How to Get a Breakthrough in Ukraine
The Case Against Incrementalism
BY HISTORY and tradition, Belgium and Holland are two separate countries. In the past 200 years they have been united only for a brief and unhappy period of 15 years, from 1815 to 1830 -- a period that Belgians still speak of as an "occupation." Yet ever since the Brabançon Revolution of 1830 made Belgium independent of Holland, various ways of restoring the economic unity of the two countries have been debated, in particular under the auspices of the League of Nations between the two World Wars. In 1930 an agreement was concluded at Oslo among Belgium, Luxembourg, the Netherlands and the three Scandinavian countries that none of the countries would change its tariffs without consulting the others. Two years later the Belgian and Netherlands Governments signed the Ouchy Convention which carried the Oslo Agreement a step further. The two Governments undertook to lower their tariffs against one another by 10 percent each year, until the tariff barrier had been halved. But by this time the economic crisis had driven Britain and Europe to adopt new tariff and quota policies. Britain asked most-favored-nation treatment, i.e., that the mutual Belgian and Netherlands tariff reductions be extended to her goods. France also took an unfavorable view of the Dutch-Belgian proposal, and the scheme was shelved.
It was revived when both Belgian and Netherlands Governments found themselves in exile in London. Reconstruction obviously would be easier were the two countries an economic unit; the opportunity for a sweeping change had arrived. By an agreement between the two Governments-in-Exile, signed in September 1944, three Councils were established, one to work out a common tariff against other countries, the second to negotiate foreign trade agreements on the basis of this tariff, and the third to consider complete economic union. The aim was to achieve the full economic union by stages, while retaining political sovereignty for the two kingdoms.
Neither the economic, political or psychological problems involved are simple, however. To reason that Holland and Belgium are easy to integrate because Holland is an agricultural country and Belgium an industrial country is fallacious. Holland has built herself highly specialized industries that compete with Belgian manufactures. And Flemish dairy farming would be seriously threatened by direct competition with more highly organized Dutch agriculture. Moreover, Belgium and Holland have recovered from the German Occupation in different ways. In September 1944, Belgium was about to be liberated and it seemed that the Nazis would be driven out of Holland within a few weeks. There was then a chance that the two countries could start reconstruction simultaneously and jointly. As it happened, however, the Allied reverse at Arnhem left most of Holland in German hands until the spring of 1945. That winter, Belgium was a military base and Antwerp was on the principal route of supplies to the Anglo-American armies. The two Governments adopted entirely different economic policies.
The Belgian Government, after blocking bank accounts to prevent an immediate excessive inflation, encouraged a great expansion of credit and note circulation in order to develop production of whatever goods the market would accept. External trade policy was equally bold. Imports were allowed to exceed exports, and until very recently no restrictions were put on the importation of the manufactured articles that are now considered luxuries in Europe. The Belgian Government made immediate and unrestricted use of the dollar balances gained from foreign assets or by the expenditures of American forces in Belgium. This course stimulated Belgian industry to meet foreign competition. Prices rose steeply and more rapidly than wages, which themselves are three times their prewar figure. But the fruits of this policy are now to be gathered. Prices of consumption goods have passed their maximum and, with increased production, will fall further.
Conditions in Holland are very different. Early in 1946 the Central Planning Bureau of the Netherlands produced a memorandum that could serve as a model of clear thinking and economic good sense to other "planning" democracies. As industry in Holland had been destroyed, her imports, like those of Belgium, exceeded exports, but importation to the Netherlands was controlled and confined to raw materials and essential food. Strict control and rationing have permitted the cost of living figures in the principal towns to rise to only 81 percent above 1938-39. This is by far the smallest increase in liberated Europe.
In 1922 Belgium and Luxembourg formed an economic union with common tariff and monetary systems. Hence in the new economic union the partners will be the Netherlands and the Belgian-Luxembourg union. The "Benelux Secretariat," a body of experts, was established in Brussels under Dr. Jaspar, a Dutch economist, in July 1946. The Secretariat prepared a common tariff for the "Benelux Union," which is now the basis of negotiations by three delegations at the Trade Conference in Geneva. This tariff is a compromise between former Belgian and Dutch tariffs -- generally lower than the Belgian and higher than the Dutch. The significant point is that it was compiled item by item for each commodity; a bargain was struck between competing interests in every instance.
The next step will be the demolition of tariff barriers between the two countries. This confronts the Secretariat with all the problems of economic union. Unless prices attain an equivalence there will be an excessive and erratic flow of goods; moreover, excise charges, banking policy and wage rates must be brought into line, or financial transactions will distort normal trade, and raw materials will flow to cheaper labor.
There are powerful sectional interests in both countries opposed to economic union. The port of Antwerp is naturally at a disadvantage compared with Rotterdam, lacking its easy access to the Rhine and the interior of Europe. Both ports are now handicapped by lack of German trade, and have joined forces to plead for more consideration from the Anglo-American authorities in Germany. But Antwerp would eventually suffer from completely free competition with Rotterdam. Moreover, the politically-powerful Belgian farming community is nervous at the thought of direct Dutch competition in dairy produce, particularly as the Dutch have developed a highly efficient marketing scheme that keeps retail food prices in Holland much lower than in Belgium. But these sectional interests are not being permitted to impede the administrators, who see great, mutual, long-term advantages from the formation of a trading unit of large industrial potential that would take its place among the first four or five in world trade.
The detailed negotiations have not been allowed to become issues of party politics. This is an obvious prerequisite for the solution of the intensely difficult problems of union and is exactly the reverse of the approach of other European bodies, including Mr. Churchill's European Federation, which appeal to "peoples" to unite and leave the concrete problems to be sorted out afterward. The prospects of the success of Dutch and Belgian civil servants in bringing the economic policies of the two countries into conjunction are good. Approximate equivalence in prices may be reached at some time within the next two years, and that will be the opportune moment for "letting in the clutch" between the two economic mechanisms. The Secretariat, with all the information in its hands, is in a good position to judge the question of timing and to influence government policy in both countries so that the union can be made without undue dislocation of industry or agriculture in either. The program is to abolish tariff barriers at the end of 1947 -- before the next crop-year -- and then to bring other economic factors into line during 1948.
Eventually, of course, the implications of economic union cannot help being made questions of party politics in both countries. Recently a coalition of Socialists and the Christian Social Party formed a government in Belgium that is similar in color to the more stable coalition in Holland, and this will facilitate the present efforts to achieve economic union. But the difficult test of the coördination of the two economies will come later. Conflicts of policy are not sharp while reconstruction continues and prosperity increases, but at the first sign of economic setback they will intensify, and political troubles will begin. Policies to counter a "recession" have a political character. Deflation and retrenchment, on the one hand, or a public works policy and expansion of government credit, on the other, have different effects on the distribution of wealth. The essence of economic union is that the two countries would have to pursue similar policies for credit, wages and prices. This might have the beneficial consequence of establishing a stable compromise in economic policy, midway between laissez-faire and the "social service" state, and thus prevent the development of political extremism. But there is, of course, more than a chance that difference in political opinion between Brussels and The Hague can undo the work of the economic experts. Whether the economic union will survive its first two years -- say 1948-50 -- depends, principally, on whether there is a steady volume of international trade. This accounts for the intense activity of the Belgian and Netherlands delegations at Geneva on behalf of lowered tariffs.
The Belgian and Dutch Governments are making a rational attempt to overcome the forces of separatism and particular interests that threaten to break Europe into even smaller fragments. The experiment is worth sympathetic attention in London, Paris and Washington, and it should be of interest in Central Europe as well, where the need for economic coördination between Hungary and Czechoslovakia provides a parallel.