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Fizzle 1992?
The Editor's Chair
Fizzle 1992? Terry Clark, Guest Editor
f we are to believe the conventional wisdom, the unification of EC member markets by the end of 1992 will produce the largest single market in the world. Related branches of this wisdom describe the situation either negatively, in terms of "fortress Europe," or positively, as "Europhoria." If we are to draw the seemingly inevitable conclusion from the burgeoning conferences, papers, and special reports, Project 1992 is spot on, inevitable, as good as done. Further evidence can be adduced from the fact that Project 1992 is proving to be something of a bonanza for consultants, who have had many takers for their advice and insight on how to prepare and position companies and products to enter and exploit the unified European market. They say faith can move mountains. A lot of people believe in Project 1992. However, they also say "all that glistens is not gold," "look before you leap," and "there's many a slip 'tween the cup and the lip." In this spirit, we would like to swim against the tide a bit and take a different sort of look at Project 1992. We would like to ask not "How will it shake out?" but "Will it shake at all?" Bridge builders speak of "the mechanics of standing up" and "the mechanics of falling down." They say that a bridge has two sets of forces acting upon it--those, such as design factors and material strength, that work to hold it up, and the others, such as gravity, decay, and normal usage, that work to pull it down. The bridge remains standing so long as the mechanics of standing up overwhelm the mechanics of falling down. When the mechanics of standing up poop out, the bridge falls. Vastly more complex though it is, Project 1992 is not unlike a bridge. It too has its mechanics of standing and its mechanics of failing. There are numerous factors at work that seem to promise dazzling success for the project. And although they receive less attention, there are also factors that seem to bode ill. If Project 1992 is like a bridge, then what are its mechanics of standing up? What are its mechanics of falling down? Will
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Fizzle 1992?
it stand? Will it fall? No one can give a definite answer to these questions at the present time. The past is certain; the future remains to be told. The real world is a complicated place. Perhaps the best way to prepare our companies, products, people, and markets for such imponderable complexities as Project 1992 is not to pronounce our certainties, but rather to consider and reflect u p o n all the issues that will make up the future with which we will eventually have to contend. This article briefly examines some of the factors that, in one way or another, will create the business conditions in Europe and affect business conditions in the rest of the post-1992 world. If it does its job well, it will raise more questions than it will answer.
The wheel of fortune is still spinning on Project 1992; businesses must be prepared for whatever result emerges.
THE MECHANICS OF STANDING UP
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hesterton called "tradition" the majority vote of the dead. A cursory glance at the recent press on Project 1992 suggests that the majority vote of the living assures that it will stand. Presumably the voters are not ill informed. The bridge stands (or will stand), it seems, on the basis of the combination of at least five factors: 1) a motivating vision; 2) collective will; 3) bureaucratic inertia; 4) realities created by foreign direct investment chasing 1992; and 5) realities created by "hype intangibles." We will discuss each of these in turn. A m o t i v a t i n g vision. The motivating vision for Project 1992 is essentially an anti-war vision that has been coalescing for centuries. Its origins can be traced to the battlefields of Waterloo, Sedan, the Somme, and the beaches of Normandy. The vision has taken numerous forms, and has 3
grown in strength over the years. It enjoyed support in 1918, after the "war to end all wars" convulsed and sickened a generation. But Europe took up arms again in 1939. When the guns fell silent in 1945, the continent entered into the longest stretch of peace it has enjoyed since the period b o u n d e d by the Napoleonic wars and the Franco-Prussian war. Coming out of World War II, a n u m b e r of war-sick European leaders, inspired by the vision of a united peaceful Europe, signed the Treaty of Rome in 1957, giving birth to the EEC. The vision languished as the m e m o r y of World War II faded. However, it was taken up again "The motivating vision of b y Jacques Delors, Project 1992 is fundamenw h o retold the story of a unified peaceful tally an anti-war vision. Europe to a generaWhether clothed in the tion that had never k n o w n war. To jargon of economics or achieve this, the vithe heady phrases of sion was expanded to encompass the ideas political idealism, it is all of economic rationalone and the same. " ism and efficiency in a world of Japanese and American super traders. Delors's vision was made viable w h e n Lord Cockfield specified exactly what had to be done to make it a reality--his famous 300 Directives. These directives, along with a timetable, set a definite course to take. Again, the motivating vision of Project 1992 is fundamentally an anti-war vision. Whether clothed in the jargon of economics or the heady phrases of political idealism, it is all one and the same. Europeans have had a hard collective historical experience. This has led them to a strong collective desire to live together in peace. Over the years the vision has groped with numerous possible concrete realizations; currently, Project 1992 is the vision incarnate. C o l l e c t i v e will. Not entirely related to the motivating vision is the fact that a lot of individuals want Project 1992 to succeed, for m a n y different reasons, hnportant personages have careers tied to its success; governments have pinned to it their hopes of a brighter future for their nations; fortuitously situated companies are eager for the potential of economic gain; and otherwise uninterested parties, w h o have come to accept 1992 as a fait accompli, have set their shoulders to the wheel as well, lest they be left out in the cold. Even if the motivating vision grows cold, it may have pushed things along far enough for the determination of interested individuals, to do the rest and ensure that the project stands. Bureaucratic inertia. A p h e n o m e n o n often 4
observed in large projects is bureaucratic inertia. When the vision fades and the will of ordinary mortals weakens, bureaucrats can often k e e p the ball rolling pretty well for years. This is evidenced in the debate over the need for so-called "sunset" laws in the U.S., aimed at folding up government programs that have outlived their usefulness. If Project 1992 has nothing else going for it, it has bureaucrats! These dedicated m e n and women, busying themselves with such imponderables as "What should the European standard size for c o p y p a p e r be?" and "Under what circumstances should a Greek-speaking orthodontist from Thessolonica be allowed to set up shop in Hammersmith?" will k e e p the grizzly corpse stumbling forward long after life has left the body. Such questions accrue epic importance in the hands of bureaucrats. The effect of their energy for dotting the i's and crossing the t's should by no means be underestimated in the mechanics of standing up for Project 1992.
