Development By Stealth - Governing Market Integration in the Eastern Peripheries of the European Union

The goal of the paper is to initiate a dialogue between economic sociologists, students of international political economy (IPE) and international relations (IR) dealing with the politics of market integration among economies at different levels of development. In this emerging research field IR and IPE scholars focus on the questions of whose norms prevail in transnational market making and what mechanisms help enforcing the market rules of the stronger and more developed countries. Economic sociologists dealing with regulatory integration attempts in the global South, on the other hand, explore the way local actors deal with the developmental consequences of rule transfer and with the question of how, in some cases, local action helps matching the implementation of transnational market rules with diverse local developmental needs. There is no dialogue between these two groups of scholars, one dealing with the way lesser developed countries are made to play by transnational market rules, and the other exploring the mechanism that help players in these countries to live by these rules. The absence of dialogue prevents the deeper exploration of the ways diverse modes of market integration help or hinder stabilizing transnational markets and managing the developmental externalities of transnational market rules.

 The paper explores these questions using the case of the European Union’s Eastern enlargement, the most encompassing regional market integration of lesser-developed economies thus far. IR scholars dominate the study of the Eastern enlargement. These scholars are almost completely silent about the otherwise very extensive EU strategies aimed at managing the developmental consequences of integration. Why and how does the EU manage the developmental externalities of involving lesser-developed countries in transnational market making? Combining contract theory with the political economy of market integration, we identify three mechanisms that could force EU insiders to care about the developmental consequences of rule transfer. Our key argument is that the deeper national economies at different levels of development enter into the various stages of market integration, the more they have to cope with governance problems linked to increased economic and political interdependence. With the deepening of integration the costs and gains of extending markets increasingly become the function of the way rule-makers cope with the potential negative developmental consequences of rule transfer. Drawing a Polanyian conclusion, we show that the same actors who have stakes in embedding nation states in transnational markets might have also stakes in controlling and managing the effects of these markets. The key governance challenge of deeper market integration is to develop political mechanisms that could institutionalize search to match the requirements of uniform market rules with diverse local developmental needs. The weakness of such institutions is one of the keys to understanding the present cycle of crises of the EU.