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INTRODUCTION Lecture

Globalization of
Civic Society: U. S.,  Mexico and Romania
Compared
by
Dr Olga M. Lazin

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But they have been
replaced by what is merely    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,”
Imprimis, January, 1997
                          
“Contrary
to the doctrine of laissez-faire capitalism, in the real world there are
prolonged periods when market forces cannot self-correct in time to best serve
the common good. Resulting social instability can only be corrected by government
action.”

-
George Soros, Atlantic Monthly “The
Capitalist Threat,” January 1997


The
crisis of statism, the rise of ultra-Liberalism which opposes all intervention
in the “free market” (as suggested in the Ebeling quote above), and the recent
development of what I call Decentralized-Liberalism (as suggested in the Soros
quote above) provide the context for this chapter in which civic society
proposes intervention in the market to ease the blows of globalization. The
recession we are just crossing through now in 2012, the “double-dip” recession
requires new thinking and favors George Soros’ common good interventionist
state theory is winning hearts all over the globe.
                  Although since the process of
rapid globalization begun (since the 1980s 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 in these countries.
         As globalization is about creating
global standards, ironically this happens only in the profit making side (like
banking, accounting, transfer pricing etc.).
         Much of the literature on NGOs has
recognized that  the NGOs can serve as an
antidote to the state power, but has failed to realize that without funding,
NGOs are toothless.
         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
         V. Why Romania is Interested in the
Mexican Model?
         VI. The impact of "Open Society
Foundations" on Civil                             Society


Chapter I

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 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 against 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 countries 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.
One Romanian politician, Teodor Melescanu is
rightfully arguing that the globalization process benefits small,
underdeveloped countries, if these countries know how to tune into the
globalism’s benefits and profit from the recent possibilities and developments
in telecommunications and networking.
[1]
Initially the weapon of Cold War rivalry,
technology in its nascent computer networking form, has actually propelled the
digital industry age and therefore one of the main forces of globalization, the
information technology. Ironically, the “Seattle Man” protesters were called
against IMF and World Bank policy, are sending “political information” via
Internet using the most important major globalization tool, that is the web,
against corporate power.  https://www.udemy.com/course-manage/edit-curriculum/?courseId=58782



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 that 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 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 have come to
dominate political ones,
[2]
the
rejection of the old command economy in all East Central European countries has
taken place. The major alternatives today are marketization and privatization.
There is still widespread acceptance of the interventionist role of the state,
not only in the 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 serious strides have been made in the
economic integration in the region by the spread of global telecommunications.
         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 came into being as scheduled by 1998. By 2002 the euro will be fully
deployed in all member countries.
         There are signs that 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, 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 Hungary, the Czech, Slovak Republic and Poland.
         If the number of countries will be big
enough to make the euro possible, Europe would be fit for globalization 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.
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 a 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 a
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).
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 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.
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.)

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 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 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" 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 (The News, "Mexico Pact
Raises Nica Export Quotas", September 21, 1997)
Mexico and Israel plan to sign a free trade
agreement by early 1999 (The News, "Mexico Pact Raises Nica Export
Quotas", September 21, 1997, p. 32.)





The index of population and economic strength
in Table BS shows that 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, adapted from a comparison published regularly by the New 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. 
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. 
         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
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,
whereas France and Germany comprise the EU core.

Meanwhile, expansion of the EU into Eastern
Europe is
delayed not only by the slow process of
creating market economies with modern laws and credit systems but also by
Russia's argument that inclusion of former Warsaw Pact countries in NATO could
signal a new Cold War.
         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 has been decided in April 1998 how
many member countries would be included in the first round of the monetary
union. Hungary has been the first to be accepted. There are signs that 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 and that
Europe would be fit for globalization despite unsolved problems with its social
security systems.

 




































































































































































































































































































































 The Visegrad Countries (CEFTA.) New accessions

The
Central European nations of the Czech and Slovak Republics, Poland, Hungary and
most recently Romania, are actively seeking integration and generally viewed as
leaders in the process of transition from central planning to market-based
economies. There are prospects of the accession of the Visegrad countries to
the European Union in the long run (Rudziecki, Conquest of Paradise: 7).
Having still not fully recovered from fourty years of socialist rule, Poland
and Slovakia are the most likely to first join the European Union. As a well
functioning market economy is the main entry condition, the biggest success. As
competition heats up between the member countries, the Czech government claims
they are better prepared for the accession than the rest and avoids using the
Visegrad label and considers the CEFTA label more appropriate,
But
two World Bank economists say that while these nations have
come
a long way, the four -- known as the Visegrad countries -- are
plagued
by "weaknesses" in such critical areas as property rights and
contract enforcement.
         Writing in the current issue of the
World Bank/International Monetary Fund magazine "Finance and Development,"
World Bank Central European division chief Michel Noel and consultant/financial
analyst Michael Borish say that to ensure the continued growth of the private
sector all four "need to push forward with reforms."
State
ownership is still significant in both the banking and industrial
sectors
in all four countries, they say, and "Poland and the Slovak
Republic,
in particular, need to accelerate privatization."
Without
question, the two economists point out, these four countries
have
led the entire region in opening up the private side.
         The Czech Republic has seen its private
sector increase from 11
percent
of GDP (gross domestic product) in 1989 to about 60 percent in 1995. Private
sector employment jumped from 16 percent of the workforce in 1989 to 65 percent
in 1995, with the number of private jobs estimated at about 3.2 million.
         In Hungary, the private sector share of
the economy climbed from 20 percent in 1989 to 70 percent of GDP in 1995, with
about two thirds of the Hungarian labor force now working in the private
sector.
         In the Slovak Republic, the private
sector share of GDP rose from 27 percent in 1991 to 62 percent in 1995 while
private sector jobs nearly quintupled from 1990 to 1995, reaching 1.2 million.
And
in Poland, the private sector share of GDP rose from 28 percent in 1989 -- the
highest in the region at the time primarily because of
private
agriculture under communism -- to just 59 percent in 1995,
with
the private sector accounting for 66 percent of the country's
labor
force in 1995, compared with 47 percent in 1989.
But
even in these successes there are problems.
         In Slovakia, for example, private
sector growth has been concentrated in one sector of the economy -- services --
and in just one region --Bratislava. Economists say that private sector growth
since 1994 has been "slowed by policies that, despite the growth of export
industries, have encouraged a gradualist approach to privatization."
In Hungary, they say, private sector growth
is also primarily in the service sector and that now nearly 75 percent of
Hungary's GDP is generated by financial, legal, consulting, tourism,
entertainment and other "nonmaterial" services.
         The economists say that private sector
growth in Hungary has been "stunted" by high tax rates, high inflation
and heavy government borrowing.
         Overall, the economists say the
Visegrad countries have made
progress
in equalizing the status of private and public property and
improving
protection of property rights. However, they mention, "property rights continue
to be undermined by tenancy laws that restrict the rights of property owners,
incomplete property registries and weak legislation governing collateral."
They
write that in all four, "tenancy laws distort rental markets and
make
repossession of mortgaged property difficult." Title to urban and
agricultural property is "often uncertain because of incomplete and
inaccurate records, multiple pledges on the same property, and
unsettled
claims arising from demands for restitution and from
transfers"
among state entities.
Similarly,
say the economists, all four countries have improved their
commercial
codes, but that "institutional weaknesses" such as a
shortage
of adequate courts and underdeveloped procedures for the
private
resolution of contract disputes, are undermining contract
enforcement.
The
flow of credit to the private sector has also been "mixed" within
the
four nations, say the economists. New lending to the private
sector
is growing, although public sector borrowing is growing faster
in
all except the Czech Republic, where the private sector got 65
percent
of total outstanding credit in 1995. In Hungary, Poland and the Slovak
Republic, on the other hand, private sector credit was at the low end of the
scale -- between 32 and 46 percent.
Instituted in 1992 and effective from 1993,
CEFTA comprises the following countries: Czech Republic, Poland, Slovakia,
Slovenia and Hungary, and most recently Romania. Romania has signed in 12th of
April through the Central European free Trade Zone that is going to be a
complete free trade zone by 2000-2001 (Mediafax, April 1997)
[3]. For the industrial and agricultural goods
taxes will be gradually lowered by 1998 (Rudzieski, 1995). Trying to catch up
with the pulse of globalization of free trade markets is Romania, which joined
CEFTA in April 1997.
         The issue causing the most anxiety for
EU decision-makers is the archaic agricultural structure in the region that
would cost the Union a substantial amount of money to bring to Western
standards.
The
cheap labor force is a mine gold for Westerners who are flooding in with
investment. As long-standing negotiations have begun in 1995 for admission of
Hungary Poland, Czech and Slovak Republic in 1999.