Realities created by foreign direct investment. Had the commercial sector remained skeptical, Project 1992 might never have gathered so m u c h steam. As it is, because so m a n y companies outside the EC became convinced that they might be "on the wrong side of the door w h e n it closes," the project gained viability. Realities have b e e n created. Project 1992 could have started as an elaborate practical joke, but because so m a n y top decision makers in the private sector n o w believe it to be deadly serious, its origin becomes somewhat irrelevant. NestK's acquisition of Rowntree, Nissan's huge investment in production facilities in Britain, and Ford's gobbling up of tiny Jaguar are not easily undone, even if Project 1992 ultimately collapses into the dust. Ideas have consequences, and the commercial world seems to believe the 1992 idea sufficiently to have acted u p o n it. Granted, much of the initial rush of investment was fueled by the negative interpretation of 1992 as "Fortress Europe." Today, more companies are taking the positive interpretation--1992 as "Europhoria." In the end, it all boris d o w n to decisions that are not easily undone, and that will therefore probably remain in place. The flood of investment in Europe has b e e n explained in m a n y ways: foot-in-the-door, market presence, n o w or never, Eurofear, creating Trojan horses for Fortress Europe, and so on. No matter, the bootstrapping effect is more or less the same. And not only non-EC companies have b e e n making the investments. There has b e e n a vast reshuffling of assets across the European table, no doubt in the h o p e of rationalizing production and distribution in preparation for a borderless Europe. Other considerations aside, these investment decisions tend to nurture conditions conducive to the success of Project 1992. Business Horizons / May-June 1991
Realities created by "hype intangibles." If you're having a problem understanding what 1992 means for your company, you don't have to look too far. Whole armies of marketing, finance, legal, political, accounting, and any-other-flavoryou-need consultants have sprung up, ready to make presentations, conduct investigations, write reports, prepare position papers, and talk your ear off. There is a real need for expert insight, but we must face facts--Project 1992 has b e c o m e a commodity, a product. As such, it has become associated with an awful lot of hype. For example, one advertisement in a leading business newspaper shows a picture of a combat helmet, and underneath it the copy, "4 days in Europe in 1990 could win you the Battle of 1992." Another ad put out by the French Telecom company teases with, "In the race for 1992, who'll put you first on line?" A conference on 1992 in Britain trolled for takers with the enigmatic "What Happens After 19927" These are all fairly typical of the way hype has moved in to color the picture. Once hype was injected, it became a real, often indistinguishable part of the 1992 landscape. One veteran of 1992 seminars (his organization, eager to stay a step ahead, has sent him to more than a few) was at yet another put on by an EC embassy in Washington D.C. At this seminar, designed ostensibly to educate Americans on the intricacies of the issue, our hero saw a colleague sitting a few seats away furiously taking notes as the ambassador poured forth. Curious to see what was so interesting, he leaned over and peeked at his note pad. The colleague had scribbled line upon line of: "Bloody boring! They all say the same thing! Bloody boring! It's all the bloody same!" It seems the hype merchants are churning it out all over the place. Aside from veterans such as my friend, most consumers of 1992 hear the message only once or twice, and manage to get quite excited about it. Quite right too! But like stockbrokers or car salesmen, 1992 hype merchants have a stake in how the punter reacts to the spiel. No question about it, hype creates reality. Or at least it can get people excited enough to make decisions that create realities. And it is not a small factor in the mechanics of standing up for Project 1992. However, it has to be acknowledged that hype often has only the slimmest connection with on-site realities. THE MECHANICS OF FALLING DOWN f the physical world was made up only of "standing up" forces, bridge builders would not have much to do. Solomon's temple would be standing yet. However, bridges stand and bridges fall. There are compelling reasons, as we have seen, w h y Project 1992 should be a
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Fizzle 1992?
stunning success. But just as compelling are the factors working against it. Decisions involving many billions of dollars are being made throughout the world on the assumption the project will succeed. Fortunes, careers, jobs, and market shares ride on the project's success. Thus, we should also consider what is arrayed against the success of Project 1992. If the bridge falls, it will be due to the action of at least six factors: 1) the inertia of history; 2) nationalism; 3) ideological tensions; 4) domestic political pressures; 5) sovereignty; and last but not least, 6) developments in Eastern Europe. The i n e r t i a o f h i s t o r y . This is the back side of the "motivating vision" mentioned in the previous section. So many Europeans long for unity and peace on their continent because they have so rarely had it. History runs thick in Europe. Although allies in two major wars in this century, the French and the British are not entirely cornfortable with each other. Divided by a mere strip of water, it often seems more like "There are compelling an ocean. The irrationality of this tension reasons, as we have is only highlighted by seen, why Project 1992 a perusal of popular objections to the should be a stunning Channel Tunnel success. But just as project: "Frenchmen compelling are the will steal English girls," "Disease will factors working against be transmitted all the it." more easily," "English soccer fans will invade France," and so on. The point is illuminated further by a consideration of the de facto exclusion of Britain from the EC by France (under de Gaulle) until the early 1970s. A litany of similar bilateral tensions could be recited for all of the major members of the EC: Spain/France; Britain/Spain; France/Germany; and so on. This is not to say that Europe is ready for war again. But having been neighbors for so long, the Europeans have come to view each other as neighbors so often do: with friendly disdain. Like the members of a close family, they know each other too well for idealism to be the basis of a lasting relationship. Nationalism. Closely related to the inertia of history is the unique sense and pride of national destiny felt by the major West European powers. This becomes a problem because the major powe r s - p r i m a r i l y Germany, France, and Britain-have different, often contending visions of their roles within Europe. In the end, nationalism is thicker than ideology, and probably thicker than the arguments for economic rationalization and efficiency as well. The British, of course, have 5
never really thought of themselves as truly European, This may explain Margaret Thatcher's "Eurohesitancy." The British sense of national destiny has traditionally been tied to the sea, and to a theater larger than Europe. Decoupled from the fortifying presence of empire, British national pride has not yet readjusted to new realities-although anyone in Britain during the Falklands crisis saw a surprisingly strong, surprisingly chauvinistic display of the stuff. Germany, historically a land-based power, has experienced two outbreaks of ugly nationalism in this century. But nationalism does not always have to be ugly to be a significant force in the fate of nations. There is every indication that the third round of German nationalism in this century is brewing, and that it will be positive-Germans are prosperous, and feeling good about themselves and their place in the world. However, it may prove destructive for 1992, especially in light of the recent German reunification. France has been in a wilderness for most of this century. Humiliated in two wars, the French have not been sure what to think of themselves or their nation. They have pretty well forged their own path since 1945. However, this seems to have gone a long way toward reforming the French national psyche. Until World War II, European history was the story of the give-and-take in the traditional balance of power among France, Britain, Germany, and other European nations. The brand of nationalism that fueled the historic European divisions has been in parentheses since World War II. After 1945, the Soviets began to cast their heavy shadow over the ~ continent, exerting a strong polarizing :'::,:= influence both East and West. The effect of this in the West East and,West:cannot: i::,:: was to draw nations together. However, bode, weft :for 1992,,:i ,: the Soviets' nationalism-neutralizing shadow no longer looms so large in 28 o f f a l l i n g ~ Western Europe. :: .... Oddly, the chain of :: : ,, : : ::: events sparked by i Gorbachev's glasnost and perestroika, which have led to what Zbigniew Brzezinski calls the "volcano of nationalism" in the Soviet sphere, will probably, in a milder, backhanded way, have the same effect in Western Europe. When Giovanni Agnelli, chairman of Fiat, noted that "when certain companies that have become national symbols become the object of mergers there will be strong protectionist reflexes on the
The reemerg nce.. of European n tionalism and will no doubt:: avilyin :
