How Macro-economy affects public opinion on European integration?

Abstract: This paper compares large and small states on the aspect of public opinion towards European Integration. In our argument, large states governments play an important role in European integration and domestically economic control. The increase of government control in large states reduces the attractiveness of this trading environment to the interest groups or skilled workers. On another hand, ineffectiveness of government control in small states give the skilled workers more chance to engage in trading with other state members. Hence, our paper challenges the H-O model as well as Gabel Matthews article on the preference of skilled workers towards integration in large and small states.
Zining Yang & Bich-vy T Nguyen 12/11/2009

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I.

Introduction

Recalling the history of the European Union (UN) establishment and enlargement, the initial focus of this organization was to create a free-barrier trading environment among the country members rather than to enhance political development (Grabbe, 2006). In 1952, the six first members (French, Italy, West Germany, Netherlands, Luxembourg and Belgium) signed the agreement to unify steel and coal production in Western Europe and form European Coal and Steel Community (ECSC). After that, the community was more enlarged with the accessions of new member countries: United Kingdom, Denmark and Ireland joined in 1973. After the last accessions of Romania and Bulgania, European Union currently has twenty seven members in total1. For the large numbers of membership, EU is believed as a diverse environment where countries with different backgrounds interact. There is no doubt that the diversity of EU adds on the complication of this trading community and even transforms its original purpose which is trade to more complex purpose such as political protectionism (Gower and John Redmond, 2000). Therefore, many scholars have present studies on EUs diversity in order to understand more about the structure of this union and its effect on the economic and political outcomes. In this paper, we basically do the same thing. Scholars apply different ways to distinguish large and small member states of EU. Roderick Pace (2000) identifies the two groups of countries by population. Many other researchers look at economic strength (GDP per capita) to define large and small countries in term of economic strength (Manners: 2000; Grabbe: 2006; Maarten: 2009). However, the factors on population and economic strength confuse the process of classifying the countries. For instance, Turkeys population is 63.2 millions but its GDP per capita is only $2,747 or Austrias population is only 8.1 millions but this country has GDP per capita over $28,0002. Moreover, these two factors focus on economic aspect and do not help to explain much on
1 AllofthehistoricalfactsarefoundviaWikipedia 2 European Commission. Eurostat. 11 Dec 2009. 2 Dec 2009. <http://epp.eurostat.ec.europa.eu>

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the effect of government macro-economy control which we would like to discuss in this paper. Therefore, we search for clearer measurement which gives us more resources on classifying the countries in both economics and politics. Hence, political background is appealingly helpful in our paper for: (1) Post-communist countries have ineffective government control systems after the collapse of Soviet Union and thus seek for political protection from EU (2) All post-communist countries are new members (access year of 2004); their participation in EU are not very long in time basis, thus their contribution is small in comparison with the older members. Nine members have post-communist backgrounds: Estonia, Lithuania, Latvia, Poland, Czech Republic, Slovakia, Hungary and Slovenia3. We identify these former-socialist countries as small and dependent states and the others are large states. Since the large states are more advanced than small states in degree of democracy, duration in trade openness, and economic stability, the difference in accessional motivations between these two groups requires further discussion. The large states look for free trade through EU. Their accessions are to satiate the desire of domestic producers and interest groups since their concerns are mainly about liberation in trade (Moss and Michie: 1998). On the other hand, small countries do not only focus to free trade, but also expect to gain security from organization admission. As citizens in small countries look at EU as the prosperity of economic reform (Herzog and Tucker, 2008) and identity changing (Pace, 2000), integration is more the decisions of both states and citizens. When the new members access to the EU to seek for organizational protectionism and mainly depend on this community in economically and politically, the large states eventually carry more burdens. Unemployment in EU since early 1980s has tended to be worse in large countries (Corcoran:
3 Jungerstam-Mulders, Susanne. Post-Communist EU Member StatesParties and Party Systems. 2 Dec 2009. < http://www.ashgate.com>

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1998). Large states see the threats of unemployment, issues of migration and border control, then become more ambivalent about the enlargement of EU as more new small countries join the organization (Grabbe: 2006). When economic crisis happen and the risk of high inflation and unemployment, large states endure more severely economic damages due to their deeper involvement in world economy. Recently, there is a trend that governments of some large countries gain their powers of economic control in order to deal with economic crisis. After the economic crisis 1970s, the patterns of state involvement have become highlighted in large states such as France and UK. Starting at 1980s, many large countries have seen Keynesianism more appealing when dealing with slow growth and high unemployment (Butler and Stokes: 1976). The puzzle occurs when large states government see the increase in number of small member states burdens them on macro-issues such as unemployment. These governments express their unsupportive attitudes towards integration by enforcing more restrictive conditionality on new accessions; make it harder for EU to enlarge (Grabbe: 2006). These actions totally go against the desire of the interest groups who prefer larger free market, create the conflict between government and the interest groups expectations towards the EU. Hence, this raises the question whether EU is still an appealing trading environment to the interest groups in the large states or not, and how does the macro-economic control in large countries affect the small countries government and public opinions about integration. I. Literature Review

