policy in many national states (notably in those of the Euro-zone), they nonetheless retain considerable power and authority in other policy domains. The national level remains important in other spheres of economic governance and regulation: taxation; innovation and technology transfer (Lundvall, 1992); environmental policy (Hudson and Weaver, 1997); education, training and the labour market (Peck, 1994); M&A activity; and the attraction of FDI (Hudson, 2003). Furthermore, globalization of political and economic processes is partly a product of national decisions to change geographies of regulatory regimes, to agree on common objectives and implement common regulations and standards (Hirst and Thompson, 1995: 426). National states have often been complicit in encouraging the linked processes of political-economic globalization and ‘denationalization’ of their own powers. As such, the emergence of supranational regulatory and governance institutions such as those of the EU may further reinforce rather than diminish the importance of the national state (Cerny, 1990) and, indeed, in CEE appropriate national state structures are a precondition for EU entry.

Resurgent regionalism and substate nationalism Many western European states have had devolved or federal governmental structures that have granted considerable autonomy and competencies to regions for many years (for example, in Germany and Italy). Other national states, such as France and the UK, had much more centralized structures. The emergence of the concept of ‘a Europe of the Regions’ registered growing and generalized pressures to move decision-making power and resources to subnational levels of cities and regions, leading to the creation of new urban and regional institutions and increasing their role in processes of governance and regulation. There was a number of reasons for this resurgence of regionalism and substate nationalism (for example, see Kofman, 1985; Schech, 1988). First, in part it reflected a perception that Europeanization and globalization offered opportunities for growth at city and regional

level that could be most effectively grasped if governance and regulatory mechanisms were located at subnational levels. Second, there was a revival of interest in regional culture, a site of resistance to the homogenizing pressures of economic globalization. In some cases, notably Spain, this was also strongly conditioned by the transition from dictatorial to democratic politics. Third, there was a growing belief that decentralization and devolution would allow a more democratic politics in Europe, bringing decisionmakers closer to the level of those affected by their decisions. While there was thus a variety of ‘bottom up’ pressures, there were also ‘top down’ pressures as national states sought to redefine the boundaries between economy, state and civil society, and to reduce public expenditure commitments, linked to a neo-liberal belief in the resource allocative effectiveness of markets. As such, decentralization and devolution shifted responsibility (if not always commensurate resources) for regional and urban development to those levels. Regions have therefore sought to become – or have had no choice but to seek to become – political subjects in an intensifying inter-territorial competition within Europe. In this context, regional development organizations are seeking to shape corporate investment decisions to favour or protect ‘their’ territory. Some regions can certainly exert a powerful influence, as can some national states within Europe, in securing high value-added and knowledge-intensive activities for ‘their’ territories, based on ‘strong’ inter-territorial competition. Others are in a much weaker and more vulnerable position, and seek to compete via subsidy and the price of labour in a ‘weak’ mode of inter-territorial competition for both routine manufacturing branch plants and call centres and deskilled back office activities. In terms of inward investment, they accept what they can attract, which typically may not be their preferred choice. The net result, however, is to exacerbate the extent of regional differences and inequalities within Europe.


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The end result I: new multiscalar architectures of governance rather than an emergent ‘super-state’ The EU cannot realistically be seen as an emergent super-state. It lacks economic power as its budget is capped at a tiny fraction of the budgets of national states and is minuscule relative to the magnitude of the policy agenda that it seeks to address. There are also significant areas of conflict and disagreement between different Directorates-General within the European Commission, between the Commission and the European Parliament, and between the EU and the national governments of its constituent states (for example, over M&A and regional policies) while national states retain considerable authority and power.16 Rather than see the EU as an emergent super-state seeking to rival the USA in a neoimperialist struggle for global domination, it can therefore be more appropriately seen as one element within a more complex multiscalar and multidimensional system of governance and regulation in Europe (Snyder, 1994). The EU, national states, subnational state units and institutions in civil society are taking on different roles, linked within this evolving complex system. It is therefore no coincidence that much of the discussion about the ‘re-organization’ of the state and regulatory restructuring has been developed in relation to the EU experience (O’Neill, 1997).17 This multiscalar system has evolved for three reasons. First, because national governments have retained considerable authority, capacity and powers. Second, because many national governments have decentralized responsibilities and resources to cities and regions, many of which seek to deal directly with the EU, and to organizations within civil society. Third, because national governments have ceded some powers to the EU institutions, but without necessarily trusting them fully to use them. The 1987 Single European Act brought in increased majority voting on a range of issues, thereby providing an important precedent for constraining national sovereignty. The post-1992 Maastricht settlement involved a compromise between more supranational powers (via monetary union and the European central bank) and loose cooperation between national governments (on issues of defence and justice). Political changes of the 1980s and 1990s thus resulted in decisionEuropean Urban and Regional Studies 2003 10(1)

