statism vs antistatism in mexico and romania - mercosur's challenges

8/6/2019 Statism Vs AntiStatism in Mexico And Romania - Mercosur'S Challenges

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Civil Society Versus the Negative Heritage of World

Statism Since 1989: Mexico and Romania in the Era

of Globalization

by

Olga M. Lazin, Ph.D.

Smashwords Edition

Copyright 2011 Olga M. Lazin

Here I begin with two of my favorite quotes:


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"Socialism, communism, fascism and Nazism are all but dead now. They

have failed miserably. But they have been replaced by what is merely

another more watered down form of collectivism that may be called

"interventionism."

Indeed, interventionism is the predominant economic system in the

world today"

Richard M. Ebeling - The Free Market and the Interventionist State, 1997

The Crisis of Statism

Although since the process of globalization begun (since the

seventeenth with Reagan and Thatcher,) has been widely studied and the

new role of civil society has been addressed, serious analysis about the legal

framework for civil society has been ignored.

My contribution is to remedy this failure of analysis to the

Mexican and Romanian case studies in an era of globalization. Especially

since the collapse of the Berlin Wall, thousands of NGOs have sprung up.

Many have hoped in vain to receive funds from domestic donors, but merely

by their existing they are not eligible to receive funds from abroad.

Most of these aspirations have been in vain because the lack of any global

philanthropic standard for giving.

As globalization is about creating global standards, ironically this

happens only in the profit making side (like banking, accounting, transfer

pricing etc.).

Most of the literature on NGOs has recognized that the NGO can

serve as an antidote to the state power, but has failed to realize that without

funding, NGOs are toothless (helpless).

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Regrettably, the literature has neither defined how NGOs fit into the

structure of each societies in any country nor how a legal framework that

exists in the US for making tax-deductible donations can support civil

society.

This proposal is organized in two major parts:

In order to understand the globalization of the nonprofit side, I will

also analyze the existing free trade blocs.

Here is my chapter's titles:

I. The Globalization of Free Trade Blocs.

II. Globalization of Nonprofit Funds. The Mexican and Romanian

Cases.

III. The Fourth Sectors of the Society

IV. Why the US Mexican Model is Important

VII. Why Romania is Interested?

VIII. The impact of "Open Society Foundations" on the Civil

society

The Globalization of Free Trade Blocs

Beginning in the 1980s, processes of creating globalization

through creation of free trade blocs based upon the free flow instantly of

information, communication, and funds not only brought pressures to bear

on statism but made clear to the world that the failures of excessive central

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power could no longer be hidden behind the rhetoric that state ownership

was being carried out in the name of the masses.

The opening of the world trade has broken down old barriers and

boosted development of global civic society to prevent or limit dictatorships

although many critics of globalization have argued that it moves people into

poverty. They failed to realize that there is a positive side to it. The break

down of trade barriers and the rise of telecommunications has enabled the

rise of civil society.

They are both against statist power. It is the rise of the state that

stunted civil society in the world.

In its expansive phase, the state rose against real nations who wanted to

associate against the amorphous system of state domination and voluntary

servitude, trying to create alternative cultures, independent public spheres

and attempting to change and confront official structures.

The processes of economic globalization, which have included

pressures on country's to end protectionism and to adapt to the information

revolution, had highlighted the increasing crisis in community life as the

world's systems of state ownership proved to be inefficient, corrupt and

bankrupt. Ironically, many observers wrongly see the decline of statism as

being the cause of crisis in community life, not the result, as I will show

here.

Globalization of Nonprofit Funds: Mexico and Romania

This work focuses on Mexico's NGO legislation and its unique nonprofit

standing as having achieved mutual recognition by the U.S. Treasury

department thus facilitating the flow of funds. Romania aspires to follow the

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Mexican model of working closely with the U.S. treasury to facilitate the

inflow of U.S. funds.

The years 1917 and 1989 offer the benchmarks for understanding the rise

and eclipse of centralism, analyzed here in case studies for Romania in

Eastern Europe and for Mexico in Latin America. World statism was

generated simultaneously by the Mexican Revolution's Constitutional Model

of 1917 and the 1917 Russian Model of Revolutionary Terrorism, both of

which encouraged the rise of state monopoly that distorted economic,

political , and social systems. In Russia and Mexico one-party political and

economic systems came to define the dimensions of statist corruption that

became prevalent in so many countries worldwide.

With the problems of excessive centralism manifest by the

1980s, statists in Mexico and Romania took very different paths to save their

power. In the Mexico of 1983, the new President Miguel de la Madrid began

to bring to a halt the expansion of state power by beginning to permit large

private land holdings of production for export even as he began to close or

sell some money-losing factories and service companies.

In Romania of 1983, the brutal dictator Ceausescu (1963 to 1989)

attempted to deepen his control, thus accentuating the crisis in statism that

within six years saw his bloody fall. Ceausescu's drive to increase state

income by expanding food exports to the world caused crisis in central

government financing of local welfare as well as shortages of staple goods

needed by the masses. Thus, Ceausescu's dictatorship of extreme state

centralism of power at the national level left Romania's thousands of

communities in poverty, with civil society unable to think for itself after 40

years of failed central planning.

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In Mexico, by 1983, the statist solution had left civil society

and communities in poverty, albeit , as in Romania, with subsidies from the

central government to support the country's corrupt one-party political

system. With the collapse in demand for oil and raw materials owing to the

world downturn after the Arab oil embargoes and quintupling of energy

prices in the 1970s, Mexico was unable to borrow international funds, thus

"bankrupting" efficient private industry as well as highly inefficient

subsidized statist enterprises. Subsequent shrinkage of subsidies caused

increasing crisis in the living standards for the thousands of Mexico's

communities in which the only basis for funding had been the central

government. With the decline in size of state economic power, then, the state

itself has barely been able to cope with the series of recurring economic

collapses caused by earlier central government mismanagement of

nationalized industries.

Incapacity of the statists to maintain their corrupt systems

changed dramatically after the fall of the Berlin War in 1989. The

unmasking of the Soviet system and its 1991 collapse revealed it to be a

negative development model, not ideal model that ideologues believed to

have existed. Now free to act, anti-statists unleashed rapid change in the old

Communist World.

As central government has been "downsized" to end its

economic distortions, civil societies and its communities (figurative as well

as literal) in all countries subsequently have faced a shortage of what little

funds centralism had allocated leaving a shortfall in the safety net in

relatively wealthy countries such as the USA and Sweden. Even the rich

Germany faces the need to cut welfare benefits in order to reduce its labor

costs or see the further flight of factories to such countries as Romania.

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"Anti-statism" in Mexico and Romania took different routes

from 1989 to 1997. In Mexico, anti-statism started under de la Madrid but it

was very timid, namely through deregulation. President Carlos Salinas de

Gortari (1988-1994) was aided by events in Russia, which paralyzed his

opposition and permitted acceleration of decentralization of state activity as

well as sale and closure of inefficient industry. Another important aid was

the rise of civil society in the 1980s as it had to cope with problems clearly

beyond government to solve. A series of events like the rise of independent

civil movements, beginning with student's revolt of 1968, and the women's

rights movement, continuing with the mobilization of the entire population

to provide relief from the devastating 1985 earthquake that hit Mexico city

(Siz, Mxico 75 aos de Revolucin, 1988, p. 564.) In trying to reconstruct

the city, housing, providing medical care, employment, the civic

organizations took their own decisions and sometimes they just went beyond

and ignored the government.

Romania, meanwhile, officially took the view from 1989 to

1997 that some statism could prevail, albeit in disguise. Although Ceausescu

was overthrown and executed, those actions may have been led by his

cronies, who sought to save themselves from the growing anger of the

populace.

Simultaneously, the globalization of free trade markets

espoused since the 1980s by U.S. President Reagan and UK. Prime Minister

Margaret Thatcher gained force by 1989. The Reagan-Thatcher policy drew

upon the jet passenger and air cargo shrinking of geographical distances

(triumphant in the 1970s) to capitalize on the instant telecommunications via

private telephone, fax, and computer (triumphant in the 1980s) to breakdown

national barriers. Those barriers have become increasingly irrelevant with

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the rise of Internet connectivity and the privatization of airline and telephone

communication systems triumphed in the 1990s.

