For the sake of argument

What industry needs most: rough, tough competition

LUDWIG ERHARD July 18 1959
For the sake of argument

What industry needs most: rough, tough competition

LUDWIG ERHARD July 18 1959

What industry needs most: rough, tough competition

For the sake of argument

LUDWIG ERHARD

In the last ten years, during which I have been responsible for Germany's economic policy, I have very often been asked my reasons for clinging so stubbornly to the opinion that free enterprise is the only right principle for the economy. I have been asked why I think that this principle is not only of value for the German economy but also for international trade and for countries with an economic structure similar to that of Germany.

Much has been written about free enterprise and its dangers. I can well understand that certain branches or even whole groups of the economy resent competition. It always forces them to aim for better results and to prove themselves. From this side, complaints against free competition are. therefore, not surprising.

I take much more seriously another question that economic scientists often raise: Can the principle of free enterprise in its widest form be applied to the whole or only to parts of the business life of a nation? I agree that we do not live in a world built after one uniform pattern, in which it would be possible to apply one economic principle everywhere. Our social order is still too much infested with many sins and weaknesses of the past.

But. even if old traditions and

habits impose restrictions and shortcomings, I still think that free enterprise has to be part of our civic and economic freedom. Free enterprise is a self-regulating form of control and therefore a good and useful one. Competition does not have to be regulated from the outside in order to remain responsible and valuable. Those who ask for more artificial, government-imposed controls don’t trust in the natural economic law.

The main purpose of an economy is to serve and supply the consumer as well as possible. I therefore think it necessary to build an automatic steering instrument into it; the object of this is to make production and income flow in a direction desired by the consumer, but also to provide incentives for better achievement.

I believe that free enterprise and competition are by far superior to all other means of regulating the economy. They provide a means for all participants to compare their performances and to aim for better performance. No government. no association of manufacturers. no cartel can replace free competition as a source of greater efficiency.

To avoid the challenge of proving oneself is to give up on life itself. Those who want a quiet and comfortable

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“Genuine competition is not a cut-throat

practice

but a refreshing fountain of youth”

existence in the economic hothouse air of assured markets and ‘ reasonable profits, do not belong in a society which has chosen self-responsibility and the deepening of individual values as its ideals.

It is obvious that in the application of free enterprise certain moderations have to be made. The German "law against the restriction of competition,” which was fought over for years, clearly showed some of the limits. These limita-

tions are dictated by sociological concerns, as in agriculture, and by social considerations, as in housing.

But for most of the economy — especially for industry and trade—free enterprise must be applied without restriction.

It must be their dynamic force. Industry often calls combines and other means to reduce competition "children of distress.” But to me, price agreements and other forms to lessen competition are the causes of distortions in the market. Genuine competition for better results — and this includes price-competition — is not a cut-throat practice that leads to ruin, but a fountain of youth that constantly refreshes business. In our modern society it is even a duty of the state to see to it that this fountain never dries up.

To assure the consumer of the full benefits of the productive forces, the business world must never lessen the fight for the best achievement, as it was allowed to do in the era of liberalism. The state has to stimulate competition just as much as it has to fight inflation and recession. For this reason political leaders must constantly be on the alert against attempts to destroy the freedom of markets and the equality of chances to compete in these markets. This has to be understood as a never-ending duty.

In my opinion, groups which try to restrict competition are only guided by their own selfish interests. In their shortsightedness they think that such an attitude might bring them permanent benefits. For this reason I have always tried to explain to the public that any restriction on competition — intended or inherent in the nature of things — means serious damage to the economy of a country. This is the case with combines among single firms or whole groups, and it applies equally to the restriction of competition from abroad. During recent years I have had to fight such conspiracies against the consumer because my whole economic concept is based on the trust I set in the free and independent entrepreneur who has to prove himself anew every day and has to remain com petitive to live under the survival of the fittest. Until this concept became accepted, a thorough intellectual preparation was needed in my country, Germany. Today’s order of our economy was not established without a hard struggle.

High taxes are no valid argument against applying free enterprise. I have often heard complaints that the tax burden which the German people had to bear after the total collapse of their economy cost them enough to make free competition impossible. But if you start from the assumption that taxes are levied justly and evenly, business everywhere works under the same conditions. It has also been claimed frequently that the powerful position of the unions had to be counterbalanced on the side of the employers. This for the reason that profits, which encourage investments and make economic progress possible, would not be unduly curtailed. True, a certain counterbalance would be justified, but this cannot be done by forming cartels. The adequate form would be a unified stand by the employers’ associations.

In my experience, the readiness of employers to make wage concessions depends entirely on conditions in their own industries. Just as often as I have asked the unions to refrain from exaggerated wage demands, I have advised the employers to display the necessary toughness in wage negotiations. I think the claim is false that the wage-price spiral unavoidably leads to inflation. Whether

it does or not will always be decided by the national budget and by the central bank. If these two do not provide the money to pay for higher wage demands, no inflation will result. I have always pleaded for a policy of tight money and tight credit, domestically as well as internationally. because I am convinced that only a sound currency assures the continuous pressure of competition. Genuine prosperity can only be achieved through a rigid monetary policy which does not shy away from certain difficulties of adjustment in production and from a permissible amount of unemployment.

German economic recovery during the last few years was fast, sometimes even breath-taking. But with the end of last year the time of imposing records seems to have ended. During this period of recovery I have always tried to keep our economy flexible through hard currency and competition. This was done to enable us to adjust to the unavoidable interruptions in the trend of development.

As always when you have to give up dear old habits, German industry finds it now difficult to adjust psychologically to the change from the easy seller's market to the much tougher buyer's market. But so far it has been flexible enough to live up to these new demands. We have discovered how in the past the business cycle received its strongest stimuli from investments at one time, and from consumption at another. Today we look back with a certain satisfaction on how we mastered the many dangers. But we must not forget that in future the task of solving problems through monetary and financial policy will be even more difficult.

I believe and I hope that the problems ahead will leave us enough time to cope with the underlying structural problems of our economy. They still have to be solved, and many of them begin to show only now, that growth is slowing — like reefs, emerging when the tide recedes.

I am happy that some switches have already been thrown in the past. One of them is the very close integration of German industry with the world market. The same principles of freedom I have applied in the German economy, I would also like to see in international relations. I still look on our far-reaching removal of import restrictions and tariff reductions as a great blessing for the German economy. I used these means (large imports of raw materials and manufactured goods) to counteract the price increases which always go with full employment. If Germany has now joined the Common Market of six European countries, it was with the same intentions: to intensify the international division of labor and to carry competition beyond our own borders. It is only logical that I expect similar results from an even larger group of nations such as the Free Trade Area. ★