The discussion of Matthew J. Gabel (1998) clarifies the difference in public attitudes towards EU. He addresses that citizens occupations constructs attitudes. High-wage manual workers are the most disadvantageous of integration and thus are the least supportive to the concept. Executive and

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professionals who can be defined as interest groups and domestic producers show more support to EU. However, Gabels argument does not dive in the issues of large and small countries. He assumes that there is no difference in country status among the EU country members. The finding of Anna Maria Mayda (2006) in public attitudes towards immigration expands Gabels discussion in aspects of comparative studies. Since immigration is the product of integration, her research is appealing. First, Mayda agrees with Gabel that unskilled workers show less support to the idea of integration since they face high competition from unskilled immigrants. However, this argument is only right in advanced countries cases. When mobility increases among the member states, the skilled workers tends to mobilize from rich to poor countries, threatens the skilled workers in poor countries. Therefore, in small countrys case, skilled workers oppose the integration. Both of Mayda and Gabel favor the H-O Theory Model in the sense that individual skills have positive correlation with pro-immigration or pro-trade in capital abundant economies and have negative correlation with pro-immigration or pro-trade in capital scarce economies. However, Whitefield and Rohrschneider (2006) and their study on public opinion in post-communist countries find evidence against the findings of Mayda and Gabel. According to the two researchers, in Estonia and Lithuania, high income labor associate with increasing support for EU. Also, more educated citizens in three Baltic States (Estonia, Lithuania and Latvis) see EU more appealing. Herzog and Tucker (2008) also address that skilled labor in small countries support to EU since they expect the organization admission promises more economic growth. In this paper, we agree to the latter viewpoint. However, none of the studies address the role of government in the economies. They assume that integration associates free trade with no government intervention, but in fact that is not what happens in the reality. As discussed in the introduction, the driving force of small countries to EU accession is to seek for economic and political security. The government in these countries is not very effective in

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controlling their markets or independent in managing their resources. Therefore, we will try to prove that ineffectiveness in government control gives the interest groups of small countries more active role in expanding themselves to the larger economies and thus they prefer more integration. In the case of large countries, the macro problems that are caused by economic crisis which is blamed on recent EU enlargement allow the government to have more intervention in the market. We expect to see macro control of these governments in the economies increase. We also expect to find more evidence to prove that large countries government opposes EU through adding restrictions to EU accession to protect their workersin this case are unskilled workersreducing chance for skilled workers in large countries to more expand in EU. In sum, we expect to see the changing in attitudes of the skilled workers in the large countries towards the EU. They will see this organization less attractive and seek for another trading environment. The discussion of Jackie Gower and John Redmond in Enlarging the European Union, the Way Forward addresses the motivations of small countries to demand membership in European Union. They discuss that due to weak economic power, these small states show the need of form a bigger group that give them more strength to overcome domestic difficulties. We also find support from the discussion of Robert Rohrschneider and Stephen Whitefield which shows that post-communist states are more likely to form integration. Note that these countries after the collapse of communism are highly dependent in term of economic development in the book Public Opinion, Party Competition and the European Union in Post-Communist Europe. Our theory is important because it challenges the H-O model as well as Gabel Matthews article International Economics and Mass Politics: Market Liberalization and Public Support for European Integration(1998). It is said that skilled workers in large countries and unskilled workers in small countries are in favor of EU membership because they are the abundant factors in their countries and

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can be better off through liberal trade, while unskilled workers in large countries and skilled workers in small countries oppose to EU because they are the scarce factors that will get worse off in trade. However, we find it is not the case, because they ignored the influence of macro-economic control. We will show that skilled workers in large countries oppose to EU because the government enforces more restrictive conditionality to eliminate the expansion of EU, making the EU market less attractive to invest. In the case of small countries where macro-economic control is not effective, skilled workers in these countries gain more control over the market and look at EU as a promising trading environment to participate in. At this point, large countries get much less benefit from the EU, and especially skilled workers (the interest group) in these countries less favor the EU. It is also the reason why skilled workers in small countries support, instead of opposing European integration, since they can get help from large countries through this organization. That is to say, both skilled workers and unskilled workers in large countries are not in favor of European integration, while both skilled and unskilled workers in small countries support it. II. Hypothesis and Measurement

Hypothesis 1: Post-communist countries(small countries) are more likely to form integration. Hypothesis 2: The better a countrys economy is, the less its skilled workers support EU. Hypothesis 3: The stronger the macro-economic control is, the less its skilled workers favor EU. We will establish a model in this research. The independent variable is macro economy and the dependent variable is the support for EU membership. To measure the macro economy, we will use GDP, inflation rate, unemployment rate before and after these countries joined the European Union, as well as trade freedom, business freedom, monetary freedom and government size from 1998 to 2008. The model can be written as: Support for EU= post-communist- year+ inflation rate+ unemployment rate- GDP+ trade

