Consumer Welfare, Total Welfare and Economic Freedom – On the Normative Foundations of Competition Policy Viktor J. Vanberg, 2009,
Franz Böhm, in his classic article on “Private Law Society and Market Economy” (1966) that market competition is the kind of economic dynamics that results within a private law order from the ways in which individuals exercise their private autonomy, i.e. the individual liberty that they enjoy within a legal order that protects their property rights and freedom of contract. A market economy is in this sense, nothing but the twin sister of a private law society. Adopting a private law order and adopting a market economy are not two separate things. The second results as a consequence of individual choices when the first is established…
It is the essence of a private law order and the market economy that emanates from it that the activities of the participants are coordinated by negative or prohibition rules that leave scope for individual adaptation and explorative search for new and potentially better ways of doing things.In the controversy between advocates and critics of the ‘more economic approach’ a principal issue is whether ‘freedom to compete’ or ‘economic efficiency’ should be the guiding goal that EU competition policy is supposed to promote.. The emphasis on ‘Wettbewerbsfreiheit’ – or ‘freedom to compete’ – as the principal goal of competition policy has been the trademark of German ordo-liberalism… freedom to compete must, as a manifestation of individual economic freedom, be regarded as a “goal in itself”the demand that within a market economy competition policy ought to secure the freedom to compete is equivalent to the demand to respect and protect the individual liberty that the respective private law order provides forIt would be a violation of individual rights if competition agencies would prohibit actions that the existing rules of the game permit or would permit actions that are prohibited by these rules, on account of the economic inefficiency or efficiency of the overall consequences that the respective actions are presumed to produce.It is the essence of a rule-based system of liberty that individuals are protected in their freedom to act as long as they do so within the limits set by the rules of the game, that their responsibilities are limited to respecting the rights that others enjoy under these rules. It is the principal reason for the productivity of such a rule-based system that individuals are free to pursue their own purposes, that they may concentrate their attention on matters under their control, and that they are relieved from responsibility for the overall welfare consequences that their rule-abiding actions may have. The problem of assuring that the rule-conforming pursuit of individual interests results overall, even if not in every single case, in ‘efficient’ patterns of outcomes is a problem that has to be solved at the constitutional level by choosing adequate rules.
Leistungswettbewerb denotes the ideal of a market order framed by rules that aim at making producers responsive to consumer interests or, as Wilhelm Röpke (1960: 31) put it, that seek to assure “that the only road to business success is through the narrow gate of better performance in service of the consumer.” To establish an order of Leistungswettbewerb means to adopt rules for the market game that make consumer preferences the ultimate controlling force in the process of production. As a constitutional ideal for framing market processes the concept of Leistungswettbewerb has apparent affinity to the principle of consumer sovereignty that – even if not under this name – has been cherished by economists, since Adam Smith argued that, because we only produce in order to consume, we should give priority to consumer rather than to producer interests when choosing the rules of the economic gameFrom a constitutional economics perspective… the guiding principle in framing market processes should be judged in terms of how well they can be supported by arguments that appeal to the common interests of their ultimate addressees in a democratic polity, the citizens. The advocates of a total welfare standard may …remind the fact that (citizens are) not only… consumers but producers as well… and that…giving priority to consumer sovereignty would mean to neglect an important part of their more inclusive economic interests.Advocating the principle of Leistungswettbewerb… rest on the claim that, considering their encompassing interests and notwithstanding their double affectedness, citizens can expect to be better off overall by adopting an economic constitution of Leistungswettbewerb, even if being exposed to such competition as producers may be an unwelcome burden. The essential, if rarely explicitly stated argument supporting this claim is that citizens’ interests as producers in escaping the burden of competition do not qualify as common interests… , but are sectional interests that are in conflict between different groups. Producers in industry A who are on the demand side for products of industry B are harmed by restraints of competition in the latter, and vice versa. By contrast, in their capacity as consumers citizens are not separated by sectional divides but share a common interest in a regime of Leistungswettbewerb. ..Accepting the burdens that a regime of Leistungswettbewerb imposes on producers is a categorical duty that citizens must accept if they choose, at the constitutional level, to adopt such a regime
the relevant controversy is about whether economic efficiency arguments have their proper place at the constitutional level, i.e. in providing advice for the choice of rules, or at the sub-constitutional level, i.e. in advising competition policy in its day-to-day operation…. the principle reason for advocates of the goal of economic freedom or Wettbewerbsfreiheit to reject an ‘effects-based approach’ that applies efficiency considerations at the sub-constitutional level is that such guidance for competition policy is in conflict with the requirements that follow from adopting a market order and the private law system on which it is based. Whatever efficiency arguments may legitimately inform the choice of rules that are to frame the market process, within the rules chosen the private autonomy that they provide for must be respected and the freedom of choice that is the substance of private autonomy cannot be made contingent on assessments of the welfare effects that result from its use.