The
Economic Cooperation in the Black Sea

                  Besides the European Union,
NAFTA, MERCOSUR, the Visegrad countries, The Economic Cooperation in Black Sea
area (BSEC) was set up in 1992, at the initiative of Turkey, with the
participation of eleven countries: Albania, Armenia, Azerbaijan, Bulgaria,
Georgia, Greece, Moldova, Romania, Russian Federation and Ukraine. BSEC
initiated fields of cooperation with Mercosur and relations with the EU and
problems concerning sea and river transport and reorganization of commercial
exchanges have been recently discussed in Bucharest.
[4]
                  All countries have to cope
nowadays with the globalisation of free trade. Flexibility is replacing the old
immutable order, as adaptability is the major value. The growing integration of
the world economy has been in general an engine of mutual enrichment in the
form of access to overseas markets and has hoisted wages. Yet some Western and
East-Central European countries are seeking to protect themselves from the
adverse consequences of change showing a particular propensity for support on
acquired rights and entitlements in the workplace, as France, Sweden and almost
all East Central Europeans. One symptom is that the structure of welfare state
damages job creation. Countries with more flexible labor markets do better in
their fight against unemployment and lowering tariffs within continuously
enlarging free trade blocks is beneficent for their economies. Striking a
balance between state protection and freedom of action is the model for future
development in a globalized economy.

Mercosur and The Integration of the South
American Economies


If the strongest example
of Globalization to date is found in NAFTA and the EU, which push
standardization, the weakest example is that of MERCOSUR. Although MERCOSUR
claims implicitly to develop in the mold of Globalization, in our view it
represents Closed Globalization. Too many Brazilian leaders are proposing to
use Brazil's tariff‑protected MERCOSUR market to dominate an internally‑oriented
South American market that inhibits world competition. Although those same
Brazilian leaders claim that they favor joining the U.S.‑Mexico proposed Free
Trade Association of the America (FTAA), the realization that Mexico would be
the bridge between north and south.
In implicit opposition to
MERCOSUR, Mexico is using bilateral agreements with Latin American countries
to lay the basis for the FTAA, a basis that the USA can not help to build
because it is trapped in petty partisan political struggles between the
Republic Party and Democratic Party. In the meantime, Mexico has signed FTAs
with Venezuela and Colombia, Chile, Bolivia, Costa Rica, and is developing
such a union with the Caribbean and Central America.
The rise of Globalization
is complicated by two major factors. First, the nationalist antipathy to
foreign direct investment and inflow of portfolio funds has vanished almost
everywhere at once and there is not enough private capital to meet all the
demands for it. The change of world









As
How the World Bank and the IMF had been building the infrastructure in many
poor countries around the world, has changed, putting more into education,
stopped building bridges, dams and roads, which is very short sighted.

         The process of economic integration
between Brazil and Argentina that began in the mid 1980s has become the most
successful attempt at regional integration in modern Latin America. This
process has contributed to a fundamental departure from previous regional
antagonisms and has foster higher levels of economic interdependence. In 1991,
Argentina and Brazil were joined by the smaller neighbors of Uruguay and
Paraguay establishing the Southern Common Market or Mercosur.
                  Mercosur's members, with a
population of more than 200 million people, represent over 55% of the total
economic activity of Latin America and its most industrialized region. Mercosur
has a diversified and modernized manufacturing industry and has excellent
prospects in the agribusiness and mining sectors. The consensus that Mercosur's
initial stages had been successful and the already high levels of intraregional
trade led Chile and Bolivia to join Mercosur as associate members in 1996. Peru
and the Andean Group, the other south American trade group, have began talks on
a formal agreement to be negotiated with Mercosur, an event that would link
South American economies in an unprecedented manner.
         Mercosur has survived the
unpredictability of hyperinflation, disci mil exchange rates, and sharp
fluctuations in demand and production. Moreover, institutional support
continued despite drastic changes of government and a profound turn in the
strategy of integration. The evolution of Mercosur can be divided in three
stages: the sectoral agreements of the 1986-89 period of bilateral protocols;
the transition to Mercosur from the Buenos Aires Act of 1990 until the establishment
of an imperfect custom union at the end of 1994; and the period of
consolidation and expansion initiated in 1995.
          In reviewing the evolution of regional
integration since 1986 we also analyze the main tools implemented in this
process. I begin by placing the origins of regional integration in a Latin
American and global context, and then follow to evaluate the first phase of
integration under the Program of Integration and Economic Cooperation (PICE).
The second part focuses in the debate over which strategy of integration to
adopt and in the difficulties and imbalances on the road to a custom union.
Finally, I suggest some short and medium term policy objectives for
consolidating Mercosur and address the dilemmas of expansion.

I
- The Foundational Years

         Technocrats and policy makers alike
have advocated economic integration between Latin American countries since at
least the 1950s. The United Nations Economic Commission for Latin America
(ECLA), under the leadership of Raul Presbich, begun advocating the expansion
of intraregional trade together with policies of import substitution
industrialization. The creation of the Latin American Free Trade Assosiation
(LAFTA) in 1960, sought to foster greater economic integration between South
American countries and Mexico. The twenty years that followed the creation of
LAFTA, brought only modest progress. Between 1960 and 1980, intraregional trade
expanded from 7.9% of total trade to only 13.8% in 1980. In an effort to
resuscitate the integrationist project, LAFTA became the Latin American
Integration Association (LAIA) in 1980.
         The debt crisis that erupted at the
beginning of the 1980s brought to an end an expansionary cycle propelled since
the 1940s by import substitution policies. Intraregional trade hit a bottom low
in 1985 at 8% of world trade, and it was not until 1989 that the region
regained the levels achieved nine years earlier. The burden of the foreign debt
sharply decreased the ability of Latin American countries to pay for imports,
and although the recession allowed for a favorable balance of trade, it also
made extremely difficult to comply with the necessary fiscal restrictions.
         During the second half of the 1980s,
Latin American countries seeking to overcome the crisis, begin to adopt adjustment
policies designed to stimulate the economy through an increase in exports. As
the pressures brought about by the foreign debt begin to ease and governments
experience moderate success in the implementation of stabilization measures,
intraregional trade began to grow again. This process was also stimulated by an
important return of capital that had flown away during the debt crisis, which
allowed for the financing of a large deficit in the current account and an
increase in international reserves. In addition, a slowdown of the economies in
the industrialized nations at the end of the decade led to a reduction in the
demand for Latin American products and an increase in protectionist measures
from these markets. In 1994 intraregional exports between LAIA was three times
bigger than in 1985.