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part of local governments" (1989), he was identifying one of the more tangible ways nationalism has been threatening Project 1992. The reemergence of European nationalism East and West cannot bode well for 1992, and will no doubt weigh heavily in the mechanics of falling down. Ideological tensions. Nationalism aside, Project 1992 is not a unified vision. In fact, it is two visions. Margaret Thatcher reflected this when she said, "Our problem is not with the integration of Europe but the kind of Europe we want to see." One of these visions (exemplified in the former British Prime Minister) wants a lean, mean Europe, disciplined for world competition by internal competition. This version of 1992 argues for a unified Europe on the basis of economic rationalization, economies of scale, and mobility of factors of production, so member nations will be fit to compete against the other big boys in the world--the U.S. and Japan. Germany and Holland subscribe more or less to this version of 1992. The other vision of Project 1992 (as exemplified in French President Franqois Mitterand) wants Europe to be a type of welfare state, with a high level of social services across the continent and external barriers high enough to guarantee full employment. Spain and Italy also tend to lean toward this version of the project. When the heady idealism of 1992 is set aside, it is clear these visions are not compatible. When Margaret Thatcher complained that she had not labored so hard to remove the heavy hand of British government from British business only to have it replaced by the heavy hand of a European government, she clearly had the ideology issue in mind. These contending ideologies are inimical, root and branch. The one is individualistic, the other collective; the one pro-business, the other pro-government; the one seeks to protect the individual against the state, the other to protect the state against the individual. Unless one of these ideologies triumphs over the other, they will not be able to dwell happily together in the same house. A house divided against itself cannot stand. Domestic politics. It wasn't too long ago that French wine producers were stopping trucks loaded with Italian imports at the border and spilling the wine out onto the ground. The Italian wine was cheap, reasonably good, and French consumers were willing to buy it. But in the eyes of French wine producers, the cheap Italian imports were an attack on their livelihood. The gnomes and visionaries of Brussels are one thing; the Jacques, Tommys, Fritzs, and Luigis of Bordeaux, Bolton, Boblingen, and Bologna are another. The breadth of vision, priorities, concerns, and interests of the groups differ funBusiness Horizons/ May-June 1991
damentally. We know how the politicians and Eurocrats are affecting Project 1992, but the ordF nary citizens of each member nation will make telling dents in the project over the next few years via local domestic politics. Skin for skin, w h e n cheap foreign (other EC member) products invade the domestic market, hurting previously privileged domestic sectors, people will look to their local representatives for answers. This is the stuff of politics. Who will get elected? The one who can create the biggest loophole, wangle the most carefully crafted exception, or obtain the most favorable special treatment to protect local jobs. If the borders really do come down, European regional unemployment patterns will no doubt prompt people to migrate to where the jobs are. That's fine if the unemployed Italian from Torino goes to Paris or London, where foreigners are common. However, if they show up in numbers in Liverpool or Lyon, and begin to bid for jobs against locals, watch out! In fact, domestic politics is already slowing down progress in the adoption of Cockfield's directives (the nuts and bolts of 1992). Foot-dragging governments have been maneuvering and arm-twisting for waivers and exceptions of all types. In some cases, rulings of the European Court of Justice have simply been ignored. In almost all cases, the slowing can be attributed to domestic infighting and intransigence. Unless extraordinary measures are taken, domestic politics will work to undo 1992 a little at a time. S o v e r e i g n t y , and with it, by implication, economic policy. This is not the same thing as nationalism, although clearly it is related. Nationalism says "ours is the best, the greatest, the most glorious"; sovereignty says more simply, "what's ours is ours, no matter what others think about it, and we want to control it." Project 1992 inevitably involves a devolution of decision-making power from the national governments to European institutions in Brussels. Some of this is explicit, tangible, and visible. For example, nations give up their rights to set standards for vocational training, rear-view mirrors on automobiles, fertilizers, and so on, in the clear interest of a more rational pan-European standard. While member nations continue to bicker over the details, they are nevertheless agreed in principle that this type of devolution of their powers is a good idea. Less tangible is the devolution of basic economic policy-making power, and the erosion of national sovereignty implicit in it. There are those who urge that "we must overcome the pride that continues to see the defense of national currency as the defense of national sovereignty" (Agnelli 1989). The British under Margaret Thatcher did not see the issue from this perspective. They have been most reluctant to hand over these Fizzle 1992?
fundamental powers to the decision makers in Brussels. In fact, opposition to the devolution of this type of power seems to have been one of the few things Thatcher and her domestic political opponents agreed on. Central to the sovereignty issue is the attempt to create a monetary and economic union (EMU) that envisions: a) a common currency; b) centralization of economic policy making; and c) a central banking system. The goal of the EMU is to enable "It may be that in the the 12 member economies to funcpush and shove of tion more efficiently, events, sovereignty will under more strict become the major economic discipline, and to give EC deciforce pulling down on sion makers the tools the 1992 bridge." to hold inflation in check. Because of its economic strength and stability, Germany would become the de facto center of the EC under such a system. We suspect that if their economy were weaker the Germans would side with the British in being reluctant to hand over the reigns of the economy to Eurocrats in Brussels. It is not easy, and perhaps not even natural, to give power away. It may be that in the push and shove of events, sovereignty will become the major force pulling d o w n on the 1992 bridge. Adverse conditions have a way of turning idealistic fraternities into squabbling tribes. Squabbling tribes tend suddenly and agonizingly to become aware of their cultural and historical differences. We suspect that in a crisis, all players will pick up their bats and bails and go home. After all, w h e n you sit on your own fence, you can whistle your own tunes. Witness the nationalities problems in the USSR and Yugoslavia. At such times, that last and most treasured jewel of nationhood--sovere i g n t y - w i l l be reclaimed tearfully by those w h o have assigned it to others. Sovereignty after all is the power to do for yourself what you think best, no matter what others think. In the end, Ghandi's analysis that any nation would prefer its own home-grown dictator to a foreign benevolent ruler probably says it all. Developments in Eastern Europe. The cooperation we have seen in post-World War II Western Europe is partly the result of the polarizing power of the iron curtain. Even those who are not so fond of each other have a way of huddling together w h e n it gets cold. But spring has come first to Poland, then to Hungary, then East Germany, Czechoslovakia, Bulgaria, and Romania. By a curious conspiracy of history and political factors, it will probably come last to the land that instigated the thaw, the Soviet Union. Unilat7
eral weapons reductions and troop withdrawals from Eastern Europe by the Soviets, combined with a pull-out from Afghanistan, labor strikes, ethnic squabbles, threats of secession in the Baltic and Caucasus republics, non-Communist leaders in Poland and Hungary, and the reunification of the two Germanies, make these times difficult to interpret. Whichever way it goes, we are certainly at a point of inflection in history. One reading of events is that the unravelling of Eastern Europe makes things less straightforward for Western Europe---certainly less straightforward for Project 1992. Western Europe is about to rediscover its other half. Pessimists look to the East and cringe. Optimists look and drool. The gains from Project 1992--rationalization and mobility of the factors of production, increase in competition, a single market of 320 million--boil down to gains from competition and efficiency. An optimistic assessment of Eastern Europe might see such gains as paltry. In Eastern Europe there are highly cultured nations in desperate need of the most fundamental infrastructural rebuilding. Transportation and communications systems just start the list. Here are markets in excess of 400 million with so much pent-up demand they might well explode before sufficient products and services can be delivered. No wonder Germany was first and most generous to Poland. The nice efficiency of Project 1992 might well become irrelevant in light of the stunning opportunities east of the Elbe. Just as eager as Western Europeans are to exploit the gold rush to the East, Eastern Europeans are anxious to get back into the family of nations from which they were temporarily exiled. This suggests the growth of a simultaneous "push" and "pull" pressure that may well heat up the pace of investment and development. The state of affairs in the two Germanies emphasizes this analysis. Separated by the fortunes of war and ideology for 45 years, they have n o w become one again. This reunited Germany will probably dominate economic life on the European continent. Does such a Germany want Project 19927 When reunification was only a possibility, the prospect scuttled the plans of the "Schengen five" (West Germany, France, Belgium, the Netherlands, and Luxembourg) to abolish their mutual borders. Apparently too many of them were afraid of a leakage of East Germans into their countries. At any rate, whatever happens, as the ice thaws the center of gravity of Europe will shift to somewhere east of Brussels. W H A T IF 1 9 9 2 FALLS?
