AGENDA 2025: “Taking Ordnungspolitik seriously”

AGENDA 2025: “Taking Ordnungspolitik seriously”

This article is part of the D’Kart Spotlights: AGENDA 2025, in which experts from academia and practice comment on aspects of the Competition Policy Agenda presented by the Federal Ministry of Economic Affairs and Climate Action (BMWK). The contributions already published can be found here.

The Competition Policy Agenda of the Federal Ministry of Economics and Climate Action begins with a great sentence, a reference to „Ordnungspolitik” [regulatory policy], the German ordoliberal style of economic policy. Rupprecht Podszun consulted Walter Eucken again on this occasion – and compares the ideas of the great ordoliberal founding father with those of the Ministry’s Agenda.

Walter Eucken was 23 years old when the First World War broke out. He had just received his doctorate in national economics and had an invitation to Columbia University in New York. The war ruined his travel plans. The carefree, “sunlit” time of his studies was suddenly over. His student friend August Macke, a famous expressionist artist, died on the front in France a few weeks after the war began. Eucken served in a field artillery regiment until demobilisation, ultimately as battery commander. He survives, but he has experienced the war. Franz Böhm and Hans Großmann-Dörth, two law professors, were also soldiers in the First World War. 

The three men developed the ordoliberal ideas, which are still influential in competition law today. As early as 1936, they wrote a short text – “Unsere Aufgabe” [Our Task] – which was intended as an introduction to their joint series of publications “Ordnung der Wirtschaft” [The Order of the Economy]. Nils Goldschmidt, one of today’s Lord Privy Seal keepers of the Ordo, calls this text “the founding document of the Freiburg School”. Großmann-Dörth, incidentally, died in 1944 in a military hospital in Königsberg.

The Freiburg School – a peace programme?

The war experiences of the founding fathers of ordoliberalism come to mind as I leaf through Eucken’s writings. War is present in them, not on every page, but again and again: these men, scarred by war, built their edifice of thought on the ruins. What is astonishing to me is that it did not play a role in my previous reception of the Ordoliberals. In earlier readings, I quickly skimmed the passages dealing with the role of war in the economy as time-warped. Perhaps that was peace blindness. 

For Walter Eucken, war is a driver of monopoly formation – and vice versa:

“War and politics of central administration of the economic process are closely related.”

Central administration of the economic process, that is Eucken’s language for strong concentration and state planning, i.e. what he deeply detested. Today, such phrases seem highly topical. A decentrally organised economy with independent enterprises that self-confidently pursue their plans cannot be so easily instrumentalised for a war economy. Free competition, entrepreneurship, a flourishing “private law society” (Franz Böhm) insure market participants against being drawn into a war by a ruling class. The ordoliberal programme outlined by the World War veterans Eucken, Böhm and Großmann-Dörth – is it possibly a peace programme?

An agenda in the shadow of war

Alexander Kirk, who works at my chair, had asked me the question: Would the Competition Policy Agenda of the Federal Ministry for Economic Affairs and Climate Action (BMWK) actually have turned out differently if it had been written under the impression of the war? The BMWK published the text on 21 February 2022, three days before Russia’s invasion of Ukraine.

On the one hand: Most definitely. There would have been remarks on collapsing supply chains, global competition and perhaps even – see above – the connection between power concentrations and war. 

On the other hand: The Competition Policy Agenda begins with a preamble that is one big reference to the Freiburg School. If you like, you can also recognise in the commitment to Ordnungspolitik the view that only a rule-based, competitive economic playing field can secure peace. The peace function of free competition is thus at least implicitly already included.

For Walter Eucken, even with regard to wars and military concentration, the focus is on breaking economic power. That is the key point of his remarks: Cartels must be banned, monopolies broken up, markets kept open.

“It is not primarily against the abuses of existing power that economic policy should be directed, but against the emergence of such power in the first place.”

