Why do liberals refuse to ruin the economy?

Principles and perspectives of economic policy in a liberal society

"Society needs constant change. Frozen power and property relations have a hostile effect on freedom. Liberalism must therefore try to keep every society open to change. It can therefore not deny or disguise the social conflicts, but must always strive for rules of the game, to carry them out in a humane manner. Liberalism can therefore never be understood as static, but must always be understood as dynamic. "

KARL-HERMANN FLACH ("Another chance for the liberals", 1971)

  1. The socially and ecologically committed market economy as a liberal economic order

Liberalism defends the vision of a society based on individual freedom and individual responsibility. The most suitable economic order of such a society is the socially and ecologically committed market economy.

In the market economy, there is competition between innumerable different individual goals and choices within a state-set regulatory framework. Under the always existing condition of scarcity of goods, it is the economic order that comes closest to the ideal of the liberal constitutional state, namely that freedom is only limited by the freedom of the other. The participants follow their own pursuit of gain; nevertheless, this also generally leads to the satisfaction of needs for society as a whole.

Characteristics of a liberal economic order are the decentralization of decisions, power-limiting and innovation-promoting competition as well as the openness of market access.

The free-market economic order in an open society has so far proven to be superior to other orders. The main reason for this is the flexibility and openness of this system to new challenges. It is therefore a task of central importance to defend the innovative capacity of the economy, which is inherent in this economic order, against incrustations, asset concentrations, bureaucratic obstacles and group interests. Concentrations of power harbor the risk of restrictions on the freedom of others.

Market economy usually results in an efficient use of resources. However, government intervention may be required in the event of market failure. Corrections to the distribution of income are necessary. The prerequisite for the perception of the possibilities of freedom is a basic social security for the individual and the preservation of the natural basis of life as a collective task. For the realization of these goals, a social and ecological obligation of the market economy is inevitable.

The socially committed market economy does not see the social question as a purely charitable task, but as an imperative to compensate for the consequences of the principle of the performance society.

Growth and efficiency goals on the one hand and equity goals on the other are often in conflict. Liberal politics must find a balance in this area of ​​tension.

  1. Regulatory conception: In case of doubt, for the market

The state can create freedom or destroy freedom. Freedom is served neither by a night watchman state nor by an intervention state. Liberals do not demand the unconditional suppression of the state, but examine them in individual cases according to the criteria of efficiency and freedom. In doing so, they apply a strict standard to the legitimation of state activity and, in case of doubt, decide in favor of the private solution.

2.1 Scope and design of public tasks

In the market economy, the state sets the framework for the activities of private decision-makers. The state is fundamentally unsuitable as an entrepreneur, as there is no incentive to optimize performance and the risk coverage from tax revenues distorts competition. Economic activities of the state - not their dismantling - require a justification.

Private concentrations of power that prevent or severely distort competition are in contradiction to the market economy. It is the task of the state to pursue an active competition policy through abuse control and merger control. The only criterion must be the functionality of the competition. This is not necessarily the case with as many, as small as possible, competitors.

The Young Liberals are calling for the Directorate-General for Competition to be outsourced from the Commission and for it to be reorganized as the European Cartel Office. Political criteria should not be relevant to the decision-making process for merger control.

An important task of competition policy is keeping the markets open and promoting business start-ups. New (small and medium-sized) companies usually not only intensify competition, but are also innovative.

The right to freedom of expression must also apply in the economic field. Advertising bans are therefore to be rejected unless outstanding legal interests are at risk.

The following regulations must be liberalized: Shop closing law, working time regulations, discount law, bonus regulations, exceptional areas in competition law, building regulations, energy law, fee regulations for liberal professions, special regulations for competition in the liberal professions and crafts.

For reasons of the competitiveness of the economy as well as for reasons of the sovereignty of the individual, the labor market must not be completely exempted from deregulation.

