Constructive Competition

Constructive, Progress-Enhancing Competition as One of 17 Principles of Regional Economic Order Under the Maxims Democracy and Market Economy.

An Article in the Compendium of Market-Based Social-Ecological Economics

Key issues in view of the neoliberal crisis:
How can we guarantee employment and fair income?
How can we protect the environment effectively?
How should we shape the economic globalization?
What should the economic sciences contribute?
What must be the vital tasks of economic policy?
How can we legitimize economic policy democratically?

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Table of Contents

  1. Overview
  2. Preliminary Remarks
  3. The Constructive, Progress-Enhancing Competition


regionaleordnung01In view of the threatening extent of the devastations caused by the neoliberal economic doctrine, the turning towards compatible economic principles becomes almost existential. But only when these principles are combined to form a model of sustainable regional and global economic order, can the urgently needed economic policy measures be derived.

All 6 global principles are summarized in the article Principles of Global Economic Order in the form of questions. The supplementary 17 regional principles are listed in the article Prinzipien regionaler Wirtschaftsordnung, also as questions.

In the context given here, the term »regional« refers to largely homogeneous entities, currently primarily nation states and supranational political and economic areas (unions), that meet all the requirements for political sovereignty and economic autonomy and are therefore in a position to form a viable foundation for the prosperous coalescence of the world. Hereafter, these entities are mostly referred to as economic areas.

The European Union (EU) and, in particular, the euro zone existing within the EU, can serve as a cautionary example here. Both are supranational entities that have emerged from the political and economic self-interest of powerful players, and whose inhomogeneity and centralism have since unfolded great destructive potential (as a supplement see the article Demokratie und europäische Integration).

Preliminary Remarks

In the course of the historical economic development in Europe and the USA democracy and market economy have emerged as useful and reliable Maximes of Economic Order. Both maxims have, however, been distorted by the neoliberal indoctrination since the 1990s to such an extent that the »natural principles« inherent in them are hardly perceived by the citizens any more. It is therefore essential to return to these principles and to combine them into a model of a sustainable regional and global economic order. See also the article Market and Market Economy.

In contrast to the centralistic structures produced by modern Neoliberalism, the model presented here is based on decentralized structures, or, better still: on subsidiary structures. Only if the citizens in as many countries as possible are recognizing democracy and market economy in their interaction again as convincing maxims, can a culture of political co-determination and economic self-determination return to society, politics and the economy and work towards social and ecological justice. Embedded in subsidiary structures, the citizens bear full responsibility for their actions and well-being, so that they are always brought to shape the conditions in their immediate environment in exchange with each other and at the same time create the preconditions and the foundation for global exchange.

Social and ecological justice, by the way, arise from a multitude of economic mechanisms: For example, the terms Efficiency and Productivity as well as specialization, which are wrongly defined in the neoliberal context, are redefined in the sense of social justice and ecological sustainability and are no longer subject to the arbitrariness of »liberalized« (unregulated) markets, but to economic policy control. The market thus regains the freedom it deserves, which enables it under meaningful and uniform framework conditions, rules and standards to allocate economic resources efficiently and equitably like no other mechanism.

Thus, the price is able to perform its original function again as the central information medium and control element of market transactions of individual economic players, because under the conditions of social and ecological justice and productivity it reflects all internal and external costs. By allowing the players to be guided by truthful prices resulting from the interplay of supply and demand, economic resources move – as if steered by an »invisible hand« – to where they provide the greatest benefit to individuals and, at the same time, to society as a whole. As a supplement see the article Economic Pricing.

Subsidiary structures ensure that prosperity and welfare are no longer at the mercy of the imponderables of a worldwide production quantity achieved under oligarchic rule and high capital concentration, but result automatically from the domestic production structure. The production structure alone is decisive for local and regional economic diversity and consequently for the level of employment, the performance-related equal distribution in society and the preservation of natural resources.