here is no shortage of advice on h o w to exploit 1992 should it stand. As we have seen, investment plans have already created realities in Europe that will not be undone
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easily or quickly. In fact, these realities are part of the argument that 1992 will stand. But what if it doesn't stand? What can firms do? Can they hedge against the possibility? Here are some brief reflections on the business prospects should 1992 fizzle. D o n ' t c r y o v e r s p i l l e d milk. "The moving finger writes, and having writ moves on"; sunk costs are sunk costs. Investments made in the heat of Europhoria or in a more dispassionate light can still be turned to good purpose should 1992 fizzle. The EC will still have in excess of 320 million people no matter what happens to 1992, and there are many opportunities shaping up in the East. Mistakes made in a company's 1992 strategy may prove nevertheless to be fortuitous in light of other developments in Europe. 1 9 9 2 - - - m o r e o f a f i z z l e t h a n a b a n g . If 1992 falls, it probably will not happen all at once. Nor will it do so completely. Unless political events move in extraordinary ways, we should expect Project 1992 to fall more in the way the Roman Empire fell (slowly, over an extended period of time) than the way a chimney stack falls (with great violence all at once). Stand or fall, December 1992 is a fairly arbitrary date, and by no means represents a deadline either for getting investment into or out of Europe. D o n ' t e x p e c t t o h e a r it o n t h e n e w s . If it
does fall, and fall slowly, we shouldn't expect to hear about it on "Nightline" any time soon. Probably, the definitive evidence that it stands or fails will take a while to assess and interpret. Experts may never agree anyway. However, key signs to watch for, indicative of a fall, include: a) continued division and contention on the EMU; b) stories of isolated incidents involving locals lashing out at foreign (EC) products, workers, or companies; c) delays in the adoption of the remaining directives (the easy ones have already been adopted, the more difficult ones are yet to be tackled); d) proliferation of unilateral loopholing; e) resistance to the removal of border impediments in the name of national health and security (note the failure of the Schengen five); or f) an increase in the level of rhetoric and finger wagging over ideological issues. 1 9 9 2 as a s p r i n g b o a r d t o t h e East. Even if Project 1992 fizzles, Western Europe will be the best launching pad to exploit the growing opportunities in Eastern Europe. In this respect Britain is less advantageously placed than either France or Italy. Germany, however, is the most fortuitously located of all EC nations. This promise may or may not be realized for (West) German companies, depending on whether Europeans East and West can overcome their distrust of Germans. Notwithstanding this, investments made in Project 1992 should also have an eye on the East. The further east, the better. Business Horizons/ May-June 1991
The m o r e liquid, the better. Investments bolted to the floor will be hardest hit if 1992 falls. A prudent approach to the opportunities of Project 1992 is to develop investments that are more easily repatriated, moved, or redirected toward the East: facility leasing, licensing, joint ventures, and so forth. Investments in Europe for reasons other than Project 1992 march to a different tune, and must o b e y their o w n logic. Left? Right? Which v i s i o n ? If it stands, strategies for dealing with the Europhoria version of 1992 will be different from those for dealing with the Fortress Europe version. The Europhoria vision of Project 1992 encourages a wait-and-see attitude. This vision seeks internal competition to m a k e Europe more competitive. To achieve this, low external barriers are essential. The Europhoria version is eager to increase Europe's share of external trade by eliminating, not increasing, trade barriers. No need to get the foot in the door here; the door is to be left wide open. Fortress Europe, on the other hand, comes closer to a "keep it in the family" model. To achieve the goals of full e m p l o y m e n t and a high level of social services, significant external barriers are essential. The promise of such barriers is good reason to get the foot in the door prior to 1992. nalogies can be misleading. One of the analogies currently being applied to Project 1992 is the EC as a United States of Europe. However, Europe 1992 is not very m u c h like the 13 colonies of 1776. The colonies had a lot more going for them w h e n they sat d o w n to negotiate than do the 12 m e m b e r nations of the EC contemplating 1992 and after. The 13 colonies had a c o m m o n language, culture, and tradition. They fought hand in hand to cast off a c o m m o n oppressor. Yet, it took labored negotiations, heroic compromises, and a bloody civil war two generations later to set the American union in cement. Europe, on the other hand, is a p o e m of diversity, of conflicting interests, aspirations, cultures, languages, and traditions. The United States of Europe is the wrong analogy. If it does stand, Project 1992 will be more like Granny's patchwork quilt, cobbled together w h o knows how, than a United States of Europe. The future is uncertain. Star gazers and political prognosticators do not have g o o d track records. We have looked at the major forces affecting Project 1992: the mechanics of standing up and the mechanics of falling down. We are not at all sure which will prevail. We are sure that business decisions need to be made soberly, in a clear assessment of both sets of forces. We have
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Fizzle 1992?
listened to the hype of Project 1992 till our ears hurt. Perhaps the other side of the issue should be given a hearing as well. We will certainly think we should have considered the mechanics of failing d o w n if 1992 does in fact fall--especially if w e have a multimillion dollar investment lying under the rubble. And if it stands, having considered the possibility of failure will only make us wiser and give us a better understanding of Europe post-1992. Certainly, standing or falling, success or failure for Project 1992 will not be easy to assess. In all likelihood, the picture will only begin to be understood in the years following 1992, and only the clarity of hindsight will be able to tell whether it stood or fell.
References Giovanni Agnelli, "The Europe of 1992," Foreign Affairs, Fall 1989, pp. 61-70. "A Survey of Europe's Internal Market," The Economist, July 9, 1988, July 8, 1989, and July 7, 1990. Zbigniew Brzezinski, "Post-Communist Nationalism," Foreign Affairs, Winter 1989/1990, pp. 1-25. Derek Day, "Towards 1992: A Strategy for Training," Long Range Planning, December t989, pp. 48-54. James M. Higgins and Timo Santalainen, "Strategies for Europe 1992," Business Horizon& July-August 1989, pp. 54-58. George Melloan, "Europeans Would Benefit from More Competition," WallStreetJournal, January 22, 1990, p. A15. George Szamuely, "The Politics of 1992," Commenta~TF, October, 1989, pp. 42-45. "They Like It and They Fear It," The Economist, January 27, 1990, pp. 49-50. Niels Thygesen, "The Delors Report and the European Economic and Monetary Union," InternationalAffairs, Autumn 1989, pp. 637-652. Martin Wolf, "European Community 1992--The Lure of the Chasse Gard," WorldEconomy, 12, 3 (1989): 373376.
Terry Clark is an assistant professor of marketing in the College of Business Administration, University of Notre Dame, Notre Dame, indiana.
