Volume 59, Issue 1

This article examines how the process of globalization affects the legal-institutional foundations of markets and states. Its main thesis is that globalization demands a stricter distinction between two different functions of the state, functions that have traditionally not been clearly separated. The first is the role of the state as the joint enterprise of its citizens, i.e. as the agency through which citizens provide themselves with public services. The second is its role as a ‘territorial enterprise,’ i.e. as the agency through which citizens define and enforce the legal-institutional terms under which economic and other agents, citizens as well as non-citizens, may operate within its jurisdiction. Making this distinction has important implications for taxation and regulation.

To begin with (part III.), two observations will be reported which should throw some light on the theme of this essay. Thereafter (part IV.) the theory of Public Choice will be employed to explain these observations as well as the jam of reforms. In part V., a political strategy to overcome the jam, called „consensual politics” will be assessed. Then (part VI.) it will be asked why members of the political class in Germany seem to shy away from reforms of economic and social policy. This leads to reservations (part VII.) regarding constitutional law, which one can have in view of this situation. Finally (part VIII.) it will be discussed what could be done in terms of a causal therapy to remove the jam of reforms.

Public debt is here understood as a negative external effect, caused by politicians trying to reduce the costs of their political offer, thus gaining advantages in the political competition.The realities of political competition and the possibility of exercising these external effects, put the politicians in a dilemma situation: the avoidance of public deficits - a cooperation for the common good - becomes impossible, public debts inevitably rise. Exceptions occur only if the cost of public debts are internalized. But as a full internalization through the market seldom succeeds, rising debts have to be battled with regulation as well. We therefore call for combining two strategies: the intensification of competition, to enhance internalization of negative externalities, and a ban of debt covered investments, to limit the usage of public debt and break the structural dilemma imposed on politicians.

Individuals pay taxes because they trust in government. Governments’ adherence to the rule of law seems to increase trust and tax compliance. But the tax design also influences tax compliance. Taxes for which the quid pro quo is not visible or which are not self determined by the citizenry are more likey to be evaded. VAT according to the origin principle fares better than VAT according the destination principle. Tax design should keep revenue in balance with enforcement costs, efficiency loss and citizen’s trust in government. Questionable are extremely high tax rates, such as those on long term savings.

In the history of economic thought luxury, status seeking and conspicuous consumption are seen highly divergent. Thus, it is hardly surprising that economic advice with respect to a possible governmental intervention varies with time and perspective. This contribution provides an overview how conspicuous consumption was seen in the history of economic thought and outlines the connection between recent contributions and historical thinking on the issue. On the one hand, recent policy recommendations are often based on the arbitrary definition of status seeking as a zero sum game and partly on an incorrect welfare comparison. On the other hand, specific characteristics of the market demand function for status goods make the taxation of luxuries a venture with incalculable outcomes. Taking these results into account luxury taxes are hard to justify and extremely difficult to design.

This article is focussing on the new manifestos which have been passed by the three parties of the German Grand Coalition in the autumn of 2007 to replace their older manifestos of 1989 (SPD), 1993 (CSU) and 1994 (CDU). Caused by the rise of DIE LINKE and the new programmatic positions of the established parties, the German party system has changed during the years of the Merkel Government. This development rises questions about whether the ordo-liberal position is still capable of obtaining political majorities. This article analyses the new manifestos by focussing on key issues of economic and social order and tries to offer some conclusions on the challenges ordoliberalism has to face, if it wants to defend and extend its influence on the programmatic baselines of German politics.

The adoption of a „more economic approach” to European competition law gave rise to the question whether the basic aim of the law is to protect freedom in the marketplace or to enhance efficiency. Drawing on property rights theory, this paper shows that the basic problem to be solved by competition law is of a „reciprocal nature” (Coase): Giving more freedom to one party (extending the scope of property rights of this party) necessarily means less freedom for another party. The design of property rights is a zero-sum game. It is shown that the concept of freedom is of no use in solving the dilemma, whereas the concept of efficiency works. Doubts regarding the applicability of the efficiency criterion are rejected.