The subsidy payments that have been escalating for years must also be systematically reduced. If politics continues to be incapable of tough decisions, political pressure must also be exerted using the "lawnmower method" if necessary. Subsidies are only allowed to be degressive.

Subsidizing areas in which there is actually no need for state demand or entrepreneurship not only distorts competition in the respective market, but also hinders economic development in the efficient, unsubsidized sectors of the economy.

Free world trade promotes prosperity: competition in open markets is the most important driving force for investment and innovation. It not only ensures that companies have access to global sales markets, but also enables them to use the cheapest procurement options worldwide. The most important task of the state is to work towards clearly defined and universally accepted rules, which combine participation in world trade with the obligation to respect each other's rights and obligations and guarantee worldwide free market access for suppliers and consumers.

Economic blocs (EC, NAFTA ...) that were once intended to promote free trade are increasingly being converted into instruments of global trade wars. With a foreign trade strategy that is trivialized as "industrial policy", the EC is openly practicing protectionism. Developing countries must be given the opportunity to trade freely. In particular, the dismantling of agricultural subsidies would provide direct aid to development and must therefore be implemented.

  • Research and industrial policy

The Young Liberals reject industrial policy. This includes structure-preserving measures as well as a sector-specific technology policy. Innovation steering implicitly also means investment steering. Investment and innovation are solely a matter for entrepreneurs.

In a high-wage country that is particularly dependent on research and development-intensive goods, research and development is of particular importance.

However, it is not the job of the state to subsidize industry-specific, product-oriented development research. The state's task is to create favorable research policy frameworks.

In addition to the provision of research and development staff within the framework of university policy, this includes the promotion of basic research and - particularly with regard to the research policy situation in the new federal states - the promotion of cross-sector applied research. Allocation decisions have to be subjected to strict scientific quality competition.

In the field of commercial research, it is the state's task to develop framework conditions that create incentives for companies for joint, capital-intensive research.

A research- and technology-friendly environment is also necessary. To do this, we need an honest discussion about the opportunities and risks of cutting-edge technology.

The freedom of research must be guaranteed. Responsible science does not force the liquidation of certain branches of research per se, but a sensitive handling of application-oriented research, especially in biotechnology and genetic engineering. Excessive bureaucratism must not lead to increased industrial exodus and the demotivation of young researchers.

  • State provision of public goods

In the state provision of public goods, it should be noted that state expenditure always deprives the individual of resources for private investment and consumption decisions. It is only justified if private decisions due to market failure would lead to inefficient results and a state failure would lead to less negative effects. For example, ensuring a functioning infrastructure is an important basis for private sector development. Publicly provided goods can certainly be manufactured and operated by private individuals.

In the past few decades, state entrepreneurship has expanded beyond the justifiable exception areas. The privatization of state and semi-state companies (with the necessary exceptions in the infrastructure sector) must therefore be pushed ahead vigorously. These include the Bundesbahn, the postal service, Telekom, Lufthansa, the savings banks and the Landesbanken. The federal government, the federal states and the municipalities must immediately sell all investments in the industrial sector.

For cities and municipalities, the following principle should apply: A non-sovereign public service may only be provided by the municipality itself if there is an overriding public interest and if evidence has been provided that the municipality can provide this service more cost-effectively with the same efficiency and quality can than any other private provider. A corresponding formulation is to be included in the municipal code as part of the regulation of economic activity of the municipalities.

  • a state monopoly must not simply be converted into a private one,

  • Conglomerates and dominant companies are to be disentangled before privatization,

  • the employees should have a right of first refusal in the context of employee shares and / or a management buy-out,

  • Broad diversification on the capital market is generally preferable to a takeover by a single company.

Privatization is only really successful if it intensifies competition. In addition, privatization is more than the choice of a private legal form in the case of further state owners. Privatizations that only serve to relieve the budget in the short term but are less profitable in the long term are rejected.