making processes in the EU assuming a complex hybrid form, a mixture of intergovernmentalism and cooperative federalism (Kirchner, 1992) that limited the EU’s scope for action, especially given its very limited budget.18 As such, the EU bore very little resemblance to a dominant super-state.19 Such a multiscalar governance system requires that appropriate mechanisms be established to ensure political accountability to the relevant constituencies at each territorial level. There are concerns that the EU is politically unaccountable, dogged by a deep democratic deficit, lacking the checks and balances that evolved in the national states of western Europe. The concept of subsidiarity, and the debate around it, represents an attempt to eliminate this deficit and ensure that in practice decisions are taken at the territorial administrative level as close as possible to those affected by these decisions (Snyder, 1994), which in turn has been associated with the emergence of new forms of governance at urban and regional scales. Great emphasis is placed upon the democratizing aspects of shifting power to the local/regional levels, of bringing political decision making nearer to those directly affected by its consequences. To a degree, however, this more complex governance system also necessarily involves a networked and ‘deterritorialized’ approach to governance as not all communities of interest in Europe are territorially defined and delimited. However, issues of democratic deficit again arise as a consequence of such a network model of governance and the implications of this are less publicized. Proponents of the EU argue that the democratic deficit at EU level can be legitimated as a temporary, albeit undesirable, state of affairs since existing European national states are (allegedly) weakened and ineffective in the face of globalizing pressures.

The end result II: new forms of combined and uneven development within Europe Reinforced sociospatial divisions A degree of dilution of territorial specificity in economic and institutional structures has not led to more even development within Europe. On the contrary, the legacies of former structures have been


overlaid with new forms of uneven development as market forces have become a more powerful economic steering mechanism within the EU and applicant states. Making regions political subjects competing on a neo-liberal terrain for investment has enhanced uneven development. Despite assertions that deepening economic integration would reduce sociospatial inequalities and lead to generalized increases in economic welfare as a result of trickle-down effects, there is considerable evidence of widening inequalities within the EU (Glyn and Miliband, 1994). The inequalities of incomes and wealth between rich and poor people grew (Hudson and Williams, 1999). The transition to capitalism and market economies widened income disparities in CEE (Dunford, 2002). There is no evidence of deepening integration leading to narrowing of regional and urban inequalities and indications that they may in fact have exacerbated existing subnational territorial inequalities and helped create new ones. While there is some disagreement as to the precise magnitudes, there is general agreement that regional inequalities in Gross Regional Product (GRP) per caput narrowed somewhat from the 1960s to the mid1980s, while from the mid-1980s to late-1990s the rate of convergence slowed, perhaps to zero (Martin, 2001), perhaps switching to divergence (Dunford, 1994), although the Commission of the European Communities (1999) asserts that regional inequalities are again narrowing while acknowledging the persistence of regional inequalities within the Euro-zone as well as more generally within the EU. Canaleta et al. (2002) argue that convergence in regional economic performance between the 1960s and 1990s was largely a result of convergence in broad sectoral (primary/secondary/tertiary) structures, with – crucially – no evidence of intrasectoral convergence. Furthermore, ‘regional employment evolutions since the mid-1970s have been strongly divergent’ (Martin, 2001: 72). These changing maps of regional convergence and divergence are without doubt in part a product of the widening and deepening economic integration of the EU. Expansion from 6 to 12 increased the ratio of GRP per caput between its richest and poorest regions from 6:1 to 12:1 (Hudson and Lewis, 1985). The unification of the former East and West Germanies greatly magnified