The Concomitant Rise of Civil Society and the Role of NGOs

To match the demise of statism, civil society has arisen in its own right to

assume growing importance depending on the country, the USA providing

the strongest example mainly because the state never gained the power that

it came to hold in Europe and England.

The basic notion of civil society is that the people can and should

prevent the state from becoming authoritarian by keeping watch on it while

at the same time demand that it work properly for the general population.

By definition civil society should also develop non-state activities.

The rise of civil society in Western Europe and the USA had been set

back by World War I and world economic depression between 1929 and

1939. To face these emergencies, state power was seen as necessary for

political and economic defense. In the USA, the New Deals mixed

capitalism and its expansion of state activity offered an alternative to the rise

in Europe of statist fascism and statist communism.

In Eastern Europe, the Western concept of civil society had

only partially penetrated by the early twentieth century. There, however, it

existed in widely varying degrees ranging from incipient democracy in

Poland to monarchy in Romania. In the latter, civic responsibility was

exercised by the nobles and the small middle class.

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Expansion of civil society in Eastern Europe, which was

disrupted by World War I and remained weak during world economic

depression of the 1920s and 1930s, saw its basis for action decapitated by

coordinated German-Russian actions and German invasion by the early

1940s. Both Germany and Russia ruthlessly suppressed civil society.

Germany did set up the Vichy France government but it was a fake civil

society designed to win acceptance of German occupation.

With victory over Germany in 1945, Russia set out to break

nascent civil society by Stalinizing Bulgaria, Czechoslovakia, Poland,

Romania, and Hungary. Thus, Bolsheviks and some Socialists conducted a

deliberately destructive and brutal campaign to liquidate associations,

independent trade unions and artisan guilds, community groups, churches,

and social movements (Tismaneanu, 1996, p.63). Among other values, the

communists erased the notion ofnoblesse oblige and middle class social

responsibility as they broke both the nobility and the bourgeoisie.

Because World War II had expanded the role of the state in all

spheres worldwide, the post-war era in the West had to contend with

reinvigorating civil society. By the second half of the 20th century, the

concept of quasi-autonomous government organizations (QUANGOs)

emerged in England, but most recently the QUANGO has come to be seen

as seriously flawed, because it operates without the oversight of the central

government or the responsibility to report to NGOs. The NGOs implicitly

solves the English dilemma now faced by countries such as Romania,1

1 This analysis of the QUANGOs grows out of my 1992 discussions with ThomasCarothers at USAID Mission in Bucharest. Carothers (author of Assessing DemocracyAssistance: The Case of Romania, 1996) is concerned that the QUANGO (known inthe USA as the GONGO--government organized NGO) offers incentives that NGOscannot, e.g. connection to the government, free benefits from the QUANGO, etc.

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wherein the QUANGO is responsible neither to the government nor to the

citizenry. In establishing a space separate from the government but

responsible to the citizenry, the NGOs mediate between citizens and state.

In societys four sectors, NGOs constitute the fourth.2

NGOs are autonomous free associations of individuals and groups who may

or may not depend on income from the state (societys first sector) or from

private individuals and businesses (the second sector) and which may or may

not depend entirely on volunteer participation and/or paid staff. NGOs

usually attempt to register with the government in order to achieve a tax-free

status that allows them to receive donations deductible against the income of

the donors--hence the incentive to donate. NGOs include grant-making and

grant-receiving foundations as well as not-for-private-profit operating

organizations such as hospitals, orphanages, universities, and churches.

It is important to distinguish between the NGO and the

QUANGO. Where the NGO falls into the first sector of societal

organization, the latter falls into the first sector because it is dependent upon

and reports to government and because it operates autonomously with its

own budget. The QUANGO often involves activities such as operation of

national museums, schools, and research institutes that compete with NGOs

for funding. The U.S. Agency for International Development prefers to fund

NGOs and not QUANGOs but face problems in doing so because

governments in Eastern Europe are short of funds to operate the QUANGOs

thus try to channel funds to them. For this reason, governments often make

the registration and operation of NGOs difficult, thus reducing competition

2Many analysts of charitable activity mistakenly think that the NGO sector is thethe third sector in society which supposedly has only two others: the private andpublic sectors. In reality, the mixed private and state sector constitutes the thirdsector.

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for funds. That civil society defines the sphere of activity separate from

the state clearly emerges in the burgeoning literature on the role of citizens

in East Central Europe. Recent books have theorized in different ways about

how civil society is defined by the dynamic of and tensions between the

state and non-state activity. These authors include Ernest Gellner (1994),

Jean L. Cohen, (1992), Andrew Arato (1992), and Adam Seligman (1995).

In this literature the strand of the civil society tradition that is

most relevant in Eastern Europe is the one that calls for intellectuals to

oppose the ruling intelligentsia who blindly support statist power. Its main

feature is that it separates civil society sharply from the state. That is why it

was so attractive to intellectuals who have not wanted to end the state's

heavy hand that too often stands for the status quo rather than change. The

majority of Eastern European political dissidents (such as, Miklos Haraszti,

Kis Janos, and Victor Orban) argued that civil society, in its traditional

forms, has been endangered by collectivism, etatization of social structures,

and regimentation (Stokes, 1996: passim).

The so called intelligentsia who sought simple communist

solutions justified its role as the 'vanguard of society.' They helped the

communists to construct a new class of bureaucratic apparatchik and ruling

elites later defined as nomenklatura (Gellner, 1991: 495). In the meantime,

humanist intellectuals who questioned power and opposed censorship were

allowed to go on working in peripheral positions, but only so long as they

did not overtly challenge the states authority.

In its early stages, the process of collectivization and heavy

bureaucratization was justified by the intelligentsia who helped the

communists preach to the workers that nationalization would benefit the

masses. This type of associatedeness resulted in the destruction of

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intermediary networks. Thus, the complicity of the statist-oriented

intellectuals helped destroy the societal networks that promoted civic

articulation between the state and society. In destroying the interstitial

tissue of the social construct in different degrees in all Eastern European

countries, pro-state intellectuals did so because they knew that civil society

threatened the very nature of the communist ideology upon which they fed,

literally and figuratively.

Although, when the communists had seized power in the

Eastern Europe of the late-1940s, anti-state intellectuals (including writers,

philosophers, and sociologists) had theorized about idealistic future society,

that impractical approach later gave way to realism about how to make day-

to-day life livable. For example the Polish dissident Adam Michnik, one of

the founders in 1978 of KOR , called for a strategy of "self-organization" in

the Community for Social Self-Defense. This dissident movement was

established originally to provide legal and material assistance to the families

of workers imprisoned after the 1976 strikes (Jan Jsef Lipski, KOR A

History of the Workers Defense Committee in Poland 1976-1981, 1985:

183). Later KOR became the base for a strategically coherent movement of

mass organized protest that would become Solidarity.

The emergence of several independent organizations began

implicitly to challenge the state power such as the Polish chapter of Amnesty

International (ROPCiO, the Polish acronym), the Nationalist Confederation

for Independent Poland, and the incipient Free Trade Union, each with their

own publications, .

In Czechoslovakia, two important political dissident thinkers

emerged by the late 1970s. Vaclv Havel called for people to "live within

the truth," independently of official structures, and even to ignore the official

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political system (Havel, The Power of the Powerless, 1990: 45). Vaclv

Benda called on population to "remobilize" within the civil society (The

Parallel Polis, 1978: 15). The break with the rgime was implicitly contained

in dissidents rhetoric, but it never reached maturity under these repressive

regimes. Only later did it constitute itself into a serious challenge to the

state.

In Hungary, philosopher Gyrgy Konrad argued in his 1976

book Antipolitics that all power is antihuman, and therefore so is all

politics. He called for destatification and an antipolitical, democratic

opposition in his analysis of the issues of transition in East-Central Europe.