Market power is therefore not innocent. The BMWK takes up this idea of Eucken’s, which is explicitly not anchored in the mainstream of antitrust law, in the Competition Policy Agenda. In paragraph 9, somewhat hidden, it calls for structural separations even without an abuse as a last resort in foreclosed markets. When the authors wrote this, they were perhaps thinking primarily of the digital giants. A few days later, attention shifted to market power in energy markets which may need to be broken up (this concentration of power, by the way, was once promoted by ministerial authorisation from the then Minister for Economic Affairs and Technology).

Green departure into the 1950s

“We want to put Ordnungspolitik back at the centre of economic policy interest after decades of loss of importance. The current challenges – above all digitalisation, fair globalisation and sustainability – can only be solved with international coordination and an up-to-date regulatory framework. Where there is no appropriate regulatory framework [Ordnungsrahmen], markets fail with significant consequences for the economy, society and the environment. Ordnungspolitik is therefore an indispensable component of successful economic policy.” (Preamble)

After less than 100 days, the now green-led Federal Ministry for Economic Affairs and Climate Action presents a Competition Policy Agenda that announces in the first paragraphs a renaissance of Ordoliberalism, that strand of thinking that made Ludwig Erhard’s economic policy of the 1950s legendary. This is a remarkable introduction, particularly for a Minister from the Green Party. After all, the economic policy of the Freiburg School actually belongs more to the folklore of the liberal German party FDP. Franz Böhm was a member of Parliament, but for the Christian Democrats. It has to be admitted, however, that the last big policy paper of a federal economics minister was almost as far away from Freiburg as Waitangi.

It’s a revolution

When I first heard about this agenda, I was taken aback for a moment: Would it perhaps also be conceivable to let the competition community take a breath? The 10th amendment of the German competition act and the Digital Markets Act have only just been passed, countless EU legal acts are being revised. We could start by gathering practical experience and writing essays? No, of course we can’t do that. A party that is leading the Ministry for Economic Affairs and Climate Action for the first time has a will to shape things that goes beyond the coalition agreement. And, more importantly, we live in revolutionary times.

Pardon the word, but I can’t put it any smaller: Digitalisation, especially data-based convergence, is now widely believed to have transformed the economy the way the mechanical loom transformed the British economy and society in the 18th century. Globalisation, which has been analysed since the collapse of the Eastern Bloc, has evolved from charming international understanding to merciless systemic competition. Finally, the climate catastrophe completely questions the foundations of capitalist economic activity.

If the laws we have were still able to provide adequate answers, it would be quite astonishing. With the reforms, we can hardly claim that we have now done our homework – we have begun the regulatory puzzle in important sub-areas. The new legal acts that breathe revolutionary spirit have been pushed through within a reasonable period of time. Many people had no longer believed that such legislative action by Parliaments and decision-makers in Berlin and Brussels was possible at all. In this respect alone, both legal acts, the German competition law reform and the DMA, are a success. But they are also characterised by the fact that many details are regulated, but the overarching principles are still missing – especially in the case of the DMA. The impetus to fundamentally rethink competition policy is very welcome.

Two steps

What does a competition policy that explicitly wants to be oriented towards the ordoliberals mean today?

In 1936, Eucken, Böhm and Großmann-Dörth initially called for a turn towards a fact-based approach:

“Concrete problems are what need to be dealt with.”

Turning to the “requirements of the matter itself” is a reminder to science (and of course politics) to work on problems, not to cling to concepts or get stuck in ideology. This fact-based approach, however, carries the danger that the normative force of the factual will prevail. Economic facts, according to the three founders, are too often accepted by lawyers as unchangeable. 

Anyone who reads this and has dealt with issues of digital regulation in recent months must think that Eucken and his fellow campaigners have outlined digital regulation as “Our task”. Occasionally, one could miss the work on the concrete problem in the Digital Markets Act as well as a discussion that was not exhausted in ideology or simple adherence to the status quo. There are occasional indications of something similar for the sustainability debate in competition policy.