the scale of regional inequalities in the EU. The expansion into Scandinavia in the 1990s added new sorts of peripheral, sparsely populated problem region. While initial large differences in regional economic performance because of differing sectoral structures provided scope for quantitative convergence, processes of post-enlargement integration created scope for qualitative differentiation. Creating more scope for market forces to shape flows of capital and labour has reinforced territorial labour market inequalities; not least because labour remains relatively immobile compared to capital, and companies have been offered much more spatially differentiated labour markets to exploit as the EU has expanded. Corporate decisions about the location of economic activities and evolving intrasectoral and intraindustry spatial divisions of labour have magnified the qualitative differences between regions in terms of their positions within the spatial divisions of labour of production systems. Moreover, further expansion eastwards will almost double the ratio between the richest and poorest regions within the EU (Commission of the European Communities, 2001). This will undoubtedly change the qualitative character of inequalities (Hudson and Williams, 1999). It is worth noting, however, that the map of inequality is more complex than simply an east–west divide as there are cities and regions in CEE with per caput GDP levels above those of parts of Greece and Portugal. While the eastward expansion of the EU will recreate opportunities for further intersectoral convergence (Commission of the European Communities, 2001), this will only be temporary (although it could nonetheless be prolonged). However, expanding into CEE will further increase scope to recast sociospatial divisions of labour in ways that will reinforce qualitative differences between regional labour markets and production structures within the enlarged EU.

Redefined economic geographies: the examples of the automobile and clothing industries The spatial reorganization and rescaling of the economy of Europe is clearly a complex process, not amenable to simple generalization. The combination European Urban and Regional Studies 2003 10(1)

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of opportunities offered by geopolitical change, the widening and deepening of the EU, and changes in production methods, forms of interfirm relations and information and communications technologies (ICTs), have enabled sharp changes in the economic geography of Europe. These have involved simultaneous processes of distanciation and (re)territorialization at various spatial scales, as companies have made increasingly sophisticated use of spatial differentiation in pursuit of heightened profits. This may be illustrated by brief reference to two industries: automobiles and clothing (see Hudson, 2002). There has been a considerable internationalization of EU automobile production into, first, peripheral regions of northern and southern Europe, and second, into CEE. This partly reflects substantial differences in labour costs. Of greater significance, however, are the possibilities radically to reorganize working practices and enhance productivity levels, both in areas with no prior history of automobile production and in former automobile production areas, above all in CEE, in which there is little, if any, resistance to such changes. Production is increasingly ‘Europeanized’, with ‘an intricate network of … flows which reflect both the sourcing and marketing strategies of the major automobile producers, national and transnational’ (Dicken et al., 1995: 4). The automobile production system can be seen as organized within Europewide networks, encompassing a three-fold hierarchy of regions, qualitatively differentiated in terms of their role in the production system. R&D and high-level and knowledge-intensive competencies are increasingly concentrated in the core, centred on Germany (Hudson and Schamp, 1995), as routine production (especially of lower-value components and models, as well as of small-batch production of specialized models with a high labour content) is increasingly dispersed to the eastern and southern peripheries. This hierarchy ‘is based upon the cumulative competencies of the actors, the density of networks of relationships and proximity to the seats of power where strategic decisions are taken … distributing other activities over space’ (Bordenave and Lung, 1996: 320). However, creating such a regionally hierarchical Europeanized production system is complicated in at least three ways. First, ‘national champions’ still dominate in some national markets European Urban and Regional Studies 2003 10(1)

(Hudson and Schamp, 1995). Second, supply chains are being extended beyond Europe (Sadler, 1999). Third, there are simultaneous tendencies towards a more distanciated and spaced-out production system and towards territorial re-agglomeration around new clusters of just-in-time and in-oneplace production. ‘Europeanization’ in the context of corporate strategies of globalization is creating complex new geographies of the automobile production system. The geography of the clothing production system in Europe has also been radically redefined. Producers in different European regions have varying ability to capture and appropriate value from continentwide production and contracting networks. Core economic sites and regions in western Europe (headquarters of the major clothing retailers and buyers) control the ‘geographical transfer of value’ (Hadjimichalis, 1987) in this production system. Production in many peripheral regions in higher-cost countries has declined because of the emergence of distanciated, continentwide, contract networks. Conversely, these same contractual arrangements have offered opportunities for new, sometimes regionalized, production structures to be constructed in parts of the eastern and southern peripheries. As longestablished industrial districts were being hollowed out and reorganized in the EU, new clothing clusters were emerging elsewhere. In CEE new clusters were evolving, incorporating innovative forms of inter-firm relations, linked into local ‘lead’ production firms and in turn into export markets in western Europe (Dunford et al., 2001). Major European retailers have sought to supply from within Europe rather than from lower-cost nonEuropean locations because of the need for rapid response to market changes and smaller batch production (Crewe and Lowe, 1996). They reorganized supply chains, sourcing from locations in CEE, in which labour is more expensive than in – say – India but much less expensive than in western Europe while transport times and communication problems are much less between CEE and western Europe than between western Europe and distant parts of Asia. Similar processes were evident in parts of southern Europe, but concentrating more upon specialized niche production. For example, in the Ave Valley in rural northern Portugal, clusters of clothing producers increasingly focused upon