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Fizzle 1992? Terry Clark, Guest Editor
f we are to believe the conventional wisdom, the unification of EC member markets by the end of 1992 will produce the largest single market in the world. Related branches of this wisdom describe the situation either negatively, in terms of "fortress Europe," or positively, as "Europhoria." If we are to draw the seemingly inevitable conclusion from the burgeoning conferences, papers, and special reports, Project 1992 is spot on, inevitable, as good as done. Further evidence can be adduced from the fact that Project 1992 is proving to be something of a bonanza for consultants, who have had many takers for their advice and insight on how to prepare and position companies and products to enter and exploit the unified European market. They say faith can move mountains. A lot of people believe in Project 1992. However, they also say "all that glistens is not gold," "look before you leap," and "there's many a slip 'tween the cup and the lip." In this spirit, we would like to swim against the tide a bit and take a different sort of look at Project 1992. We would like to ask not "How will it shake out?" but "Will it shake at all?" Bridge builders speak of "the mechanics of standing up" and "the mechanics of falling down." They say that a bridge has two sets of forces acting upon it--those, such as design factors and material strength, that work to hold it up, and the others, such as gravity, decay, and normal usage, that work to pull it down. The bridge remains standing so long as the mechanics of standing up overwhelm the mechanics of falling down. When the mechanics of standing up poop out, the bridge falls. Vastly more complex though it is, Project 1992 is not unlike a bridge. It too has its mechanics of standing and its mechanics of failing. There are numerous factors at work that seem to promise dazzling success for the project. And although they receive less attention, there are also factors that seem to bode ill. If Project 1992 is like a bridge, then what are its mechanics of standing up? What are its mechanics of falling down? Will
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Fizzle 1992?
it stand? Will it fall? No one can give a definite answer to these questions at the present time. The past is certain; the future remains to be told. The real world is a complicated place. Perhaps the best way to prepare our companies, products, people, and markets for such imponderable complexities as Project 1992 is not to pronounce our certainties, but rather to consider and reflect u p o n all the issues that will make up the future with which we will eventually have to contend. This article briefly examines some of the factors that, in one way or another, will create the business conditions in Europe and affect business conditions in the rest of the post-1992 world. If it does its job well, it will raise more questions than it will answer.
The wheel of fortune is still spinning on Project 1992; businesses must be prepared for whatever result emerges.
THE MECHANICS OF STANDING UP
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hesterton called "tradition" the majority vote of the dead. A cursory glance at the recent press on Project 1992 suggests that the majority vote of the living assures that it will stand. Presumably the voters are not ill informed. The bridge stands (or will stand), it seems, on the basis of the combination of at least five factors: 1) a motivating vision; 2) collective will; 3) bureaucratic inertia; 4) realities created by foreign direct investment chasing 1992; and 5) realities created by "hype intangibles." We will discuss each of these in turn. A m o t i v a t i n g vision. The motivating vision for Project 1992 is essentially an anti-war vision that has been coalescing for centuries. Its origins can be traced to the battlefields of Waterloo, Sedan, the Somme, and the beaches of Normandy. The vision has taken numerous forms, and has 3
grown in strength over the years. It enjoyed support in 1918, after the "war to end all wars" convulsed and sickened a generation. But Europe took up arms again in 1939. When the guns fell silent in 1945, the continent entered into the longest stretch of peace it has enjoyed since the period b o u n d e d by the Napoleonic wars and the Franco-Prussian war. Coming out of World War II, a n u m b e r of war-sick European leaders, inspired by the vision of a united peaceful Europe, signed the Treaty of Rome in 1957, giving birth to the EEC. The vision languished as the m e m o r y of World War II faded. However, it was taken up again "The motivating vision of b y Jacques Delors, Project 1992 is fundamenw h o retold the story of a unified peaceful tally an anti-war vision. Europe to a generaWhether clothed in the tion that had never k n o w n war. To jargon of economics or achieve this, the vithe heady phrases of sion was expanded to encompass the ideas political idealism, it is all of economic rationalone and the same. " ism and efficiency in a world of Japanese and American super traders. Delors's vision was made viable w h e n Lord Cockfield specified exactly what had to be done to make it a reality--his famous 300 Directives. These directives, along with a timetable, set a definite course to take. Again, the motivating vision of Project 1992 is fundamentally an anti-war vision. Whether clothed in the jargon of economics or the heady phrases of political idealism, it is all one and the same. Europeans have had a hard collective historical experience. This has led them to a strong collective desire to live together in peace. Over the years the vision has groped with numerous possible concrete realizations; currently, Project 1992 is the vision incarnate. C o l l e c t i v e will. Not entirely related to the motivating vision is the fact that a lot of individuals want Project 1992 to succeed, for m a n y different reasons, hnportant personages have careers tied to its success; governments have pinned to it their hopes of a brighter future for their nations; fortuitously situated companies are eager for the potential of economic gain; and otherwise uninterested parties, w h o have come to accept 1992 as a fait accompli, have set their shoulders to the wheel as well, lest they be left out in the cold. Even if the motivating vision grows cold, it may have pushed things along far enough for the determination of interested individuals, to do the rest and ensure that the project stands. Bureaucratic inertia. A p h e n o m e n o n often 4
observed in large projects is bureaucratic inertia. When the vision fades and the will of ordinary mortals weakens, bureaucrats can often k e e p the ball rolling pretty well for years. This is evidenced in the debate over the need for so-called "sunset" laws in the U.S., aimed at folding up government programs that have outlived their usefulness. If Project 1992 has nothing else going for it, it has bureaucrats! These dedicated m e n and women, busying themselves with such imponderables as "What should the European standard size for c o p y p a p e r be?" and "Under what circumstances should a Greek-speaking orthodontist from Thessolonica be allowed to set up shop in Hammersmith?" will k e e p the grizzly corpse stumbling forward long after life has left the body. Such questions accrue epic importance in the hands of bureaucrats. The effect of their energy for dotting the i's and crossing the t's should by no means be underestimated in the mechanics of standing up for Project 1992.
