“Should one read Ludwig Erhard?” A few years ago, a senior official from the German Ministry of Economic Affairs asked me this question. I was taken aback, since Erhard, as the first Minister of Economics of the Federal Republic of Germany, was the architect of the German economic miracle. He was influenced by the ordoliberal school of thought, which views the state as the guardian of competition but not an active market participant. In 1948, during times of severe shortages and a command economy, he liberalized most prices. In no time, the shelves were filled with goods.
During the Euro and sovereign debt crisis of the 2010s, ordoliberalism became a scapegoat. Nobel Prize Laureate Paul Krugman accused the German government of worsening the crisis because it insisted on rule-based economic policies, that is, strict budget discipline and low public debt.
But critics like Krugman were wrong. Countries with healthy public finances, such as Switzerland and Germany, had enough reserves to cushion the economic impact of the COVID-19 pandemic. Had another central principle of ordoliberalism been adhered to, the 2008–2009 financial crisis would likely have been less severe. The principle of liability in the financial sector had long been neglected: many banks held far too little equity and were bailed out by the state during the crisis. “Whoever benefits must also bear the cost” is perhaps the most frequently quoted statement from economist Walter Eucken (1891–1950), the leading figure of ordoliberalism.
Partially Suitable for the Platform Economy
Ordoliberalism emerged in the 1930s and 1940s as a response to the Weimar Republic’s years of hyperinflation, the Great Depression, and the rise of National Socialism. During the Weimar Republic, cartel agreements were legally protected and corporate concentration was encouraged. For this reason, Eucken advocated for a market economy free from both state arbitrariness and private economic power. “The policy of the state should be aimed at dissolving economic power groups or limiting their functions,” 1See Eucken (2004), p. 334. he wrote in 1952. Accordingly, he supported an independent cartel authority, which includes merger control. Eucken’s goal was to stimulate performance-based competition between companies: “It is perfect competition that should characterize the modern economic order.”2See Eucken (2004), p. 247.
Caution is warranted, however, when turning to ordoliberalism for solutions to address the challenges posed by tech giants such as Google, Amazon, Facebook, Apple, or Microsoft. These companies belong to the platform economy, which consists of digital platforms that mediate between suppliers and demanders, facilitating the exchange of goods and services. The modern platform economy tends toward concentration because it is characterized by network effects: the more buyers and sellers gather on a digital marketplace, the more attractive it becomes. It’s like a large city benefiting from the close interaction of diverse populations and businesses in a compact area.
“Apple may not be the only manufacturer of smartphones, tablets, and PCs in the world, but it is certainly the one that sets the trends—in terms of technology, usability, and design,” said prominent German economist Achim Wambach. In an article, he calls on competition authorities to intervene in order to break up the dominant positions of certain companies in the internet and technology markets.3See Wambach (2018).
The atrium of the Ludwig Erhard House in Berlin. (Adobe Stock)
Battle for Technological Leadership
In this regard, he certainly stands in Eucken’s tradition. However, the situation can also be viewed differently — bringing into play another famous economist whom Eucken once dismissed as merely a writer, probably not as a compliment: Joseph Schumpeter. A contemporary of Eucken, Schumpeter saw the economic process as a sequence of monopolies, with new ideas displacing former market leaders. He used the metaphor of “creative destruction”. Thus, every monopoly position is temporary. Schumpeter considered the model of perfect competition unrealistic, because true economic dynamism arises not from steady competition but from bursts of innovation.
The struggle for technological leadership thus characterizes today’s competitive landscape. Companies like Apple must continuously innovate, because it is the only way to keep consumers engaged. Should Apple instead forgo new technologies or better products just to allow more firms to enter the market and to approach the ideal of perfect competition? That would be absurd.
Following Schumpeter, it is likewise advisable for artificial intelligence that the state exercises its “ordering power” (Eucken) sparingly. The past months have shown that the race for the best AI model is in full swing. And it isn’t just the major American tech firms competing—smaller companies like Midjourney (for AI-generated images), the French firm Mistral, and the Chinese Deepseek are also in the fray. Deepseek, whose AI model anyone can download and modify, reportedly operates at much lower costs than its American rivals. Yet instead of keeping the market open, countries such as South Korea and Italy have temporarily blocked Deepseek.
Competition Law Is the Wrong Tool
Although the internet has been a mass phenomenon for only a quarter of a century, it is already, in Schumpeter’s sense, full of examples of once-powerful companies that have vanished or become mere shadows of themselves. One thinks of brands like Nokia, BlackBerry, Yahoo, Netscape, AOL, Studi VZ, Myspace—or Skype: the video service will be discontinued in May 2025, meaning the verb “to Skype” will soon disappear from our vocabulary.
Competition thus remains the ‘greatest and most brilliant instrument of disempowerment in history,’ as the ordoliberal Franz Böhm put it in 1961. But we must reinterpret it: in the world of tech giants, regulators need a bit more patience than before, because it sometimes takes a little longer for disempowerment to occur.
The question of power is on the agenda again for another reason. The ordoliberals warned in their time of a society dominated by a few powerful actors. Does the gathering of tech entrepreneurs at the inauguration of American President Donald Trump indicate that this danger is real again? The fact that Elon Musk has the ear of the American president should certainly concern all (Ordo-)liberals. Collusion between business and politics undermines trust in institutions, by allowing individual firms or interest groups to gain unfair advantages.To push back here, competition law is the wrong tool. Economic monopoly power is not the issue. With Tesla, Musk operates in the fiercely competitive automotive market. And with SpaceX, he has created a new spaceflight market, previously exclusively dominated by the state.
Eucken is certainly right in insisting that business and politics be kept as separate as possible. However, to prevent economic power from turning into political power, we need constitutional rules that ensure checks and balances, as well as transparency regulations that shed light on lobbying and the financing of election campaigns. The concentration of power in the hands of unelected individuals is also a cause for concern.
Ordoliberalism still offers a reliable compass for economic policy. That’s why it’s worth reading Ludwig Erhard and his intellectual patron Walter Eucken even today—not just for officials in ministries of economic affairs. But a compass only shows the general direction. If you’re asking specifically how to deal with technology giants, it’s better to follow Schumpeter’s “creative destruction” rather than the supposed ideal of perfect competition.
This article was originally published in German in the magazine Die Volkswirtschaft, issue 04/25.
