Introduction – the Human Nature

The principles of Ordoliberalism, the variant of classical liberalism, are in the core of my beliefs, due to the emphasis on the requirement for a strong legal framework to ensure that free markets operate efficiently and fairly.

It is an easy task not to embrace the neoliberal notion of a stateless economy, as it requires an ultra-disciplined type of – not inherently human – good will, the same will that theories such as socialism and anarchy strongly demand.

In the socialist ideology, every individual must be strictly embedded into the ideals proposed by the establishment, so deviations are not tolerated (usually punished by force), under the pretext of being “antirevolutionary,” or “anti-society”, requiring the standardization of thought and behavior, which challenges the most basic principles of human nature.

On the other hand, a similar hypothesis can be made about Bakunin’s anarchism, where a supposed abolition of the state and hierarchical structures would emphasize the importance of collective ownership, direct action, and the spontaneous organization of society through voluntary associations and federations.

Here also lies a dilemma, since if the pseudo abolition of hierarchies should be followed by the creation of voluntary associations and federations, contradictorily some sort of hierarchy must be created, or else the fracture of the information stream may undeniably descend society into chaos and disorder.

Both theories demand a type of uncharacteristic behavior, outside of human nature, as it spontaneously demands some sort of order into hierarchical structures to function, precisely to curb another conflicting human brain characteristic, the constant seek for comfort.

Although it seems strange, the constant seek for comfort (different from the notion of wellbeing) is one of the most flawed human traits, as it follows the path of less effort, less opposition, to reach out its goals.

For those in empowered positions, monopolies, and oligopolies are way more comfortable than competition; dictatorships are more comfortable than democracies; dishonesty is more comfortable than hard work; a closed economy is more comfortable than a free trade one; inequality is more comfortable than equality; easy, short-termed, higher gains are more comfortable than long term, durable gains.

Comfort is not at all a bad concept, since it is, as several other things, important to relief the burden of existence, but must be accompanied by principles of empathy, required to live in the human organized society.

Which takes us to the creations of laws and rules, made to keep order, to reinforce certain hierarchies, and most of all, to avoid the unconscious human search for constant effortless comfort.

Wars, plagues, conflicts, social unrest tend to create exceedingly uncomfortable situations, and as unpleasant as they are, usually these event end building up a stronger society, on the motto “hard times create strong men (…)”.

The Ordoliberalism.

Developed in Germany, in the University of Freiburg by intellectuals such as Walter Eucken and Franz Böhm, during the early to mid-20th century, primarily in the 1930s and 1940s, it combines the principles of economic freedom with the necessity of a regulatory state to prevent economic distortions, protect competition, and most of all, promote a fully functional free market.

Key points include:

  1. Economic Order: Advocates for a market economy where the government ensures the rules of the game are followed, preventing economic power concentration.
  2. Rule of Law: Emphasizes the importance of a legal system that upholds contracts and property rights while ensuring competition.
  3. Social Stability: Recognizes the role of the state in providing a safety net and social policies to maintain social stability and prevent market failures.
  4. Regulatory Framework: Supports regulation to prevent monopolistic practices and ensure fair competition.

Emerged as a response to the economic turmoil and political instability of the Weimar Republic and the rise of National Socialism, ordoliberalism aims to balance free market principles with the necessity for government intervention to maintain a fair and competitive economic environment, also reduce the burden of the state over society, by promoting practices such as negative income taxes, with the adoption of minimum income programs, to combat poverty and social exclusion.

In theory, seems to be the fairest form of capitalism, on which the state is not a burden to the society and functions as an almost independent arbitrator, where the ultimate concernment is to promote the societal well-being, above capital gain.

The Human Component and the State

However, just like at all theories mentioned before, the human component is the key to explain the flaws that can make the adoption of Ordoliberalism challenging.

For this theory to function properly, only a presumably flawless government should exist, with presumably flawless politicians, and presumably flawless laws that wouldn’t at all protect interest groups, neither create barriers for certain activities, but would also flawlessly identify possible market distortions, before it become too much of a burden to society, similar to what happened in the U.S. antitrust laws (Sherman Act of 1890) in the end of the XIX century, on the rise of industrial capitalism.

