Volume 54, Issue 2

This article addresses the relationship between two policies that are to ensure wealth and economic growth: family policy and educational policy. Current demographic changes in Germany are widely expected to have a negative impact on economic growth. One way to tackle this problem is to devise a family policy that takes into account current demographic developments and encourages young people to set up a family of their own. A second major determinant of future wealth is the formation of human capital. This article analyzes measures relating to both family policy and human capital formation. Particular attention is devoted to links and synergetic effects between the two policy variables.

For decades, economists have been urging politicians to reform pension systems, but in many cases the proposals have been rejected by referring to unresolved distributional aspects. This dilemma can be avoided by using the concept of constitutional economics, which allows us to address the issues of efficiency and justice at the same time. We conclude that a society behind a veil of uncertainty would settle for a compulsory pay-as-you-go pension system which provides a minimum pension. However, to avoid the system being undermined by free-riding (due to wrong expectations regarding the returns to investments on human capital), such a benefit would be granted according to the individual contribution to the accumulation of human capital. In addition, everyone would be obliged to save individually to secure a minimum pension.

Rudolf Hrbek summarizes the arguments for the project of reforming German federalism. He describes the positions adopted at the beginning of the work of the Reform Commission set up in fall 2003 by the federal government and the state governments respectively. The Commission ended with a failure; there were some reform proposals in single issues, but no comprehensive reform proposal. His article tries to identify reasons explaining the failure. Hrbek recommends a new procedural approach: instead of the Reform Commission composed by members who as office or mandate holders would be affected directly by reform measures, a Convention should be established composed of a smaller number of members (representing a broader range of actors: e.g. local level, Land-Parliaments, elder statesmen). A broad mandate should enable the Convention to elaborate a reform proposal as package deal which the two houses of Parliament would then have to decide on finally. A major political function of the Convention would be to generate a broad debate on basic features of a federal system and in the meaning of “unity in diversity”, as a prerequisite for modernizing German federalism. Martin T. W. Rosenfeld states that for more than fifty years, there had been many attempts to reform the German system of cooperative federalism and to reduce the power of the federal level of government. But, so far, no one of these attempts had been successful. In 2004, the “Commission on the Modernization of Cooperative Federalism” had worked out a proposal for reforming intergovernmental relations in Germany. Rosenfeld points out that from the view of the theory of fiscal federalism, this proposal may be regarded as a step in the direction of more efficiency – but just as a very small step. Unfortunately, the decision-makers of the federal and the state level of government did not come to an agreement on the proposed reform. With regard to the current distribution of costs and benefits which arise for the decision-makers from the existing institutions of cooperative federalism in Germany, this result is not surprising for him. In his opinion an agreement on reforming intergovernmental relations is only likely to be achieved if relevant external changes will take place. Gerhard Schick emphasizes that one of the weaknesses of the commission was that excessive debt of jurisdictions was not seen as one of the core problems of German federalism, even though the debt burden might endanger the very existence of at least some of the states. This omission reflects both individual interests of participants in the commission and the fact that neither proponents nor opponents of competitive federalism put forward convincing and politically viable solutions. According to him, a new reform will need proposals to overcome the debt problem that avoid raising fears of tax competition and that reflect the asymmetrical character of German federalism.

Without variety, there is no competition. In the field of political competition the constituency must have options between different political agents as well. The state is often regarded as a natural monopoly which is contradictory to competition. Industrial economics have developed criteria for the identification of natural monopolies and give information about opportunities to disaggregate them. This paper transfers those results to the examination of the state. In analyzing the disaggregation of the natural monopoly of the state, the separation of powers is of vital importance: It induces not only the division of powers to different actors, but also reduces the entry barriers to the political competition process. Therefore, it enhances the political choice for individuals and reduces their risk of being exploited by politicians.

The economic theory of clubs can offer eminent contributions to an efficient shaping of processes of integration, especially at the level of the European Union. To determine a welfare maximum in a world full of clubs, the distinction between the within-club point of view and the total economy point of view plays a decisive role. The article tackles this conflict in already existing clubs realizing their optimal size in connection with the principle-agent-problem between club members and club managers. Including the indivisibility problem of individuals and clubs in a more realistic perspective leads to a further problem typical for welfare maximization in a world full of full (i.e. optimally sized) clubs: the situation of those who will not be provided with the club goods. Three possible options taking care of those unprovisioned are distinguished, and it is analyzed how these options affect individual and social net benefit. It is shown that the efficiency of these options decisively depends on the within-club or total economy perspective implying specific principal-agent-problems. Some economic policy conclusions are drawn at the end applying the Frey/Eichenberger-Model of Functional Overlapping Competing Jurisdiction to the European Integration Process.