Prices exert control more effectively than the state

29 March 2022, Munich. Family businesses support clear government rules and the social market economy. Particularly in exceptional situations such as the financial market crisis, the coronavirus pandemic and now, in view of a war in Europe, state intervention is necessary. But when does government regulation become interventionism? Is responsible enterprise possible if economic activity must constantly be measured according to abstract moral categories?

Today in Berlin, the Advisory Board of the Foundation for Family Businesses presented its annual bulletin “Free Enterprise and State Control” in response to these questions. Its recommendation is that politics should return to a concept that emphasises personal responsibility and protects individual freedoms.

Welfare losses due to neo-interventionism

The authors Clemens Fuest, Udo Di Fabio and Gabriel Felbermayr consider the efficiency of government intervention on the basis of various examples and investigate whether the same objectives could not be better met with different means and at lower cost. They do not doubt the politically defined need for action in this context, whether in environmental protection and climate action, when dealing with human rights, on the global market for chips or healthcare products or in public services; they merely discuss the choice of means and identify market economy alternatives.

The conclusions they draw, which the foundation presented at its House of Family Businesses on Berlin’s Pariser Platz, are worrying: these experts warn of considerable losses in prosperity through neo-interventionism. Their plea: government intervention must remain balanced. Not all good intentions translate into good actions. Micromanagement of businesses leads to overload without meeting the intended objectives.

State action yes, state taxation no

Professor Rainer Kirchdörfer , Chairman of the Scientific Advisory Board and Chairman of the Foundation for Family Businesses, comments: “In Germany, it is not always just the invisible hand of the market that rules. Government intervenes if the market fails or macroeconomic crises get out of hand. But there is a limit. Neo-interventionism is stifling lively entrepreneurship – and thus our country’s prosperity.“

Government action is undoubtedly required, for example in regulating the financial industry or preventing the loss of biodiversity, says Professor Clemens Fuest, President of the ifo Institute in Munich. But he believes it is wrong for governments to control capital flows or business investment decisions. Price signals are the great strength of the market economy, thus government intervention must be tied to market economic processes.

Professor Udo Di Fabio, a former member of Germany’s Constitutional Court, highlights the problems of government intervention in the market, such as the government-imposed minimum wage or the planned taxonomy of the European Commission. He argues that the principle of free collective bargaining and the protection of property would suffer, the market as a discovery process would be disabled and the elasticity of economic transformation lost. Care also needs to be taken when particular interests undermine the formation of democratic will.

Professor Gabriel Felbermayr, Head of the Austrian Institute of Economic Research (WIFO), looks at the EU’s planned supply chain due diligence legislation as an example of a neo-interventionist approach. Efforts to force companies to maintain perfect observation of thousands of suppliers in remote countries are unrealistic. Such legislation leads to higher import costs, shorter supply chains, and a deterioration in the international division of labour.

Teaser picture: Udo di Fabio © Stiftung Familienunternehmen / Marco Urban