Volume 51, Issue 1

The introduction contains an explanation of the features which distinguish mergers from „mega-mergers". The second part deals with three mega-mergers in the pharmaceutical industry, the take-over of Mannesmann by Vodafone AirTouch and the DaimlerChrysler merger as examples of mega-mergers. In the third part the reasons for mega-mergers are analysed. Advantages of size for firms are not sufficient to justify such mergers on economic grounds. The frequently mentioned economies of scale in production, which are generally seen as the most important advantage, are usually linked to internal growth. Mega-mergers do not effect such growth, other than possibly providing extra financial resources. The advantage of mega-mergers could rather be the increase in market power, which enables these companies to exert pressure on input prices. This line of reasoning is often neglected. The importance of the increase of the markets for mega-mergers is extensively and critically analysed. Using the pharmaceutical industry as an example, the contribution of megamergers to innovations is examined. This debate is very controversial and contains contradicting arguments. In particular it neglects the important aspect of strengthening the innovative capacity of companies. Other factors, which could be reasons to form megamergers, are the striving for power, imitation and fashion as well as attempts to reduce uncertainty. Furthermore is discused, if mega-mergers produce economic advantages due to a greater focus on core business, the exploitation of synergies and a decrease of excess capacities. Last but not least, the personalities of investors and managers involved in mega-mergers not only lead to additional (non-economic) reasons for their existence but also influence the success of these mergers. The fourth part deals with the relationship between mega-mergers and competition. It is highly likely that one of the main reasons for mega-mergers is the wish to prevent increasing competition by enlarging the markets. Successful mega-mergers will most probable lead to a realisation of this goal. The last part looks at the question of what needs to be done about mega-mergers. A general laissez-faire approach for cases without market domination is rejected. Instead it is recommended to establish opportunities to control mega-mergers in case they lead to an significant and durable increase in economic power, even if they do not achieve outright market domination.

The Freiburg economist Leonhard Miksch’s (1901-1950) ideas on Ordnungstheorie and Ordnungspolitik have so far received little attention in the discussion of Ordoliberalism. This is surprising as Miksch provides insights into the debates within the Freiburg School in its early phase and, moreover, gave impulses that were essential to the further development of this economic approach. In addition, as a close advisor to Ludwig Erhard, his influence on German post-war economic policy was considerable. This contribution reconstructs Miksch’s thinking on Ordnungsokonomik. First the focus is on the debate on the combination of market forms and market constitution as analysed by Miksch primarily in his habilitation thesis on “Wettbewerb als Aufgabe” (“Competition as Task”), supervised by Eucken and published in 1937. Subsequently, connections are established between these early ideas and his later, mostly post-war studies in which the organising principles of internal and external co-ordination acquire central importance. It can be shown that his ideas on economic policy culminating in the reference model of „Als-Ob-Wettbewerb“ (“competition as-if”) as well as the connection he established with the economic foundation of democracy are of enduring relevance.

Hayek’s theory of information, centered around the role of prices, shows that market prices collect and send essentially necessary economic information. This theory has found full fruition in the theory of financial markets. It is difficult to show, however, how information enters into price formation, a question which Hayek neglected, focusing as he did - in a perspective similar to that of General Equilibrium Analysis - on already existing prices. Monopolistic elements and market imperfections are essential in the course of price formation. Also, it is unclear whether prices will not embody faulty information, a possibility which Hayek himself assumes in his theory of the business cycle. Furthermore, it is unclear whether present prices do, indeed, provide all the necessary information for entrepreneurs. Many of these problems are being solved, however, by the evolution of financial markets due to institutional competition between their various forms.

