Volume 52, Issue 1

Allocating social costs to the one who is responsible for them improves the workability of the price system and thus is a right way of economic policy in a market economy. The German eco-tax only imperfectly meets these requirements. For populist reasons private households, large and small companies are burdened in different ways. The rate of taxation does not depend on the emission of ecologically harmful gases. For example, nuclear power plants which do not cause any emission of carbon dioxide are taxed more heavily than power plants which burn hard coal - although burning hard coal causes massive emission of carbon dioxide. By introducing eco-taxation German government aims at keeping premiums for social security low. Thus for the governing parties (SPD - i.e. Labour Party - and the Greens) eco-taxation is a way of avoiding necessary liberal reform of German social security system. By doing so a redistribution of income at the expense of poor households is accepted willingly. From the view of Ordnungspolitik German eco-tax has discriminating effects, lowers employment and slows down growth.

Besides the system of collective bargaining the German Works Constitution Act is one peculiarity of German labour relations. A legal framework of co-determination can cure market failure caused by information asymmetries, free-riding and opportunistic behaviour. Employees are more willing to invest in specific human capital and to cooperate with the management in order to generate quasi-rents. In recent years works councils have been challenged by structural change and reorganization of work. But by enhancing the legal rights of works councils the German government failed in adapting the Works Constitution Act to new economic conditions. Voluntary agreements between employers and employees both formally and informally settled on have replaced legal works councils in governing labour relations. The paper shows that the New Works Constitution Act will not result in efficiency gains but will protect rents for insiders.

Within the ordoliberal tradition the „freedom-to-compete“ concept plays a central role as guide line for competition policy. Its precise meaning and normative content are, however, not entirely unambiguous. The purpose of this article is to analyze some of the ambiguities surrounding the „freedom-to-compete“ concept from a constitutional economics perspective and to argue that these ambiguities can be eliminated if a careful distinction is drawn between the constitutional and the sub-constitutional meaning of the concept.

The EU Commission plans to fundamentally change the competition law of the European Union. According to these plans, the current system of a prohibition in Art. 81 Sec. 1 of the Treaty with the possibility of an exemption subject to a decision according to Art. 81 Sec. 3 would be replaced by a system of an automatic statutory exemption. Article 81 Sec. 1 and Sec. 3 of the Treaty would then be directly applicable as one integrated rule. A prior examination by the competition authorities would not take place any more. This would be a change from an ex ante enforcement through prescreening to an ex post enforcement through deterrence. The author shows the mixture of elements of ex ante control and of ex post control in the German, the European and the US American legal systems. He assumes the proposals of the EU Commission to be risky in terms of competition policy. He tests this hypothesis against the criteria of transparency, legal certainty, coherency of legal enforcement, subsidiarity, deterrence effects and costs of enforcement. The logic of the proposals of the EU Commission implies the introduction of imprisonment as a sanction for antitrust offenses.

The paper is divided into four parts: First, systems theory will be used to identify those institutions which are constitutive to a market system. Secondly, it will be shown that there exists a relationship between the law as a category of (external or formal) institutions and freedom as a basic value. Thirdly, those political, legislative processes will be traced which tend to endanger freedom and which are characteristic of the prevailing form of democracy. Finally, it will be asked whether self-healing forces will emerge when freedom is endangered in this way, which institutional reforms will promote those forces, and what are the chances of success of such reforms.

Hayek wants to secure individual freedom by general rules, but his principle of universality allows a discrimination based on different individual criteria. What is obviously missing in this context is a setting of the criteria that are allowed to be used or a method by which these criteria can be found. Actually the cultural evolution could be seen as such a method: The results of cultural evolution are institutions which are based on generally accepted criteria. Therefore these criteria should be used as a normative baseline for the general rules. Thus the cultural evolution plays an important role in the context of designing the general rules.