small-batch production, manufacturing products for which the main modality of competition is quality rather than price (Thiel et al., 2000). In addition, other SMEs in many parts of Europe have become tied into global systems of clothing production via the growth of subcontracting and new forms of collaborative inter-firm relations. Collaboration in this context does not mean equality of power between partners in such agreements, however. As a result, many small firms in Europe are in vulnerable and precarious market niches within global production structures, often subject to fierce price competition from locations outside Europe. In summary, there is again a complex geography of deregionalization and reregionalization within increasingly distanciated production clothing systems within and beyond Europe.

Limits to Structural Fund policies to counter burgeoning inequalities Growing inequalities undermine cohesion within the EU. This was recognized in the strengthening of the Structural Funds20 and in the creation of the Cohesion Fund, which came into operation in 1993, specifically focused on preparing Greece, Ireland, Portugal and Spain for further economic integration via European Monetary Union. Prior to this, the 1988 reform of the Structural Funds increased their redistributive effect in favour of the less prosperous member states and regions, targeted both spatially and sectorally. However, the EU has very limited capacity to deal with these problems. Despite doubling for the period 1999–2002, with further increases planned to 2006, the Structural Funds amount to no more than 0.5 percent of EU GDP. The dominance of the CAP, coupled with resistance from national governments to cede competence to the EU in social welfare matters, precluded the development of extensive industrial (beyond the provisions of the European Coal and Steel Community (ECSC)21) and welfare policies. This is simply insufficient to cope with the burgeoning inequalities, and the emergence of a multi-speed EU, that accompany deepening economic integration. Even so, the expansion of the Structural Funds can be interpreted as evidence of sociopolitical

pressures for an EU in which issues of redistribution and social justice are placed higher on the policy agenda, challenging the claims of liberal capitalism for the efficacy of market allocation. Nevertheless, this is an agenda that remains tightly circumscribed by the hegemony of capitalist priorities and the imperatives of global competition and the accumulation process. The policy responses to combat growing inequality have therefore been, at best, muted, both at national and EU-levels. This is partly legitimated by claims that widening inequalities are a transient phase. Processes of economic change and the resultant widening of social inequalities are assumed to be simply ‘shocks which temporarily threaten regional and social cohesion’ (Commission of the European Communities, 1996: 51, emphasis added). However, the expansion of the EU into CEE will sharply intensify the policy problems – at a minimum extending the period of ‘temporary shocks’. While the projected 12 new member states will increase the area of the EU by 26 percent and its population by 22 percent, they will only add 4 percent to its GDP (Schön, 2002). The CAP will become even more problematic as the agricultural sector over a large part of CEE is of much greater importance than in existing EU member states, and tends to be backward and inefficient. The developmental gap between CEE applicants and the existing EU, along with great intra-CEE inequality, will severely increase pressure on the nonagricultural Structural Funds. This in turn will put further strain on the EU’s budget and its capacity to address these problems in ways that will maintain its legitimacy, especially if this results in significant reductions in funds to cities and regions within existing member states. Without a major increase in the EU budget, such reductions will be a precondition for increasing transfers to new member states in CEE. There are already signs, at least in terms of expenditure, of a weakening commitment to cohesion. This may well create political tensions that stretch the EU, perhaps to breaking point. Perhaps the only possible mechanism to begin to deal with this situation of burgeoning inequalities would be the creation within the Euro-zone (at least) of a system of automatic inter-regional fiscal stabilization transfers, as in the USA and in national states in the EU.22 As Martin (2001: 76) notes with European Urban and Regional Studies 2003 10(1)

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commendable understatement, ‘while fiscal unification could be argued to be the logical counter-part to monetary union, the prospects for establishing an EU-wide fiscal transfer system in the near future seem remote’. Remote indeed, for the creation of such a system would indeed require that the EU had become a ‘super-state’ and this remains, at best, a very distant prospect.