Hayek wrote very little on international economic order. In his few writings on the subject, going back to the 1930s and 40s, he follows Robbins in advocating „international authorities“ to solve the problem of international political and economic disorder. The paper argues that Hayek indulges in „naive constructivism“. First, he ignores the classical liberal insight, from Hume and Smith to Ropke and Tumlir, that, fundamentally, a liberal international economic order is generated „from below“ as a by-product of proper constitutional observance within national orders; it does not result directly „from above“ through international political cartels. Second, „international authorities,“ berefit of requisite moral and political preconditions within nation-states, would likely degenerate into politicised, interventionist agencies rather than being apolitical enforcers of an International Rule of Law. The second part of the paper shifts attention to Hayek’s wider work in national political economy and seeks to make it relevant to international economic order. His core insights into the division of knowledge and the spontaneous order, with their surrounding rules and conventions, can be transposed to the international level and provide a „vision“ of a dynamic and institutionally dense international economic order. This would be a useful complement, and indeed a salutary corrective, to a static view of international trade-and-payments in the modem neoclassical tradition. Seen from a Hayekian standpoint, the origin, growth and maintenance of a liberal international economic order, like the national catallaxy, rely on the division of knowledge and its overwhelmingly spontaneous coordination. Supporting rules and conventions for property and contract have also emerged and spread in largely (although not wholly) spontaneous fashion. At the level of political deliberation, market-friendly rules have been put in place mainly within nation-states, and then diffused by a process of competitive emulation; mostly, they have not been a product of international political cartels. These evolutionary Hayekian insights would fit in well with and buttress a „bottom-up“ and dynamic classical liberal view of international economic order, as initially set out by Hume and Smith Zusammenfassung Hayek und die internationale Wirtschaftsordnung Über die internationale Wirtschaftsordnung schrieb Hayek nur sehr wenig. In seinen wenigen Veröffentlichungen hierzu aus den 30er und 40er Jahren folgt er Robbins und befürwortet internationale Instanzen für die Lösung zwischenstaatlicher Ordnungsprobleme. In diesem Beitrag wird Hayek die Neigung zu einem „naiven Konstruktivismus“ vorgehalten. Erstens läßt er die klassische liberale Einsicht von Hume und Smith bis Röpke und Tumlir außer Acht, nach der eine freiheitliche internationale Wirtschaftsordnung „von unten“ entsteht - als Nebenprodukt verfassungsgemäßen Handelns innerhalb nationaler Ordnungen, nicht aber „von oben“ als Ergebnis direkter internationaler Absprachen. Zweitens würden solche Instanzen, mangels moralischer und politischer Verankerung in den Nationalstaaten, eher zu politisierten und interventionistischen Behörden degenerieren als sich unpolitisch für die Stärkung einer internationalen Rechtsordnung einzusetzen. Der zweite Teil des Beitrags lenkt die Aufmerksamkeit auf Hayeks weitergehende Arbeit im Bereich der nationalen politischen Ökonomie. Der Autor versucht, diese auf das Problem der internationalen Wirtschaftsordnung anzuwenden. Hayeks Einsichten in die Wissensteilung und die spontane Ordnung mit den zugrundeliegenden Regeln und Konventionen, übertragen auf die internationale Ebene, ermöglichen die „Vision“ einer dynamischen internationalen Handlungsrechtsordnung. Damit könnte die statische Betrachtung internationaler Handels- und Zahlungsströme, wie sie in der neoklassischen Tradition vorherrscht, sinnvoll ergänzt, ja heilsam korrigiert werden. Aus der Perspektive Hayeks basieren der Ursprung, die Entfaltung und die Sicherung einer liberalen Wirtschaftsordnung ebenso wie die nationale Katallaxie auf der individuellen Wissensteilung und ihrer überlegenen spontanen Koordination. Die sie stützenden Vertrags- und Handlungsrechte haben sich ebenfalls weitgehend (wenn auch nicht vollständig) spontan entwickelt. Dank politischer Einsicht sind marktfreundliche Regeln meist auf nationaler Ebene eingeführt worden; in einem wettbewerblichen Prozeß breiteten sich diese dann weiter aus. Größtenteils waren sie jedenfalls nicht das Ergebnis internationaler Absprachen. Diese evolutorischen Einsichten Hayeks, würden nicht nur gut zur klassischen Sicht der internationalen Wirtschaftsordnung passen, wie sie ursprünglich von Hume und Smith herausgestellt wurde, sondern hierfür eine zusätzliche Begründung bieten

In this paper a conjecture of Hayek will be commented upon which appears to have neurosensory properties. First (part I) the conjecture will be presented. Thereafter (part II) its neurosensory foundations will be analyzed by drawing on previous research of Hayek, particularly his „Sensory Order“. In part III the implications of the conjecture for institutional economics will be traced. Finally (part IV) the comments will be summarized and qualified by referring mainly to biological cognition theory.