The
Program of Integration and Economic Cooperation, 1986-1989

         It is within the previously mentioned
context of economic uncertainty that the governments of Brazil and Argentina
decide on 1986 to establish the Program of Integration and Economic Cooperation
(PIEC). The PIEC intended to establish a framework for the emergence of a
common market by promoting a gradual process of integration based on a series
of commercial agreements in selected sectors of the economy. These agreements,
established in the form of protocols, demanded a low level of coordination
required to define the scope and exemptions to the process of trade
liberalization, and to agree on rules to avoid unfair competition and unwanted
triangulation’s. This selective and gradual process, lacking definite
timetables and specified objectives, sought to achieve intra-industry
arrangements and to modify the asymmetries present in bilateral trade since the
beginning of the 1980s.

         In addition to an increase in the
general level of bilateral trade, which was very low before 1986, the PIEC also
addressed Argentina's concern of a continued trade deficit with Brazil, and the
inter-sectoral specialization of trade in which Argentina exported agricultural
and food products with little value added, and Brazil manufactures of
industrial origin. The PIEC chose to concentrate on the capital goods sector,
which members believed offered significant opportunities for attracting
investment and fostering cooperation.         
The
primary sector was thought to be unable to create intra-sectoral equilibrium
and growth. Additional benefits of the capital goods sector included the
stimulus that could have for the rest of the economy, and the high degree of
government autonomy over this sector, composed mainly of small and medium size
firms.

         The PIEC originated under favorable
macroeconomic conditions. The 1986-87 period represents a moment of high
compatibility in the political and economic arenas. Both countries were new
democracies trying to implement stabilizing economic programs (the Austral Plan
in Argentina, and the Cruzado Plan in Brazil), and were seeking a common policy
in the GATT and ALADI rounds of negotiation. During 1986, Brazil experienced a
strong GDP growth of 7.6% and Argentina grew by 6.1%. Plans designed to curb
inflation were also initially successful. In Brazil inflation was reduced from
228% in 1985 to 58% in 1986, while Argentina's inflation shrunk from 385% to
82% during the same period.
         The goals of the PIEC were severely
constrained after failing plans pushed the economies into a recession. By 1988,
the economic conditions under which the PIEC had to operate became very
difficult. The problems of the Cruzado Plan and the troubles with the level of
reserve deposits led to an increase in import restrictions in Brazil, which
undermined support for further integration. Between 1985 and 1990 GDP in Brazil
grew by an average of only 1.7% a year, and in Argentina by only 0.1% a year.
         Rising inflation and exchange rate
fluctuation compounded this. Inflation in the 1985-89 period averages 444% for
Argentina and 383% for Brazil, almost twice as bad as the 230% for the rest of
Latin America. The difficulties that aroused from the lack of continuity in
macroeconomic policy at the end of the Sarney and Alfonsin presidencies also
contributed to a loss of momentum. The economic team of both countries
gradually moved apart, divided primarily by their approach to the foreign debt.
While Brazil was declaring a moratorium on debt services, Argentina was closing
a deal on a stand-by credit and a loan to cover for losses on export revenues.
         Despite the severity of the economic
problems in Argentina and Brazil, the PIEC contributed to several important
developments. Bilateral contacts in many important sectors were originated.
Between 1986 and 1989 agreements were negotiated in the areas of capital goods,
food production, wheat, iron and steel, energy, biotechnology, nuclear energy,
automobiles and transportation. A modest liberalization of trade begun in the
second half of the 1980s. Brazil began to restructure its tariffs in 1988-89,
and in 1990, the list of ban imports was abolished. Local content rules for
intermediate and capital goods were still maintained, as it was a ban for 47
computer related products. In Argentina, the value of industrial output subject
to restrictions was reduced from 62% to 18% during 1987-88. the remaining
licensing restrictions were eliminated between 1989 and 1990.

         Total bilateral trade significantly
increased and almost doubled during this period. Most of this growth was from
Argentine exports that gained access to the Brazilian market for the first
time. The greatest progress in bilateral trade was achieved in the capital
goods sector, automobiles and food products. Although short from original
expectations and despite a lack of investment and different industrial
policies, the capital goods sector captured a greater share of trade at 13%. In
the food sector, 500 products were added to a list of zero tariff between 1986
and 1990, and in 1988 Brazil became Argentina's most important export market
for wheat, capturing over 26% of wheat exports. Of significant importance was
the growth of industrial exports from Argentina that increased in 1989 to almost
half of total exports to Brazil from 20% in 1985. In the steel and iron sector,
preferential arrangements led to a steep increase in Argentine exports of 894%
to reach $59 million dollars in 1989. Brazil's exports of steel and iron
followed an irregular pattern but maintained a surplus at $194 millions in 1988
and then down to $87 millions the next year.

         The PICE generated significant changes
in the relationship between the economies of Brazil and Argentina but fell
short of achieving a clear success. The project lacked the instruments and
policies to allow for a reconversion of the productive sectors and did not go
far in implementing industrial or technological programs of complementation.

         As the decade came to an end,
presidential elections and domestic conflict dominated the political agenda in
both countries. Lack of investment, a crippled public sector and unprecedented
high inflation continued despite several attempts to revive the economy.       At the end of these two administrations
that had to struggle with the return to democratic rule and the aftermath of
the debt crisis, further integration lacked the enthusiasm of the 1986-87
period. In addition, it seemed as the coalitions in power were going to be
ousted, contributing to greater uncertainty about the development of further
bilateral commitments. The process of regional integration had to wait until
after the presidential elections to regain importance and direction.

II
- The Transition to MERCOSUR, 1990-94

         The new coalitions that arrived to
power after the Argentine and Brazilian elections had to take on the major task
of achieving economic stability and renewed growth in a fast changing
international context. Changes in world politics significantly affected
policies for regional integration. After the end of the cold war, it seemed
that power competition between nations had shifted its center of gravity from
the political-ideological realm to the economic realm. Two sets of events in
particular affected Argentina and Brazil. On the one hand, the competition for
investment posed by the emergent markets of Eastern Europe, protectionist
policies in the agricultural markets of the industrialized nations, and the
rise of China and East Asia in world trade, threatened the position of the South
America in world markets. On the other, the success of the European
integration, the proliferation of trade blocs, the United States Initiative for
the Americas, and Mexico's early moves towards a North American Free Trade
Agreement, gave support to regional integration as an important tool to compete
successfully in the world economy.

         A crucial factor that distinguishes the
process of integration in this decade is the unilateral liberalization programs
that began to be implemented in South America. Argentina began to liberalize
the economy in 1987 and accelerated after Menem's arrival to power in 1989.
Brazil began with a program of liberalization of trade under Collor in 1990.
Although there are differences between these programs, unilateral liberalization
helped to re-inforce the flow of regional trade and to diffuse sectoral
opposition to preferential arrangements between both economies. The betterment
of conditions of access to regional markets induced by unilateral
liberalization, allowed for particular sectors to identify payoffs derived from
the integration process, and led to the formation of coalitions of support.

         The simultaneous implementation of
preferential agreements and market oriented policies of trade liberalization
induced a revision of the strategy of integration. Integration within the
latter context has been called open regionalism. Under this strategy,
unilateral liberalization and preferential agreements are seen as reinforcing
each other. This is opposite from previous attempts at preferential agreements
in protectionist regimes of import substitution industrialization that
permitted influential sectors of the economy to block integrationist attempts.
Moreover, as Bouzas noted import substitution programs of regional scope demand
the ability to negotiate and coordinate policies to structure and redistribute
costs and benefits that exceeds the technical and political capacity of closed
economies.