By the late 1970s the so-called remobilization of the population

(especially including intellectuals) to work for the good of the state had run

into trouble in Eastern Europe, as can be seen in the social and political

science literature from Hungary. Studies of that time begun to observe the

cleavage and interaction between the official and the alternative or second

society (Hankiss, 1990: 147).

The emergence of an embryonic civil society in the 70s and the

80s with semi-autonomies and semi-liberties were possible mostly in the

relaxed communist environment like that of Kadar, or Edward Gierek's

Poland, but it could never develop into a truly autonomous alternative

(Tismaneanu, 1996:144).

Political stirrings in Eastern Europe took off gradually, then,

first in rather ensconced forms such as "flying university" lectures and

writings in Samizdat publications (Berend, 1983:10). Later came

participation in informal self-educational groups. The rise of organizations

that pursued independent activities and the assumption of individual

responsibility first became evident in Poland where the churches led in

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creating independent space for thought (Jan Jsef Lipski, KOR A History of

the Workers Defense Committee in Poland 1976-1981, 1985: 90).

Championing the national rejection of communism, KOR and

Solidarity in Poland embodied a full-fledged and convincing alternative to

the communist regime, contributing to the collapse of communist ideology

even before the system imploded politically and economically in 1989 (Jan

Jsef Lipski, KOR A History of the Workers Defense Committee in Poland

1976-1981, 1985: passim).

Rise of alternative society beyond the reach of authorities had

eroded the credibility of the ruling communists, implicitly destroying the

monopoly of the state over the society and individuals (Hankiss, 1990: 164).

Such society had shown a spark of life after the 60s, provided the civil nuclei

that eventually became a serious challenge to the state (Tismaneanu,

1996:145).

In Czechoslovakia, political activists seized upon Chapter 77 of

the Helsinki Human Rights Accord to anticipate a new type of politics

(Tismaneanu, 1996:144). They used Chapter 77 to demand human rights,

open dialogue and plurality of opinions as well as alternative structures, all

of which eventually subverted the communist ideology at its weakest spots.

Chapter 77 bolstered demands for free speech, free press, freedom from

arbitrary search and seizure, freedom of movement, and judicial recourse

against illegal arrest by the police and military.

In Romania, Ceausescus extreme repression stunted

intellectual protest against abusive state power. Only few individuals such as

Mircea Dinescu, Paul Goma, Doina Cornea, and Radu Filipescu took the

risk to openly protest the regime in the late 70s (Griffith, 1990: 172), and no

organized urban socio-political activity took place in the 1980s.

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Once the communists lost power in Romania, Iliescu

promulgated Law 42 in 1990 as his moral duty to reward those who had

helped defeat the dictatorship. The problem that arose, however, was that

former communists bribed their way into the reward system, thus creating

division and distrust in society and setting back the rise of consensus which

needed to make a qualitative shift from collectivism to individualism.

The Romanian Case

Under the Iliescu regime (1990-1996), debate about

modernization of civil society came to life, but effective results were not

possible to achieve without the development of a new legal framework

(Arato, 1990:14).

From 1990-1993, civil society benefited from pent-up demand

and expressed itself in an explosion of activity which simultaneously

differentiated and politicized itself during the relative vacuum of power as

Iliescu sought to establish his power. This initial explosion was partly the

consequence of the fact that political independence was in a sense political

opposition and partly an inclination toward a populist "bottom-up" approach

to democratic development (Carothers 1996: 67).

The first three year of Iliescus period were marked by the rise

of Western-style NGOs, most hopeful that their mere existence would bring

foreign grants. Romanian NGOs involved free association of autonomous

persons who volunteered to help raise funds to take up the immediate

decline in state social benefits. Only a few NGOs were able to gain foreign

funding for their plans which called for, among other things, the teaching of

democracy, the operation of orphanages, and the networking of ethnic

groups.

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By 1992 the profile of NGOs revealed an open separation

between political advocacy groups and civic advocacy organizations. All

NGOs, however, undertook qualitative changes in their activity to achieve

"institutional development, capacity building, and sustainability" (Samson,

1996: 129), the goal being to make the NGOs viable and effective.

The problems of Romanias nascent civil society are complex.

First, there too few competent leaders to staff both government and NGOs so

that Romania can compete effectively in the globalization process. Second,

NGO leaders are tending to move into politics and business. Nevertheless,

notes Sandor (1994: 37), there is a chance that at least some of those who

leave the NGOs will use their influence to support the nongovernmental

sector.

Although in Romania the pre-communist 1924 Law 21 on

charities has been reinstated in the 1990s, it does not regulate in a specific

manner the nongovernmental bodies. Law 21 only provides a general, vague

legal framework and no categories to encompass modern institutions or

communities. This permits corruption and produces misunderstanding of

what civil society is meant to be (Lucian, 1994: p. 39).

Crystallization of NGOs in post-communist Romania

demonstrates the viable capacity of response to the challenges of transition.

Having initially appeared when the state was impotent and withdrew,

clusters of nonprofits and civil actors spontaneously filled the gap in an

effort to overthrow of crumbling old regimes (Sandor, 1994: 36.)

But the revolutionary changes seem to presuppose only very

quick extra-institutional mobilization. The transition of 1990-1992 allowed

the re-emergence of an entire spectrum of voluntary organizations,

groupings, and movements in the public life of East European societies. The

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voluntary sector is part of the fourth sector of societal organization

(following to the state sector, the private, the mixed private and government

sector) varies significantly from country to country in terms of its scope,

institutional type and mission.

My Participant Observers View at the Decentralized and National Levels in

Romania during the fieldwork I have completed in Romania in eight years

had been very fruitful.

In my role as participant-observer of social life as a folklore student

in the Department of Maramures during University years in Romania from

1983 to 1991 and since 1992 in my subsequent travels in Eastern Europe and

Russia on behalf of PROFMEX (Consortium for Research on Mexico), I

have been able to compare the impact on civil society of the destatification

and privatization processes.

What is striking to me is my personal experience as a student of rural

folklore is to realize that the peasants of Northwestern Romania were bound

together in matters of common self-concern. The peasants took decisions

and solved by themselves societal problems in so called "claca". The

"chopping tactics" of the socialist polity, did not always destroy but

reinforced individualistic energies in most Romanian villages. The primary

loci of resistance to collectivization at the village level, however, does not

provide a model for transition of Romania to a modern pluralistic society,

but does suggest that socially-based rural civil society is difficult to destroy

because of its dispersed nature. Thus, my observations directly contradict

those of Buchowski (1996, Chapter 4).

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My travels after 1991 took me throughout Romania and especially to

the capital and other urban areas. I realized that the NGO sector then in

formation had two levels: the well-organized foreign foundations with well

defined objectives (such as the Soros Foundation, with offices in the regions

of Romania) and the Romanian voluntary interest organizations that were

then that coagulated to solve immediate local issues. The latter are what the

Romanians call "form without foundation" or original versions of not-for-

private-profits that not only transfer the western models, but are mainly

based on genuine social projects, according to Steven Samson (in Hann &

Dunn 1996: 126).

At the national level, countries such as Romania have to create the

true diversity of organizations that operate with cross-cutting and

overlapping purposes. The latest law no. 32 of 1994 is not in accordance

with the requirement of necessities of reasonable functioning of civil

associations (Lucian in Regulating Civil Society, 1995: 76).

Even with imperfect law, the concept of civil society now

implies some kind of formal autonomous organization, made up of

thousands of constituent associations and charities organizations that

compete with the state.

Some non-governmental organizations and think-tanks keep

check on the power of the state (the Center For Political Studies and

Comparative Analysis, the Romanian Helsinki Committee, the Romanian

Society for Human Rights (SIRDO), the League for the Defense of Human

Rights (LADO),Liga Pro-Europa, Anti totalitarian Association - Sighet,

The Academy for Ethnic Studies, in Sighet, the Civil Protection Maramures,

the Titulescu Foundation, and the Association of Lawyers in Defense of

Human Rights (APADO), Academic Foundation, while others make

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demands on the state it to pave the roads, extend electricity to villages,

install telephones etc. Yet these foundations/organizations are specialized

and act as watchdogs to make sure that the state fulfills its promises.