However, the concrete solution to the problem, second essential step in “Our Task”, must always take place within the framework of the economic constitution:

“The economic constitution is to be understood as an overall political decision on the order of national economic life. Only the orientation towards this idea gives the handhold to gain really reliable and conclusive principles for the interpretation of many parts of public or private law.”

The economic constitution thus provides the framework. The core idea of an economic order must be considered in every single step of economic policy. 

The economic order as the constitution

Walter Eucken later developed constitutive principles for an economic order, I will go into this later. However, it seems interesting to me that the concept of constitution plays a central role in this interdisciplinary programme. Even Eucken, the economist, takes up this concept again and again. The rule of law is an essential building block of his economic theory. 

By referring to the constitution, Eucken points to a broad intellectual reference space – he did not mean the concrete constitution of the German Grundgesetz or the Weimar Constitution. He is concerned with the “overall decision on the organisation of the economic life of a community”. For this decision, which has interdependencies with “all other orders of life”, the “intellectual roots” of the Freiburg School become relevant (the president of the Swiss Competition Commission, Andreas Heinemann, wrote about this many years ago). Eucken was the son of a Nobel laureate in literature, Böhm’s father was a minister of culture in Baden, his mother-in-law the writer Ricarda Huch. These gentlemen were rooted in art and culture. They had read Adam Smith, but also Immanuel Kant and their Goethe. Rights and religion, arts and culture – all kinds of Vorverständnis [pre-conceptions] – resonate in the work of the ordoliberals.

They prefer the market economy to the planned economy not only out of pure efficiency. For them, it is a natural part of freedom: Market participants exercise their liberties. As with Friedrich von Hayek, Freiburg economics professor from 1962, who blew much dust off the ordoliberal programme, for Eucken too the “road to serfdom” (Hayek) is a frightening concept. Eucken calls it, quite similarly, “tendency towards state slavery”. 

Human dignity as a starting point

When I look at today’s economic constitution, the starting point that must determine competition policy today becomes clear. Article 1 of the Charter of Fundamental Rights as well as Article 1 of the Grundgesetz place human dignity at centre-stage. The fact that human dignity so rarely plays a role in competition policy discussions is a surprising omission. It should be the guiding star of the economic constitution of our time. The discovery of human dignity as a concept for economic law has only recently been rediscovered when the practices of GAFA companies have come under scrutiny. The German Bundesgerichtshof [Federal Court of Justice]  decision in the Facebook case, which emphasises the self-determination of the individual in the digital age, is characterised by ordoliberal thinking in this respect. 

When the Ministry now commits itself to Ordnungspolitik, it is economic policy in the service of human dignity. That may sound like pretty speeches in the soapbox and high morals. Who would want to contradict when Eucken says demands to give “the modern industrialised economy a functional and humane order”? However, if this is to mean stopping child labour, the consensus quickly reaches its limits. The disputes over the respect for human rights in recent supply chain regulation show the potential for conflict that lies dormant in such an economic policy. In Germany, the Ministry (then led by another party) was extremely cautious with regard to responsibilities of German companies for sustainability in the supply chain. Would things be different today?

The constitutionalisation of economic policy is a legal imperative, in the EU as well as in Germany. The fact that it has so far remained largely alien to antitrust law is due to the fact that competition policy has so far tended to regard itself as not responsible for global economic production and future living conditions. This now reads differently in the Agenda: “Fair globalisation” is the buzzword here, human rights are explicitly named as a topic of the sustainability discourse. The postulate of intergenerational justice, which the German Bundesverfassungsgericht [the Federal Constitutional Court], read out of the constitution in its spectacular climate protection decision, could easily be construed as a question of human dignity. 