         The new strategy of open regionalism
still allowed for different interpretations. Integration in an open economy can
be thought as an intermediate step leading to the convergence between
preferential and general liberalization. Under this scenario, preferential
treatment to regional states acquires a temporary status to be followed by general
openness generated by ever growing free-trade areas. This has been the
traditional view from the United States regarding integration in the western
hemisphere and the most narrow interpretation policy makers derived from
orthodox economic theory. This commercialist view of integration that
concentrates on trade growth, suggests that regional groupings can stabilize
the region helping to smooth the transition towards the globalization of the
local economies.

         An alternative position to the previous
view approaches integration as a complex interaction between the benefits of
international competition and regional complementation. Greater competition
leading to improvements in quality, price and variety of goods can be derived
from a commercial policy towards third countries. In an expanded regional
market, economies of scale, better resource allocation and the development of
specialization should lead to the benefits of complementation: employment
growth and greater income.
         This strategy needs not only a precise
and effective margin of preference with low barriers to third countries, but
should also avoid frequent and sharp fluctuations between members currencies,
while seeking to harmonize policies for industrial and technological
development and for investment. The greatest source of certainty regarding the
margin of preference between members is the establishment of a common external
tariff (CET).
         The latter understanding of integration
as a development strategy results in a preference for a custom union over a
free trade area. Three factors in particular, give support to this position.
First, the elimination of the diverse barriers for intraregional trade reduces
administrative and production costs and leads to better resource allocation.  Second, a custom union is better positioned
to generate intra-industry integration and gives greater certainty to access
the extended market and to the development of regional economic policy and
investment. And lastly, a customs union entails increased power for members
that can negotiate in world markets as a block. The interplay of these
elements, in principle, should lead to the creation of trade, both
intraregional and total trade, and not to trade diversions.
         Therefore the Buenos Aires Act, signed
in July of 1990, established a new methodology of integration based on a
general and automatic liberalization of trade leading to zero tariffs to
intraregional trade by December 31st 1994. Although the Act allowed for the
sectoral agreements of the past, the process of integration was now focused on
the elimination of barriers to trade.
         This new strategy was formalized in the
1991 Treaty of Asuncion that incorporated Paraguay and Uruguay to the
integration process and legally created MERCOSUR. At Asuncion, MERCOSUR members
lunched the Program of Trade Liberalization that implemented a linear and
progressive reduction of intraregional tariffs and agreed on the elimination of
non-trade barriers. The implementation of the Treaty of Asuncion resulted in
four years in which intra-MERCOSUR tariffs were lowered by 7% every six months.
      Instead of the positive lists of
goods that the PIEC had allowed to be liberalized, the new strategy adopted
negative listing that included temporary exemptions to the rule.
         This automatic and linear reduction of
intra-MERCOSUR tariffs made the evolution of the domestic economy of members
increasingly influential in determining the volume and direction of the flow of
regional trade. As a consequence, the politics that condition the competitiveness
of the different sectors of the economy became an important part of the agenda
of negotiations (Motta Veiga 95).
          The coordination of macroeconomic variables
and the level of harmonization of microeconomics policies intended in the
Asuncion Treaty became difficult to implement. As countries become more
interdependent, the asymmetries between them demand attention to coordinate
policies of promotion and the national regulatory framework. This is a
complicated process considering there is a trade off between the structural
relationship of the economies that belong to a preferential trade agreement and
the necessity/capacity to harmonize policies. Without high interdependence
there is little demand for coordination, and without harmonizing policies is
difficult to expand the structural relationship between the economies (Porta
96).
         These elements became all the more
important after the 1992 summit at Las Leoas, when Mercosur members decided on
the establishment of a custom union to begin in 1995. This move gave less than
three years for the four nations to agree on a CET.

         During the transition phase, the
different development of the economies of Argentina and Brazil made bilateral
relations difficult and threatened the consolidation of the custom union by the
last day of 1994. The Argentine economy grew almost four times faster than that
of Brazil. The cumulative real GDP growth between 1991 and 1994 was 10.5 % for
Brazil and 40 % for Argentina. Inflation was reduced drastically after the
Convertibility Plan applied in Argentina brought it down from 171.6 % in 1991
to 24.9 % the next year and then kept falling to 4.1 % in 1994.
         The opposite happened in Brazil were
the average inflation jumped from 440.9 % in 1991 to over 1,008 % in 1992 and
then doubled the next year to end at 2,244.5 for 1994, the year the Plan real
was lunched. In addition, the development of the exchange rate between the
Argentine and Brazilian currencies followed different paths. 
         After convertibility, Argentina fixed
the peso with the dollar and experienced a reevaluation of the currency that
had an important effect on the flow of trade. Between September of 1991 until
August of 1994, Argentina accumulates a trade deficit with Brazil, partially
compensated at the end of 1992 with ad-hoc agreements over grains and oil
(Lavagna 96).

         Since the end of 1992, the automatic
process of linear liberalization was complemented by a parallel process of
ad-hoc intervention that sought to compensate for the asymmetries produced by
the lack of coordination. These ad-hoc interventions were prominent in the
automobile, machinery, electronics, pharmaceutical, paper, iron and steel, and
textile sectors.
         The asymmetry of macroeconomic
variables previously mentioned resulted in an unbalanced distribution of costs
and benefits that led to sectoral dissatisfaction and unilateral restrictions
in Argentina.
         The Treaty of Asuncion included a
safeguard clause that could be used until 1994 to temporarily lift the
preferential treatment negotiated if it was proved that a massive inflow of
imports was threatening to cause serious problems. Between 1991 and 1994
Argentina utilized this mechanism ten times against Brazilian imports.
Argentina also adopted non-tariff barriers such as the elevation of a statistic
tax to Brazilian products from 3% to 10% in October of 1992 and anti-dumping
measures in 1994. After 1993, when the average tariff for Argentina had
surpassed that of Brazil, negotiations resulted in concessions to facilitate
the export of Argentine energy, wheat and wheat flour. The vacuum provided by
the lack of sectoral or regional reconversion and adjustment designed to smooth
the transition towards a custom union was filled by these ad-hoc measures.
         During the transition period, the
economic establishment of Argentina had serious reservations about the future
of the Brazilian economy and voiced support for a Chilean strategy of
multilateral liberalization and preference for an association with the United
States. After President Clinton failed to received fast track authority to
negotiate Chile’s inclusion into NAFTA from a Congress reluctant to approve
further free trade agreements, Argentine preference for NAFTA faded away.
         At the same time that the NAFTA option
became less probable, Mercosur continued to make members’ economies more
interdependent and politically committed to the fulfillment of the custom
union.
         Despite a context of divergent economic
performance during the transition phase, a series of factors contributed to
diffuse the costs of integration. The availability of abundant external
financing until the end of 1993 reduced the conflicts generated by the uneven
flow of trade. External financing and the simultaneous process of automatic
liberalization of trade with ad-hoc interventions, helped to improve the
management of sectoral pressures arising from the rapid growth of
intra-Mercosur trade (Bouzas 96).