  • "Lean Administration"

The question of the size of the public sector concerns not only the scope of the public tasks, but also the efficiency in handling them. The demand for a flattening of hierarchies and a workflow-oriented approach in the organizational design of the public service is urgent. For this, the public service law ("job cone" etc.) has to be adapted. In the future, approval procedures should be deemed to have been decided positively if the responsible state authorities do not object to an application within a specified period or impose conditions.

2.2 Financing of public tasks

Taxes and duties primarily serve to raise funds for indispensable government tasks. At the same time, through the choice of tax objects and assessment bases, macroeconomic (e.g. ecological) steering effects can be tracked. The Young Liberals, however, see the danger of overloading the tax system with too many irrelevant goals. The traditional principles, in particular the taxation based on performance, remain indispensable. We want a tax system that is understandable, transparent and less burdensome for the citizen.

The government quota should fall or stagnate. The interest tax rate must also fall in the medium and long term, as the percentage increase in total government debt is lower than the increase in budget volume. This reduces both the displacement effects of the state versus the private sector in the markets and the relative burden on future generations.

The Young Liberals are calling for the abolition of trade tax and the so-called "minor taxes" on consumption taxes. Double taxation of the same service should be avoided. The loss of income of the municipalities is to be compensated more strongly than before by a participation in the income tax (with its own right of assessment) or in the sales tax.

The Young Liberals advocate the progressive income tax, as it takes into account the performance of each individual in the financing of public tasks in the interests of social justice. When determining the level of income tax, however, the effect on performance incentives must be taken into account. The current tax rate should therefore be reduced significantly (by up to 10 percentage points). The reduction in direct taxes, which is as distribution-neutral as possible, can take place all the sooner if the introduction or increase of ecological steering taxes (in particular CO2 / energy tax, mineral oil tax) is pushed ahead with speed. Overall, the levying of steering taxes must not lead to an increase in the tax rate. In addition, the reduction of tax exemptions and an expansion of the tax base should create scope for lowering tax rates. The spouse splitting is to be replaced by a family splitting with exclusive consideration of the children.

  1. Sociopolitical legitimation of the liberal market economy

3.1 Fairness of the starting opportunities

An essential legitimation of the market economy system is that every individual can create income and wealth through performance through competition. It is implicitly assumed that people have roughly the same starting opportunities at the beginning of their lives. In reality, however, this is not the case. People have different talents and are born into different families.

In contrast to innate abilities, the state can influence those starting opportunities that a person has due to his social environment. In addition to creating comparable educational opportunities, it must reduce the inequality of the initial endowment with wealth in order to increase performance incentives and reduce the possibility that large wealth from non-performance income such as inheritances enables a life without performance. The inheritance tax is an essential instrument for this.

The inheritance tax tariff is therefore to be designed with larger allowances than today, but clearly progressive and at a much higher level. Small inheritances create starting opportunities and promote broad wealth accumulation. The distinction according to the degree of kinship should be omitted, since the previous regulation arises from an outdated conception of ancestry and relativizes the will of the testator.

When designing the inheritance tax tariff, not only equal opportunities but also questions of economic efficiency must be taken into account. The incentive to work for the offspring should not be completely lost. In addition, inheritance tax must not force medium-sized entrepreneurs to sell. Tax deferrals for business assets as well as a tax exemption for the use of the estate for charitable purposes or for the internal asset participation of employees are approaches to solving the problem.

3.2 Participation in decision-making in large commercial enterprises

Classic entrepreneurship in the sense of the personally unlimited liability and managing partner is becoming rarer. Owners often opt for legal forms that limit liability and / or leave management to salaried managing directors and board members.

Decision-making processes at the economic and business level are increasingly shaped by top managers who hardly bear any direct risk, as well as by the interest groups of employers and employees. What all three have in common is that, in addition to the interests of the owners and employees, they develop and represent tangible self-interests.

At the same time, the current instruments of shareholder democracy and codetermination have essentially failed. They only work formally, the real decision-making processes bypass general meetings and co-determined supervisory boards.

