A set of rules and institutions to make sure that competition is safe for companies and entrepreneurs are necessary for the successful implementation of a Social Market Economy, said Justus Lenz, Head of the Liberal Institut of the Friedrich Naumann Foundation for Freedom, Berlin.
He underlined that a Social Market Economy is about combining the power of free markets with a stable institutional framework around their activity to give companies and entrepreneurs good conditions to continue their businesses.
He was participating in a round table discussion titled “Germany’s Social Market Model and Sri Lanka’s Revival” organised by the Friedrich Naumann Foundation for Freedom in Sri Lanka and the NextGenSL in Colombo on Wednesday.
“The rules and the institutions are to make sure that no individual player is given too much power in one market segment. Nobody is allowed to use their market power to force out other companies,” he said.
He pointed out that the electricity, telecommunication services and the postal service, which were public companies with State monopolies, were privatised in Germany after the adoption of the Social Market Economic Model.
“When their monopolies were broken up, good regulations were needed to keep them in check and allow competitors to come into the market. As a result of the privatization of those services, the prices decreased and the quality improved. Even though the privatization of the energy market was a good idea at the beginning, because it brought down the energy costs and made a lot of things easier, we learnt the hard lesson from the Russian take on Ukraine. We allowed the Russian companies to directly buy infrastructure in Germany, but looking back, it had not been a good idea,” he commented, highlighting that the institutional framework has to be flexible and the rules have to be adjustable when and where needed.
However, he noted that the stability of institutions is also important because frequent changes to the rules could upset the plans of entrepreneurs.
“Competitive pressure can be tough, but overall, it helps long term improvement,” he added.
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