         Between 1990 and 1995, intraregional
trade grew from 15% of total trade to almost 19%. In 1994 Brazil became
Argentina's number one export market, capturing over 20% of total exports.
Argentine exports to Brazil increased at an annual rate of 32%, while Brazilian
exports to Argentina did so at 44% annual average. During this period Argentina
became Brazil's third market for exports and imports, after the European Union
and the United States. This rise in intraregional trade has gone hand in hand
with the growth of total trade. Mercosur's exports to the rest of the world
continued to grow. Also, total imports for Mercosur have been greatly outstripping
the growth of exports (180% vs. 50% in 1990/95).
The markets open by intra-group
liberalization helped the exports of manufactures, specially cars, car parts
and machinery. This had been an important goal when the process of integration
began in 1986. By 1995, the first year of the custom union, almost half of
Argentina exports to Brazil, and almost 85 % of goods sent in return were
manufactures. Much of this intra-industry trade resulted from a methodology of
integration that favored intra-sectoral complementation in oligopoly
industries.
         The flow of trade within these sectors
was characterized by managed trade agreements fostered by the private sector.
These sectoral agreements provided firms with a way to lessen the effects of
preferential liberalization.
         The extended market offered
opportunities for rationalization and specialization, particularly to large
firms with better lobbying capacity and in search for protection from the
process of liberalization. The Treaty of Asuncion already provided a special
treatment to the automotive industry. The agreement stipulated quotas for the
free trade of finished vehicles and car parts, together with additional quotas
for automobiles. Although the automotive sector was an important part of the
domestic industrial policies of Brazil and Argentina, coordination was limited
to the regulation of bilateral trade. In fact, the only officially approved
agreement on complementation was in the iron and steel industry.
         After the Real Plan was lunched in the
second half of 1994, Brazilian currency began to increase in value and
Argentina again experienced a trade surplus. The renewed growth experienced by
the Brazilian economy during 1994, and the appreciation of the currency after
the Real Plan of stabilization, exerted great influence and offered incentives
to other members to continue negotiations for the CET. During the first year of
the Plan Real (7/94 to 7/95), the peso depreciated by 20% with respect to the
real (Ferrer 96).
         In summary, the different evolution of
the economic programs generated macroeconomic and sectoral imbalances leading
to an almost chaotic treatment of conflicts “as they surfaced”. Although the
Mercosur’s methodology in transition to a custom union came short of achieving
a high degree of complementation or harmonization between members’ economies,
it nevertheless deepened integration commitments.
         Intra-Mercosur trade grew six fold
between 1985 and 1995, at an average of 22% each year. During those ten years,
intraregional trade jumped from 5% to 20% of world trade. Presidential summits
and numerous contacts between high and medium level officials was well under
way by the time the CET was reached. The difficult negotiations over a CET and
the constitution of a custom union demonstrate the importance that all Mercosur
members assigned to the fulfillment of the integration agreements.

III
- Consolidation and Expansion

         Mercosur began to function as a custom
union on January 1st, 1995. The common external tariff (CET) applied covered
85% of goods and had an average of 14% and a maximum of 20%. The other 15% of
trade has different national tariffs that range from 0% to 35%. The exemptions
to the norm were in capital goods, computer related equipment and
telecommunications. Tariffs on capital goods were to converge at 14% in the
year 2001, while computer and telecommunications equipment should do the same
at 16% on the year 2006. There were also national lists that included some
products temporarily exempted from the CET.
         Mercosur has led to the convergence of
administrative norms regarding product sanitation procedures and on the
treatment of bi-national companies. The opening of offices of representation,
the purchase of stocks, the establishment of subsidiaries and the creation of
joint ventures have incentive cooperation in the private sector. Net foreign
direct investment in Argentina and Brazil has been growing since the beginning
of the PIEC and total almost 40 billion dollars between 1987 and 1996.
         Brazilian companies, larger and with
greater international experience, have been more active in penetrating the
extended market. In addition, intraregional trade continued growing and by
1996, the Brazilian state of Sao Paulo had displaced the United States as the
largest single destination for Argentine exports.
         Mercosur has also helped to consolidate
the political gains of military détente, denuclearization, and democratization.
The denuclearization agreements reached in the first half of the 1990s
represent a remarkable change in Southern Cone politics.
         The Brazilian-Argentine Agency for
Accounting and Control of Nuclear Materials (ABACC), a bilateral institution to
overview a joint accounting and inspection regime, has been in effect since
1991. Argentina and Brazil now conduct joint military exercises, something
unthinkable twenty years ago. Soon both militaries will begin peacekeeping
training.
         Mercosur was a decisive force in
preserving Paraguay from returning to military rule after a rebellious general
threatened President Juan Carlos Wasmosey in 1996. In April of that year,
Mercosur’s foreign ministers arrived in Asuncion and threatened the general
with diplomatic and economic isolation. It is a prerequisite for members of
Mercosur to have democratically elected government.
         One of the first problems found by the
Mercosur after the establishment of the custom union was aftermath of the
collapse of the Mexican currency in December of 1994. The large amount of
capital pulled away from Latin America, hit the region hard. Argentina, with
the peso fixed by law at par with the dollar, was hit hardest, experiencing a
decline in GDP of -4.6%. Since 1996 both economies have been in low gear, with
a 3.5% GDP growth for Argentina and a 3% growth for Brazil.
         The next objective for Mercosur will be
to deepen the commitment to the common market. Mercosur still needs to address
several important elements if it is to reach a true common market. Some of its
most immediate are: the harmonization of custom procedures; standardizing and
streamlining rules and regulations; improving transport links; the non-tariff
trade barriers that affect intraregional competitiveness; and labor and tax
regimes. Customs procedures, including rules of origin, are easier issues to
resolve. Non tariff barriers to trade offer greater difficulty because these
are difficult to detect and because of the constant changes in legislation and
regulations demanding agreement (Bouzas 96.)
         The need to promote a convergence of
standards and regulations will contribute to the practical implementation of
Mercosur’s objectives..
         Brazil’s primacy in Mercosur is similar
to that of the United States over NAFTA. This structural situation has made
Brazil the main force behind the shaping of Mercosur. Brazil, reluctant to cede
sovereignty, wants a wider, rather than a deeper, union. Argentina, in turn,
favors a European Union style of integration and included the authority of
supranational institutions in the 1994 Constitution.      Recently, President Menem suggested, and President Cardoso agreed,
on the need to discuss the probability of a common Mercosur currency. For the
smaller countries of Paraguay and Uruguay, there is little choice but to follow
the steps of their main trading partners, although they clearly prefer a deeper
union with no rapid expansion that can threatened their competitiveness. The
first enlargement of Mercosur came in 1996. Chile was the first country to be
admitted as an associate member on mid 1996. Bolivia soon followed and also
became an associate member that year. Peru and Canada have requested
association to Mercosur in 1997.
         A crucial objective for Mercosur’s
future will be to strike the right balance between the sovereignty of the
nation state and the need for common market institutions. Brazil wants to see
Mercosur’s methodology of integration to continue with a minimal of
supranational institutions, and with decisions taken by consensus.    This is certainly an innovation from the
previous Latin American experiences of excessive bureaucratic apparatus and
little ability to generate real economic integration. But the lack of an stable
and effective mechanism for dispute settlement has high costs.
         So far, Mercosur’s decision-making
power rests with the inter-governmental Common Market Council, made up of the
foreign and finance ministers of the four members.  In reality, no Mercosur bureaucracy exists,
aside from a tiny secretariat in Montevideo. The most important and
controversial decision have been resolved by the Presidents themselves in their
twice a year meetings. The costs of this choice for “presidential diplomacy” is
that even smallest disputes have tended to escalate and ended up being settle
by the national presidents.
         The establishment of the custom union
have not stopped Brazil from acting unilaterally in several occasions. The
costs of rapid trade opening in Brazil, like earlier in Argentina, have led to
intermittent domestic pressure for selective protection. These decisions raised
serious concerns in other members of Mercosur. First, in 1995, Brazil suddenly
elevated tariffs on some car imports; the following year, it required textile
imports to be paid for within 30 days rather than 180[1]; and lastly in 1997
when Brazil, concerned with a mounting trade deficit, limited credit to pay for
imports. All Mercosur members were eventually exempt from these measures, but
only after difficult and sometimes embarrassing negotiations.
         Brazil has also shown flexibility. It
did not insist on a weighted voting system inside Mercosur and agreed to a
lower CET than originally thought. Since the 1995/96 recession in Argentina,
Brazil has had a trade deficit with the rest of Mercosur. The opening of the
Brazilian market to Argentine lubricants on May of 1997 was a decision
long-awaited for in Buenos Aires. This measures allows for 100 to 150 million
dollars of exports, that would give Argentine companies 10% market share in
Brazil.
         Brazil has powerful motives for wanting
a strong and committed Mercosur. While Brazil’s weight in world trade has been
declining for years, south American markets represent the fastest growing
market for Brazilian manufactures. Brazilian companies have been the best
suited to take advantage of the expanded market and to prepare themselves for
worldwide competition. It is also true that Mercosur adds diplomatic weight to
regional interests.
         Mercosur members now negotiate their
commercial relations to third countries as a block. Mercosur’s diplomatic role
has visibly increased since the first years of integration. Mercosur signed an
agreement with the European Union in December of 1995 that sets a tentative
target for free trade by the year 2005. The EU is Mercosur’s largest single
source of external trade and investment.
         The Free Trade Agreement for the
Americas (FTAA), if such an project is to be achieved, will be based on an
agreement between NAFTA and Mercosur. This means that a precondition for FTAA
will be an understanding between the United States and Brazil. Brazil is
interested in preserving an open, multilateral world trade. Brazilian exports
markets are well diversified, as the direction of trade in 1995 shows: 27% went
to the EU; 21% went to NAFTA; and 18% to Asia.
         The discrepancies between the United
States and Mercosur over the steps to achieve a FTAA surfaced again in the 1997
meeting of foreign ministers from the western hemisphere. The US pressure
Mercosur to open markets, without a compromise to reduce the domestic
agricultural subsidies the greatly affect Latin America. Mercosur and private
business associations from Latin America proposed a modality of negotiation
based on three steps: first, to facilitate business transactions by eliminating
non trade barriers; second, the harmonization of technical standards; and
finally a reduction of tariffs.
         The United States insisted on the
opposite sequence of steps. The United States, through Commerce Secretary, W.
Daley, conditioned the lifting of trade barriers for such products as textiles,
fruit juices, footwear and cigarettes, to Brazilian agreement on a negotiation
over tariff reductions for Mercosur. Brazil answered with a call to gradual
consensus. Finally, at this meeting no agreement was reached.

