Competition and “constitutionalization”

There has been much discussion of the role of ordoliberalism in Germany’s approach to the euro crisis (see for example this paper by two former colleagues at the European Council on Foreign Relations and this paper by my former Transatlantic Academy colleague Wade Jacoby). But of course the story of how German ideas have influenced the European Union does not begin with the Greek crisis in 2010. It is well known that the European Central Bank (ECB) reflects the values of the Bundesbank. (Actually, it in some way doubles down on them – the ECB is even more independent, and has an even tighter focus on price stability, than the Bundesbank.) Less well known, though, is the way German ideas on competition policy that go back to ordoliberalism have shaped European integration since its beginnings in the 1950s. You might almost say that competition policy is the missing link between histories of ordoliberalism and the EU.

The ordoliberals famously worried about cartels, which had been a particular problem in Germany since unification in 1871. Much ordoliberal thought focused on the creation and maintenance of an “economic constitution” that included strong anti-trust laws to maintain “economic liberty”. In 1958 the Federal Republic introduced its own anti-trust law, the Gesetz gegen Wettbewerbsbeschränkungen (GWB). It was natural for West Germany to seek to “upload” its preferences in this area to the European level. The key figure in the story was Hans van der Groeben, the first European competition commissioner, who held the position for a decade from 1958. As David Gerber has shown, what became European anti-trust law – beginning with the competition law provisions that were included in the Treaty of Rome at German insistence – was based on ordoliberal ideas.

In many ways, it has been competition policy that has driven European integration forward. In an important book published in 1999, Fritz Scharpf used the distinction between “negative” integration (the removal of tariffs and other barriers to trade or obstacles to competition) and “positive” integration (the reconstruction of a system of economic regulation at the level of the larger economic unit) to show how European integration developed in an imbalanced way that has constrained EU member states from intervening in markets while failing to create a capacity to intervene at the EU level. What we generally think of when they think of European integration stalled in 1960s. Meanwhile, however, based on their own interpretation of the Treaty of Rome, the European Commission and the European Court of Justice (ECJ) pressed ahead with “judicial integration”.

The next big breakthrough in European (negative) integration, the creation of the single market in the 1980s, is often understood in the context of the wider “neoliberal turn”. There is something to this idea of a “neoliberalization” of the EU, but it underplays the groundwork that had by then been laid by EU competition law in removing barriers to the movement of capital, goods and people within the Europe. You might say the “neoliberalisation” of Europe – often seen as being driven by the UK – was preceded by an “ordoliberalisation” driven by West Germany. Ordoliberalism is often reduced to the anodyne idea that a market needs a framework of rules. But Scharpf argues that the influence of ordoliberal ideas led to a “constitutionalization of economic liberties” that gradually prevented member states from protecting public services and the welfare state from the market – all in the name of “Europe”.

The EU’s tough, proactive approach to competition law may help the European competition commissioner pursue the “European interest” in relations with the rest of the world – for example in taking on Silicon Valley companies, as she is currently doing. But Scharpf’s work shows that it has also had internal repercussions for the EU (which also influence the way the “European interest” is defined). This brings me back to the dangers of a rules-based order I discussed in of my last post. Put simply, if rules are taken too far, they can undermine democracy. Yet what Scharpf calls “constitutionalization” – that is, taking policy areas out of the space of democratic politics and creating rules to govern them – is in a way the essence of what the EU does. In that sense, it represents the ultimate model of technocratic governance – which invites a populist backlash.

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