This article deals with the relation of law and economics in the interpretation and application of competition rules. The author takes issue with Schmidtchen’s position argued in this volume, “that it is in case of conflicts impossible, to maximize freedom in cases where an additional unit of freedom for A implies an impairment of the same freedom for B.” This position is incompatible with the theory of competition as a discovery procedure as well as with the meaning of freedom of competition in private and competition law. The Coase-theoreme, relied on by Schmidtchen, does not permit a finding of a self-contradiction of freedom of competition in dealing with conflicting competitive interests.

The more economic approach was implemented in the EU competition policy. Yet, the debate whether the normative foundations of competition law are vital has received new fuel. On the one hand, these normative foundations were derived from welfare economics which emphasize economic efficiency as the ultimate goal of competition law. On the other hand, the order-economic approaches, based on the Freiburg School, focus economic freedom. The paper examines pros and cons of each concept and discusses the perspectives of an approach favoring the order-economic concept. Market dominance serves as an example to show that the more economic approach does not at all grant better results in competition policy. Neither consumer welfare nor static-allocative standards are sufficient criteria for competition law. In accordance with the Freiburg School the author gives a pronounced summing-up for a competition policy tending more to safeguarding the requirements of competition than to its direct results.

The most crucial task for the liberalisation of network industries is the control of the incumbent’s and former monopolist’s market power. In theory, this can be effected either through ex ante regulation by a special agency, which focuses on a limited number of industries, such as the Federal Network Agency in Germany, or through ex-post control by general competition authorities such as Germany’s Federal Cartel Office. For the German electricity market, the Federal Cartel Office was in charge of controlling market power until 2005, when the Federal Network Agency as established as the regulator in charge of controlling network prices. For telecommunications and airports the debate over “ex-ante regulation vs. ex-post control” is not over yet, however. This paper shows that such a simple dichotomisation neither captures the complexity of the problem nor the diversity of possible institutional arrangements. Any recommendation on the institutional design of the regulatory framework should depend on how competition has developed in the past what can be expected for the future. We develop elements for a further differentiation of regulatory measures, based on the so-called 3- criteria-test applied in European telecommunications markets. The German Telecommunications Act (TKG) also contains reasonable approaches. Sector-specific ex post control of market power and ex post regulation, as envisaged by the TKG, have the advantage of countervailing well-known tendencies of overregulation. However, the consistency of competition law across sectors may suffer, and the regulator may be more prone to regulatory capture than a competition authority. Therefore, we argue that any sector-specific ex post control should be accompanied by a sunset clause to guarantee the transition into general competition law. Ex post regulation can, however, facilitate a faster exit from sector-specific regulation by climbing down the so-called ladder of remedies.

In 1975, Helmut Gröner published his seminal „Habilitation” thesis, programmatically entitled „The Order of the German Electricity Industry”. His treatise provided the very first conclusive theoretical blueprint for the transition from a system of comprehensively monopolized and regulated public utilities to a competitive electricity market in Germany. While Gröner’s main ideas may have become conventional wisdom among economists today, they were years, if not decades ahead of the academic and political Zeitgeist which prevailed at that time. In recent years, however, there are auspicious indications of a fundamental change of energy policy along the lines of Helmut Gröner’s then revolutionary concept.

As well as in most countries the gambling market in Germany is strongly regulated by the federal government. This article focuses on the lottery market as one part which is strongly shaped by the German Lotto-Toto-Block and its products like the standard lotto. By the means of a reference model based on the concept of a market economy it is shown that public intervention can be legitimated because of the existence of negative external effects. Regarding lotteries like any other game of chance these effects are caused by the incidence of compulsive gambling and their negative consequences. A second aspect is reflected by the existence of information lacks. Regarding other forms of market failure like a natural monopoly no impact could be verified. Using a multilevel approach which is able to deal with interventions on both the demand as well as the supply side, we discuss possible interferences by the government to the point of a complete ban of lotteries in Germany. Finally it can be stated that introducing a system providing information about the danger of becoming a pathological gambler to potential consumers is obviously a legitimate intervention on the lottery market. Moreover the introduction of a licence system for suppliers should be used to ensure a sustainable lottery market. In contrast, a continuance of the current state monopoly could not be defined as being compliant to a market economy.

