The European Common Market

Vice president and general counsel for the Pittsburgh Plate Glass Company, LELAND HAZARDis in close touch with business leaders here and in Europe. In the following article he appraises the opportunities which the European Common Market will present to the American economy.

CHANGE in Europe is the order of the day and, except for uncertainty about France, no change seems more surely launched than the European Common Market. Only war or prolonged and deep depression could unsettle the plan of France, Italy, West Germany, and the Benelux countries to make a common area in which 162 million people, their persons, products, goods, services, and currencies, can move, free of tariffs, restrictions, quotas, and passports. Incredible? Yes, but Americans must be alert. Paul-Henri Spaak puts it very well in this issue of the Atlantic: “those who are asleep while this revolution is occurring will never wake up.”

Western Europe is creating the Common Market out of economic strength, not out of weakness. Of course American aid has been a factor. The Marshall Plan, launched when Europe lay panting from war fatigue and frustration, was without precedent. And more important than the dollars — which were a rather small percentage of Europe’s post-war capital outlay — was the wisdom of the American suggestion that they be expended cooperatively through the Organization for European Economic Cooperation formed by a treaty signed at Paris in April, 1948. Within a period of a few years Europe leaped forward in economic cooperation a distance greater than it had covered in centuries. Now the Common Market can be correctly labeled “Made in Europe” — no American money, advice, counsel, suggestion, or pressure is directly or even indirectly involved.

To understand Western Europe’s quick return to economic strength, we must dispel some illusions about the extent of World War II damage. War is so horrifying that we can easily forget to look at the figures after the shooting stops. Take population for an example. In France, Italy, Benelux, and the United Kingdom, military deaths were only one to 2 per cent of 1937 populations. Furthermore, by 1948 —except for France, which held stable—populations had increased by 6 to 9 per cent over 1937 populations. Even Germany, which lost 10 per cent of its 1937 population in military deaths, showed an increase in 1950 of 3 per cent over the 1937 population. And in West Germany by 1957 the population, because of the influx of Germans from elsewhere, had increased by 25 per cent over the 1939 figure. World War II, terrible as it was, made scarcely a dent in the populations of the Common Market countries.

Take productive capacity as another example of how little the economic potential of Western Europe was adversely affected by World War II. Destruction of manufacturing capacity during World War II was more than offset by expansions of capacity during the same period. For example, the number of metal-cutting and metal-forming tools in Germany, France, Italy, and the United Kingdom expanded between 1938 and 1945 by 9 to 49 per cent, depending upon the country. True, France lost 25 per cent of its railway rolling stock, but West Germany came out with more rolling stock than it had before the war.

The essentially slight impairment of Western Europe’s human and material resources by World War II takes some of the mystery out of its quick ascension to the economic strength and the spiritual confidence upon which an innovation like the Common Market must rest. It is important for Americans to realize that this strength and this confidence do exist. The six nations of the new Europe are determined to abolish tariffs among themselves and establish a common tariff vis-à-vis the rest of the world. When we face that fact, we must think about the opportunities and the risks for America in the new Europe.

Since 1950 the percentage of the total national product which the nations of the Common Market have put into capital investment has been higher than in the United States. The differential in favor of these nations has been substantial — 25 per cent to more than 50 per cent. And the differential in favor of Western Europe is higher in the later years of the period, 1955 and 1956, years in which we were having a capital investment boom ourselves. Furthermore the lag in the United States is even more pronounced when one considers that the figures show the Western European countries placing a higher proportion of their total gross fixed investment into manufacturing— industrialization — than has the United States in the period since 1950. We are still far and away the most highly industrialized great nation in the world. But since 1950 the six nations of the Common Market have been gaining on us.

Take another trend indicator. Western Europe has greatly expanded its share of total American merchandise imports: from 7.4 per cent in 1950 to 13.2 per cent in 1956. When a man sees Volkswagens and Renaults running about our streets, he is simply observing on wheels one component of these percentage figures. But here again a balanced view is required. The Europe of the Six is now the largest importer in the world. These nations still buy more from America than we buy from them. But out of a total production of only one third the size of our own, Western Europe in recent years has had the spirit to deny itself some good things and so has been able to double its participation in our American market.

Threat or opportunity for America — which will the Common Market be? To answer this question one must look at the major changes by which the new European Economic Community will come into being. Some of these changes will hurt, others will help certain segments of American business. What we must look for is the net probable effect.

First we should realize that the European Economic Community is no crash program. It is a slow, but, I think, inexorable movement to economic unity, with steps and time schedule predetermined by the treaty signed at Rome by the six participating countries on March 25, 1957. Commencing January 1, 1959, in three stages of four years each, customs duties and restrictions on imports and exports among the member states will be eliminated. The tariffs of the protectionist countries, France and Italy, will decrease by percentages, stage by stage. By the end of twelve years, the tariffs of nonprotectionist Benelux and West Germany will increase to meet the declining tariffs of the others and so make a uniform Common Market tariff versus the rest of the world.