The participation of the individual employees in the operational cooperation is to be aimed for through employee requests and employee decisions as a case-by-case replacement of today's co-determination on operational issues. Co-determination of the coal and steel industry is to be brought into line with the co-determination model of 1976.

Employee participation in one's own company is not only an instrument of asset policy, it also facilitates co-determination and can replace its instruments in the long term. The Young Liberals demand that companies be exempted from the essential provisions of the Codetermination Act of 1976, if broadly diversified employee participation would lead to at least a similar share of the votes of the employees at owners' meetings as they are required on the supervisory board today.

Shareholder democracy needs to be strengthened. Banks and other capital collection agencies may only represent voting rights for shares held for third-party accounts on the basis of individual powers of attorney. The voting behavior for the individual agenda items must be agreed. Board members must be able to exercise more professional and effective control. This requires the number of mandates held by individuals to be limited to 5.

  1. Ecological and social obligation of the market economy

Economic, social and ecological interests are only in contradiction to one another when viewed in the short term. In the long term, they have the same goal: the quality of human life. They have to be balanced within a societal target framework.

4.1 the ecological obligation of the market economy

The market economy requires a consistent ecological obligation. This includes responsibility towards the generations living today as well as an end to the destruction of the natural foundations of life in responsibility for future generations. Natural resources may only be used to the extent that their use does not lead to a destruction of the ecological balance.

The most important and most efficient control instrument in the market economy is the price as an expression of scarcity. Without government intervention, however, the market fails to incorporate the current and long-term costs of environmental use in the sense of the polluter pays principle and thus make them relevant for individual consumption and production decisions.

The state must therefore live up to its responsibility and, if possible, use market-based instruments such as taxes, emission certificates and environmental liability law to consistently integrate long-term environmental costs into the price. In cases in which this is not possible due to extreme risks or for reasons of practicality, the state must also regulate the use of the environment through rules and bans.

Ecological taxes must be levied in proportion to resource consumption and emissions. In this way, even in the optimal state, a tax revenue is always achieved that can be offset by lowering other taxes. Investment decisions by companies can only be influenced if environmental costs become a long-term predictable and thus calculable price component.

A rethinking of economic policy objectives has to take place. An exclusively quantitative growth target endangers the natural foundations of life for future generations and thus also their potential for prosperity. Growth must be increasingly qualitative and no longer primarily oriented towards the quantities of goods produced. Technological progress must be put at the service of the environment.

At the same time, awareness of the ecological problems of production and consumption must be promoted. This is necessary in order to improve the chances of implementing consistent environmental policy in a democracy.

4.2 social obligation of the market economy

The Young Liberals profess the solidarity of those who are capable with the weak in society. This solidarity is based on the fact that people are able to perform differently and have the right to a decent life regardless of their ability to perform. Only those whose elementary basic needs can be satisfied have the social opportunity to exercise their rights of freedom. Liberal social policy must not destroy performance incentives, but must promote them.

The Young Liberals state that today's policy of social bureaucracy and the preservation of vested rights primarily serve the interests of the established middle class. The bureaucratic and mental paralysis of this society inhibits motivated and self-reliant individuals from the dynamic implementation of their goals. At the same time - despite full-blown socio-political objectives - it excludes underperforming population groups into new poverty and lack of prospects. Social policy and labor market policy today are primarily policies to protect the interests of the established majority, not help for the weakest in society.

The perfection of the social bureaucracy with its density of regulation in detail, which was often created with the good will to create justice for as many individual cases as possible, creates new injustices because of its increasing opacity. Often only the clever ones can really make use of the system's services. And the bureaucratic effort involved in filing the application costs time that could be used for productive work.