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freedom+ business freedom+ monetary freedom- government size The first five factors are used to measure the countrys economy condition, and the latter four are the measurement of macro-economy control. The dummy variable post communist is coded 1 if the country is a post communist country and 0 if it is not, so as to ascertain if a countrys economic foundation affects its public opinion. The second variable is the year the country joined the EU. We assume that it has a negative correlation with the citizens support for membership. In other words, the earlier a country joined the EU, the less its people will support for EU membership. Variable three, four and five are inflation rate, unemployment rate and GDP from World Bank, Monthly Bulletin of Statistics Online and UN data4. They can directly show a countrys economy condition. The higher the GDP is, the better a countrys economy condition is. It is also easy to understand that the lower the inflation rate and unemployment rate is, the better the economy condition is. The latter four variables are trade freedom, business freedom, monetary freedom and government, from Wall Street Journal5, which can be used to measure the macro-economy control. If theres no freedom in trade, business and monetary, the number will be 0, which means the macro-economic control is extremely strong. But if it approaches to 1, it means there is little macro-economic control. The government size is the total government expenditures, including consumption and transfer payments. The larger the number is, the stronger the government is and the more macro-economic control will comes out. We employ the above model and hope to establish a relationship between these factors to prove our hypotheses.

4 MBS. Monthly Bulletin of Statistics Online. 28 Nov 2009. <http://unstats.un.org> 5 2009 Index of Economic Freedom. The Heritage Foundation & Wall Street Journal. 2009. 28 Nov 2009. < http://www.heritage.org/index/Country/Qatar>.

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III. e.g.:

Data and Analysis

Figure 1: Unemployment Rate (1998-- 2008)

country Albania Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Iceland Italy Latvia Lithuania Luxembourg Malta Netherland Poland Portugal Romania Slovakia Slovenia 10.7 11.4 6.4 2.3 10.2 8.4 11.5 2.7 7.0 0.0 13.9 3.9 11.2 18.2 10.4 10.8 5.7 2.3 9.1 7.8 12.5 2.6 6.4 2.0 16.2 4.1 9.0 18.3 9.8 10.3 5.8 3.3 8.6 8.5 11.3 2.9 6.9 2.3 17.8 5.1 9.9 17.8 10.5 9.7 5.9 3.4 8.5 8.6 10.3 3.8 7.1 3.4 19.9 6.4 7.6 15.2 11.2 10.6 10.5 6.1 3.1 8.1 8.8 7.0 4.2 7.5 4.3 19.6 6.7 6.8 14.3 10.6 11.7 9.9 7.2 2.6 7.6 8.0 4.9 4.2 6.8 4.2 18.2 7.6 5.8 11.2 10.1 10.8 7.5 2.9 6.8 3.4 4.9 7.0 3.5 16.2 5.5 10.4 9.4 9.0 7.4 2.3 6.1 5.7 4.4 6.7 2.4 12.8 4.3 8.4 7.7 7.8 7.8 3.0 6.8 5.3 4.4 6.3 1.9 9.9 4.0 7.7 6.7 1998 1999 2000 16.9 8.8 5.3 5.3 12.6 2001 6.6 19.8 8.1 5.1 6.5 11.7 2002 7.6 17.8 7.3 5.1 5.9 11.3 2003 15.2 8.2 13.7 7.8 6.0 4.6 11.1 2004 14.8 8.4 12.0 4.7 8.3 6.3 3.9 11.1 2005 14.3 8.4 10.1 5.3 7.9 5.6 3.2 2006 13.9 8.3 9.0 4.6 7.2 4.2 1.8 9.5 2007 7.4 6.9 3.9 5.3 2.9 1.6 8.2 2008 12.8 7.0 5.7 3.7 4.4 1.8 2.4 7.6

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Spain Sweden United Kingdom

14.1 4.7 3.8

13.1 4.0 3.3

11.4 4.0 3.2

11.3 4.9 3.1

10.8 5.5 2.8

9.2 5.8 2.8

8.5 5.3 3.0

8.3 4.5 2.7

11.3 6.2 2.8

(from Monthly Bulletin of Statistics Online) We will find data like this and do analysis. IV. Expected Findings

From the model mentioned above, we expect to see that big countries economy didnt develop fast, or get benefit after they joined the European Union. The GDP increased slowly, as the inflation rate and unemployment rate increased with a high speed., because the organization took from them to help the small countries. But in small countries, which we also call post-communist countries, it is just the opposite. We hypothesize that these countries economy developed rapidly after they become the member of European Union, because they got more help from outside when economic crisis happened. The European Union did a lot to help these countries that had bad economy conditions. As a result, the GDP of these small countries increased rapidly, both the inflation rate and the unemployment rate decreased after they joined the EU. V. Conclusion and Implications

This research establishes the relationship between macro- economy and public in European countries. The worse a countrys economy condition is, the more it supports for EU membership; the less the government gives macro-economic control, the more the country prefers to EU membership. In addition, post-communist countries are all tend to be in favor of the EU. The issue of public opinion and macro-economy has important implications for our understanding of the relationship between the two factors, the European integration and international political economy.

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