Obviously an American firm which has been exporting a commodity or product to low-tariff or no-tariff Holland will find that market less attractive. But perhaps France may by the same token become a more attractive market. There will be many facets of export-import questions of that type. But these problems are not the most significant unless, of course, the Common Market itself should decide to become highly protectionist. In that case the injury to American export trade could be substantial. However, one of the declared aims is “the association of overseas countries and territories with the Community with a view to increasing trade and to pursuing jointly their effort towards economic and social development.” This does not sound like rigorous protectionism.

How will the revolutionary changes necessary to bring about the Community be implemented? Although the Common Market is an economic, not a political, entity, nevertheless political techniques, generally democratic in nature, are provided by the treaty: an assembly, representative of the peoples of the member states, with deliberative powers; a council, representative of the member states, with coordinating powers; a commission of nine members, with executive powers; and a court of justice, with judicial powers.

I asked a Belgian statesman what type of lawcase would, in his opinion, come first before the Common Market court of justice. He adverted to those provisions of the treaty prohibiting restriction or distortion of competition within the Common Market. Cartels of one sort or another have been the order of the day in Europe. Technology has outrun the size of national markets. Hence there have been agreements, many of them valid under European laws, providing allocations, quotas, territories among European competitors. Now that national economic boundaries are to be abolished, the market will become substantially the size of our American market, and the familiar antitrust concepts of American law are written into the Common Market treaty. My Belgian informant thought that a case of antitrust nature would probably be the first to arise vender the Common Market court of justice.

OBVIOUSLY the Common Market treaty is more than a declaration of pious hopes. It has teeth in it. What then are the Western European powers after? Something, I believe, which has already been demonstrated on a smaller scale in Benelux and in the European Coal and Steel Community, made up of the same nations that belong to the Common Market. Since the commencement of the pooling of the coal and steel operations, trade among the members of the Community in coal and steel has increased in volume by 23 per cent for coal, 50 per cent for iron ore, 145 per cent for iron and steel, and 304 per cent for scrap — all within a bare four years. During the same period the steel industry in the Community has been profitable also.

The opportunity for Americans in the Common Market rests in the degree by which Europe’s standard of living is lower than ours. The Six, with substantially the same population as that of America, produce only one third as many goods. This means that 162 million people in Europe consume about one third the amount our 170 million people consume. One could debate the spiritual value of any category of items which Americans buy, use, or consume, but to the economist they all make up the standard of living, and Americans produce and consume about three times as much per person as Western Europeans. We could not do this if our capital investments in machines and facilities for distributing their products were not about three times greater.

If the standard of living of Western Europe is to increase to equal that of America — and responsible European economists predict that it will under the Common Market — then there must be substantially three times more of almost everything now produced in the six member states. Mass production and distribution methods, in which Americans are more experienced than Europeans, will be required. Here is the opportunity for American capital and American skills.

Opportunities in distribution, sales promotion, advertising, modern merchandising will be even greater than in production. European engineering is good, but the national markets have been too small for the full scope of engineering skills. At the Renault headquarters, officials quote a Ford vice president as crediting Renault with having more advanced automation than any company has in the United States. But this is only one case. There are many industries and individual companies which can make use of American capital and management.

In distribution, the opportunities are even greater than in manufacturing. European methods of selling, however picturesque, are quite inadequate for high consumption. In Rouen, a city of over a hundred thousand, my wife set forth to get six items for a picnic lunch, planned for some Normandy roadside in appleblossom time. The venture took her to six establishments, a different one for each item, and consumed over an hour in time. American methods can be employed with profit to Americans in the process of modernizing Europe’s mass distribution systems. But American capital and management must speak softly — and not in English — in the new Europe. Especially in France and Italy it is no merit to know only English.

France has the strongest economy of the Six. This is true despite its overvalued currency and the heavy drain of the Algerian troubles. France has over a third of the total product of the Six. With a population of 7 million less than Germany’s, France has a national income of 9 billion dollars more per annum. It is essential to the Common Market.

What will General de Gaulle do? Will he in the end seek escape from reality in search of the grandeur de la France, or will he perceive the young and vibrant Europe which does not worry about ancient honor when the standard of living is involved? Happily, de Gaulle has the strength to deliver France if he catches the vision of men like Paul-Henri Spaak.

It is a temptation to believe that Europe, seeing itself caught in the power plays of Russia and the United States, is planning to go it alone. I find no support for such a view. Some of my informants say that the Common Market is Europe’s bid to keep Germany from falling into the hands of Russia. The fabulous markets of Red China, they say, would be the prize that Russia would offer Germany to look eastward. Industrialization of Red China with German machines and German technology — what a prize! If Russia has taken Germany up onto that high mountain, then indeed we must hope that European economic unity will be enough to keep Germany looking westward.