IV
- Conclusion

         Mercosur’s first and foremost challenge
will be to maintain macroeconomic stability and growth while keeping an open
trade regime. Mercosur is still short of a full fledge custom union. The
effective implementation of the CET is still being worked out and free access
to intraregional markets continues to be affected by a number of local
regulations.
         The discussion over trade in services
and negotiations over the mobility of labor have not even began.
Further
implementation of the CET could give raise to discussions over the
redistribution of custom procedures. Notwithstanding its lack of
institutionalization, Mercosur is a success story in economic integration
between developing countries.
         The future of Mercosur depends on the
simultaneous transformation of the economies of Argentina and Brazil, and on
the advancement around this progress, of Paraguay and Uruguay. The formation of
a homogeneous pole of industrial and technological supremacy on Brazil
threatens the prosperity of all members. The managed trade agreements have had
greater importance for Argentina, particularly those in the wheat, oil and
automobile industry. Mercosur offers Argentina the possibility to
re-industrialized, change its traditional pattern of exports, and foster
technological improvements.

         Mercosur’s consolidation will allow
their members to become more competitive in world markets. It will also give
greater diplomatic pulling to the region. This is already evident in the
negotiations over a FTAA. The enlargement of Mercosur to include other
countries into free trade agreements is already under way. The dynamic growth
of intraregional trade has persisted for the last twelve years and it will
probably continue for a few more.
         Unlike the European Union, Mercosur has
lacked a supranational bureaucracy in charge of administrating the process of
integration. Mercosur’s reliance on contacts between high level officials and
presidential meetings, intended to avoid excessive demands on national
governments.
         Nonetheless, the growth of
interdependence between Mercosur members demands attention to the establishment
of a dispute settlement mechanism and to the specification of members’ rights.
the eventual implementation of fair practice regulation and a safeguard clause
will demand the establishment of some sort of supranational institution. this
is a difficult arena of negotiations, where Mercosur members have been
particularly cautious.
         The convergence of macroeconomic
performance since 1994 did not modify the divergent approach to fiscal and
monetary policy in Argentina and Brazil. The lack of mechanisms for
coordination demands attention to the exercise of better communication between
officials and to greater transparency in domestic objectives affecting the
union at large.
         Although the parity between the
Argentine and Brazilian currencies appears to be an important determinant of
the flow and direction of trade, coordination over this issue seems unprobable
in the short-term.
         The harmonization procedures should try
to eliminate the distortions to competition created by public policies that
influence the advantage of particular sectors. The technical competence and
judicial objectivity of some kind of supranational institution should replace
the presidential ability to make political deals. Instead of regional funds or
a Mercosur parliament, what the union needs is an institution, such as a
regional tribunal, with powers of arbitration similar to those of the World
Trade Organization.
         The progress achieved by the process of
integration since 1986 has been unprecedented in Latin America. Mercosur’s
accomplishments extend beyond impressive growth of intraregional trade, to
include the formation of a custom union, the coming together of private
businesses, and a common external policy. The future requires Mercosur to
simultaneously deepen their commitment and enlarge their membership.
[5]
         Within the next twenty years, a free
trade area in the western hemisphere will probably be established. Mercosur’s
new role as a regional model for integration and as a global trader will give
South America greater diplomatic power to negotiate a favorable insertion of the
region in the international economy.
Conclusion

         The global economy links together the
world community. The flow of cross-border funds is private now - no government
is involved, therefore the bureaucracy is eliminated. China-related
opportunities (pension funds). Movement of both investment and industry has
been facilitated by information technology.
         Individual consumers are therefore more
global in orientation . All these four I's work just fine on their own, nation
states more often just get in the way (given their own troubles) and state
intervention is absent.

Region
states are Hong Kong, or the Kansai region around Osaka, or Catalonia - where
real market flourishes - global solutions correspond to the more focused
geographical units. The rise of the superregions as true natural business units
in today's global economy.

         In today's borderless world, lines of
demarcation on the political map are irrelevant as the currents of global
economy punishes twinging countries by diverting investment and information
elsewhere. The question that arises is what are the consequences of the
globalization? What are the fissures it provokes?