This paper attempts to broaden the conventional ambit of the ordo-liberal approach to comprise, in excess of the market sphere, also the political realm. How can the political process be structured so as to live up to the tenets of individuals’ sovereignty? This contribution suggests that constitutional equivalence holds if the same individuals that act at subnational level are also empowered to shape the rules relevant to them. The pattern and allocation of competences for framing social rules is vital for the realization of constitutional equivalence. The paradigm of the „state as monopolist“ is confronted with a form of decentralized problem solving that links the „geography of institutions“ with the „geography of problems“ and that puts the new decision makers in a position of institutional competitors. The exchange paradigm can be applied to all levels and modes of exchange: voluntary exchange on markets is only feasible if well defined property rights exist. By the same token, responsive policies, understood as complex forms of exchange, are only viable if the externalities are tackled by implementing well defined property rights and if the affected citizens receive group-exclusive, problem-adequate rights to convert their constitutional interests into institutions. An abstract four-layerstructure is proposed: 1. a general right of initiative for citizens on the national constitutional level, 2. an institutional meta-level where citizens’ specific rule-framing competencies are certified, 3. a constitutional level where empowered citizens shape the institutional framework of their society, 4. the sub-constitutional level where the playmakers choose their strategies for playing the game, within the limits set by the rules.

The judge plays an important role in Hayek’s theory of cultural evolution. He argues that the universal rules of just conduct could only evolve in legal systems in which it was the task of judges to “discover” the appropriate rules. This article scrutinizes Hayek’s optimistic view on the judicial “shaping of the rule”. It asks, whether the beneficial effects of judge made law are indeed as generally to be expected as Hayek presented it. The analysis follows Hayek’s own methodological guidelines, which are depicted at the beginning. The following portrayal of the theory of cultural evolution puts special emphasis on the judge’s contribution to legal development. Hayek’s theory in general has been criticized along two lines: on the one hand, it was argued that the processes and the criteria of selection remain vague. On the other hand, it was stressed that an evolutionary process can only be expected to lead to beneficial outcomes under certain conditions, which ought to be specified. I argue that also adjudication, seen as a mechanism in legal evolution, is not beneficial as such. As an example I present a part of German Competion Law. This example is chosen, because it is directly related to the spontaneous order of markets and because the statute only gives some guidelines for “fair” competition. Thus, like in common law systems, judge-made law is extremly important. This example can show that, in contrast to Hayek’s unconditional statement about judge-made law, adjudication can result in serious distortions of a spontaneous order. From the perspective of legal philosophy I argue, that Hayek rejects legal positivism only with respect to the legislator, in not accepting each formally correct enacted statute as law. Conceptualizing any formally correct judicial decision as a valuable contributions to cultural evolution, however, is only another kind of positivism. Finally, Jhering’s early contibution to a theory of legal evolution is presented as a promising approach that could complement Hayek’s theory of cultural evolution.

This paper reports evidence from Switzerland which indicates that a democracy with direct popular rights is at least not less efficient than a democracy without such rights: The citizens are better informed and the (economic) policy decisions are taken in a way that economic welfare is higher and the political outcome corresponds closer to the demands of the citizens than in a purely representative system. Correspondingly, reported subjective personal well being is positively related to the existence of direct popular rights. This holds despite the fact that the Swiss democracy is largely unlimited and, correspondingly, even less consistent with the views of F.A. v. Hayek about a reasonable design of a democracy than nearly all purely representative systems. Finally, the different philosophical ideas which lie behind F.A. v. Hayek’s conception of a democracy and the Swiss constitutional reality are shortly discussed.

At the beginning or even in the middle of the 20 th century, a comparison between rising Czarist Russia or, later, the mighty Soviet Union emerging victorious from World War II and poor Korea would have looked absurd. At the end of the 20 th century, however, the South Korean and Russian economies are about equal in size according to purchase- power corrected GDP. South Korean per capita incomes are in between three and four times as high as Russian incomes. Of course, the difference in success of both countries is largely due to the communist experiment in Russia. The divergent economic performance of both countries is all the more astonishing because both countries should have benefited from background conditions generally believed to promote growth: advantages of backwardness, massive investment and strong human capital formation. Moreover, both societies were quite similar in regime characteristics, i.e., they were characterized by autocracy and militarization of society. There are, however, strong differences concerning property rights, the degree of centralization of economic decision- making, capabilities to exploit knowledge and to innovate, economic freedom, urban bias and export orientation. These differences explain the divergent economic performance of both countries. The Soviet heritage of insecure property rights and high transaction costs is unlikely to be overcome soon. Russia’s rich endowment with natural resources seems to induce distributional conflict instead of contributing to institutional and economic development.