Some concluding comments While the EU cannot realistically be seen as an emergent super-state, there has certainly been a degree of regulatory homogenization within the EU and immanent applicant states. There has been some limited erosion of national regulatory capacity and a degree of regulatory convergence in the EU but there are also counter-tendencies reasserting the significance of the national. While there may have been some erosion of national specificities, there is still evidence that distinctive national models of capitalism persist in western Europe. Furthermore in post-state socialist CEE there has been an emphasis on building national capacities. There has also been some selective increase in regulatory capacity at the regional scale in the EU. Consequently, the net result of these varied tendencies is, and will continue to be, the creation of a more complex multiscalar architecture of governance and regulation. However, the problems of ‘democratic deficit’ and tensions between regulatory scales suggest that this cannot be a stable configuration in its present form. Something will have to give, and it just could be the European project, with a reversion to more regulation at the national level and an enhanced emphasis on nationally specific models of capitalist development. Thus the changes could be interpreted as evidence of a decline in the significance of the national, or, equally, its continuing – maybe enhanced – salience. This new architecture of governance and regulation in turn facilitates the re-working of economic geographies, via co-existing processes of deterritorialization and reterritorialization and the creation of distanciated pan-European production structures. Often these are linked into wider global structures, as processes of Europeanization and globalization intertwine. There is a persistent European Urban and Regional Studies 2003 10(1)

tension between processes of globalization, the EU’s ambivalent stance towards them, and the definition of the European project as one that seeks to embrace or resist globalization. Not least, the EU, national states and subnational units seek to attract FDI from beyond the EU while the EU seeks to encourage the emergence of EU-based MNCs, while seeking to prevent the emergence of ‘national champions’. Different tendencies are evident between and within sectors, as companies respond in different ways to the challenges facing them and political actors seek to influence the location and form of private-sector (dis)investments. The net result is to recreate combined and uneven development as geographies of economies are reworked in new ways, as is clear from examining tendencies in the automobile and clothing sectors. Even if there is some evidence of convergence in regulatory structures and spaces, and in broad sectoral (primary/secondary/tertiary) structures, there is more evidence of divergence than of convergence in economic performance within industries, sectors and firms.23 As a result of future economic integration and expansion, further changes can be expected in economic organization and specialization and in the map of regional inequality in Europe. Because of – rather than despite – processes of Europeanization and globalization, there will continue to be great diversity in national and regional economic organization and governance in Europe. Moreover, existing forms of territorially specific capitalisms, at national and regional scales, are not necessarily being obliterated and in some senses are reasserting their influence as part of these wider processes. Understanding this diversity, and the significance of scale-specific territoriality, is a central task for analysts of the changing spatiality of the political economy of an enlarged and enlarging Europe.

Acknowledgements This is a revised version of a paper first prepared for the Fourth EURS Conference, Autonomous University of Barcelona, July 2002, and subsequently presented as the 2002 Wreford Watson Annual Lecture at the Department of Geography, University of Edinburgh. It arises in part from a


research project funded by the UK Economic and Social Research Council on ‘Regional economic performance, governance and cohesion in an enlarged Europe’ under its One Europe or Several? Programme (Grant Number L213 25 2028). I am grateful to the ESRC for this support and to my coresearchers on the project: Adrian Smith, Al Rainnie, Mick Dunford, David Sadler and Jane Hardy. It also draws on research in Belgium, Germany, Greece and Italy in the 1980s and 1990s funded by the EU and the Anglo-German and Nuffield Foundations, and work carried out as part of the European Science Foundation’s RURE (Regional and Urban Restructuring in Europe) Programme, 1992–6. Again, support for this work is gratefully acknowledged. Thanks also to David Sadler and Allan Williams for constructive and helpful comments on previous drafts. The usual disclaimers apply.

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The emphasis on territorially specific forms of manufacturing economies is not intended to deny the significance of service activities; indeed, the manufacturing/services distinction has in many ways been overtaken by the development of networked production systems. In part this emphasis reflects constraints of length, in part simply the fact that these manufacturing IDs are seen as exemplars of regionally specific and regionalized forms of production organization. Although often classified as an industrial district (for example, see Staber, 1996), there are significant differences in industrial culture, structure and firm size distribution that differentiate it sharply from such districts. For example, the Singelfingen automobile factory of Daimler Benz employed over 40,000 people as recently as the early 1990s. Even medium-sized component suppliers might typically have up to 2,000 employees in their component factories. The same point applies – but much more strongly – to countries in Central and Eastern Europe seeking to build capitalism on the legacies of state-socialist institutional structures. Austria and Finland were then prevented from seeking EEC entry because of the terms of their political neutrality. EFTA created a special Associate Member status to allow Finland to join.