         Nobody argues more forcefully than
Roderick that the world economy faces a serious challenge in ensuring that
international economic integration does not contribute to domestic social
disintegration. The three major sources of tension between globalization and
social stability that pose a challenge to the architects of the globalization
remain: the transformation of the employment relationship, conflicts between
international trade and social norms, and the pressures brought to bear on
national governments in maintaining domestic cohesion and social welfare
systems.
 -//--------------------------------------------------------------------------

Olga
Lazin



Chapter II
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 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.
                  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.
                  "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 (Sáiz, México 75 años  de Revolución, 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 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.
         World War I and world economic
depression between 1929 and 1939 had set the rise of civil society in Western
Europe and the USA back.  To face these
emergencies, state power was seen as necessary for political and economic
defense. In the USA, the New Deal’s 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.
                  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 of noblesse
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,
[6] 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 society’s four sectors,
NGOs constitute the fourth.
[7]
NGOs
are autonomous free associations of individuals and groups who may or may not
depend on income from the state (society’s 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 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.
[8]
                  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
[9]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
state’s authority.
                  In its early stages, the
intelligentsia who helped the communists preach to the workers that
nationalization would benefit the masses justified the process of
collectivization and heavy bureaucratization. 
This type of “associatedeness” resulted in the destruction of
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-1940, 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
[10]. 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. Vacláv Havel
called for people to "live within the truth," independently of
official structures, and even to ignore the official political
[11]. Vacláv Benda called on population to
"remobilize" within the civil society.
[12] The break with the régime 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 György
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.”
[13]
                  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.
                  Political stirrings in Eastern Europe
took off gradually, then, first in rather ensconced forms such as "flying
university" lectures and writings in Samizdat publications.
[14] 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 creating independent space for thought
[15].
                  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
[16].
                  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.  Such society had shown
a spark of life after the 60s, provided the civil nuclei that eventually became
a serious challenge to the state.
[17]
                  In Czechoslovakia, political
activists seized upon Chapter 77 of the Helsinki Human Rights Accord to
anticipate a new type of politics.
[18] 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, Ceausescu’s
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, and no
organized urban socio-political activity took place in the 1980s.
[19]
                  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
                  The Ceausescu dictatorship (1965-1989)
has left the country in total chaos. 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
[20].
                  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.
[21]
                  The first three years of
Iliescu’s 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.
                  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 Romania’s
nascent civil society are complex. 
First, there are 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 Dorel Sandor (1994,) there is a
chance that at least some of those who leave the NGOs will use their influence
to support the nongovernmental sector.    
[22]
                  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.
[23]
                  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.
                  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 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,
[24] 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.
[25]
         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.
[26]
         At the national level, countries such
as Romania have to create the true diversity of organizations that operate with
crosscutting 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.
[27]
                  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 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 Europe’s 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.
[28]
                  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.
[29] 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.
                  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.
[30]
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.
[31]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.

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%
[32]
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.”
[33]
         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 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 minority’s headquarters. It was there
that the playwright Andras Sütö 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
Eastern European Background and

Controversial Impact of Foreign Aid in Romania
*definition
         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 their own organic evolutionary path with rebuilding of the
dimensions of social plurality.
[34]
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.
[35]
                  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.
[36]
 The state has to step back and has to
recognize and allow the NGOs to 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.
[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 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.
[38]
 I am not arguing here that democracy
assistance should be discontinued, but commitment should come within Romania,
from nongovernmental civic and community groups, trade unions and professional
associations. The global movement toward democratic politics, in Carothers’
report, had proved to be very difficult in Romania.






The Mexican Case

         Although the term NGO has a complex
meaning, in Mexico, as Sergio Aguayo, the head of the Asociation Civil movement, has pointed out, the idea of the NGO
tends to be identified with political protests, environmental and human rights
groups.
[39]
Now
we know there are NGOs for biospheres, ecology, research centers, protection of
abused women: the term is not so limited as the analysts perceive it.
         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. One major coalition, the pacto de
Guadalajara
[40], resulted in offering a workable alternative
to public housing politics, literally bringing in the state as a promoting
agent in financing housing for underprivileged Mexicans.
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.
[41]
         In
the networking of NGOs that reflects 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.
[42]
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 world’s 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:
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 or QUANGO        
                  (discussed
below).
NPO (Non-Profit Organization) sector and
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 

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.[43] 
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 of FPPO investment funds into Mexico, few are aware of the model
achieved by Mexico for attracting the inflow of TEO 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
state’s direct and 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:
ainflow 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 donations from foreign as            well as domestic investors.
                                   ii. tax free transfers of 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 private firms 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.    
         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 appear under the code usually called "501C3s."
         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” or ATEO (see also Table 2). The ATEO is not eligible to receive funds
from the U.S. GMF.
         TEOs are the “fourth sector” of
society’s 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.
[44]
         Table
1 lists examples of the NPPOs categorized in Charts A and B, and it classifies
them by main functions.
[45] 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. The fact is that NPPOs range from
foundations to NGOs is shown in Table 1. The former usually makes 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.




Civil
society and Its Implications

Add Buckovski’s quote
         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 yields, on the one hand, the
interesting insight that the dualist model wrongly casts civil society and
government in completely pure, contrasting categories.
[46] 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-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 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 “civil-ized” 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. Buchowski’s 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 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.
[47]
         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.
[48]




The
Changing Face of American Philanthropy
          America's non-profit sector is healthy and
effective. It is built 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.”
[49]
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.
         American civic politics is being
dramatically transformed by fundamental shifts in philanthropy. Bill Gates has
recently set the agenda of wiring the nation's free-library system, which was
originally established mainly by the philanthropy of Andrew Carnegie in an
earlier era. George Soros is using philanthropy to urge an end to the War on
Drugs. Milken and Annenberg are using philanthropy to forge new entrepreneurial
activity.
[50]
         The strength of America's  non-profit sector lies in people's freedom to
choose the cause they want to support. As the experiences 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.
The
myriad of associations have perfected their strategies for a cosmopolitan
community, orgnized internationally in network forms
of  organization characterized by voluntary,
reciprocal, and horizontal exchanges of political information and services.   
The direct result of this phenomena is also
today’s criticism of  IMF and World Bank
policies by students, civil society activists, religious groups, environmental
groups, organized labor and ad-hoc coalitions which I consider essentially
short-sighted.
The
“civil society” in this case is directing its actions against two driving
forces of globalization and standardization that actually promote development.
The protests at Seattle and Washington against globalism makes use of publicity
tactics –a “social netware”- to generate support abroad.
[51]
         The movements strength lies in its lack
of hierarchical structure, lack of a “head” made it hard to “decapitate”.
         This has proved to be a weakness as in
the case of the highly praised Zapatista model (campaigned against NAFTA) and
its transnational networking linking local activists with media and activists
abroad that used increasingly sophisticated techniques, proved to be of no
avail ultimately, losing its center of gravity.
         Shifting away from the mediating
approach, lately, even radical tactics have been adopted, such groups as ELF,
representing the ecological movement, intend to inflict financial damages on
corporations, since they are unresponsive to their ecological and workers
needs.
[52]

Yet without the PC (term coined by the
networker Stewart Brand) networking might have remained stuck (the IBM PC
launched in 1984, the world wide web, created by Tim Berners-Lee, in Europe).
The Net facilitated the social and political liberation in diverse places such
as China, Mexico and Myanmar.
Extra
reading:

Lazin
shows how the role of the state has declined in the face of globalizing world
trade blocs, which have helped citizens to organize internationally as statist
social safety nets have declined.
Students
are invited to bring in articles that compare the positive and negative views
of globalization.

         Selections representing pessimism will
be taken from two recent critiques of Globalization

                  Samuel Huntington’s The Clash of
Civilizations 
(1996), and
                  Dani Roderik’s Has
Globalization Gone Too Far?
  (1997).

These
authors (influenced by pre-1989 thinking) speak to the concerns of many
important analysts.

Student Discussion in class will focus on the above reading and
upon each student’s weekly reading in current newspapers and magazines.

Course requirement and Project:  Students are required to write a paper and
a Final project.
  Students will bring
to each class and distribute two articles which they see as contributing to the
understanding of globalization and/or the raising of questions about the
problems created by globalization.

Grading: 

1.  Class Participation (15%) This
includes both verbal contributions and active listening in class
discussions.   Students are expected to
come to class ready to discuss the readings.