On the occasion of his 150 th birthday this paper serves the purpose of honouring Knut Wicksell. First, the life and work of Wicksell is portrayed. Subsequently, the attention is directed to his central contribution to the theory of taxation. The contemporary economic contract theory mainly rests upon the principle of unanimity developed by Wicksell. This principle is apt to guide the citizens’ search for mutual gains from cooperation through the provision of public goods. Wicksell is presented as the founder of a “critical contract theory”. Such a critical contract theory must comprise three basic elements: Firstly, its reasoning has to be strictly individualistic. Secondly, it has to be, pertaining to the finding of public functions and to the provision of public goods, in search of a procedural as opposed to an outcome oriented justice. Thirdly, a critical contract theory should not lose sight of social and distributive issues. In this contribution it is suggested that all three elements of the critical contract theory are rooted in Wicksell’s work. Even though Wicksell develops what I prefer to call the concept of “Productive Rules for Redistribution” and thereby approximates a solution for the problem of distribution, he himself remains remarkably pessimistic about the solvability of the problem of a just distribution. After careful consideration it strikes that Wicksell did not explicitly consider the costs of decision making. In this regard, the paper concludes by offering a range of possibilities for future research.

Globalisation means increasing locational competition and factor mobility and thereby endangers current welfare systems, especially the developed welfare states in Western Europe. Technological as well as political developments make institutional alternatives more and more easily available. Competition between welfare systems shows more clearly inherent economic problems of welfare states. Institutional competition is often interpreted rather as a danger for welfare positions once achieved than as a widening of institutional choice. Groups and states under pressure from competition become more and more interested in restrictions of competition and interventions in the market process to guarantee specific economic results. This article analyses the myths about the welfare state in globalisation developed in order to justify such obstacles to competition or interventions in market processes. These political justifications focus on defence against an unsocial global model of capitalism. This capitalism allegedly races to the bottom: social welfare system converge at the lowest possible level. Solidarity in the national economy and the international community of states passes away. Only planful coordination in form of national restrictions of competition or international coordination of welfare standards could stop this process. Restrictions of competition as proposed to escape from the pressure on welfare states lead to institutional sclerosis. Interventions in market processes to guarantee specific results are a presumption of knowledge not available to political deciders and lead to an interventionist spiral. Instead, this article proposes to understand the competition between welfare systems as a chance to find better solutions for social problems. The discovery of viable welfare institutions is possible, if the welfare states open their welfare systems for competition.

In view of the increased frequency and economic costs of banking crises in a growing number of countries around the world concerns about the stability of national financial systems in a globalized world economy have come to the forefront of academic and policy discussions. In the literature considerable attention has already been devoted to many potential causes of banking crises. However, the empirical evidence in favour of the competing theories is weak and the explanatory and predictive power of economic models remains low. The article argues that our knowledge of the forces which cause and propagate systemic banking crises can be considerably enhanced, when we clearly distinguish between three quite different groups of factors: (1) characteristics of the institutional structure which more or less predetermine what we might call systemic „fragility“ or „vulnerability“ of a specific banking system, (2) internal and external disturbing factors which may produce financial „crisis“ or „instability“ originating in fragile banking systems if the shock is sufficiently large, and (3) catalytic factors which determine the final magnitude, severity and costs of the arising financial sector crisis. Empirical evidence for Latin America, the Anglosaxon countries, Scandinavia, Japan and South-East Asia is presented which demonstrates that systemic banking crises indeed have multiple causes, but originate only in countries with institutional structures and preconditions which render their financial systems highly vulnerable to surprising and sufficiently strong adverse shocks. Finally, some policy conclusions are drawn from these results regarding crisis prevention, banking regulation, and institutional reform in the banking, corporate, and state sector, respectively.