What is evident from my consultations in Eastern Europe is that since

1993, after the initial post-revolutionary enthusiastic phase has passed,

international assistance and donations have trickled into the region at such a

slow rate that NGOs are disheartened. Without a tradition of being able to

raise funds in their own country, NGOs that mushroomed in Croatia,

Bulgaria, Hungary, the Czech and Slovak Republics, Poland, and Romania

in general have not received funds from abroad, as they had hoped.

The most acute problem faced by Eastern Europes NGOs,

then, is that of financing of their activities as they seek a place in the new

institutional order. Since privatization pace is, generally too slow, the access

of NGOs to private or corporate funding is not there and the law is not

modernized to make it feasible (Lucian, 1996: 70)

Given that the relatively well-funded Soros foundations of

Eastern Europe have concluded that foreign funding will not come in the

near future, if ever, in 1995 they determined at their regional conference in

Estonia to look inward for funding (Regulating Civil Society 1995: 76). This

decision was ironic because Soros has given his foundations in Eastern

Europe fifteen year before his funding ends. In the meantime, Soros, who

has been the lone consistent funder, is already shifting his available funds to

other battles such as legalizing marijuana in the USA and helping illegal

immigrants to the USA to legalize their status and to become citizens.

Charitable activity, as defined in the USA (which has the worlds most

comprehensive law as well as the largest and most important pool of

foundation funds), encompasses what I call the HEW-SEC-L spectrum:

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health, education, welfare, scientific, ecological, cultural, and literary

activity, be it in the USA or anywhere in the world. See the blue-prints

project.

Given the shortage of funds, some philosophers and

practitioners of nonprofit activity are looking to the volunteering of time, not

the volunteering of money, and they are narrowing the scope of their activity

to moral influence rather than charitable activity.3 More specifically Eastern

Europe's border areas, where the anti totalitarian sentiment was much

stronger, non-governmental associations (such as Alma Mater Napocensis,

Cluj-Napoca, the Academy for Study of Ethnic Conflict- in Sighet-

Romania) have sprung up to prevent and buffer ethnic tensions. Some NGOs

have succeeded as in Hungary and Romania (Soros Foundations For An

Open Society) by trying to eradicate ethnic hate by publishing minority

publications, such as Korunk in Transylvania.

Katherine Verdery, who, very much in the de Toquevillean

tradition, argues that the concept of civil society is linked to the political

processes and has become, in the Romanian case, interrelated to that of

reconnecting to the democratic Western European values (Verdery, 1996:

106). Her point is that ruling political elites which have achieved symbolic

capital through resistance-based suffering still dominate the public sphere,

thus overshadowing other forms of a pluralist civil society. In some ways

civil society still revolves around national symbols and symbolic values.

Romania, the former Soviet anchor of COMECON policy for the

south of Eastern Europe, now seeks to join NATO as the anchor for the EU

border on the Balkan states.

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The New Ethnic Role for NGOs in the Region

NGOs now seek to play a major role in resolving ethnic tensions.

Ethnic problems are exacerbated by the fact that most of the countries are

heterogeneous in their ethnic and religious composition. In Bulgaria, for

instance, about 1 million of the 9 million inhabitants are Turks; Romani

account for some 700.000 and another 400, 000 are Muslims. In Romania,

the shares of population are Hungarians 7.1%, Romani 7%; in Czech

Republic Slovaks are 3%, and Romani are 2.4%. In Slovakia, Hungarian are

10.7%, Romani 1.6%, Czechs Moravian, Ruthenian more than 2%

(Transitions, Open Media Research Institute, Vol. 3 and 7 February 1997.)

What is considered the next "hotspot", the Kosovo province (Turkey) is

comprised of 90% ethnic Albanians.

Where once existed the monolithic non-recognition of ethnic

differences sector as espoused by the Soviet optic, since 1989 there has

been radical change to multidimensionality. The idea is now to

accommodate regional differences in development, tradition, local

circumstances, and the current state of systemic transformations. As Andras

Biro, a Hungarian activist has put it: " For the first time in 40 years we are

reclaiming responsibility for our lives" (Salamon, Foreign Affairs, Vol. 73,

1994: 113).

In Romania, in the immediate aftermath of the 1989, in several

ethnically heterogeneous villages (Bolintin, Casin, Miercurea Ciuc) houses

of Gypsy ethnic minority were burnt and heinous killings occurred. On

March 15, 1990 the Romanian security in direct complicity with Ion Iliescu

brought busloads of Romanians from remote villages to Tirgu Mures. These

villagers were told that they were to save Romanians who were being beaten

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in the city, where the usual March 15 celebrations were in progress. When

the busses arrived, the villagers attacked the participants of the celebration

and besieged the Hungarian minoritys headquarters. It was there that the

playwright Andras St lost his eye. Several Hungarians and Gypsies were

beaten and jailed for years. In a gesture of historic reconciliation, the current

president Constantinescu has released them (1996). Nobody has ever

investigated or publicly exposed this case. The Romanian government (as

the local government did not have much power) did not even try to quell the

situation. It is ironic that only in the USA, where the Non-governmental

sector has almost become an industry, that conferences take place on the

events that took place in the Romania but are totally disconnected from the

realities in the region.

These 1990 events could happen because autonomous mediating

institutions of NGOs did not yet exist to encourage the different ethnic

groups to understand each other and to address issues treated individual-to-

individual. That is why a new confrontation took place in Cluj and Targu

Mures in July 1990.

NGOs could play a crucial role in early prevention actions, in bringing

locally all the players in practicing dialogue and negotiation needed to

diffuse and deter ethnic hatred. As an effective non official way to solve

problems, NGOs facilitate preventive diplomacy.

The Controversial Impact of Foreign Aid in Romania and Other Issues

To what extent should Eastern European nations be copying or

moving toward a Western trajectory of development of nongovernmental

organizations? Some rightist thinkers demand that their countries return to

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their own organic evolutionary path with rebuilding of the dimensions of

social plurality (Sandor, 1995, p. 36.) They claim that the most basic force is

that of ordinary people who decide to take matters into their own hands to

improve their conditions or seek basic rights in post-communist East Central

Europe The well may be right that people need to rediscover the civic value

of associativeness and donating time, but the decline of state expenditure in

health and old-age protection is so dramatic that civil society must generate

funds. In this age of globalization, funds do not only come from abroad

(EU/PHARE or USAID) but also from foreign companies which set up

foundations, thus leaving some profits to benefit the host country.

Civil society is the integrative bond needed to maintain coherence and

it just begun to function. Even if in a very fragile stage, nongovernmental

organizations are trying to help fill the void created by the process of

restructuring devastated economies, in a capitalist environment. According

to Zbignew Brzezinski, the former U.S. National Security Advisor, it will

take well into the 2000s for East European countries to become pluralistic,

free-market democracies, mainly because of the failure of East Europeans

and Russians to completely demythologize the Leninist ideology

(Tismaneanu, 1996: 182.)

Paradoxically, in these cycles of complex statification and

destatification, "revolution from above" is needed now, because changes in

the nonprofit law can be made only from above. And this refers also to the

economic sphere where tax agents have become more efficient at collecting

ruinously high taxes, and racketeers become more ruthless in extorting

protection money, Eastern Europe's new rich have lost the incentive to seek

public recognition for doing good, (Los Angeles Times, February, 1997).

The state has to step back and has to recognize and allow the NGOs to

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operate. Incentive should be provided for donations to make them tax

deductible. NGOs in Eastern Europe generally limp along pathetically on

modest grants from abroad. This shows that the incentive for donation is

absent. Now, amid unstable economy, charity workers find internal fund-

raising hard to sell. The extension and consolidation of associativeness in

organizations' network is mainly articulated by the promotion of the interest

of these nuclei vis-a-vis the government (Sandor Dorel 1995: 37)

Although Dorel Sandor claims that the rebuilding and

reemergence of segments of Romanian civil society has played a crucial role

in the liberation from communist ideology, other analysts such Cohen and

Arato (1992) are skeptical, implying that only 15% of NGOs are active.

