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• "exploitation" of counter-agents through unreasona-
bly high prices. The first type is less problematic as its most
aggravated forms are generally considered to be inadmissible
(boycotting, dumping, etc.). The second type is always in the
focus of the public’s attention not only in Germany, but also in
Russia, in the latter case (i.e. in Russia) it is even in the center
of antimonopoly regulation (control over prices of monopolistic enterprises). This type is also most problematic in terms of
regulating abuses. In fact, how is it possible to know whether
the price is unreasonable for the fact of market dominance or as
a result of high costs? Does the control promote both competi-
tion extension and search for more effective solutions, or does
it, on the contrary, undermine entrepreneurial incentives in this
sphere and, therefore, worsens the competition conditions?
It is necessary to recognize that the German antimonopo-
ly policy did not manage to solve this problem completely. An-
ti-cartel bodies are guided by hypothetical prices of competi-
tive markets comparing them with real market prices (where
the competition level is rather high) working out then hypothet-
ical prices by means of withholdings and bonuses. Of course, it
is not the best decision, however it is better than, for example,
targeting "average" (or even real) costs and "average" profits of
the enterprise (it is a favourite method of our former planning
offices and today’s Russian anti-monopolists and protection-
ists) because this system leads directly to a costly economy.
As a rule, attempts to deal with abuses typical of cartels
seldom bring essential results because cartels find a set of bypass ways to execute their plans. W. Eucken’ critical assessment of the Cartel Resolution (1923) mentioned above is still
important not only and not so much for today's anti-cartel legislation in Germany, but rather for the emerging antimonopoly
policy of the CIS countries. After analyzing the Resolution effects, W. Eucken drew the following basic conclusion: "Any
control over monopolies and their abusive behaviour is about
181
to fail. It is impossible to give a proper definition of the con-
cept an “abuse”. It is known that if power structures start ex-
panding within a country, they gain in authority. Thereof, the
state appears incapable of exercising effective control over
monopolies. The economic policy has to mainly struggle not
against the abusive behavior of existing power structures, but
rather against the emergence of the latter. Otherwise, it won’t
have a single chance of coping with the problem"1.
Today, the German anti-cartel legislation is doing all its
best to solve the problem of monopolism, including its most
challenging aspect — discrimination that implies no chances
for other enterprises to enter the market as well serving different clients or suppliers on a different basis (to sell goods at a
higher or lower price, depending on the customer). This attitudinal behavior is considered to be illegal only if it is supposed
to be unfair and unreasonable. It is necessary to consider in de-
tails the interests of both the parties — those of consumers as
well as the main goals of a competition policy to make a com-
promise.
Though we almost haven’t mentioned the external eco-
nomic aspects of providing a competitive order, one can’t but
note their importance. Besides, while the competitive policy of
the European Union is quite consistently making free competi-
tion possible, the world markets have a lot of barriers that make
it impossible to speak about their borderless character. Germany takes a stand on this issue: to gradually remove obstacles to
the flow of the goods and funds and to make every single market open.
1
Eucken W. Grundsaetze der Wirtschaftspolitik. P. 172. See the translation of this paragraph:
Russian economic magazine. 1993. №. 4. P. 81.
182
10.2.4. THE OPEN MARKET POLICY
No matter how effective are the methods within the anticartel policy of Germany, the truth is that the concentration
level of the German industrial production is still high (though
in the GDR, the degree of concentration was even higher).
"Daimler-Benz", "Volkswagen", BMW and "Opel" are not just
symbols of the German automotive industry, but also the firms
having the biggest share of German’s auto industry. Hardly
would anyone think to create a new firm "to compete" with
these giants.
At the same time, the automobile market of Germany
doesn’t have any indices of monopolization: on the contrary,
competition is very stiff and very effective owing to a few factors: first, each of the concerns (especially "Daimler-Benz" and
BMW) produces not only several brand-name cars but also a
lot of other products — buses, trucks, motorcycles, military
equipment, etc.; secondly, in the market of, let’s say, passenger
cars, there are also a lot of foreign automobiles (Japanese
"Toyotas", American "Fords", Italian "Fiats", French "Renaults" and even Russian "Ladas").
Both production (products) differentiation and open markets (mainly for external producers) have a decisive effect on
competitive markets and their support. It is also typical of other
industries: large German concerns ("Daimler-Benz", "Siemens", BASF, etc.) stop being monopolists as soon as similar
foreign products are introduced. Thus, the phenomenon of international competition makes "Siemens"(for example) look
just a medium-sized company.
This state of affairs is especially typical of the field of
consumer goods. There are a lot of Japanese and Korean TVs,
Singapore and Thai radio sets, Taiwan, American and Korean
computers, Italian footwear and Chinese clothes in shops of
Germany. But as for producer goods (the so-called investment
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goods — cars and machinery), the situation in this field is more
complicated as firms here practically work according to the
make-to-order principle; and though competition elements can
also be observed here, an important role is played by personal
contacts and arrangements on products, which provides local
(or simply traditional) producers with better chances. The more
specific is the product on offer, the lower is the competitive
pressure upon the producer.