3.  Midterm Exam (25%) This exam will be
comprised of both short answer and essay questions.  Blue books are required. 

4.  Final Project (25%)  Students will compile their weekly clippings
into a booklet about which they will write a 3-4 page paper analyzing the
extent to which the clippings help us to understand and/or question the course
outline.

5.  Final Exam (35%)  The final exam will be comprised of both
short answer and essay questions.





       ACTIVITIES
& DISCUSSION          Read
in Advance 


Introduction
to the Course.
               
Financial Globalization and Its Social Impact
                  in Latin America.

                   Reading: Handout via email.
A.
NAFTA and the European Union               Online Article  Link: http://www.olgalazin.com



B.
World Film and Global Markets.

Reading: Dani Roderik’s Has
Globalization Gone Too Far?
  (1997),
Chapter 1.



Lecture on:

           
“Cycles of State Power Vs Globalization: The powerful State
              1430-1930,
Anti-Statism from 1830 to 1930, Statism from               1929
to 1989, and Anti-Statism Since 1989”

Reading: Dani Roderik’s Has
Globalization Gone Too Far?

C. Conclusion










[1]
Teodor Melescanu, “Noua era a
tarilor mici, ”Lumea Magazin, , 28 Jan,
2000http://www.lumeam.ro/nr4_2000/noua_era.html


[2]  Iván, Berend, Central and Eastern Europe 1944-1993 Detour From the Periphery to the periphery , Berkeley, University of California,
1993, p. 218


[3]
Mediafax, Bucharest, April, 1997, p.
6


[4]
Mircea, Daniciuc, Romania Libera,, Bucharest,
1995, p.5


[5]
Richard Rosecrane, “The End of War Among Trading States,” New Perspectives Quarterly, February, 1995, p. 9


[6]
This analysis of the  QUANGOs grows out
of my 1992  discussions with Thomas
Carothers  at USAID Mission in Bucharest.
Carothers (author of Assessing Democracy Assistance: The Case of Romania,
1996) is concerned that the QUANGO (known in the USA as the GONGO--government
organized NGO) offers incentives that NGOs cannot, e.g. connection to the
government, free benefits from the QUANGO, etc.


[7]Many
analysts of charitable activity mistakenly think that the NGO sector is  the “the third sector” in society  which supposedly has only two others:   the private and public sectors. In reality,
the mixed private and state sector constitutes the third sector.


[8]
Stokes, 1996, passim.


[9]
Gellner, 1991, p. 495.


[10]
Jan Jósef Lipski, KOR A History of the Workers’ Defense Committee in Poland
1976-1981
, 1985, p. 183


[11]
Václav, Havel, The Power of the Powerless, 1990, p. 45


[12]  Vaclav, Benda, The Parallel Polis, 1978, p. 15


[13]
Elemér Hankiss, East European Alternatives, New York, Oxford University Press,
1990, p. 147


[14]
Ivan Berend, Central and Eastern
Europe
1944-1993 Detour From
the Periphery to the periphery
,
Berkeley, University of California, 1983, p. 10


[15]
Jan Jósef Lipski, KOR A History of the Workers’ Defense Committee in Poland
1976-1981
, 1985, p. 90


[16]
Jan Jósef Lipski, KOR A History of the Workers’ Defense Committee in Poland
1976-1981
, 1985, passim


[17]
Vladimir, Tismaneanu, *1996, p. 145


[18]
Tismaneanu, 1996, p. 144.


[19]
Griffith, 1990, p. 172


[20]
Andrew, Arato, 1990, p. 14


[21]
Carothers 1996, p. 67


[22]
Dorel Sandor, 1994 p. 37*


[23]
*Lucian, 1994, p. 39


[24]
PROFMEX is consulting with the University of Cluj to develop the idea of
establishing in Romania  foundations that
will automatically be recognized by the U.S. IRS, as are Mexican foundations.
Such recognition expands the  base of
donors and eases the flow of tax exempt funds.


[25]
Michael, Buchowski, *1996, Chapter 4.


[26]
Hann & Dunn, Civil Society Challenging Western models, New York: Routledge,
1996, p. 126


[27]
Lucian in Regulating Civil
Society
, 1995, p. 76


[28]
Lucian,  1996, p. 70


[29]
Regulating Civil Society 1995, p. 76


[30]
“Charitable activity,” as defined in the USA (which has the world’s most
comprehensive law as well as the largest and most important pool of foundation
funds), encompasses what I call the HEW-SEC-L spectrum: health, education,
welfare, scientific, ecological, cultural, and literary activity, be it in the
USA or anywhere in the world. See the blue-prints project.

[30]
Ballesteros, Nino, C. , "Rocatti Rechazza las  aberrations de Al", Epoca,
México, D.F.,  Octubre 1997,  No. 332, p. 12


[31]
Katherine, Verdery, 1996, 106


[32]
Transitions, Open Media
Research Institute, Vol. 7 February 1997, p.4


[33]
Salamon, Lester, “Civic Society in Eastern Europe,” Foreign Affairs, Vol. 73, 1994, p. 113


[34]
Dorel, Sandor, 1995, p. 36


[35]
Vladimir, Tismaneanu,  1996, p. 182


[36]
*“Difficult Transition,” Los Angeles
Times
, February, 1997


[37]
Sandor Dorel, “Romanian Nongovernamental Sector,” Regulating Civil Society,
Sinaia,, may 11-15, 1994, p. 37


[38]
Thomas, Carothers The Learning Curve, Washington, Carnegie Endowent for
International Peace, 1996, pp. 92 - 94


[39]
Ballesteros, Nino, C. , "Rocatti Rechazza las  aberrations de Al", Epoca,
México, D.F.,  Octubre 1997, No. 332, p.
12.


[40]
Jose, Luis Méndez, “Las ONGD hábitat, entr el estado y el mercado,” Organizationes
civiles y políticas públicas en Mexico y Centroamerica, México, Academia de
investigatione en politicas publicas
, Miguel Angel Porrúa, D.F., 1998, p.
166


[41]
John, Arquilla and David Ronfeldt, The Zapatista Social Netwar in Mexico,
RAND Arroyo Center, 1998



[42]
Sergio Aguayo, Las Organizaciones No Gubernamentales de Derechos Humanos en
México: entre la democracia participativa y la electoral
, Ford Foundation,
1997, p. 14


[43]  Even though Mexico is a small country, it has been able
to play a large role on the world free-trade stage--see James W. Wilkie and
Olga M. Lazin, “Mexico as the Linchpin for Free Trade in the Americas,”  in James W. Wilkie et al., eds.,
Statistical Abstract of Latin America
(SALA), vol. 31:2 (1995), pp.  1175-1203. 
On Mexico, the USA, and global trade, see Olga M. Lazin, “Emerging World
Trade Blocs: The North American Free Trade Area and the European Union
Compared,” in the same volume of SALA, pp. 
1205-1219.


[44]
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.


[45]
It is important to note that under U.S. TEO law, the NPPOs given in Charts A
and B and in Table 1 are all classified as “501c3s.”


[46]
Hann and Dunn, 1996, passim


[47]
*Salamon, 1994, p. 112


[48]
The Economist, 18 January, 1997. p.
2.


[49]
Dorothy Riding, The Economist,  April 18, 1997, p. 2


[50]
Schrage, Los Angeles Times, p. D4.


[51]
Joseph, Kahn, “Globalism Unites Many-Striped Multitude of Foes,” New york Times, April 15, 2000


[52]
Murphy, Kim, “Disruption is Activists’
business,” Los Angeles Times,
               April
25, 2000



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