U.S. foreign aid to Romania has been marked by controversy

because assistance focused on democracy overemphasized the U.S. political

model and focused narrowly on NGOs involved in political education (such

as the Democracy Network program). Thus, Carothers (1996: 92) has argued

that U.S. aid has slowed real political reform in Romania, actually

prolonging the agony of the Romanian economic and political system. By

creating harmful dependency relations and not targeting environmental

societies, the ethnic associations, religious organizations, cultural diversity,

that are real basis of democracy, marked a great leap backward (Carothers

1996: 94).

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The Mexican Case

Although the term NGO has a complex meaning, in Mexico, as Sergio

Aguayo has pointed out, the idea of the NGO tends to be identified with

political protests and human rights groups.4

Now we know there are NGOs for biospheres, ecology, research centers,

protection of abused women: the term is not so limited as it is perceived by

the analysts.

There were various causes to the rise of Mexican NGOs.

First during the 1980s, dozens of NGOs tried to accommodate hundreds of

thousands of Central American immigrants who arrived fleeing authoritarian

governments in El Salvador, Guatemala, and Nicaragua.

Second the earthquake of 1985 accelerated mobilized and impelled

independent civil movements and NGOs, to become the backbones of the

civil society. The same year UNAM created the Defense of the Rights of

Faculty and in 1988, the Government of Aguascalientes established a

governmental Commission for Human Rights, at the suggestions of different

NGOs.

In an effort to provide for a modern legal framework, the Convergence

of Civil Organizations was born in the 1990s.

Simultaneously more networks of NGOs had emerged with different

purposes, and in 1994 they began to play a grand role at national level. The

Chiapas 1994 rebellion attracted the focus of civil rights groups and sparked

one of the most observed Mexican presidential elections in the country. In

both events the NGOs played a crucial role.

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In the networking of NGOs that reflect the political culture, then, we

can recognize features such as: collective action, consensual decisions and

implementation of the agreements through commissions.

The NGOs expanded by incorporating the theme of electoral

democracy on the agenda of social change and, for the first time in Mexico's

history, mobilized millions of Mexicans along with the members of NGOs.

Nowadays there are more than 400 NGOs in all states, 180 being

located in Mexico City. The states of Jalisco, Veracruz, and Oaxaca have the

most effervescent NGOs activities.5

Yet very much like Romania, Mexican NGOs are facing the same problems

of financing and a poor philanthropic tradition. But unlike Romania, Mexico

has succeeded in designing the first standard for non-governmental law

together with the U.S.

By adopting and adapting the U.S. model, Mexico has gained more

than direct access to the worlds largest pool of funds available from grant-

making foundations; it can now encourage U.S. companies investing in

Mexico to make donations tax deductible in both countries against their

Mexican profits. (Mexico has not yet established the U.S. NPPO privately

funded by a limited number of donors--[see Chart A, section 4-A-2] that

would allow a U.S. company to establish its own NPPO.)

Development of a standard legal framework to facilitate the transfer of

non-governmental funds is aimed at overcoming general confusion of

meaning in terminology, a problem in both hemispheres. Globalization of

tax-exempt funds is not possible unless all countries speak with the same

meaning of terms and model operating procedures for NPPO sectors.

The need is to revise the usage of such important terms as:

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NGO (Non-Governmental Organization) sector,

which too often is used mistakenly as a code word to cover

all NPPO activity. U.S. TEO law sorts out three types of NGOs:

one of which is an NPPO,

the second of which is an ATEO (discussed below),

the third of which is a GONGO orQUANGO

(discussed below).

NPO (Non-Profit Organization) sectorand

NFPO (Not-For-Profit-Organization) sector,

which wrongly suggest that no profits may be accumulated. In

reality, both the taxable and non-taxable sectors can earn

profits, but the latter must use them for the good of society

rather than distribute them for private gain, as is discussed in

Appendix B. Use of the NPPO instead of NPO or NFPO

clearly tells us that profits can be accumulated (as is true for all

TEOs).

Globalization is possible since the 1989 fall of the Berlin Wall and the

subsequent collapse of the statist model in most of the developing world.

Former command economies such as those of Eastern Europe lack the funds

needed to decentralize economic and social decision-making and activity.

The problem facing former statist countries, however, is that

decentralization depends upon:

1. establishing civil society needed to provide the basis for

democratic politics, and

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2. generating local funding to makeup for the collapse of state

expenditure in such areas as education, research, and social

welfare.

The Mexican model for attacking the excessive power of the state is

of interest to countries worldwide that seek to:

(a) privatize industry and land,

(b) downsize the role of central government, and

(c) join into free trade.6

To this end, the Mexican model stimulates the inflow of both tax-paying and

tax-exempt funds from the United States.

Although most policymakers and observers are aware of the free trade

agreement methodology for achieving the flow from the United States ofFPPO

investment funds into Mexico, few are aware of the model achieved by Mexico for

attracting the inflow ofTEO grants

from the United States.

Given the importance of the U.S.-Mexican model, it is unfortunate

that U.S. tax law is written in verbiage difficult to understand. Interpretation

of American law is problematic because it usually follows U.S. legal jargon

too closely to be very clear. Indeed this problem has complicated Mexico's

adaptation of its TEO legal code that is intended to provide compatibility

with U.S. law but does not yet fully do so.

Mexico is interesting to countries trying to break the power of statism

because, although Mexico did not prevent the development of a tax-exempt

sector as in Eastern Europe, it did discourage the development of modern

TEO activity. Mexico is now attempting to undo the states direct and

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intrusively detrimental control over the finances of such TEO activities as

health and welfare.

To encourage globalization by developing in former statist countries

the model of tax-exempt legislation, then, let us stress that a global NPPOs

standard offers outward opening while encouraging:

a. inflow of massive U.S. NPPO tax free funds needed to

rebuild the citizen social conscience and responsibility

that was quashed by central planning;

b. establishment of modern tax exempt NPPOs funded by:

i. tax deductible donationsfrom foreign as

well as domestic investors.

ii. tax free transfersof funds from foreign

NPPOs

In order to optimize income of foundation funds would be optimal

that Eastern European countries use the incentive of tax deductibility to

require that new domestic privatefirms and foreign firms contribute a

minimum share of their taxable income to establish NPPOs and/or donate

funds to NPPOs. This would assure that FPPOs leave a share of their profits

in the host country. The amount could be as low as one or two percent.

While many U.S. foundations are assisting TEOs around the world,

they do not necessarily focus on the need to change the tax-exempt tax codes

of individual countries. Without modern tax codes that mesh around the

world with the U.S. standards, such a major NPPO as the New-York based

Soros Foundation which is oriented almost solely to Eastern Europe, finds

itself to be in the unenviable position of having little competition.

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Competition among TEOs not only diffuses the disappointment and

potential political problems arising when funding decisions are made by only

one (or even a few) foundations but also gives alternatives for priorities to be

funded as well as varying opportunities to grantees. Competition among

NPPOs will be enhanced immediately in Romania as it is already in Mexico

by establishing the new legal framework.

To the end of helping countries develop an alternative TEO law that

regulates the raising, investing, and granting of tax-deductible funds, it is

appropriate here to synthesize and reword U.S.-Mexican NPPO tax law

because its concepts constitute the only standards approved by more than

one country. Synthesis and rewording is required to make clear the real

meanings hidden in the U.S. legal jargon of Section 501(c)(3) of the

Internal Revenue Code. Because the U.S. code is at once extensive and

complex in its provisions, in the USA the NPPO organizations that the code

includes are usually called "501C3s." Use of the concept third sector is so

misleading that it confuses tax writers in former statist countries as they seek

to move to a nonstatist economy.

Charts A and B show how distinctions are made between the NPPO

type of TEO (see also Table 1) and a special type of TEO called Activist

Tax-Exempt Organization orATEO (see also Table 2). The ATEO is not

eligible to receive funds from the U.S. GMF.