Unlike domestic competition, international competition can not, by its very nature, be granted the freedoms of regulated domestic markets. It must rather be based on bilateral trade agreements given the completely different traditions, standards and resources in the world. In these agreements the exchange rate must be set as the crucial trading link, supplemented by autonomous tariffs and trade quotas to balance out the differences and to grant trade profits to both sides. The primary objective of these agreements must be to ensure that imported products with their characteristics and prices are integrated into domestic competition in the most stimulating but harmless way possible.

The separation into regional and global order thus results quite naturally from the principle difference between domestic and foreign trade. Besides, this explains why there can be no superordinate, all-dominant, self-regulating and self-stabilizing world economic order in a desirably diverse and democratic world. For more details see the article Future-Proof Foreign Trade.

Among politically sovereign and economically autonomous nation-states and economic areas, the global order is reduced to agreements of norms of conduct, especially regarding norms of international trade and cooperation. By applying these norms, economic subsidiarity can be extended beyond national borders and find its perfection at the global level in the form of projects of global interest and scale.

With domestic and cross-border subsidiarity the doctrinal practice of transferring economic powers from lower to higher levels (especially nonstate) is overcome, of which neoliberal protagonists claim it would bring about »more appropriate« and »more efficient« decisions. Along with overcoming this practice, the justification is removed for a World Trade Organization, which is entrusted by its current 164 member states as the guardian of the Grail of global cut-throat competition based on dumping prices in lead currency (i.e. US dollar or euro). This is an unprecedented event in economic history, especially because the condition for membership is the (voluntary) renunciation of national economic autonomy.

It should be noted that the demarcation of the specific functions of the various economic levels, i.e. the subsidiary structure of autonomous nation-states and economic areas both domestically and beyond their borders, is absolutely crucial for the future viability of economically autonomous entities and for the global economy as a whole:

Functioning regionality is a prerequisite for sustainable globality. Globality is the complement of functional regionality.

In what follows, is the plea for the constructive, progress-enhancing competition as one of 17 principles of regional economic order:

3. The Constructive, Progress-Enhancing Competition

konstruktiverwettbewerb01Competition is an indispensable prerequisite for creativity and discipline, for efficiency and productivity, for progress and full employment, for a diverse range of products, for distribution scopes and services of general interest, and for social welfare in general. Franz Böhm, a lawyer who belongs to the Freiburg School of Economics, has described competition as »the greatest and most ingenious instrument of disempowerment in history«.

A meaningful distribution of economic power is not to be expected, however, if the economic players themselves decide on competitive practices, as stipulated by the ruling neoliberal doctrine – and social welfare is not to be expected either. Adam Smith had already suspected that, in the long run, economic entities in their selfish pursuit of success could do everything in their power to evade the risk of competition through mergers, collusive arrangements and discrimination. His presumption is impressively confirmed by neoliberal practice.

There is a need for an independent competition policy in order to put the performance incentives resulting from competition at the service of social and environmental progress and to eliminate all distortions contrary to this objective, in particular price-cutting and concentration of power and capital. The political will to introduce truthful prices and establish balanced power relations presupposes that the anti-progressive and destructive nature of neoliberal productivity gains – allegedly resulting from price dumping and capital concentration – is recognized.

The causalities are clear: actual social and environmental productivity is declining with real wages growing more slowly than neoliberal (apparent) productivity, suboptimal income distribution, falling raw material prices despite increasing scarcity, and with increasing concentration of capital. Actual productivity can, however, grow if real wages keep pace with productivity gains, income distribution is optimized, raw material prices are raised as scarcity increases, and if the process of concentration of economic power and capital is reversed into a process of qualified decentralization, i.e. the subsidiarization of economic structures. With subsidiary structures, high power and capital concentration always remains an exception due to production constraints.

In order to place the competition policy at the centre of the regional economic order, it must be equipped with its own executive whose powers have to go far beyond those of the current state antitrust (cartel) authorities. The task of this executive, the Competition Agency, as I simply call it here, is to enforce market economy rules, differentiated according to industry.

The influential German economist Walter Eucken, who also belongs to the Frankfurt School of Economics, had drawn up a Competition Order in his major work »Grundlagen der Nationalökonomie« (Fundamentals of National Economy), published in 1940, which contributed significantly to the rise of the Federal Republic after the Second World War.

