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What do they have in common?
Sarah Wagenknecht
Niall Ferguson
(…) ordoliberalism to
reconcile market
economy with public
interest, in particular to
limit the power of big
corporations.
Basis for “innovative
socialism”.
(…) to rediscover the
ordoliberal idea of an
effective order of
competition “before
Keynesian economists
will succeed to turn
the wheel of history
backwards”
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Goal of the Paper
*
What is ordoliberalism and how does it relate to other
theories (Chicago school, institutional economics etc) ?
*
*
Show that there are different liberal traditions (vs TINA)
Ordoliberalism in the context of the financial crisis
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Core features of ordoliberalism
*
Developed in 1930-60s, mainly at University of Freiburg,
Germany (see also next slide)
*
Positive role of the state: “ordo”, i.e. not only (!) invisible
hand of the market; (but against ad-hoc interventionism;
focus on rules)
*
Why state intervention?  No self-healing power of
markets!
*
Market economy embedded in society: “interdependence of
orders” and balance between these orders (Eucken 1932)
*
Legitimacy of social policy (Vitalpolitik) (cf. Alexander
Rüstow)
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Core features of ordoliberalism
“[w]e must stress most emphatically that we have no intention to
demand more from competition than it can give. It is a means of
establishing order and exercising control in the narrow sphere
of a market economy based on the division of labor, but no
principle on which a whole society can be built. From the
sociological and moral point of view it is even dangerous
because it tends more to dissolve than to unite. If competition
is not to have the effect of a social explosive and is at the same
time not to degenerate, its premise will be a correspondingly
sound political and moral framework. There should be a strong
state, aloof from the hungry hordes of vested interests, a high
standard of business ethics, and undegenerated community of
people ready to co-operate with each other, who have a natural
attachment to, and a firm place in society”
(Röpke 1950, 181; emphasis added).
*
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Source: Kolev 2010
*
*
Support of rigorous anti-trust rules in order to
“deconcentrate” economic power, i.e. role of state to
create functioning economic order (vs. view of natural
market order)
*
NB: Not just for economic, but also for social reasons
(proletarisation)
 Impact on competition law in Germany and Europe post
WWII
*
Interdependencies call for interdisciplinary approaches to
economic research (i.e. economics, politics, law, sociology
etc.).
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Ordoliberalism vs. neoliberalism
*
Origins of neoliberalism: Paris colloquium 1938;
foundation of Mont Pelerin Society 1947 (but also
ordoliberals until 1960s);
*
Since 1950s rise of the (2nd) Chicago School  US and UK
politics of the 1980s = breakthrough
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*
*
Optimistic view of market forces; government seen as “the
problem”
Background: politics in 1950s in US (McCarthyism), in
contrast to situation Germany (FRG: State draws its
legitimacy from role as guarantor of individual freedom)
*
Shift in anti-trust policy: monopolies accepted as a
transitional phenomenon (e.g., Friedman, Director); “big
business” can be basis for economic efficiency (Chandler
1962); Markets are efficient (Fama 1960s)
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*
* Friedman 1940s: eliminate the separation of ownership and
control by transforming directors into owners. This would
“eliminate holding companies”, “[…] make mergers more
difficult”, and, as a result, it should also “retard the tendency
(if it exists) toward increasingly large and monopolistic
organizations and stimulate the breakdown of existing giant
corporations”(quoted in Van Horn 2009: 215).
* Aaron Director 1947: “[t]he unlimited power of corporations
must be removed. Excessive size can be challenged through
the prohibition of corporate ownership of other corporations
[…] and perhaps too through a direct limitation of the size of
corporate enterprise” (quoted in Van Horn 2009: 212).
* 1950s: Monopolies can resist the competitive forces of
markets only where governments openly supported them
(Friedman 1951: 17; cf. Director 1951; Director & Levi 1956).
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*
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(1) Structured products and other “risky instruments” used to
repackage loans
*
Ordoliberalism: principle of liability (Haftungsprinzip),
i.e. that those who benefit from a particular action also
have to be liable if things go wrong (quote Sinn next slide)
*
Response: not prohibition, but better transparency;
improve operation of CRAs; capital adequacy
requirements; pro-active risk assessment by regulators
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*
(2) Problem of destructive incentives: on the one hand
bankers and bonuses; one the other, banks and pure
number of loans
*
*
Ordoliberalism: selfishness of individuals accepted unless
destructive effects to market
Here possible responses: restrictions or tax disincentives.
Also improvements of corporate governance, e.g., to
shareholder protection/ participation (or would this
increase short-termism?)
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(3) Bail-outs of “too big too fail” banks;
*
*
*
Seen as necessary to prevent wider financial collapse (OL
= more tolerant towards outcome-orientated intervention
than e.g. Hayek)
Would ordoliberals be self-righteous since they would not
allow dominant players? but not certain whether “too big
too fail” is always linked to market power
Ordoliberalism against ad-hoc interventionism; problem of
moral hazard (see also next slide)  intervention violates
principle of liability
15
*
*
Employee co-determination transplanted from Germany
to Chinese company law in 1993. May it work better in a
modified communist economy (China) than in a
coordinated market one (Germany)?
16
*
(4) Global dimension of crisis due to interconnectedness and
regulatory arbitrage
*
Ordoliberals would not restrict free movement of capital,
but: “global rules for global markets”, i.e. international
economic constitution
*
Today: G20 summits, FSB, Basel III etc. but feasibility not
entirely clear
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(5) Failure of modern economics: e.g., crisis may show limits
of economic modelling and quantitative empirical work
*
*
*
Ordoliberalism precedes Samuelson’s approach to
economics; more discursive and less technical
But human psychology on financial markets not ignored
(see Akerlof and Shiller 2009).
Need for heterodoxy, while not denying the progresses
made in mainstream economics
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Conclusion: The End of Neoliberalism?
*
Naomi Klein 2008: “Rest assured, the [neoliberal] ideology
will come roaring back when the bailouts are done. The
massive debts the public is accumulating to bail out the
speculators will then become part of a global budget crisis
that will be the rationalization for deep cuts to social
programs, and for a renewed push to privatize.”
*
Ordoliberalism as ‘2nd best solution’? i.e. if the future
remains neoliberal, at least a more reasonable,
considerate and realistic form of neoliberalism
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Powerful interests support ‘free economy’
*
FT 14 XII 2011: pay gap: Labour share of value added
keeps falling  widening gap even post crisis
*
US national income: 2011: 58% labour share (rest investors
through profits and interests); 1963: 63% labour share
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 Corporate profits up 25-30% after crisis (compared to
2007)  salaries down.
*
Obviously the top 1% still like the theory!
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