Product differentiation and national markets open for
domestic and foreign producers are better for promoting competition than any control over the behavior of enterprises or
prohibitions on collusions and merges. That’s why German
scientists and politicians have been standing for the benefit of
the economic deregulation, which is mainly associated with the
main goal of the economic policy — to ensure open markets
and to maximally reduce that economic sphere which is characterized by a lack of competition. For instance, the Committee
on deregulation created upon the government decision was signaling about the fact that the only possible future-oriented economic policy is open and borderless markets and competition.
Competition turns out to be the necessary condition for the development of driving forces in the economy, for promoting an
increase in all-cost efficiency and at the same time for ensuring
efficient control over the economic power. The Committee
noted that competition was in conflict with such state regulations that hampered (or didn’t allow for) entering and leaving
the market on a free basis, and also influenced (established) the
production volume and prices. In Germany, there are many
cases of a similar regulation.
It is important to keep in mind that the regulating board
can be represented not only by the state, but also by the unions
of entrepreneurs, labor unions, class organizations operating
upon the consent and in the service of the state. All of them
aim to leave a competitive environment, as a rule.
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Regulation is needed when it is impossible to achieve
primary goals because of the failure of the competitive or market mechanisms. Regulation necessitated by these reasons really takes place, but often it is excessive and aims at preserving
the existing state of affairs and often causes harm to the third
parties. Thus, the failure of the market very often turns out to
result from the implementation of the policy.
German experts (most of them — to be exact) show a
negative attitude to the fact that the economic regulation, being
considerably the outcome of the economic crisis of the 1930s
and only partially abolished by Erhard's reforms, has been in-
tensified for the last 40 years. It can be particularly explained
by the increasing share of the service industry that is being ex-
posed to an extra high regulation.
Deregulation it is not just a reduction in numbers of legal
norms and standards. These reasonable alterations to the rules
of the game make the freedom of entrepreneurship possible.
This is another conclusion for the Russian reform policy.
State regulation is necessary for any society, but it acquires pe-
culiar features in a particular environment. However, if it not
superficial, but rather consecutive and interconnected market
reforms are supposed to be implemented, regulating boards
should stop only erecting barriers in the economic sphere and
start protecting businesses from restrictive practices of other
businesses. If it is sometimes impossible to do without re-
strictions, they have to be accurately justified, minimized and
performed strictly according to the rules established by law.
10.3. THE GOALS OF COMPETITIVE
POLICIES DURING PERIODS
OF ECONOMIC TRANSFORMATION
Even a proper monetary (financial) regulation cannot en-
sure a desired effect in an unfamiliar environment especially if
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such measures are implemented on a partial and sporadic basis.
Liberalization and privatization carried out under noncompetitive conditions generated the phenomena that have
been far from being predictable and desirable. Business entities
in Russia were forced to adapt to new conditions, but they did
it being guided by specific "Soviet" methods: trying not to
change the essence of things. As a result, the prices instead of
being liberalized turned out to be constantly getting higher and
higher and transformed into a simplified procedure of their adjustment to the real (growing) costs of production. The increase
in prices helped to cope with any inefficient decisions, to cover
any losses. The so-called non-payment crisis was a convenient
form to hide wasteful, inefficient managing. No companies had
to really face bankruptcies until recently, but today, despite the
introduction of the Bankruptcy Law, hardly would anyone con-
sider bankruptcy to be a really dangerous thing. This state of
affairs is the most evident proof of the domestic Russian market’s being uncompetitive (even an “import" competition — for
example, in the field of vodka trading — is a very weird form
of a competitive struggle because it is based on a privilege
grab, but not on a "productivity competitive struggle").
The current conditions of the Russian economy have
been caused not only by the inconsistent character of the mone-
tarist course (no strict budget restrictions for enterprises), not
only by the catastrophic inflation taking place despite all the
monetary tricks, but rather by its non-market economic order.
A non-market order mainly means a lack of competitive
relations between private economic units. Yet, privatization of
state enterprises does not mean their transformation into private
ones because a formal transmission of the disposition rights to
individuals is not yet correlated with the principle of a financial
liability for the results of the activity.
Only through introducing new rules and developing new
management styles Russian reforms can be set into motion and
186
competition can be promoted — as the latter (competition) can’t
appear by itself. Competition has to become a criterion for all
forms of the market formation. Besides, if, let’s say, financial and
industrial groups are created to “discipline” the technological pro-
cess or to "preserve the scientific potential" (though this process is
in conflict with making the Russian economy competitive), then
these methods won’t facilitate market transformations.
The main function of the economic policy in Russia is to
shift (at least gradually) from regulating the economic processes to regulating the economic order, as well as to introducing
market forms and rules and, of course, conditions guaranteeing
the implementation of these rules. These conditions include, in
particular, a radical modernization and strengthening of the judicial system. No market can exist without a strong and effi-
cient judicial system.