Liberal social policy wants to help the weakest in society. The social bureaucracy and the density of regulations must be dismantled. It must be clear to the individual which services they are entitled to and where they can be obtained unbureaucratically. The JuLis therefore advocate a comprehensive integration of taxes and transfer payments in a citizens' money system ("negative income tax"). In contrast to today's social assistance, the citizens' allowance as a basic security gives more incentives in the sense of "helping people to help themselves", avoids the impression of alms and is less bureaucratic. By integrating the innumerable individual benefits of today's system (child benefit, BAföG, housing benefit, etc.), the transfer system becomes more transparent and simpler for the individual.

At the same time, the social security systems are to be freed from all transfer elements. In the necessary reform of the social security systems, the interests of future generations must be given greater consideration than before. The personal responsibility of the individual must be strengthened again. The insurance required by law must be concentrated on essential risks. Thereby social hardship regulations have to be made. Furthermore, the funded system must find increasing application in the social security systems.

Social policy should become more aware that social problems cannot be solved solely through cash transfers. In many cases, more could be achieved with human help, as more and more people see their social existence endangered.

  • Wage and labor market policy

Due to a latent tendency to overstrain the overall economic performance, there is a risk that the funds required for social demands will exceed performance.

Employers and employees are primarily responsible for the situation on the labor market. You make the decisions about wages and working hours. The state's tasks only lie in shaping the general economic framework. The Young Liberals oppose a creeping shift from personal responsibility to collective paternalism.

Wage development and performance must complement each other. For this it is necessary that the regional, sectoral and operational needs are taken into account by differentiating wages and salaries in the collective bargaining policy.

It must be possible to agree more flexible forms of individual working hours. The general approval of private employment agencies is a matter of course in a modern society.

Unwanted unemployment is a psychological and material exclusion of the individual. Reducing unemployment is therefore a responsibility of all decision-makers. The social partners do not take into account the interests of the unemployed. Wage policy must no longer be carried out solely in favor of job owners; the unemployed must not be marginalized.

Responsible wage policy is therefore based on productivity. In the low-wage sector in particular, a constant ignoring of productivity pushes less qualified workers into unemployment by means of automation. Social income goals must not be pursued through excessive wage payments, but only through state transfers.

In order to do justice to the individual situation of companies and thus to preserve jobs, wage agreements at company level should not be prevented by collective agreements (opening clauses). The possibility of declaring collective agreements generally binding is to be abolished. For the long-term unemployed, entry-level tariffs are intended to make it easier to return to work.

Especially in the case of structural upheavals, the state must also support the unemployed in qualifying for a new job.

State labor market policy that goes beyond qualification measures must always ensure that profitable jobs are not jeopardized and that the incentive to transition to the normal labor market is maintained.

Even job creation measures must not compete with the labor market. However, they can be very useful as on-the-job training for a return to work and, for psychosocial reasons, they can also be justified as transitional employment. With the aim of helping people to help themselves, the Young Liberals therefore advocate job creation measures (ABM) under the following conditions:

  • The ABM must be competition-neutral.

  • The ABM must not permanently expand the public sector.

  • The payment of the ABM must be well below the collective wage.

  • The ABM sponsor has to pay an own contribution.

Long-term unemployed are to be given priority at ABM. For a transitional period, ABMs are tolerable to a greater extent in the new federal states.

ABM bodies, whose function consists more in the financing of necessary positions in the social sector than in job creation, are to be replaced by regular financing if state subsidies are still required. The discontinuation of these ABM positions may only take place after secure financing.

In all measures of state labor market policy, however, it must be clear that profitable jobs must be the goal of politics. ABM can only facilitate the transition and (re) entry. They are not a permanent solution. The concept of the second labor market is therefore misleading.

The Young Liberals reject forced community work as a prerequisite for the payment of unemployment benefits. However, it must be reasonable to establish marginal or short-term employment.

Individual performance must be possible for differently gifted people. The Young Liberals therefore demand adapted training courses with a lower theoretical component. The responsible agencies are also asked to support projects for long-term unemployed young people from problem groups in particular. These projects should be accompanied by social work.