The green transformation

This calls up the main topic for which the Federal Ministry for Economic Affairs and Climate Protection was specifically renamed. The new minister and his team are concerned with the transformation towards an ecological-social market economy. Competition policy is a part of this paradigm shift. The Agenda states:

“Successfully tackling the climate crisis in increasingly scarce time and mastering the transformation of our economy also requires a modern, efficient and investing state as well as the mobilisation of all private and public forces in the common interest. This transformation is the “moon landing mission” of our generation. In doing so, we use market- and competition-compatible instruments – such as climate contracts (Carbon Contracts for Difference) to promote innovation and its diffusion. Taking Ordnungspolitik seriously therefore means going beyond the successful rules of competition to supplement the regulatory framework of a social-ecological market economy with rule-based and effective instruments.”

I am not sure whether Eucken would have formulated it similarly. The “investing state”, “the mobilisation of all private and public forces in the common interest” – that does deviate from the idea of a framework order that unleashes competitive forces. 

The standard-bearers of economic policy

As far as private forces are concerned, however, there is definitely proof in the Competition Policy Agenda that Franz Böhm’s “private law society” has not been forgotten: private law enforcement is to be strengthened (see item 2 of the Agenda), legislation is to be participatory and transparent. And there is another beautiful sentence that one just wants to print out and hang up in the German Bundestag:

Ordnungspolitik also means reducing unnecessary privileges and subsidies in favour of strong special interests.”

It is open to speculate whom the authors of this paper consider to be the representatives of “strong special interests”. Let everyone make up their own minds as to whom the BMWK should listen to in the evaluation of the Act against Restraints of Competition that is planned according to item 2 of the Agenda.

Walter Eucken clearly identifies who supports the competitive order and who stands in its way. Competition policy builds on individuals. Not as egoists, but as self-determined people who behave in freedom and responsibility in the community. On the opposite side, Eucken sees “the heads of corporations and syndicates and trade unions, functionaries of monopolistic groups of all kinds and the whole bureaucracy that works in these groups”. Eucken’s lines – even with his not exactly unpathetic style – speak of a wonderful resentment against this “peculiarly composed group”. 

It comes down to the private sector and the entrepreneurs – this is good news for the competition community.

Market-compatible new instruments

First and foremost, the BMWK wants to use “market- and competition-compatible instruments” for the green transformation. Carbon contracts for difference (sometimes also called “climate protection contracts”) are apparently considered an exemplary model in this respect. Contracts for Difference are contracts in which price volatility is compensated so that the investment risk is reduced. For climate protection – who else – the state steps in as a compensating contractual partner if a CO2 -friendly technology is initially associated with high investments that are later recouped, for example, through lower costs for CO2-certificates. The state subsidises the development by covering the costs above a benchmark price. In return, if the investment (e.g. in a new technology) pays off, the company must pay back any deviation from the benchmark price. In short, it is a kind of start-up financing by the state for climate-friendly technologies, speculating that the investment will pay off after a while.

That sounds intelligent, maybe it even is. But ultimately it is also nothing more than a subsidy for green technologies in industries that are struggling because they have long lived off producing environmental costs without being liable for them.

Eucken’s principles of the competitive order

Are the proposals for green transformations compatible with Eucken? His competition order is characterised by eight constitutive principles. First, the price system of complete competition: 

“The main thing is to make the price mechanism work.”

Secondly, reliance on the price mechanism entails the stability of the value of money as a principle. Thirdly, Eucken relies on open markets. Barriers to market entry, monopolies and cartels must be fought. Fourthly, Eucken demands the recognition and protection of private property and fifthly, freedom of contract. The sixth principle is that of liability – this will be discussed later. Finally, he demands constancy of economic policy and the common application of these principles.

The passage in the Competition Policy Agenda on the necessary transformation towards sustainability must be measured against these principles. There are definitely considerable overlaps: the carbon contracts, for example, are linked to the trade in emission certificates. This mechanism is the prime example of a modern regulatory policy, as the price mechanism is used. The proposal stays relatively far away from state central administration, relies on contracts and does not touch private property. Transformation with market-compatible instruments, in the sense of a modern regulatory policy – that is in any case a strong commitment against a policy of prohibiting or steering imposed from above. The revolution will not be done without the market. 