Realities created by foreign direct investment. Had the commercial sector remained skeptical, Project 1992 might never have gathered so m u c h steam. As it is, because so m a n y companies outside the EC became convinced that they might be "on the wrong side of the door w h e n it closes," the project gained viability. Realities have b e e n created. Project 1992 could have started as an elaborate practical joke, but because so m a n y top decision makers in the private sector n o w believe it to be deadly serious, its origin becomes somewhat irrelevant. NestK's acquisition of Rowntree, Nissan's huge investment in production facilities in Britain, and Ford's gobbling up of tiny Jaguar are not easily undone, even if Project 1992 ultimately collapses into the dust. Ideas have consequences, and the commercial world seems to believe the 1992 idea sufficiently to have acted u p o n it. Granted, much of the initial rush of investment was fueled by the negative interpretation of 1992 as "Fortress Europe." Today, more companies are taking the positive interpretation--1992 as "Europhoria." In the end, it all boris d o w n to decisions that are not easily undone, and that will therefore probably remain in place. The flood of investment in Europe has b e e n explained in m a n y ways: foot-in-the-door, market presence, n o w or never, Eurofear, creating Trojan horses for Fortress Europe, and so on. No matter, the bootstrapping effect is more or less the same. And not only non-EC companies have b e e n making the investments. There has b e e n a vast reshuffling of assets across the European table, no doubt in the h o p e of rationalizing production and distribution in preparation for a borderless Europe. Other considerations aside, these investment decisions tend to nurture conditions conducive to the success of Project 1992. Business Horizons / May-June 1991
Realities created by "hype intangibles." If you're having a problem understanding what 1992 means for your company, you don't have to look too far. Whole armies of marketing, finance, legal, political, accounting, and any-other-flavoryou-need consultants have sprung up, ready to make presentations, conduct investigations, write reports, prepare position papers, and talk your ear off. There is a real need for expert insight, but we must face facts--Project 1992 has b e c o m e a commodity, a product. As such, it has become associated with an awful lot of hype. For example, one advertisement in a leading business newspaper shows a picture of a combat helmet, and underneath it the copy, "4 days in Europe in 1990 could win you the Battle of 1992." Another ad put out by the French Telecom company teases with, "In the race for 1992, who'll put you first on line?" A conference on 1992 in Britain trolled for takers with the enigmatic "What Happens After 19927" These are all fairly typical of the way hype has moved in to color the picture. Once hype was injected, it became a real, often indistinguishable part of the 1992 landscape. One veteran of 1992 seminars (his organization, eager to stay a step ahead, has sent him to more than a few) was at yet another put on by an EC embassy in Washington D.C. At this seminar, designed ostensibly to educate Americans on the intricacies of the issue, our hero saw a colleague sitting a few seats away furiously taking notes as the ambassador poured forth. Curious to see what was so interesting, he leaned over and peeked at his note pad. The colleague had scribbled line upon line of: "Bloody boring! They all say the same thing! Bloody boring! It's all the bloody same!" It seems the hype merchants are churning it out all over the place. Aside from veterans such as my friend, most consumers of 1992 hear the message only once or twice, and manage to get quite excited about it. Quite right too! But like stockbrokers or car salesmen, 1992 hype merchants have a stake in how the punter reacts to the spiel. No question about it, hype creates reality. Or at least it can get people excited enough to make decisions that create realities. And it is not a small factor in the mechanics of standing up for Project 1992. However, it has to be acknowledged that hype often has only the slimmest connection with on-site realities. THE MECHANICS OF FALLING DOWN f the physical world was made up only of "standing up" forces, bridge builders would not have much to do. Solomon's temple would be standing yet. However, bridges stand and bridges fall. There are compelling reasons, as we have seen, w h y Project 1992 should be a
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Fizzle 1992?
stunning success. But just as compelling are the factors working against it. Decisions involving many billions of dollars are being made throughout the world on the assumption the project will succeed. Fortunes, careers, jobs, and market shares ride on the project's success. Thus, we should also consider what is arrayed against the success of Project 1992. If the bridge falls, it will be due to the action of at least six factors: 1) the inertia of history; 2) nationalism; 3) ideological tensions; 4) domestic political pressures; 5) sovereignty; and last but not least, 6) developments in Eastern Europe. The i n e r t i a o f h i s t o r y . This is the back side of the "motivating vision" mentioned in the previous section. So many Europeans long for unity and peace on their continent because they have so rarely had it. History runs thick in Europe. Although allies in two major wars in this century, the French and the British are not entirely cornfortable with each other. Divided by a mere strip of water, it often seems more like "There are compelling an ocean. The irrationality of this tension reasons, as we have is only highlighted by seen, why Project 1992 a perusal of popular objections to the should be a stunning Channel Tunnel success. But just as project: "Frenchmen compelling are the will steal English girls," "Disease will factors working against be transmitted all the it." more easily," "English soccer fans will invade France," and so on. The point is illuminated further by a consideration of the de facto exclusion of Britain from the EC by France (under de Gaulle) until the early 1970s. A litany of similar bilateral tensions could be recited for all of the major members of the EC: Spain/France; Britain/Spain; France/Germany; and so on. This is not to say that Europe is ready for war again. But having been neighbors for so long, the Europeans have come to view each other as neighbors so often do: with friendly disdain. Like the members of a close family, they know each other too well for idealism to be the basis of a lasting relationship. Nationalism. Closely related to the inertia of history is the unique sense and pride of national destiny felt by the major West European powers. This becomes a problem because the major powe r s - p r i m a r i l y Germany, France, and Britain-have different, often contending visions of their roles within Europe. In the end, nationalism is thicker than ideology, and probably thicker than the arguments for economic rationalization and efficiency as well. The British, of course, have 5
never really thought of themselves as truly European, This may explain Margaret Thatcher's "Eurohesitancy." The British sense of national destiny has traditionally been tied to the sea, and to a theater larger than Europe. Decoupled from the fortifying presence of empire, British national pride has not yet readjusted to new realities-although anyone in Britain during the Falklands crisis saw a surprisingly strong, surprisingly chauvinistic display of the stuff. Germany, historically a land-based power, has experienced two outbreaks of ugly nationalism in this century. But nationalism does not always have to be ugly to be a significant force in the fate of nations. There is every indication that the third round of German nationalism in this century is brewing, and that it will be positive-Germans are prosperous, and feeling good about themselves and their place in the world. However, it may prove destructive for 1992, especially in light of the recent German reunification. France has been in a wilderness for most of this century. Humiliated in two wars, the French have not been sure what to think of themselves or their nation. They have pretty well forged their own path since 1945. However, this seems to have gone a long way toward reforming the French national psyche. Until World War II, European history was the story of the give-and-take in the traditional balance of power among France, Britain, Germany, and other European nations. The brand of nationalism that fueled the historic European divisions has been in parentheses since World War II. After 1945, the Soviets began to cast their heavy shadow over the ~ continent, exerting a strong polarizing :'::,:= influence both East and West. The effect of this in the West East and,West:cannot: i::,:: was to draw nations together. However, bode, weft :for 1992,,:i ,: the Soviets' nationalism-neutralizing shadow no longer looms so large in 28 o f f a l l i n g ~ Western Europe. :: .... Oddly, the chain of :: : ,, : : ::: events sparked by i Gorbachev's glasnost and perestroika, which have led to what Zbigniew Brzezinski calls the "volcano of nationalism" in the Soviet sphere, will probably, in a milder, backhanded way, have the same effect in Western Europe. When Giovanni Agnelli, chairman of Fiat, noted that "when certain companies that have become national symbols become the object of mergers there will be strong protectionist reflexes on the
The reemerg nce.. of European n tionalism and will no doubt:: avilyin :