TEOs are the fourth sector of societys economic organization, in

my view, as is shown in Chart A. Although some analysts have called the

tax-exempt sector the "third sector," Chart A shows that in reality it is the

fourth sector, not the third sector. 7

7

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Table 1 lists examples of the NPPOs categorized in Charts A and B, 8

and it classifies them by main functions. Although these organizations are often

referred to as NPOs (Nonprofit Organizations) or NFPOs (Not-For-Profit

Organizations), neither of these two concept is not used here because they

misleading state that no profits may be made. That NPPOs range from

foundations to NGOs is shown in Table 1. The former usually make grants and

the latter receive grants, but such activities are not mutually exclusive. Further,

all NPPOs may receive donations and earn interest on their investment of

donations and grants in saving accounts or into stocks and bonds.

Conclusion to Mexico and Romania Compared

Because the concept of civil society is a dynamic concept and thus

will always be troubled by contradictions, its connotations must be

connected to practical actions and institutions, to all types of sociability, to

communities, and to organizations. Civil society must also go beyond the

textual discourse of elite groups. Political society is that element in de

Toqueville which constitutes a necessary supplement to dualist models that

contrast the state and its citizens.

The experience of some anthropologists who challenge the Western

model of civil society (see Hann and Dunn, 1996) yields, on the one hand,

the interesting insight that the dualist model wrongly casts civil society and

government in completely pure, contrasting categories. On the other hand,

their anthropological view is misleading because the core of its argument, as

summed up in the epigram by Buchowski at the outset above, is that non-

8

It is important to note that under U.S. TEO law, the NPPOs given in Charts A and Band in Table 1 are all 501c3s.

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political, especially family life and village mutual self-help groups, offer an

Eastern European model to define civil society. They do not tell us how this

non-political model can achieve the organization of society at the local level

in order to democratically encourage the development of modern ways of

life capable of competing in a world reduced in size by instant

communications.

The irony in such an observation as that made by Michael Buchowski

(1996: 92) is that he himself suggests the fatal flow in communist thinking

wherein many in Central European societies long to return to communist

society because they seek to evade personal responsibility. He cannot escape

this flaw by wondering whether or not Poland is less civilized since the

fall of communism.

Despite the difficulties, Western civil society and its NGO model have

gained prominence as a fundamentally flexible and truth-worthy vehicle for

the realization of elemental human yearning for self-expression, self-help,

and mutual aid. NGOs not only are an instrument of grass-roots

independence, but they may perform an essential function of system

maintenance by performing socially useful projects. Buchowskis social

society at the village level was not completely stamped out even in Romania

where the most repressive regime in Eastern Europe obliterated villages in

the south to break peasant thinking. While I can partly agree with

Buchowski, my participant-observation of village and folk society in

Transylvania, which survived the Ceausescu on-slought, contradicts his

conclusion that family and local activity can challenge the Western model

for development of civil society as it faces rapid urbanization.

That the attempt to create new civil society is well underway in

Eastern Europe is manifest in the numbers. As of 1995 I found in Romania

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3,000 more NGOs registered than in 1992. As of 1994, Salamon found in

Poland several thousand foundations that were registered with governmental

authorities, in Hungary some 7,000 foundations and 11,000 associations

(Salamon, 1994: 112).

That they can function without new laws and in the face of

competition from QUANGOs is not manifest.

In the US the state-civil society distinction was postulated as a democratic

norm and perceived as a necessary condition of democracy (The Economist,

18 January, 1997. p. 2).

The Changing Face of the American Philanthropy

America's non-profit sector is healthy and effective. It is build on a

compact between government and citizenry. In 1938 Congress noted that "

the exemption from taxation of money or property devoted to charitable...

purposes is based on a theory that government is compensated for the loss of

the revenue by its relief from financial burden ... and by the benefits of

promoting the general welfare." The contention that abolishing the tax

deduction, now going on in the US legislative sector is wrong. Elimination

of the charitable deduction under certain flat-tax proposals would not end

giving, but would reduce it by substantial amount. (Dorothy Riding, The

Economist, 18 April, 1997).

The American civic politics is being dramatically transformed by

fundamental shifts. Bill Gates has recently set the agenda of wiring the

nation's free-library (Carnegie), Soros enhancing drug policy in the US,

Milken and Annenberg are designing tactics that best serve the interests of

the benefactor, propelling therefore the entrepreneurial philanthropies.

( Schrage, Los Angeles Times, p. D4)

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The strength of America's non-profit sector lies in people's freedom to

choose the cause they want to support. As the experience of the East Central

European countries have proved, the government cannot be a better steward

of their generosity than the charities they sustain. The non-profit sector is in

essence being supported by the government and conscience synthesized,

characteristics that lead to

the functionality of foundations and civil associations, such as diversification

of group interests.

Globalization and Its Evolution from a Nascent Form

Globalization of trade goes back to the sixtieth century when sailing

ships left Europe to find exotic items such as sugar, spice, and silk. Such

trading led to mercantilist "unfree" trade between mother country and

colony, the latter being prevented from industrialization so that it could

supply raw materials to be processed in the motherland. Such restrictions

eventually led to the Liberal idea of free trade, which had already used

smuggling to largely defeat free trade by the 1830s.

The 100-year globalization of free trade was halted after the fall

of Wall Street as the stock-trading model of capitalism. The result was

extreme nationalism which attempted to seal off national borders from the

vagaries of capitalism's booms and busts. Tariffs were erected to promote

national industry, which soon joined with the government and some foreign

investment in an unholy alliance to split the high profits that resulted from

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not having to face foreign imports, let alone worry about instituting

expensive product improvement and quality controls. Too, the industrial

model was based in huge plants and heavy output such as tractors, tanks, and

cement.

The rise of Neo-Liberalism and the newest era of free trade

came early 1980s when smuggling could no longer obviate the ire held by

national consumers. With the possibility of consumers being able to buy

inexpensive and more modern goods that really worked, they refused to

believe any longer that they were "disloyal to their nation" if they managed

to purchase foreign goods.

New trade blocs have come to define themselves in terms of

inter -bloc trading, not intra -bloc as had dominated thinking from the 1950s

through the 1970s.

I will take up here the following free trade blocs: European Union,

NAFTA, MERCOSUR, the Visegrad countries, and The Economic

Cooperation in the Black Sea.

The technology revolution made it possible to break isolation of police

states all over the world.

Marketization and Privatization are preconditions of a mature civil

society.

As economic questions dominate political ones (Berend, Central and

Eastern Europe, 1944-1993, p. 218) the rejection of the old command

economy in all East Central European countries has been compile. The

major alternatives today are marketization and privatization. There is still

widespread acceptance of the interventionist role of the state, not only in the

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social, but also in the economic areas, as the state is still perceived as the

main author of economic changes, and not the enterprises themselves.

Contrary to the belief that the global economy ignores 'marginal'

countries (Robert Lyle, 1997), serious strides have been made in the

economic integration in the region.

Most (except for Albania) East Central European countries have

joined a free trade bloc.

In this thesis I will delve into the actual major free-trade blocs

namely: NAFTA and the European Union compared, MERCOSUR and

CEFTA (Central Eastern European Free Trade) also known as the Visegrad

countries.

Emerging World Trade Blocs: The North American Free Trade Area and the

European Union Compared

The European Union is becoming the blueprint for free trade in the world. In

the Europe of tomorrow, France intends to set an example of social and

political model in the necessary adaptation to the world as it is by

"deepening" and "widening" in the same time.

On EU institutions the real battle will be between small and big countries,

as Britain, France, Spain and Germany want to redress the over-

representation of the small countries.

The European single-currency, the euro is coming into being as

scheduled by 1998 .

It will be decided in April 1998 how many member countries would

be included in the first round of the monetary union. There are signs that

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budget deficits will be a problem for Germany and France for 1997 under the

Mastrich criteria for entry of 3% of GDP.

Receiving millions from the Brussels pot are Greece, Portugal, Ireland

and parts of Spain and Southern Italy. The beneficiaries of the Union grant

system (any region of the EU where the income per head of population is

under 75% of the average has a claim on the grants available) will than be

the Czech, Slovak Republic, Poland and Hungary.