Adam Smith based his explanation of individual behaviour in a social context on the principles of self-love and of sympathy. He used the principle of self-love in his “Wealth of Nations” to demonstrate that a system of natural liberty would provide people with the means to get more income and wealth than in any other system. He probably believed that a free market economy would be compatible with a decent style of behaviour of all or of most economic actors. This belief may be called the weak harmony thesis. Recent experiences with regard to the behaviour of economic actors and experiences in earlier times with market economies have, in the opinion of many people, falsified the harmony thesis. It isn’t usually the decent one who gets the most out of the economy but the reckless opportunistic one who seems to gain. This fact, if it is a fact at all, is no problem for modern economics. According to Keynes people refrain from unscrupulous behaviour in economic affairs only in a state of material affluence. Modern economic theory (Becker, Ehrlich) believes in utility maximizing behaviour and is able to explain even criminal acts. The economics of transaction costs (Williamson) argues that opportunistic behaviour and even cheating is not the rare exception but should be expected as the rule in economic dealings if one is willing to accept in earnest the fundamental principle of self-interest. This may be called the mistrust thesis of modern economics. Ancient philosophers like Aristotle despised most economic activities because they believed that all trading would necessarily be contaminated with cheating. In recent times modern moral philosophers express their concern about the thorough commercialization of modern life and point to a fundamental conflict between economics and ethics. This may be called the Aristotle Thesis. Yet, if economics is understood as a positive science than there is no such conflict. However, the problem with economics is that as a general theory of behaviour it is not generally true; it has to be modified in order to encompass most of the daily acts of decent behaviour. Modern economic theory explains behaviour in terms of utility maximizing individuals who use all means at their disposal - even unethically ones - if they can expect thereby to increase their utility. But such behaviour may contradict the principle of sympathy. Further, if the market economy must be understood as a set of institutions which is full of incentives to harm other members of the society than the critique of many enemies of a free market society will gain momentum. The article analyses whether there is a contradiction of some sort between the principles of self-love and of sympathy (the „Adam Smith problem“). In order to lay the ground for a new answer to the fundamental „Adam Smith problem“ the article develops and interprets in some detail some hypotheses of „The Theory of Moral Sentiments“. Four meanings of the alleged contradiction were distinguished: Incompatibility, crowding out of inclinations of decent behaviour, weakening of moral viewpoints and strengthening of opportunistic strategies, and fragmentation of individual moral codes of behaviour, i.e. cheating only in the market sphere and obeying the norms of decent behaviour in private relations. It is shown that lasting economic relations, which in volve, in contrast to pure exchanges, some investment in trust may produce many opportunities to engage in opportunistic behaviour and to exploit the economic rents of the other contracting parties. In these cases there will be no crowding out of all morality but there will be at least a strong incentive to damp down all regards to the wellbeing of an unlucky partner in a long-term relationship. If this partner has no ready alternative the reckless quitting of the relationship by other partners in order to increase their own profits may evoke feelings in the dismissed individual of being nothing but a poor tool. Those are the situations where there is some conflict between the principles of Smith. Traditional economics concentrates on markets and hierarchies and neglects personal networks. This leads to a crowding out of morals as an explanatory hypothesis of economics, which is not due to Smith but to the view that competition will mysteriously provide the optimal kind of personal networks in an economy. Free markets open the way for unscrupulous subjects as well as for decent ones. Those who favour the thesis that markets crowd out decency usually look at the state for some help to control and earmark the bad market guys. They seem to believe that only in their role as members of economic transactions do people have incentives to disobey the norms of decent behaviour and that the role as political actor mysteriously immunizes them from behaving contrary to the public good. They forget that the politician not only has incentives to further his own interests or those of his good friends but that he has usually the power too. Market institutions don’t need much of the scarce moral resources to provide strangers with the necessities for life. However, market institutions alone are unable to provide the moral ground of a society. In a competitive market society decency needs faithful public advocates besides public control backed by independent courts. One may call this the Wilhelm Röpke Thesis. The „Theory of Moral Sentiments“ is compatible with the more important ideas of the Wealth of Nations. Yet, as far as I can see, there is one missing element: The emotional basis of morality needs the lead of ethical ideas and probably some material welfare too in order to become effective for the sake of general humanity.

The social market economy as we know it in Germany today is in a major social dilemma. Political programmes suggest an institutional „third way“ as a solution: that is to say the apparent golden mean between the first way, the social market economy, and the now defunct second way, the state controlled centralised economy. The author considers the institutional variants by asking the following questions: 1. How do freedom, competition and social balance correlate? 2. Is the individual principle or the collective principle the basis for political, economic and social action? According to the author, both the general historical development in Germany and, in particular, institutional changes in the Federal Republic of Germany since the 1960s illustrate the fact that the correlation between freedom, competition and social balance has shifted in favour of the latter: the development of the social system in accordance with the collective principle has resulted in „creeping market socialism“, the root of the present social dilemma. It is well-known that attempts to diverge from the second way towards „constructivist market socialism“ as a third way (Czechoslovakia, Hungary) have failed miserably. This shows that institutional third ways cannot solve the current social dilemma. Actually, a return to the ordo-liberal principles of social market economy is what is required.

