Marcel Fratzscher: Why the state urgently needs to intervene in market events
“There are three central reasons why the state must not less, but more strongly intervene in market events in the future: first, technological change, as new technologies increasingly lead to monopolies and market concentration and thus to lack of competition, less innovation and monopoly rents. To prevent market failure, the state must regulate such companies more strongly and, if necessary, also break them up.
The second reason is the increasing importance of global capital markets and the associated concentration of risks, where the failure of even smaller financial institutions – the collapse of Lehman Brothers in September 2008 is a warning example – can plunge entire economies into a deep crisis. State institutions and central banks must not repeat these mistakes and must, for example, regulate private currencies such as Bitcoin much more strongly and develop their own digital currencies.
The third reason for a stronger state role is the increasing globalization and the associated shift of power from state institutions to multinational companies. For decades, large companies have been playing off states against each other and have triggered a tax competition in which corporate taxes are lowered and taxes for employees are increased. The recently decided global minimum tax for companies of 15 percent by the G20 is a first, small step to be able to guarantee a functioning market economy again.
Germany’s good state institutions and the strong welfare state form the basis for our prosperity and the successful management of the pandemic. Modernizing state organizations – from reducing bureaucracy and more efficient processes to greater neutrality and autonomy from lobby interests to digitizing public services – must be an urgent priority.”
– Marcel Fratzscher, Head of the German Institute for Economic Research (DIW Berlin) and Professor at Humboldt University in Berlin, in “Plea for a new economic policy – Financial crisis and pandemic have shown: We do not need a weaker state, but must reform its institutions”, Handelsblatt, August 12, 2021, No. 154