If the number of countries will be big enough to make the euro

possible, Europe would be fit for globalisation despite unsolved problems

with its social security systems.

As the world moves into large trade blocs, the two most important to

date are the North American Free Trade Area (NAFTA) and the European

Union (EU), formerly known as the European Community. To begin, this

study compares the key legal and policy aspects of the two blocs and

outlines the salient features of each. The remainder of the essay presents

quantitative data on NAFTA and the EU as well as additional relevant data

on Japan, Eastern Europe, and other world trade units. The analysis focuses

first on population, GNP, GNP/C, and exports, as measured by export share

of GNP. The EU and NAFTA are then compared with respect to economic

strength, geographic coverage, and competitive potential.

In 1994 twelve countries belonged to the EU: Belgium, Denmark,

France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,

Portugal, Spain, and the United Kingdom. Joining January 1, 1995, were

Austria, Finland, and Sweden. In a nationwide vote Norway's population

rejected its government's late 1994 bid to become the sixteenth member.

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NAFTA comprises the United States, Mexico, and Canada.

Argentina, Costa Rica, Chile, Colombia, Venezuela, and other Western

Hemisphere countries are seeking membership.

Free Trade "Fever"

With the process of "globalization" in which national trade and

finance seek to form mutually beneficial alliances, free

trade agreements among nations are reaching a fever pitch. The magnets

and models for free trade are NAFTA and the EU.

Countries either seek to join NAFTA and the EU or follow these

models in forming their own free trade agreement (FTA) leading to a free

trade area (FTA, depending on the context). In the Western Hemisphere

most countries want to join NAFTA, except Brazil, which is leading a

movement of its partners in the misnamed Mercado Comun del Sur

(MERCOSUR). As of January 1, 1995, MERCOSUR became almost a full

customs union, and seeks by the year 2005 to create an FTA such as

NAFTA. MERCOSUR does not expect to become a common market such

as the EU until the first or second decade of the twenty-first century. In the

meantime, it might better be called the "Mercado del Sur, " omitting the

concept of "Comun."

A common market is much more ambitious than an FTA. It goes

beyond free trade and investment flows to require all member countries to

live under the same laws and regulations. The EU has been successful in

providing for educational and labor mobility among its members. Yet the

EU includes aspects that have yet to be achieved: a common currency,

foreign policy, military command, and police activities (see Figure B:l).

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Although there is much discussion of FTAS, comparative analysis of

the provisions that govern them is almost nonexistent. Furthermore, there is

little consistently comparable data on the size of FTAs in terms of their

population, wealth,

per capita wealth, and trade flows among partner countries and with other

FTAS.

This study presents baseline data essential for understanding how the

EU and NAFTA models differ in purpose and size.

The provisions of the EU and NAFTA are summarized in Figure B:l.

The NAFTA model mainly involves freeing trade and investment flows,

although it also provides, in a limited way, for the movement of

professionals among its three countries. Meanwhile, the EU, knowing that it

is losing markets in the member countries of the North American Free Trade

Area, now seeks to recover access to these markets by signing free trade

agreements. In February 1995 the EU authorized negotiation with Mexico to

create an EU-Mexico FTA. (For details, see the preceding chapter in this

volume, "Mexico as Linchpin for Free Trade in the Americas.")

Tables Bl, B2, and B3 present data on population, GDP, GDP/C, and

export share in GDP for the EU, Eastern Europe, and NAFTA. Table B4

shows population, GDP, and GDP/C for major world trade blocs. Table B5

indicates the relative importance of the major trade blocs, using the United

States as a reference point. Table B6 profiles the economies of the United

States, Japan, Germany, the United Kingdom, Canada, and Mexico,

according to selected indicators.

One of the members of the EU, reunited Germany has the largest population

(81 million inhabitants). Italy and the United Kingdom follow, virtually tied

at 58 million. Germany's population is 207 times that of Luxembourg, the

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smallest European country, with a population of 389,000. And Germany's

GNP is 134 times that of Luxembourg (Table Bl).

Given such disparities in population size, is it "fair" that voting rights

in the EU give undo weight to small countries? (For shares of voting rights,

see Appendix A.) Despite its small population, Luxembourg has the highest

GNP/C in the EU (US$ 35,260) and the highest export share of GNP (94

percent). Spain, in contrast, has a larger population (39 million) but the EU's

lowest export share of GNP (17 percent). Clearly, weighted voting rights are

not as arbitrary as first glance might have us believe. In any case, countries

with the largest populations together constitute a "qualified" (decisive)

majority. In 1994 it took 23 "minority"' votes to block the majority. It now

takes 26 votes to constitute a blocking minority.'

Six countries in Eastern Europe seek to join the EU: Bulgaria, the

Czech Republic, Hungary, Poland, Romania, and the Slovak Republic.

Among these, Poland has the highest GNP (US$ 75 billion), much higher

than EU member Ireland (US$ 42 billion) . Poland, however, is weak in

exports, which amount to only 19 percent if its GNP. Hungary's GNP/C is

54 percent higher than that of Poland, owing to its previous leadership

position among the former Communist countries in carrying out economic

reforms (Table B2).

The relationship of Poland to "smaller" countries is interesting.

Although Poland has four times the population of Bulgaria (9 million), it has

the lowest export share of GNP (19 percent). Bulgaria has the second

largest export share of GNP (45 percent), after the Czech Republic, which

leads both Poland and Bulgaria in export share of GNP (58 percent) and also

in GNP/C (US$ 2,440) compared with the rest of the Eastern European

countries.

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With regard to Romania and the Slovak Republic, the two poorest

countries seeking to join the EU, the lackluster economic performance of

Romania is particularly noteworthy. Romania's GNP (US$ 24.9 billion) is

more than double that of the Slovak Republic (US$ 10 billion), yet the two

countries export the same percentage of GNP (28 percent) . Romania's trade

with Eastern Europe collapsed in 1991 along with the Council of Economic

Assistance for Eastern Europe (COMECON) trading organization.

Subsequent growth in trade with the West has been slow, and current-

account deficits of more than US$ 1.2 billion have been recorded each year

from 1991 through 1994. Romania's population is four times larger than that

of the Slovak Republic (5.3 million).

The legacy of high inflation and modest growth accounts for the

Romanian currency's minimal purchasing power. It is unlikely that Romania

will become a full member of the EU within the next ten years .3

How can the Slovak Republic, with its small population and weak

economy, hope to compete in an expanded EU? Although its population is

only 5 million and its GNP is only US$ 10 billion, the Slovak Republic has

the same high level of exports relative to GNP as the Romania.

The Five Constituencies of the European Union

Given the disparities in population, GNP, GNP/C, and export share of

GNP, the countries of the EU form five "constituencies" (see Figure B: 2) .'

1. The "Core": France and Germany. Belgium, the Netherlands, and

Luxembourg, too close geographically and too small economically to

avoid being drawn into the orbit of power, are appendages of the

Core. (In 1951 France and Germany founded the European Coal and

Steel Community, the precursor of the EU, to rebuild war-torn

Western Europe.)

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2. The "Free Traders": Great Britain and Denmark (members of the EU

since the early 1970s) . Britain is leading the way toward establishing

a common market for goods, services, capital, and people while trying

to prevent the rise in Europe of any singularly powerful country.

3. Greece, Portugal, and Spain: These poorer, newly democratic

members seek to modernize their economies to protect against a

resurgence of authoritarian rule. The admission of these countries into

the EU in the 1980s widened the gap between

rich and poor countries, the latter including Ireland and to some extent

Italy.

4. Eastern Europe: the Czech Republic, Hungary, Poland, and Romania.

The countries of Eastern Europe freed themselves from Russian rule

after 1989 and view admission to the EU, proposed for 2000 by

Germany, as insurance against the resurgence of Russian authority in

the region.