The task of the Competition Agency outlined here is guided by six constituent and four regulatory principles – following Eucken’s draft, but with other priorities:

The six constituent principles:

  1. Equal opportunities are created by granting all market participants equal economic conditions and subjecting all to the same fiscal and legal framework conditions and rules; freedom of trade and consumption are established by granting all market participants free access to all markets and freedom of contract; transparency is ensured by granting all market participants free access to all information.
  2. Enterprises in the private sector are free to choose any form of organization that is suitable of competing with all other forms of organization in a market economy: one-person and family enterprises, hierarchically organized as well as co-operatively organized enterprises.
  3. The public sector is committed to the provision of public goods, the private sector to the provision of private goods; both sectors can cooperate in projects but are not in competition with each other.
  4. Economically used land, including all raw material deposits, remains in public ownership or is returned to public ownership and is publicly administered according to social and ecological criteria; land is only temporarily ceded to the private sector for a rent that takes into account the scarcity of all natural resources concerned; the production capital of the private sector is private property or is returned to private ownership and can be freely used within the framework of its local social and environmental obligations.
  5. Prices are formed on all domestic markets solely in competition between all suppliers and all demanders; in international trade in goods and services, the different productivity and price levels are neutralized on average by bilaterally agreed exchange rates and, occasionally, by tariff adjustments, so that competition is decided based on comparative, relative price advantages; in global free trade in intellectual property licences, prices are formed – based on special currency parities – solely by supply and demand.
  6. The polluter pays principle is enforced by requiring market participants to take out liability insurance against all conceivable damage that may occur as a result of their services or conduct; services whose consequential damage is not insurable due to incalculable or disproportionately high risks may not be provided (e.g. the use of nuclear energy sources).

The four regulatory principles:

  1. Domestic competition is ensured in all markets by a permanent industry-related subsidiarization of economic structures through fiscal and legal measures; the measures guarantee the greatest possible number of suppliers and demanders (polypol of suppliers and demanders) and offer incentives to enterprises to set up themselves as the smallest possible independent units using differentiated production methods and to deploy and develop technologies suitable for decentralized application; within industries, this creates intensive horizontal competition between companies with similar capital and labor intensity and vertical competition between companies with different capital and labor intensities.
  2. Negative external effects, which emanate from economic activities that adversely affect society and the environment and distort competition, are kept within tolerable limits by the level of rent on land, by the subsidiarization of economic structures and the associated decentralization and directness of social and ecological responsibility, as well as by targeted single tax and legal measures.
  3. International trade in goods and services is conducted on the basis of comparative, relative price advantages enabled by bilaterally adjusted exchange rates, so that instead of direct price and productivity competition with crowding-out effects, regulated indirect competition for relative prices, quality and diversity arises; the constructive fine-tuning of international competition with domestic competition is done through tariffs and trade quotas.
  4. International trade in intangible products such as knowledge and intellectual property is conducted independently of trade in goods and services in direct competition as global free trade on the basis of a special lead currency and special currency parities.

With its constituent and regulatory principles, this competitive order differs significantly from the neoliberal »order« in that even in the event of involuntary withdrawal, market participants can turn the salutary impulses of competition into new creative energy for a new beginning. A definite crowding out of competitors with the danger of monopolistic structures and market disruptions is excluded. The order thus secures the process of ongoing adjustment and renewal that is indispensable for a market economy and which excludes any economic stagnation and without which there is no progress.

As a supplement I recommend the articles Market and Market Economy, Economic Competition, Economic Subsidiarity, Regional Economic Cycles, Comparative Advantage – UpgradedFuture-Proof Foreign Trade, Currency War and Exchange Rate, Full Employment and also Sustainable Social Welfare.

The practical development of subsidiary economic structures under the conditions of the neoliberal globalization as an entry into a post-neoliberal economic order is dealt with in the article Building Subsidiary Economic Structures.

Click here for the German-language version: Konstruktiver Wettbewerb.

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