Whoever has the damage…

This market, however, must internalise external costs more strongly than before: Costs of environmental damage must no longer be transferred on the general public, but must be reflected in the price. Eucken did not yet have the environmental problem in mind with today’s awareness, but he already explained the problem of external effects in an essay in ORDO 1949, using the example of the desertification of America:

“Consider the destruction of forests in America, which degraded the soil and climate of vast areas and led to desertification. It happened because the economic accounts of the forest owner did not, or hardly, reflect these effects on the overall economy.”

Eucken sees with all sharpness that the externalisation of costs is by no means a necessity. The economist refers to the 19th century, when it was accepted that there was child labour and insufficient protection against accidents at work – which was only eliminated or mitigated by setting a framework. The rules led to the internalisation of these risks with those who profited from child labour or unsafe working conditions. 

For Eucken, it is self-evident that risks must be borne by those who book the corresponding benefits for themselves. It is the constitutive principle of liability:

“He who has the benefit must also bear the damage.”

How one would like to shout this at all those who profit from limitations of liability or produce without restraint at the expense of the general public – and try to label this as a market economy. For Eucken, the principle of liability is a fundamental question of justice and an expression of freedom and self-responsibility. In addition, liability is also an essential element of the competitive order:

“Companies were increasingly given the opportunity to escape liability – e.g. through the use of appropriate corporate forms and through the general terms and conditions of business. This encouraged concentration and impaired the functioning of the price system. The selection method and control through liability was pushed back – without replacement.”

Without liability, companies can continue to concentrate without being measured by their performance; exit from competition due to poor performance can be evaded. Anyone who thinks along these lines will quickly get on the path to a sustainable economy. The only question is with what vehemence the legislator will put a price tag on the exploitation of the planet or other people for companies.

The social question

Then, of course, there remains the question of how the selection process brought about by competition can be socially mitigated. When I re-read Eucken, I was surprised at how much he was concerned with the solution of the social question. For him it is the “central question of human existence”! What will happen to the workers if the coal factories are closed or robots are used instead of humans? I do not read a definitive answer from Eucken’s remarks, but a consistent turn towards the competitive order, the promotion of private property, the “mobility of labour”, the “strengthening of the free initiative of the individual”. Only an efficient economy, according to Eucken, can cater to those who are dependent on social benefits.

Eucken is more than aware that reliance on the market and competition is not sufficient to solve the social question. He therefore sees a “special social policy” as a self-evident part of his overall order. The fact that the gap between social policy on the one hand and competition policy on the other seems insurmountable today is a loss. Following Eucken, every competition politician should also be a social politician (and vice versa).

Constancy of economic policy

A final thought: As the seventh point of his constitutive principles, Eucken states that economic policy must remain constant. He discusses this aspect primarily from the point of view that companies need investment security. The already great uncertainty on the markets would only be increased by an erratic economic policy. Moreover, according to Eucken, uncertainty promotes the formation of groups and thus concentration. 

The principle is perhaps the greatest challenge of our time. Even under more “normal” circumstances in the Twitterocracy, one is hardly used to a stringent, consistent policy with a compass. And what about these days?! The new German economic policy of a stable framework, whose renaissance was proclaimed three days before the war began, has yet to prove itself viable. The exogenous shock of the invasion of Ukraine has, at least for a few days, completely called into question the German government’s regulatory orientation. 

Walter Eucken knew what war meant. He conceived his principles in the full knowledge that man is capable of being a wolf to other men. His order of competition is an order of peace. Yes, I am sure of that.

Rupprecht Podszun is a professor at Heinrich Heine University in Düsseldorf and director of the Institute for competition law. Since 2022, he has been co-editor of the journal ORDO – Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft.

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