Although might seem easier to adopt, Ordoliberalism demands high qualifications of the political class, a characteristic not quite common of this group in almost anywhere in the world, from mature societies as the Japanese, and Northern Europe one, to poorer nations.

Countries like Brazil have it even worse, where the state and the political class are so intrinsically tangled into the economy that real capitalism can barely be recognized.

The role of state becomes an expensive burden on the back of the society throughout generations, due to high indebtedness, low productivity, bureaucracy, and tools created for self-preservation.

The Brazilian Case

In Brazil, unfortunately, the Ordoliberalism has little room to thrive, given the characteristics mentioned above.

Also, different from what happens in the U.S., disruptive events in the private sector in Brazil are usually successful on the short term, but companies incline to fall into the COMFORT ZONE of low competition, high interest rates, higher profitability, especially compared to the ones observed on Brazil’s peers.

For example: Due to an improved legislation from 2016, digital banks rose in Brazil as a promising solution for the high banking spread (net interest rate spread), high banking fees, and high banking sector concentration, and this process was accompanied by the creation of the Brazilian Central Bank digital payment system, PIX.

For the Brazilian consumer, the strong decrease of banking fees was the single tangible benefit, reinforced by the PIX as a free payment system, supported directly by the BCB.

Regarding the interest rates, the comfort again became a determining factor, so the new batch of digital banks did not provide the proper competition for the 6 largest banks, and credit remains a “non” determining factor for the economic activity, as usual.

The Asian Case

The concept of Ordoliberalism must not be confused with the known forms of capitalism in Asia, such as the Chinese state capitalism, due to the way it treats individual freedom. This must be an irrevocable principle in every circumstance.

Singapore has a mixed system, where individual and economic freedom are incentivized, while the state has a significant role in the economic development.

India’s current economic model is a blend of liberalization and government intervention, focusing on market-oriented reforms, industrial and trade policies, technological innovation, financial sector reforms, inclusive growth, sustainability, and attracting foreign investment. The government continues to play a significant role in social welfare, infrastructure development, and promoting equitable growth across different sectors and regions, similar to principles of ordoliberalism.

In Japan, the government actively shapes and supports the economy through strategic planning, financial aid, regulation, trade facilitation, innovation, research as the Kaizen, crisis intervention, workforce development, social welfare, and partnerships with the private sector as the Keiretsu, allied to a Central Bank active participation in the capital markets, not only on the monetary policy.

These two cases are the closest to what a nation can get to adopt ordoliberalism, but both have strong cultural components as the key to the success, somewhat hard to replicate elsewhere.

DISRUPTION

The solution comes from an important characteristic of the current capitalism, largely adopted in economies such as the American one: disruption.

Disruption is to recognize economic distortions wherever it happens, consequently use them to create revenue, simultaneously, adopt a new economic concept that in the Ordoliberalism has the state as a propelling force, but doing it through technology.

During the boom in the late 1990’s, companies produced a long series of ideas to use on the internet, but most of them were limited by the bandwidth, by the lack of proper means of delivery, by the lack of systems integration. In the end, they were largely limited by the technology of the time, despite a series of great concepts.

David Bowie said in 1998 “I couldn’t be more pleased to have the opportunity of moving the music industry closer to the process of making digital downloads available as the norm and not the exception,” “We are all aware that broadband opportunities are not yet available to the overwhelming majority of people, and therefore expect the success of this experiment to be measured in hundreds and not thousands of downloads. However, just as colour television broadcasts and film content on home video tapes were required first steps to cause their industries to expand consumer use, I am hopeful that this small step will lead to larger leaps by myself and others ultimately giving consumers greater choices and easier access to the music they enjoy.” 

He also said, during an interview to Jeremy Paxton, for the BBC “I don’t think we’ve even seen the tip of the iceberg,” he told a wearily cynical Paxman. “I think the potential of what the internet is going to do to society, both good and bad, is unimaginable. I think we’re actually on the cusp of something exhilarating and terrifying.” Paxman, in his arch way, suggested it was just “a tool,” which saw Bowie sprang into action. “No, it’s not,” he said. “No – it’s an alien life form!”