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part of local governments" (1989), he was identifying one of the more tangible ways nationalism has been threatening Project 1992. The reemergence of European nationalism East and West cannot bode well for 1992, and will no doubt weigh heavily in the mechanics of falling down. Ideological tensions. Nationalism aside, Project 1992 is not a unified vision. In fact, it is two visions. Margaret Thatcher reflected this when she said, "Our problem is not with the integration of Europe but the kind of Europe we want to see." One of these visions (exemplified in the former British Prime Minister) wants a lean, mean Europe, disciplined for world competition by internal competition. This version of 1992 argues for a unified Europe on the basis of economic rationalization, economies of scale, and mobility of factors of production, so member nations will be fit to compete against the other big boys in the world--the U.S. and Japan. Germany and Holland subscribe more or less to this version of 1992. The other vision of Project 1992 (as exemplified in French President Franqois Mitterand) wants Europe to be a type of welfare state, with a high level of social services across the continent and external barriers high enough to guarantee full employment. Spain and Italy also tend to lean toward this version of the project. When the heady idealism of 1992 is set aside, it is clear these visions are not compatible. When Margaret Thatcher complained that she had not labored so hard to remove the heavy hand of British government from British business only to have it replaced by the heavy hand of a European government, she clearly had the ideology issue in mind. These contending ideologies are inimical, root and branch. The one is individualistic, the other collective; the one pro-business, the other pro-government; the one seeks to protect the individual against the state, the other to protect the state against the individual. Unless one of these ideologies triumphs over the other, they will not be able to dwell happily together in the same house. A house divided against itself cannot stand. Domestic politics. It wasn't too long ago that French wine producers were stopping trucks loaded with Italian imports at the border and spilling the wine out onto the ground. The Italian wine was cheap, reasonably good, and French consumers were willing to buy it. But in the eyes of French wine producers, the cheap Italian imports were an attack on their livelihood. The gnomes and visionaries of Brussels are one thing; the Jacques, Tommys, Fritzs, and Luigis of Bordeaux, Bolton, Boblingen, and Bologna are another. The breadth of vision, priorities, concerns, and interests of the groups differ funBusiness Horizons/ May-June 1991
damentally. We know how the politicians and Eurocrats are affecting Project 1992, but the ordF nary citizens of each member nation will make telling dents in the project over the next few years via local domestic politics. Skin for skin, w h e n cheap foreign (other EC member) products invade the domestic market, hurting previously privileged domestic sectors, people will look to their local representatives for answers. This is the stuff of politics. Who will get elected? The one who can create the biggest loophole, wangle the most carefully crafted exception, or obtain the most favorable special treatment to protect local jobs. If the borders really do come down, European regional unemployment patterns will no doubt prompt people to migrate to where the jobs are. That's fine if the unemployed Italian from Torino goes to Paris or London, where foreigners are common. However, if they show up in numbers in Liverpool or Lyon, and begin to bid for jobs against locals, watch out! In fact, domestic politics is already slowing down progress in the adoption of Cockfield's directives (the nuts and bolts of 1992). Foot-dragging governments have been maneuvering and arm-twisting for waivers and exceptions of all types. In some cases, rulings of the European Court of Justice have simply been ignored. In almost all cases, the slowing can be attributed to domestic infighting and intransigence. Unless extraordinary measures are taken, domestic politics will work to undo 1992 a little at a time. S o v e r e i g n t y , and with it, by implication, economic policy. This is not the same thing as nationalism, although clearly it is related. Nationalism says "ours is the best, the greatest, the most glorious"; sovereignty says more simply, "what's ours is ours, no matter what others think about it, and we want to control it." Project 1992 inevitably involves a devolution of decision-making power from the national governments to European institutions in Brussels. Some of this is explicit, tangible, and visible. For example, nations give up their rights to set standards for vocational training, rear-view mirrors on automobiles, fertilizers, and so on, in the clear interest of a more rational pan-European standard. While member nations continue to bicker over the details, they are nevertheless agreed in principle that this type of devolution of their powers is a good idea. Less tangible is the devolution of basic economic policy-making power, and the erosion of national sovereignty implicit in it. There are those who urge that "we must overcome the pride that continues to see the defense of national currency as the defense of national sovereignty" (Agnelli 1989). The British under Margaret Thatcher did not see the issue from this perspective. They have been most reluctant to hand over these Fizzle 1992?
fundamental powers to the decision makers in Brussels. In fact, opposition to the devolution of this type of power seems to have been one of the few things Thatcher and her domestic political opponents agreed on. Central to the sovereignty issue is the attempt to create a monetary and economic union (EMU) that envisions: a) a common currency; b) centralization of economic policy making; and c) a central banking system. The goal of the EMU is to enable "It may be that in the the 12 member economies to funcpush and shove of tion more efficiently, events, sovereignty will under more strict become the major economic discipline, and to give EC deciforce pulling down on sion makers the tools the 1992 bridge." to hold inflation in check. Because of its economic strength and stability, Germany would become the de facto center of the EC under such a system. We suspect that if their economy were weaker the Germans would side with the British in being reluctant to hand over the reigns of the economy to Eurocrats in Brussels. It is not easy, and perhaps not even natural, to give power away. It may be that in the push and shove of events, sovereignty will become the major force pulling d o w n on the 1992 bridge. Adverse conditions have a way of turning idealistic fraternities into squabbling tribes. Squabbling tribes tend suddenly and agonizingly to become aware of their cultural and historical differences. We suspect that in a crisis, all players will pick up their bats and bails and go home. After all, w h e n you sit on your own fence, you can whistle your own tunes. Witness the nationalities problems in the USSR and Yugoslavia. At such times, that last and most treasured jewel of nationhood--sovere i g n t y - w i l l be reclaimed tearfully by those w h o have assigned it to others. Sovereignty after all is the power to do for yourself what you think best, no matter what others think. In the end, Ghandi's analysis that any nation would prefer its own home-grown dictator to a foreign benevolent ruler probably says it all. Developments in Eastern Europe. The cooperation we have seen in post-World War II Western Europe is partly the result of the polarizing power of the iron curtain. Even those who are not so fond of each other have a way of huddling together w h e n it gets cold. But spring has come first to Poland, then to Hungary, then East Germany, Czechoslovakia, Bulgaria, and Romania. By a curious conspiracy of history and political factors, it will probably come last to the land that instigated the thaw, the Soviet Union. Unilat7
eral weapons reductions and troop withdrawals from Eastern Europe by the Soviets, combined with a pull-out from Afghanistan, labor strikes, ethnic squabbles, threats of secession in the Baltic and Caucasus republics, non-Communist leaders in Poland and Hungary, and the reunification of the two Germanies, make these times difficult to interpret. Whichever way it goes, we are certainly at a point of inflection in history. One reading of events is that the unravelling of Eastern Europe makes things less straightforward for Western Europe---certainly less straightforward for Project 1992. Western Europe is about to rediscover its other half. Pessimists look to the East and cringe. Optimists look and drool. The gains from Project 1992--rationalization and mobility of the factors of production, increase in competition, a single market of 320 million--boil down to gains from competition and efficiency. An optimistic assessment of Eastern Europe might see such gains as paltry. In Eastern Europe there are highly cultured nations in desperate need of the most fundamental infrastructural rebuilding. Transportation and communications systems just start the list. Here are markets in excess of 400 million with so much pent-up demand they might well explode before sufficient products and services can be delivered. No wonder Germany was first and most generous to Poland. The nice efficiency of Project 1992 might well become irrelevant in light of the stunning opportunities east of the Elbe. Just as eager as Western Europeans are to exploit the gold rush to the East, Eastern Europeans are anxious to get back into the family of nations from which they were temporarily exiled. This suggests the growth of a simultaneous "push" and "pull" pressure that may well heat up the pace of investment and development. The state of affairs in the two Germanies emphasizes this analysis. Separated by the fortunes of war and ideology for 45 years, they have n o w become one again. This reunited Germany will probably dominate economic life on the European continent. Does such a Germany want Project 19927 When reunification was only a possibility, the prospect scuttled the plans of the "Schengen five" (West Germany, France, Belgium, the Netherlands, and Luxembourg) to abolish their mutual borders. Apparently too many of them were afraid of a leakage of East Germans into their countries. At any rate, whatever happens, as the ice thaws the center of gravity of Europe will shift to somewhere east of Brussels. W H A T IF 1 9 9 2 FALLS?
