That creates a regulation or deregulation of jobs

Company and production

Birgit Weber

To person

Dr. phil., born in 1959, is currently the professor for didactics of the social sciences at Bielefeld University. From 1989 to 2006 she worked in the field of economics and didactics of economics at the University of Siegen, where she headed a project to promote entrepreneurship in teacher training (2000 - 2002) as managing director of the Center for Teacher Training. As deputy chairwoman of the German Society for Economic Education, she helped drive the development of educational standards for economic education. In addition to fundamental questions of didactics in economics and social sciences, her specialist areas of focus are above all the culture of entrepreneurship, environmental economics and questions of the relationship between the state and the economy.

Contact: [email protected]; [email protected]

The state safeguards competition and protects third parties from negative influences on business activities through regulatory measures and legal regulations. However, too much government intervention can become a hurdle.

How far can the state intervene in the freedom of the labor market? (& copy AP)

introduction

Almost all over the world, companies operate within the framework of market economy systems, which are characterized by the freedom of action of consumers and producers. The freedom of action of companies is restricted by the competition for the favor of consumers, whose priorities, wishes and needs change with social and economic change. In order to guarantee the freedom of action of consumers and producers, to ensure compliance with mutual obligations and to prevent abuse of power, the state must provide a reliable legal system and make use of regulatory measures. It helps ensure the necessary infrastructure and an efficient education system, influences the design of working conditions and the use of the environment and thus contributes to the prerequisites for economic activity. Ultimately, politics also corrects, repairs or compensates socially undesirable consequences of economic activity; it intervenes, for example, in the event of unequal living conditions, environmental pollution and economic crises. In doing so, it can also limit the individual's options for action, especially if they are at the expense of third parties. Taxes, requirements, orders or prohibitions are usually experienced by those affected as significant restrictions on freedom of action.

However, politicians and state administrations are also guided by self-interest. Under the conditions of globalization, which is characterized above all by trade and investment freedoms, the states are in mutual competition for the favor of capital owners, while politicians, under the pressure of re-election, have to take the interests of their electorate into account.

In their capacity as employment-dependent employees, they are usually unable to help determine entrepreneurial decisions, but as consumers they control the supply of goods through their purchase decisions and can indirectly influence the direction of the economic framework through their choices in the democratic system.

What contribution do companies make to society, what is their relationship to self-interest and the common good? According to the 1974 Nobel Prize laureate in economics, Friedrich von Hayek, entrepreneurs behave socially just by building up their businesses and creating jobs. Adam Smith pointed out 200 years ago that there need not be a contradiction between pursuing self-interest and serving the common good. The 2005 Nobel Prize for Economics, Thomas Schelling, argues that it does not necessarily lead to satisfactory results if the individual follows his incentives with complete freedom. According to Schelling, the majority of economic activity is geared towards the fact that people have to agree on something in order to achieve common advantages. Social norms and conventions are important and necessary in order to avoid conflicts, facilitate coordination and ensure a functioning market.

Competition as the engine of the market economy

Above all, the competition to which the companies are exposed should, according to current opinion, lead to such a functioning market. It is considered a dynamic selection process in which the competitors have the same goal and outside third parties decide who achieves the goal and to what extent.

Functions of competition

In a market economy, competition has several functions:
  • Through the purchasing decisions of consumers, it ensures that the factors of production are directed to where they are necessary in order to produce the range of goods desired by consumers. This is known as the distribution and allocation function of competition.
  • By trying to win the favor of customers, competitors have to constantly adapt their products as well as their production quantities to changing supply and demand conditions, so that product and process innovations also prevail more quickly. In this way, competition has an innovative function.
  • Ultimately, competition is also intended to prevent lasting economic power from developing and spilling over into the political arena. Thus, competition also has a control or political function.


Strategies to reduce competition

In this respect, well-functioning competition is an important prerequisite for a market economy. At the same time, however, it is a nuisance for companies: They are in constant uncertainty about how their customers and their competitors will behave and have to constantly make changes if they want to be rewarded with profits and not punished with losses. In order to outperform the competition, companies can endeavor to offer customers the cheapest and best quality goods. But you can also develop strategies to tempt customers to make rash spontaneous purchases or to fuel sales of their goods with vague promises or product extras. Other ways of circumventing the competition are a coordinated approach of the competitors or the dominant position of a company through mergers and market leadership in special segments.

The reduction of trade barriers in global markets has resulted in tough competitive conditions for companies, which they seek to counter by merging the same or successive stages of production: For example, in the case of horizontal mergers of companies of the same production stage, cost advantages can be achieved through larger production quantities or cheaper purchase prices at higher ones Quantities arise. Mergers also make it possible to manage cost-intensive automations as well as research and development together. Vertical mergers of companies at successive stages of production reduce dependencies when purchasing raw materials and intermediate products and can influence sales channels. Mergers of companies whose products have nothing to do with each other can also spread the entrepreneurial risk better through the variety of their offerings. Profitable divisions can offset losses in other divisions.