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With the moves towards EMU and the deepening of the economic integration process within the EU itself (discussed below), and the specification of more precise macro-economic and fiscal targets, the political and economic entry criteria have become rather more rigorously defined than in past expansions. The Copenhagen Criteria were agreed in June 1993 at an EU Summit. In summary, they stipulate that applicants must have stable institutions guaranteeing democracy, the rule of law, human rights and the protection of minorities as well as a functioning market economy that can withstand competitive pressures within the EU. In contrast to the rhetorical claims, significant spheres of the economy were in fact insulated from market forces by EU policies: see below. Deepening has not simply been confined to the sphere of the economy, however. Elements of Western Europe’s political elites nurtured ambitions for political and military union. These re-emerged in the context of the genocide and the resurgence of blood-and-soil nationalisms in the Balkans in the 1990s and acquired fresh impetus in early 2000 after the Kosovo intervention when European states were again confronted with the implications of dependency on the USA. This led to proposals for a European Defence Force (EDF) at the December 1999 Helsinki Summit of EU leaders. The EDF proposal was formalized as a rapid reaction force of 60,000 troops. Whether this will be sufficient to reverse Smith’s (1996) judgement that the EU fell short of constituting effective geopolitical institutions independent of existing military powers remains to be seen. France, Germany and Italy promoted the idea of an EDF in NATO but encountered strong opposition from the USA and Turkey and scepticism from the UK. Greece later threatened to block the proposal because of Turkish involvement in NATO. As yet it remains unrealized. There were also claims that regional differences would be narrowed but there are limits to which convergence in structure and performance is possible as spatial units become progressively smaller. In part, this reflected growing resistance by women, children and marginalized workers to ‘super-exploitation’ in such districts, in strong contrast to the dominant image of them as characterized by egalitarian, progressive industrial relations (Hadjimichalis and Papamichos, 1990). In other respects, however, political change in Europe is providing opportunities for a degree of reregionalization of clothing production: see below. Since EU regulators began to scrutinize such M&A proposals in 1990, only 16 have been blocked (Guerrera and Mallet, 2001). However, the EU Commission has consistently opposed proposals to create ‘national champions’, which national governments have sought to


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promote to defend national interests, especially in defence and high-tech manufacturing. By doing so, the Commission seeks to force companies in national markets with highly concentrated sectors to seek to acquire or merge elsewhere in Europe and thus create Eurochampions consistent with its vision of the desired corporate anatomy of the EU. In practice the Danish krone is pegged to the Euro; Danish rejection of Euro-zone entry is on political and symbolic rather than economic grounds. The criteria for entry into the Euro related to national inflation rates (no more than 1.5% greater than the average of the three best performing countries), interest rates (average long-term rates no more than 2% above the average of the best three), budget deficit (no more than 3% of GDP) and public debt (no more than 60% of GDP): see Artis and Lee (1994). There are, for example, continuing differences in inflation rates, productivity levels and economic growth rates between Italy, Portugal and Spain on the one hand and France and Germany on the other that pose questions about the ability of the former to compete with the latter in the long term. Moreover, the EU is politically and military weak (Hudson, 2000). Jessop (1997) is perhaps the most notable reorganization theorist. He identifies three strands to this process of reorganization. First, denationalization (‘hollowing out’), shifting state competencies, powers and responsibilities ‘up’ and ‘down’ to emergent supranational, (notably the EU) and subnational levels. Second, de-statization, redrawing the boundary between state and civil society and shifting regulatory and governance responsibilities from the former to the institutions of the latter. Third, the internationalization of policy regimes, shifting regulation to supranational organizations that selectively incorporate and link national states (such as the IMF, G7 and G8, WTO, World Bank and NATO). On-going debates about an EU constitution emphasize intergovernmentalism. Whether this hybrid form will be viable as the EU expands and becomes still more heterogeneous remains an open question. The European Regional Development Fund, European Social Fund and the relevant sections of the Agricultural and Fisheries Policies. In any case the provisions of the ECSC expired in 2002 with the Treaty of Paris. National public expenditure and taxation policies result, on average, in transfers of around 4% of the GDP of donor regions and 8% of that of recipient regions, reducing regional income disparities by between 20% and 40%. For example, the net fiscal transfer from the Centre-North of Italy to the Mezzogiorno is around 22% of regional income in the South. At most, EU transfers


23

via the Structural Funds would contribute 8–9% of regional income. A corollary of this is that any notion of convergence onto a single model of corporate global ‘best practice’ is untenable. Firms within the same sector and industry find different routes to profitability, depending upon spatially variable conditions in production environments, so that there are multiple optima in terms of choice of production model.

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Correspondence to: Ray Hudson, Department of Geography and International Centre for Regional Regeneration and Development Studies, University of Durham, Durham DH1 3LE, UK.


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