David Bowie, Jeff Bezos, Steve Jobs established concepts on the rise of the internet, which are now commonplace for all.

As seen above, Bowie foresaw streaming, where Apple was the propelling force with the iTunes, and inspired Reed Restings to move from DVD rentals to video streaming; Bezos structured what is largely known today as the e-commerce, while shaping the cloud computing technology primarily to support his own systems; and Jobs predicted the smartphone would surpass the desktop computers in less than a decade, as one of the most important technologies of the current human era.

By coincidence, these media only function due to the synergy of the user experience, i.e. the adoption of these new technologies depended on the user acceptance, cultural, and habits changes, especially due to a strong disruptive process.

Music companies lost most of their power, since people can now individually choose what to listen in a record; movie studios are having the hardest time ever, not being able to push their cultural agenda, while thriving to keep up ticket sales, with streaming; big retailers who didn’t adhere to the online shopping, or took too long to make it, are closing stores all over the world; banks branches are at their historical lowest, and declining; rare are the newspapers with printed editions, as well as some books, and magazines; telephone calls are no longer charged in most cases, while telecom companies had to move their service to internet connectivity, especially in times that texts overpowered voice; taxis, couriers, food delivery had to adhere to apps, or else, they would succumb to obscurity; the postal service became a delivery service, while letters, magazines, telegrams are almost inexistent; cameras with films are only hobbyist items; sound systems were replaced by virtual assistants; printed maps were replaced with GPS.

The common technological denominator of all the disruption mentioned above is the Internet, and the cultural denominator is the constructive interaction.

People embraced new dogmas, new media, new patterns of thinking, of doing thinks, of consuming, new ways of communicating, of social interacting, but it all happens in a collective unconsciousness, led by the companies’ goals as pioneers, not by a synergistic mindful process.

Economic Synergism is the answer, by using market distortions to promote a microeconomics version of ordoliberalism, where, in the lack of the proper government intervention to foster the reduction of inequalities, technology will take its place.

Summarizing: identifying niches, distortions, and/or failures of the economic system and market a solution by using proper the technology to gather people around a common purpose, while simultaneously profiting from it.

The Brazilian example is one of the best for this kind of solution.

New local banks looked a bit more carefully at low-income corporate customers in the recent past; many times, neglected by the big banks. However, despite providing a better service, rates are still far from reasonable on these institutions.

Bridge loans costs vary depending on the size of the borrower. The larger the size, the lower the interest rates charged, which is somehow a global truth.

The problem in Brazil is that the cost spread between what is charged from small to large corporations is one of the most distorted in the world.

This type of distortion would be addressed by an ordoliberal government, ensuring fairer practices, and it would not be by limiting interest rate spreads, or price fixing.

It would probably happen through increasing the competition, by showing foreign banks that a market opportunity exists, while assisting the entrance in the country.

Though, this distortion could be addressed through technology, by putting together into the same controlled environment small and medium sized companies, where a profound credit analysis system would filter them into different atmospheres, so credit costs would be commensurate to good financial practices.

The larger the environment, the higher the liquidity, the lower the rates.

The Economic Synergism comes when you bring into this environment people and companies compromised with two important points: personal gain, allied to a greater good.

A company will not join this environment just because it has “a good heart, or nice practices,” it will join these environments for the reward of more attractive interest rates, higher liquidity, lower delinquency, and a better attention from the corporate.

The disruption comes from marketing the Economic Synergism as a new solution, where people will deliberately, consciously adopt this ‘culture,’ as largely more beneficial than the traditional system.

For the owners of the system, who will provide the environments, as well as preserving the good practices to keep the system growing, they must adopt other market practices to fund itself, to prevent of a growth faster than the borrowing requirements, such as going public through credit funds (alternative investment funds – AIFs), and meticulously choosing new business partners for capital injection.

By keeping healthful economic and managerial practices, the owners of the system will ensure each environment lasts as long as it benefits its inhabitants, while ensuring that ‘toxic’ environments are promptly identified, corrected and adjusted, or event terminated as it would happen on macroenvironment with ordoliberalism.

Technologies are already mature enough to provide this solution.

Other distortions can be mapped around the world, where technology and Economic Synergism can become a solution.

By Jason Vieira – Economist