Protection against competition

In order for competition to produce an inexpensive and high-quality supply of goods, the state must ensure its functionality. It is controversial when it is possible to speak of a functioning competition. The minimum requirement is that new competitors should be able to enter the market at any time.

The laws against unfair competition, regulating the general terms and conditions as well as the price labeling, the labeling law and the bonus regulation are intended to shape the competition as price and quality competition so that customers receive clarity with regard to the services offered and the price. The Act against Restraints of Competition prohibits behavioral agreements and cartels, controls mergers and subjects dominant companies to supervision aimed at preventing abuse.

Cartels are contractual agreements between legally and economically independent companies that coordinate their behavior with one another. They are basically forbidden. Some forms in which competition is essentially maintained (for example conditions or rationalization cartels) are subject to notification, while those in which a restriction of competition is likely, such as structural crisis cartels, import or export cartels, require approval. For small and medium-sized companies, facilitation of cooperation is planned. Violations are punished with fines, the amount of which is often criticized as symbolic compared to the additional proceeds possible through cartels. In such proceedings, however, the Cartel Office often has the problem that contractual agreements or concerted behavior have to be proven. A price increase in the same direction is not sufficient, because this does not necessarily have to be due to an agreement, it can also be forced by changed competitive conditions.

In merger control, the Cartel Office examines mergers of companies that are notifiable above a certain size. It must prohibit the merger if dominant monopolies or oligopolies arise. The Cartel Office assumes the existence of a monopoly if a company has a market share of one third; the suspicion of an oligopoly is likely if two to three companies control half of the market or four to five companies control more than two thirds of the market. The companies then have to prove that significant competition still exists and that there is no outstanding market position in relation to the other competitors. Despite a dominant market position, the Federal Minister of Economics can allow mergers if there are macroeconomic advantages or if there is an overriding general interest.

Source text

Fusion - only with ministerial approval

Between 1974 and 2006, 19 applications for the approval of mergers out of overriding general interest were submitted. In seven cases they were issued - often with conditions. A recent example is the merger of the energy supplier E.ON with Ruhrgas AG in 2002.

Although E.ON was already the largest German and second largest European energy supplier after the merger of VIAG and VEBA in 2000, the group wanted to prepare itself for international competition by taking over the largest German gas supplier, Ruhrgas AG. Competitors EnBW, RWE and Vattenfall feared obstacles to competition if E.ON would become the largest European energy group through the merger, and consumers were concerned about possible price increases. The Cartel Office and the Monopolies Commission had also rejected the merger out of concerns about a dominant market position.
E.ON applied for ministerial approval because the group saw an overriding general interest as given. Ultimately, the merger serves the security of the energy supply and jobs and even contributes to climate protection, and in international competition, the national market alone can no longer be used as a benchmark.
The Ministry of Economic Affairs approved the merger with conditions, since no price increase for gas was to be expected and competition on international markets would be strengthened to the advantage of the German economy. E.ON had to part with some of its holdings in regional energy providers and sell 75 million and then 200 million kilowatt hours to competitors. After the first permit was initially withdrawn due to procedural errors, it was granted again a little later - with slightly stricter conditions. Although the competitors continued to try to prevent the merger through legal proceedings, E.ON finally reached an out-of-court settlement with them.
The matter was also delicate insofar as the responsible Federal Minister of Economics was himself a former member of the VEBA board. After retiring as minister, he is now Chairman of the Management Board of RAG, in which E.ON RAG-Beteiligungsgesellschaft - a wholly-owned subsidiary of E.ON - is the largest shareholder with 40 percent of the shares. The State Secretary, who issued the ministerial permit on his behalf, now has a management position at STEAG, a subsidiary of RAG.

Birgit Weber

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Concentration and Market Power

Biggest company
Companies can gain not only economic but also political power through economies of scale and through processes of cooperation and concentration. Karl Marx assumed that the big companies fought a tough battle through ruinous competition, with the small companies losing and ultimately only a few big companies left. Since mainly small and medium-sized companies in Germany provide 90 percent of jobs, many see this thesis as refuted. Others point to the global players, whose sales far exceed the gross national product of some small countries. In the primary sector, fewer than ten companies dominate the world markets for oil, minerals and agricultural products, and around 100 in the industrial and service sectors. This development is often viewed as threatening because economic power agglomerations could put entire regions, but also states, under pressure. On the other hand, global players of this kind are less exposed than before multinational corporations to the charge of generating profits at the expense of the third world, since today they often contribute to the ecological and social development of the countries in which they invest.