As the experience of practically all western-European
countries suggests, the functions of the state cannot be confined
only to establishing laws and controlling their implementation.
Of no less importance is creating favorable conditions for business activities, especially for small and medium-sized enterprises, implementing an anti-cartel policy (rather than promote
cartelization), creating conditions for attracting new foreign
investors. No competition is possible without it, and the "market" will be nothing more than just a label without competition.
Sometimes, Russian deputies have no opportunity to be
engaged into the process of making strategic economic deci-
sions even if they are currently not involved into creating parliamentary and party groups, signing treaties and manifestos
(i.e. during the periods of an absolute race for power). This
phenomenon is to be regarded as a kind of remarkable one.
Adoption of anti-monopolistic laws, resolutions and de-
crees is not a rare phenomenon. One of the most important of
them is "The state program of the economic demonopolization
and competition promotion in the markets of the Russian Fed-
187
eration" (May, 1994) approved by the Russian government.
This document is undoubtedly necessary and reflects the con-
tradictory character of the market reforms in the country.
Though other regulations were later adopted (for instance, the
government reforming program relevant decrees and resolutions for the period of 1995–1997), the ideology and political
methods in a competitive environment stay the same.
There’s no need to speak about the importance of competi-
tion for the process of economic transformations. Any instruments
of market transformations (whether it is privatization or tough
budget restrictions, not to mention price liberalization) are useless
without it. We also shouldn’t forget that competition is fundamen-
tal for an economic order to provide both liberties to every single
person and living conditions that people deserve.
However, a spontaneous development of competition can
lead to the results far from those desirable. It is known that an
unsystematic and unrestrained competition leads to attempts to
limit the freedom of other subjects and, therefore, to restrain
competition. A typical example is cartelization resulting from
laissez-fair and its principles. Therefore, one can’t be indifferent to these processes, trying to find some elements of competi-
tion in it. A competitive environment is to be achieved through
a variety of specifically developed measures, including a spe-
cial policy of competition promotion.
The State Program of 1994 as well as the Law about
Competition and Restrictions of Monopolistic Activities in
Goods Markets adopted earlier are just the first tracks on the
way to a competitive environment. However, an illusory opin-
ion that these tracks are decisive would be dangerous. Like the
rest of the domestic reforming legislation, The State program
has been implemented inconsistently and unsystematically. Its
accurate and important provisions go together with very doubt-
ful points. Its attempts to reach a compromise between a workable competitive environment and the idea of financial and in-
188
dustrial groups, as well as between making markets open and
"protecting domestic producers" make this document too
wordy, and therefore hardly efficient.
Alongside the fact that this program is difficult to imple-
ment in practice, its conceptual provisions are doubtful in terms
of their ability to give an initial (at least initial) impetus to the
competition promotion. First of all, it is not quite clear with the
help of what methods de-monopolization is to be carried out —
by means of disaggregation or through making new productions or by monitoring the activity of existing monopolies? The
advantage of the State program is that it is signaling about the
necessity to promote entrepreneurship and simplify the entry of
new competing structures to the market. However, this state-
ment has to guide the promotion competition policy in general,
rather than be just another claim.
Our local experience as well as the West-European practice show that it is extremely difficult to fight against power
abuses exercised by monopolies (for example, not to permit an
excessive increase in prices), if at all possible. However, open
markets (open not only and even not so much for foreign investors as for local ones) provide good chances to solve the eco-
nomic problem of monopolism. Thus, small and medium-sized
businesses that are practically ignored by the State program can
play a huge positive role. It is especially important for this
sphere not just to reduce but rather to maximally eliminate fi-
nancial and economic (on the one hand) and organizational and
legal (on the other) barriers against entries to the market.
A competition promotion policy has to be multidimensional and correlate with other economic and political
measures. W. Eucken’s six constituting principles that provide
a competitive order have already been mentioned above: a
steady currency circulation; open markets; private property that
mainly provides a possibility of decentralized decision-making;
freedom of contracts between economic subjects; an unlimited
189
business and equity responsibility; a systematic and regular
character of the economic policy.
It is extremely important to remember that a competitive
environment can be established instead of a totalitarian one on-
ly if all of these principles taken together are implemented.
However, it is necessary to emphasize that it is practically im-
possible to implement all these principles at once and to a full
extent. At the same time, it is important that they be gradually
implemented but in combination with each other rather than
one by one. Besides, the first thing to do is to ensure the free-
dom of enterprise and open markets.
Thus, real market reforms require a combination of mon-
etary (monetary stabilizing) and non-monetary (institutional)
methods, but both the types have to be adequate for the market
order. A steady monetary order as well as the currency stability
are to be supported by competition and freedom of business
activity. Thus, it is always necessary to keep in mind that the
only thing that makes competition efficient is small and medi-
um businesses.
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