here is no shortage of advice on h o w to exploit 1992 should it stand. As we have seen, investment plans have already created realities in Europe that will not be undone
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easily or quickly. In fact, these realities are part of the argument that 1992 will stand. But what if it doesn't stand? What can firms do? Can they hedge against the possibility? Here are some brief reflections on the business prospects should 1992 fizzle. D o n ' t c r y o v e r s p i l l e d milk. "The moving finger writes, and having writ moves on"; sunk costs are sunk costs. Investments made in the heat of Europhoria or in a more dispassionate light can still be turned to good purpose should 1992 fizzle. The EC will still have in excess of 320 million people no matter what happens to 1992, and there are many opportunities shaping up in the East. Mistakes made in a company's 1992 strategy may prove nevertheless to be fortuitous in light of other developments in Europe. 1 9 9 2 - - - m o r e o f a f i z z l e t h a n a b a n g . If 1992 falls, it probably will not happen all at once. Nor will it do so completely. Unless political events move in extraordinary ways, we should expect Project 1992 to fall more in the way the Roman Empire fell (slowly, over an extended period of time) than the way a chimney stack falls (with great violence all at once). Stand or fall, December 1992 is a fairly arbitrary date, and by no means represents a deadline either for getting investment into or out of Europe. D o n ' t e x p e c t t o h e a r it o n t h e n e w s . If it
does fall, and fall slowly, we shouldn't expect to hear about it on "Nightline" any time soon. Probably, the definitive evidence that it stands or fails will take a while to assess and interpret. Experts may never agree anyway. However, key signs to watch for, indicative of a fall, include: a) continued division and contention on the EMU; b) stories of isolated incidents involving locals lashing out at foreign (EC) products, workers, or companies; c) delays in the adoption of the remaining directives (the easy ones have already been adopted, the more difficult ones are yet to be tackled); d) proliferation of unilateral loopholing; e) resistance to the removal of border impediments in the name of national health and security (note the failure of the Schengen five); or f) an increase in the level of rhetoric and finger wagging over ideological issues. 1 9 9 2 as a s p r i n g b o a r d t o t h e East. Even if Project 1992 fizzles, Western Europe will be the best launching pad to exploit the growing opportunities in Eastern Europe. In this respect Britain is less advantageously placed than either France or Italy. Germany, however, is the most fortuitously located of all EC nations. This promise may or may not be realized for (West) German companies, depending on whether Europeans East and West can overcome their distrust of Germans. Notwithstanding this, investments made in Project 1992 should also have an eye on the East. The further east, the better. Business Horizons/ May-June 1991
The m o r e liquid, the better. Investments bolted to the floor will be hardest hit if 1992 falls. A prudent approach to the opportunities of Project 1992 is to develop investments that are more easily repatriated, moved, or redirected toward the East: facility leasing, licensing, joint ventures, and so forth. Investments in Europe for reasons other than Project 1992 march to a different tune, and must o b e y their o w n logic. Left? Right? Which v i s i o n ? If it stands, strategies for dealing with the Europhoria version of 1992 will be different from those for dealing with the Fortress Europe version. The Europhoria vision of Project 1992 encourages a wait-and-see attitude. This vision seeks internal competition to m a k e Europe more competitive. To achieve this, low external barriers are essential. The Europhoria version is eager to increase Europe's share of external trade by eliminating, not increasing, trade barriers. No need to get the foot in the door here; the door is to be left wide open. Fortress Europe, on the other hand, comes closer to a "keep it in the family" model. To achieve the goals of full e m p l o y m e n t and a high level of social services, significant external barriers are essential. The promise of such barriers is good reason to get the foot in the door prior to 1992. nalogies can be misleading. One of the analogies currently being applied to Project 1992 is the EC as a United States of Europe. However, Europe 1992 is not very m u c h like the 13 colonies of 1776. The colonies had a lot more going for them w h e n they sat d o w n to negotiate than do the 12 m e m b e r nations of the EC contemplating 1992 and after. The 13 colonies had a c o m m o n language, culture, and tradition. They fought hand in hand to cast off a c o m m o n oppressor. Yet, it took labored negotiations, heroic compromises, and a bloody civil war two generations later to set the American union in cement. Europe, on the other hand, is a p o e m of diversity, of conflicting interests, aspirations, cultures, languages, and traditions. The United States of Europe is the wrong analogy. If it does stand, Project 1992 will be more like Granny's patchwork quilt, cobbled together w h o knows how, than a United States of Europe. The future is uncertain. Star gazers and political prognosticators do not have g o o d track records. We have looked at the major forces affecting Project 1992: the mechanics of standing up and the mechanics of falling down. We are not at all sure which will prevail. We are sure that business decisions need to be made soberly, in a clear assessment of both sets of forces. We have
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listened to the hype of Project 1992 till our ears hurt. Perhaps the other side of the issue should be given a hearing as well. We will certainly think we should have considered the mechanics of failing d o w n if 1992 does in fact fall--especially if w e have a multimillion dollar investment lying under the rubble. And if it stands, having considered the possibility of failure will only make us wiser and give us a better understanding of Europe post-1992. Certainly, standing or falling, success or failure for Project 1992 will not be easy to assess. In all likelihood, the picture will only begin to be understood in the years following 1992, and only the clarity of hindsight will be able to tell whether it stood or fell.
References Giovanni Agnelli, "The Europe of 1992," Foreign Affairs, Fall 1989, pp. 61-70. "A Survey of Europe's Internal Market," The Economist, July 9, 1988, July 8, 1989, and July 7, 1990. Zbigniew Brzezinski, "Post-Communist Nationalism," Foreign Affairs, Winter 1989/1990, pp. 1-25. Derek Day, "Towards 1992: A Strategy for Training," Long Range Planning, December t989, pp. 48-54. James M. Higgins and Timo Santalainen, "Strategies for Europe 1992," Business Horizon& July-August 1989, pp. 54-58. George Melloan, "Europeans Would Benefit from More Competition," WallStreetJournal, January 22, 1990, p. A15. George Szamuely, "The Politics of 1992," Commenta~TF, October, 1989, pp. 42-45. "They Like It and They Fear It," The Economist, January 27, 1990, pp. 49-50. Niels Thygesen, "The Delors Report and the European Economic and Monetary Union," InternationalAffairs, Autumn 1989, pp. 637-652. Martin Wolf, "European Community 1992--The Lure of the Chasse Gard," WorldEconomy, 12, 3 (1989): 373376.
Terry Clark is an assistant professor of marketing in the College of Business Administration, University of Notre Dame, Notre Dame, indiana.
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