5. European Free Trade Association (Austria, Finland, Norway, and

Sweden): These countries, except Norway, have realized that they can

not afford to be left out of an expanding EU. Austria may even

become part of the Core constituency. For at least the next decade

Norway has petroleum and fish for export to non-EU countries, giving

the country a feeling of confidence that it does not need its neighbors

as much as they need it. Furthermore, the fact that Norwegians

defeated by slightly more than 50 percent the government initiative to

join the EU can be traced to the votes of the relatively large

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agricultural and fishing populations, both fearful of submitting to

common market policy that would limit food production subsidies and

open Norwegian fishing beds to the EU. The urban sector, some of

which also voted against joining the EU for fear of losing social

benefits, has been disadvantaged by Norway's failure to join the EU,

and some large Norwegian manufacturing companies are relocating

their

main offices to the EU, thus weakening the drive to modernize the

economy.5

In view of the diversity of the five groups, disunity in the Union

comes as no surprise. Two coping models have emerged to manage the

divergent interests: (1) the British model seeks to give more or less equal

weight to the concentric circles depicted in Figure B:2, encouraging

cooperation among the diverse constituencies; (2) the German-French model

favors moving forward with monetary union and a unified foreign policy

focused on the center circle in Figure B:2, the Core. The notion that Britain

may resist France and Germany and refuse to join the EU monetary union

prompted this comment in The Economist:

If Britain stays out, only to change its mind later [as it did about

the EU], its leaders may seem as silly as Churchill now seems, for this

comment on the founding of the European Coal and Steel Community

43 years ago: "I love France and Belgium but we must not allow

ourselves to be pulled down to that level . 6

Population totals (Table B4) for NAFTA and the EU are now about

the same: NAFTA, 363.3 million; EU (15 countries), 368.8 million (1992

data) . Within the EU, Germany's economy is the strongest, followed by

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France and Italy. Among all countries in the two trade blocs, the United

States has the highest GNP and

the highest GNP/C within NAFTA. Overall, Luxembourg has the highest

GNP/C.

With respect to export share of GNP, Mexico ranks lowest in NAFTA

(14 percent) and Greece places last in the EU, with 23 percent. Even

Romania and the Slovak Republic rank above Mexico, with 28 percent each.

The index calculated in Table B5 shows the relative economic

strength of major trading units. For example, Mexico has one third of the

population of the United States, but Mexico's export share of GNP is only 5

percent of the U.S. export share of GNP. The table also shows why Japan, a

single country that has established a web of trade dependency worldwide, is

often seen as the economic "enemy" of both NAFTA and EU. Japan's

GNP/C is 21 percent higher than that of the United States. Many countries

have formed implicit trade blocs to compete with Japan and its accumulation

of world trade capital. NAFTA gives the United States, Canada, and

Mexico the opportunity to expand international trade at Japan's expense.

In the Western Hemisphere, the GNP of the United States far exceeds

that of other countries of the hemisphere, with the exception of Canada,

whose GNP is 84.3 percent of the U.S. total (Table B5). Although the

population of the EU is 48 percent larger than the U.S. population, its

GNP/C is only 89 percent of the U.S. figure.

Mexico has established itself as the linchpin for free trade in the

America S7 despite the fact that its population is only one-third that of the

United States, its GNP 5 is percent of the U.S. amount, and its GNP/C 15.3

percent of the U.S. figure. The NAFTA framework, along with the "defeat"

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of the Chiapas rebels in the August 1994 national elections, has increased

the attractiveness of Mexico for U.S. investment.

Mexico's new free-trade pact with Nicaragua (The News, September,

1997) will provide for new jobs and investment. The pact would provide

Nicaragua access to 90 million dollars in credit programs to promote trade

between Mexico and Central America, including expansion of Nicaragua's

export beef industry.

Most recently trading options with Italy and the European Union were

discussed. These will go into effect in 1998. The Mercosur free trade bloc

of South America also expects to sign a preferential trade agreement with

Mexico by years end ( See The News, "Mexico Pact Raises Nica Export

Quotas", September 21, 1997)

Mexico and Israel plan to sign a free trade agreement by early 1999. I

has been finally signed in 2011. In relation to the GNP/C of the United

States, Mexico ranks higher than Mercosur by 3.5 percent, while Germany,

with a population about equal to the U.S. population, has 95.7 percent of the

U.S. GNP/C, raising the average for the EU to 80 percent of the U.S.

GNP/C. This analysis is carried a step further in Table B6 in the Statistical

Abstract of Latin America (UCLA, 2005) and it was adapted from a

comparison published regularly by theNew York Times of NAFTA

(Canada, Mexico, and the United States), the EU (represented by Britain and

Germany), and global competitors (represented by Japan).

The bottom line for global competition is shown in the manufacturing

wage gap (Table B7). The Western European countries with the highest

average hourly wage in manufacturing (1993 data) are forced to complete

under the burden of a wage of US$ 21.

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In Japan and the United States the figure is $16. The Asian "tigers"

(Taiwan, Singapore, South Korea, and Hong Kong), however, average

about US$ 5 per hour. These data illustrate Mexico's status as an attractive

locale for the establishment of manufacturing plants,

with its US$ 2.41 hourly manufacturing wage. Likewise, Eastern Europe,

where the hourly manufacturing wage is US$ .90, is Mexico's future

counterpart for the EU. Germany has already moved important

manufacturing funds into Romania, for example, but the EU has yet to

establish a formal relationship with Eastern Europe comparable to Mexico's

position in NAFTA. In general, Eastern Europe (except the Czech Republic)

awaits the opening of its economies, which remain largely nonmarket (see

Appendix B).

NAFTA is more equitably positioned in terms of internal wage gap

between countries than is the EU. For NAFTA, the U.S. manufacturing

wage rate is 6.8 times higher than the Mexican rate. For the EU, the present

gap between the highest wage (Western Germany) and the lowest one

(Portugal) is 5.4 percent, but the potential gap, once the EU expands into

Eastern Europe, is 36.6-an amount equal to the difference between Western

Germany and Bulgarian wages. Equity is not the only issue, however; in

this case, inequity may help Eastern Europe attract capital in the competition

for ever cheaper manufacturing sites in an era of globalization.

Under the NAFTA model, the process of opening markets to free

trade will occur over 15 years (Table B8) . Eastern Europe, in contrast, faces

a much more difficult mission of nearly immediate integration into the EU.

In keeping with the gradual removal of trade barriers, Mexico has eliminated

duties on all U.S. and Canadian products not made in Mexico, that is, on 43

percent of its purchases from Canada and the United States.

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Although the data suggest that Mexico purchases most of its goods

from the United States (63.4 percent in 1992) and very little from Canada

(1.0 percent), the reality is that much of the Canada-Mexico trade is "lost"

statistically when it passes through the United States, where the transactions

become incorporated into U.S. trade data. (See the preceding chapter in this

volume.)

Under NAFTA the United States immediately eliminated duties on

nearly 50 percent of Mexican imports and Canada did away with tariffs on

19 percent of its imports from Mexico, including a complete opening to

Mexican textiles (thread, cloth, and clothing), which in 1992 reached about

US$ 17 million in value. (Mexican textile exports to the United States were

56 times greater.)

Conclusion

When NAFTA and the EU are compared with respect to their

framework and policies, geographic scope, and leadership, three significant

points emerge.

1. Unlike NAFTA, the EU allows individuals, both workers and

students, to move about freely among the member countries. In

addition, a goal of the EU is eventual unification under one currency,

a common foreign policy, and military coordination.

NAFTA has the potential to expand beyond Mexico into Latin

America. The United States and Mexico have extensive trade

experience in the region, in comparison with the EU's lack thereof in

Europe. Also, Mexico has entered into several multilateral and

bilateral agreements that make expanded trade possible. Canada has

far to go however, in establishing trade relations beyond those with

the United States. And both the United States and Canada face

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formidable competition from Japan. Under Mexico's leadership in

bringing about the integration of the Americas, however, NAFTA is

well positioned to compete with the EU, as it takes its first serious

steps to develop relations with MERCOSUR.

3. One country, the United States, functions as the "core" for NAFTA,

statism vs antistatism in mexico and romania - mercosur's challenges

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