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CHAPTER I

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6 • The.. naturę. o f _ thę gąraę dępends on_the_envi ronjient

There is nothing, in what we Just said, against the market as an acceptable and relatively efficient allocation mechanism. The market, however, is in itself nothing bat a rule; and, like all ru 1ea, is neither perfect nor sufficient in itself, and its effects depend on the renaining rules which apply to the environment and on the features of the environment itself.

The market performed quite well until around 1970; that is, a period in which almost all of the EC countries were strongly involved in improving labour standards and developing ambitious social policies. Macro-po1 ici es were fundamentally expansive, and the cllmate.. of expectations was good. International monetary coordination, as .produced by the agreenents of Bretton Woods, worked lnsuch a way as to ensure substantially stable exchange rates;

It was in this cllmate that International trade could develop, and the construction of the European Coramon Market could begin, despite the relevant rangę of the industrial and fiscal features which contributed to distort the competition ainong the European partners.

Then a seąuence of events occurred that completely reverted the above picture. In particular a wave of aggressive competition began, which ended up with the countries corapeting each agalnst the other in the field of restrictive macro-policies, through the worsening of labour. standards and the dlsmantling of most of the previously adopted progressive social policies. Policy raakers became increasingly concerned with inflation and less and less concerned with the issue of employaent and labour standards, up to the point of indicating the improvement of labour standards as the nain cause of inflation and rigidity. (This explanation. indeed, became the most appealing to opinion leaders, who never indulged in wondering how something -as the labour standards- which was so most different across countries, could actually be the cause of phenomena -such as inflation and unemp1oyment- which were so similar in most of the countries.)

7 • We_mus t..unders tand_thę._ trans forma tions_ i nor der. to_ .r ega In eon troi

Therefore, if we want to cure unemployment, we first have to attempt to explain, beyond prevailing superficial approaches, the complex process that produced the above described change. However, this is a necessary but not sufficient condition.

If -as we think- what happened was not a simple change in the values of variables and parameters of a basically unchanged structure, but a major structural change in our systems and in their reciprocal relationships, then the understanding of changes has to be integrated with that of the