We do all generally think that Germany is a well-run and well organised country and economy. This is not to say that it is perfect, of course, not, but it does seem to work pretty well. It’s also true that the government there does rather a lot to keep it that way.
This is not though the same as insisting that all governments should do a lot. The trick, rather, is to observe what it is that Germany does which makes it work so well then go and do those things.
The answer being that Germany is run, largely enough, using something called ordoliberalism. This is not laissez faire style everyone just do as they wish, nor is it detailed planning of who should be doing what as is common in rather more socialist or planned economies. Instead, it’s a mixture of two things.
The first is that there really are some things which must be done and which only the government can do. To take, near at random, examples like defining property rights, running a criminal justice system, defending the nation, and the rights of the citizens – these sorts of things.
We’d find full agreement right across the political and economic spectrum – well, perhaps excepting the anarcho-capitalists – that the government needs to do these things.
Ordoliberalism goes one stage further too. It’s rather an offshoot of the idea of Friedrich Hayek in fact. No, really, Ludwig Erhard was the designer of Germany’s post-war economic order and he was a member of the Mont Pelerin Society along with Hayek and hugely influenced by him.
That one stage further is that the government can also do some things which aid society to become more efficient even if they’re not entirely necessary. Sure, every government, whatever their intervention, spouts the same justification, but the Germans really mean it.
They note that markets are not perfect – they’re not – and that they can often enough be improved – they can. But they don’t make these improvements by trying to insist that this company over here should be making cars, or that there must be import barriers, of subsidies for this or that. Rather, they look at the structure of the market itself and ponder whether that can be improved.
The answer being, often enough, that yes it can. There is an old, possibly apocryphal, story that the finest piece of foreign aid Madagascar ever received was some typewriters that worked in the local script. The ones they had been using were so worn out that they just didn’t leave an impression on paper – meaning that the land registry, and thus the market in land changing hands, simply could not work. Add typewriters, the land market worked again and all was very much better.
That is, ordoliberalism is entirely happy to set up, improve, market structures, but then insists on leaving matters well alone so that the market itself can get to work. Which brings us to something that has just happened in Bangladesh.
The Bangladesh Telecommunication Regulatory Commission has just approved a contract to Infozillion BD Teletech Consortium Ltd, which is a bit of a mouthful if we’re honest, but the underlying idea is just great. For it allows the portability of mobile telephone numbers.
We know very well from other research that the spread of mobile phones causes a huge increase in the growth of an economy. 10 people per hundred having one raises GDP by 0.5% a year – by the standards of these things, that’s a huge effect.
We also know that the more competitive the market is to provide mobile telephony then the more people actually have a handset and service. So, we’d like the economy to grow, obviously, we’d like more people to have phones, be able to get the information to partake in the trading economy, so we’d like the market to be as competitive as we can make it.
Sounds like a plan – and there’s one more thing here. A competitive market should allow for easy entry into supply and also it should be easy for consumers to switch supplier. But once we’ve had a mobile phone for a year or two then our entire network knows our number.
Sure, we can change our airtime provider but we’ve then got to go around making sure that everyone knows the new number. This isn’t an insuperable problem but it is one that is going to delay, hinder, people switching and thus that competition that we want.
Thus this solution. Some 70 odd countries have this already, it’s not one of the things that is hugely difficult to do. People get to keep their number when they switch network. That’s what this deal between BTRC and Infozillion is about, running the system which allows that.
I wouldn’t want anyone to go into an economics exam and use this as a direct example of ordoliberalism but it does rather neatly capture the basic concept. No one is saying that you must use this or that company, no one is demanding that privileges accrue to any particular supplier. What we are doing is changing one of the rules of the marketplace to make that market more efficient.
Once we’ve done that we’re not going to interfere at all. You want to take your number with you, you can. You don’t then don’t use the service. You don’t want to switch supplier, that’s fine, all we’ve done is make it easier for you to do so.
Some things the government must do, some things it is useful if it does. This German idea – most certainly not universal even there but still useful – is that the government can usefully intervene in the structures of markets to make them more efficient. The trick is to do that and only that then leave well alone. It works too, Germany is one of the richest countries in the world.
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.