The institutional setting of advice giving institutions is very important in order to assure efficient policy advice, i.e. policy advice that, on the one hand, meets the demands of the citizens and, on the other hand, has good chances of being implemented through the political process. Therefore one should distinguish between institutions of policy advice that have the public as their primary addressees and institutions that give advice to politicians. In Germany the advice giving landscape is characterized by mostly public funded research institutes, doing in the first place contract work for different ministries. In contrast to this, the US setting is dominated by a whole array of private funded, independent research institutes, so called think tanks. They work in a very competitive environment as each of them needs to compete for funding and for public attention. Hence their public oriented strategy that includes not only advice giving to political leaders but also to opinion leaders and the public via the press and the media. Think tanks thereby provide ample input about possible economic policy options for public debate. In order to render economic policy advice in Germany more effective, the institutional structure should be modified in a way that helps to foster competition among the different institutes. To strengthen private funding of research institutes would be a first step in the right direction. The US think tank structure could serve as a role model for an institutionalization of economic policy advice geared towards the public.

For the last 25 years the performance of the German labor market has tremendously deteriorated. This development is caused by severe shortcomings due to an institutional mismatch. A widespread network of regulations between the labor market, the welfare state and the fiscal federalism setting is prompting collective moral hazard by trade unions and employer associations and prevents market forces from achieving high employment equilibrium. Unfortunately the current situation is a politico-economic equilibrium since the majority obstructs the necessary institutional reforms. Proposed solutions embracing interest groups like the „Bündnis für Arbeit“ are a cul-de-sac. In this respect globalization is a remedy. Increasing international trade and factor mobility lead to more heterogeneity of interests and strengthen the voice of those who engage for decentralisation, differentiation and competition.

In this paper, our aim is to outline the forces of persistence and inertia, which go along with institutions in general and with the academic qualification of habilitation in particular. As we have shown, it is hardly sufficient just to formally announce innovations in the qualification of the rising generation of junior professors in academia and to officially abolish the requirement of habilitation for University professors. Such announcements lack credibility as long as the vast majority of the members of academic appointment panels are professors who themselves had to habilitate in order to qualify. Under these circumstances, young academic professionals need strong and credible signals from senior professors. Those signals must indicate that a change in preferences among the members of nomination panels has really taken place or is at least on its way.

For at least ten years, we have recognized a new type of models of growth which claim to make the explanation of economic growth endogenous. This paper analyzes the inner logic of one of the most prominent models of endogenous growth: Paul Romer’s contribution „Endogenous Technological Change“. Although Romer’s model captures some of the features of technological advance, for instance the relevance of externalities and imperfect competition, it also neglects many aspects which seem to be equally important: First, entrepreneurs do not act under the condition of perfect foresight. Second, an increase of research efforts does not necessarily lead to an increase of „designs“ (innovations) and an increase of designs does not necessarily trigger economic growth. Third, the speed and direction of technological advance is highly dependent upon its institutional framework, i.e. the economic and social order. This paper attempts to show that technological change can be better interpreted as an open process which is driven by entrepreneurs acting under true uncertainty. Another suggestion of this survey is that more emphasis must be placed on forces that escape an easy formalization, for instance the achievement motivation, the competence of market participants and the system of property rights.

The paper analyzes the different institutional concepts that have characterized German broadcasting regulation with respect to the freedom of speech and diversity of opinion. The German Constitutional Court first ordered a control of market results by instituting the „Rundfunkrat“, the function of which is to guarantee that the opinions of all relevant social groups are represented in the program. After the entry of private television stations the focus changed towards a control of market behaviour instead of market results. This falls in the responsability of the „Landesmedienanstalten“. it is now the EC Commission which stresses the importance of fair competition in the market of ideas. It has extended the control of state aid to television. Evaluating the development of the last fifty years, it is clearly visible that market elements have gained influence.

The public broadcasters in Germany are largely exempt from the pressures of competition. Their main source of revenue is the broadcasting fee which must be paid by every person who owns or hires a TV or radio set. What is more, the German Supreme Court has guaranteed their existence for good. This institutional arrangement is deemed necessary to allow them to inform, ‚educate, and entertain‘ the wide public free from political or interest group interference and from financial straits. This paper, however, demonstrates how and why the public broadcasters have spectacularly failed to deliver. Finally, it proposes a radical reform of Germany’s broadcasting policy along the lines of the New Zealand model.