There was an expansion of decentralised systems expected after the collapse of socialist regimes with a command economy, but this failed to appear. Rather, those new systems which began by tending towards decentralisation in matters of property rights are now subtly becoming more centralized. This process is accompanied by ever more collectivisation of what was originally individual property. The intention in this paper is to outline the background of the increasing centralization and analyse the forces driving it. Particularly with regard to the structure of property rights, there is as well a tentative approach to possible ways of disrupting this move towards centralisation, so that the route back towards decentralisation may be opened up.

On the basis of elaborations by Hayek and Simon about the meaning of different notions of rationality it is posited, that the situational rationality in the sense of Popper is apt to be applied not only to specifying single situations of acting but also to different embeddedness situations of system components in their coordination environment. It is pointed out why this applies also to the hierarchical coordination by economic policy regimes which feature differences of the intensity of intervention and, therefore, strikingly influence the governance procedures and the micro economic conduct of the pertinent organisations. Based on these differences regime sectors are defined and the consequences for the pertinent organisations derived from the differently available decision rights for their performance. In order to measure economic performance a regulation index is proposed for the statistical comparison of regime sectors and of compound economic systems, which may stimulate refutability and a scientific discourse about the proposed concept.

This paper demonstrates the absurdity of the slogan ‘Education is not a Commodity!’, which is often used in discussions about educational policy issues. Based on the household production approach, which has been developed by Gary S. Becker and his colleagues, it is argued that an individual’s education is not a good which can be purchased on a market. However, on markets individuals can buy educational services that may be used by a single person to ‘produce’ his/her stock of education. In economic terms, the output of this individual production process-education-can be interpreted as a part of a person’s human capital. The latter may be utilized by the respective individual on the labor market. The proposed distinction between educational services, education, and human capital is an attempt to bring conceptual clarity into social-science analyses (i) of markets for educational services, (ii) of educational processes, and (iii) of labor markets.

From a “neo-liberal” point of view, European integration during the last 50 years was a rather mixed event. I contrast Hayek’s early optimistic vision of voluntary interstate federalism leading to a freedom-preserving supra-national order with Erhard’s pessimistic premonition of an interventionist European super-state in order to show that, with the benefit of hindsight, both have been partly right and partly wrong. Hayek underestimated the power of log-rolling and vested interests of European agencies in activist interventionism. Erhard, in turn, did not foresee the element of self-binding commitments already incorporated in the Treaty of Rome and further strengthened by some rather market-friendly interpretations of the European Courts and Commission. The future of European integration may well be shaped by how the EU will address the trade-off between further integration and further widening of the Union. From a constitutional economics perspective, I here advocate a model of flexible integration within clubs aiming at further collaboration in specific policy areas.

International development and co-operation policies try to achieve two goals simultaneously: poverty alleviation and democratization. Using a rational choice approach to non-democratic regimes, this paper argues that there is a trade-off between these two goals whenever western development policies are applied to, or within, dictatorships. In any such cases, more poverty alleviation means less democratization, and vice versa. It is possible to overcome this trade-off, however, if one can arouse the interest of dictatorial regimes to be less repressive towards their citizens. To accomplish this, development co-operation requires an appropriate framework. This article sketches an institutional arrangement that could contribute to this task. The underlying thesis is that this arrangement would be able to overcome the trade-off between poverty alleviation and democratization, and that democratic governments as well as dictators do have a common interest in implementing it.

An ordonomic analysis of the interdependence of social structure and semantics in modern development policy The development discourse is currently dominated by a controversial debate between Jeffrey Sachs and William Easterly. Using the rational-choice-approach of “ordonomics” the article presents both lines of reasoning. It claims that in order to address the challenges to international development cooperation the semantics of cooperation is comparatively better suited than the (foreign) aid semantics as put forward by both Sachs and Easterly. For this purpose, the article proposes an international public goods approach. It offers three insights: First, by focusing on the increasing international interdependencies, the international public goods approach provides a basis of reciprocity for development policy. Second, by systematically focusing on common interests of international development it identifies appropriate starting points for mutually beneficial cooperation. Finally, this approach contributes to advance both the incentive structures in development politics as well as in development practice - in the best interest of the poor and the rich.