The article deals with the interactions between the institutional structures of the German health care system and the demand for innovations in the medical device industry. The special focus is on imaging devices because of their dominance in the industry’s sales. The analysis is based on the concept of Porters „diamond“ which allows a systematic assessment of the industry’s competitiveness and innovative potentials. In the case of the German health care system the particular interactions between patients and their agents, physicians and hospitals, as well as strong state interventions create indeed a stable demand for new medical devices. All participants in the system share a strong preference for technical devices, which are state of the art. However, the steady stream of new devices does not imply that all of them are also health improving and cost reducing innovations, since the existing system has created important barriers to competition. The article also reviews proposals for a reform of the German health care system and their possible effects on the medical device industry. A deregulation of the existing structures is seen as the most promising way to generate incentives for more innovations and higher growth in the medical device industry. On the other hand, it is also obvious that all changes of the status quo risk to provoke strong resistance.

The topic of „secession“ is usually associated with violence and political disorder. There are, however, more positive aspects to be found in it. Secession may also be seen as a defence against centralistic and discriminatory legislation. Especially in the case of the European Union the right of secession may be discussed in a meaningful way, because the immanent centralising tendencies of the EU could be countered effectively this way. Otherwise the EU with its cultural, social and economic diversity could be likely to turn its policies into an illiberal and anti-free market direction in the long run. Secession as such does not necessarily counter such policies successfully. What is needed is a proper theory of secession with some practical applications. It should be based on rules that strengthen individual choice and democracy. In existing federations/ confederations like the EU it is possible and desirable to define the right of secession as a constitutional right. Secession, then, can be carried out peacefully under the rule of law. A constitutional right would also enable the „lower“ tiers of government to exercise pressure against discriminatory legislation. These advantages can be enhanced by concrete rules. These rules should concern federal property, the time horizon of secession, the public debt and the democratic criteria for secession (such as qualified majorities). Also it has to be settled whether unilateral or bilateral secession should be allowed. In the case of the EU unilateralism seems to recommendable, because otherwise the EU would be the last instance in the decision making process. The inclusion of a right of secession in a European constitution will strengthen the principle of subsidiarity and the right of „last resort“ of the member states. Another important outcome would be a type of competitive federalism in which free markets could flourish.

During the course of European integration social policy has become a more and more important policy area of the European Union. The paper analyses whether the EU’s social- policy measures improve the living conditions of the socially weaker people. All three areas of European social policy are analysed: the coordination of the member states’ social-security systems, the harmonization of the working conditions and the promotion of equal opportunities, social integration and vocational training. The paper shows that the EU’s social-policy measures have numerous disadvantages. In particular, they often are prejudicial to the very people who the EU intends to protect and promote.

There are different theoretical approaches giving an answer to the question mentioned above. But these approaches - especially the theory of integration, the concept of production costs and the institutional competition approach - fail to explain some important phenomena. Based on the normative individualism two criteria are developed to analyze the harmonization issue: legitimation and the possibility to finance. Collective action is legitimated if there is common support of all individuals in a hypothetical or implicit contractarian situation. The criterion possibility to finance is fulfilled if an actor having agreed to the production of a collective good is not able to withdraw his ressources. It can be shown that avoiding harmonization of the national Health Care Systems in the EU is a better solution from this point of wiew.

The article focuses on interdependencies between the multilateral trade order and regional and inter-regional partial orders. The tendency towards globalization has been reinforced with the institutionalization of the WTO. At the same time, regional cooperation and integration has also spread. The levels of action do not refer only to European integration, to NAFTA or to initiatives in exporting models from the EU and the USA; they also refer to the new movement of regionalism among developing countries which will enhance the co-operation among the states of the South. The interaction between globalism and regionalism is seen in two ways: One view holds that a concurrent elimination of barriers to trade on the regional level will bring about a gradual liberalization and adjustment of regulatory systems on the multilateral level, too. The opposite view holds that regionalization - particularly in a competitive commercial environment - is disruptive for the multilateral trade system. Both views stress the challenges for the WTO, especially the limits of its regulatory and disciplinary powers. The EU/EC plays an important role both in the multilateral system and in a regional context. The EU supports the so-called „Millennium Round“ of the WTO, maintains an extensive network of special relations with third states and has promoted regional integration in the Third World as an „horizontal instrument“ of its development policy. It has set up inter-regional orders to foster transregional co-operation as an instrument of trade or development policy. The attractiveness of the EC model is due inter alia to its experience in matters of integration, to its importance as a trade partner and to its commitments concerning development policy.