When faced with an acute crisis, history often serves as the most valuable lens for policymakers. The current era of geopolitical shifts and multiple political, economic and technological shocks is reminiscent of Europe’s tumultuous interwar period. This essay seeks to explore the parallels and lessons between these two distinct yet comparable eras from the perspective of competition thinking, i.e. the societal attitude towards the relationship between open competition and closed concentration. In particular, it examines the contentious debate over the role of cartels and similar coercive measures, and whether these interventions serve as a remedy in difficult times or actually exacerbate economic and political instability.

Cartels to the rescue: a crisis narrative

In the aftermath of the First World War, European governments, international organisations such as the League of Nations and influential business groups advocated the formation of cartels. These actors were united in their belief that cartels were necessary to stabilise the volatile international political and economic climate. Cartels, which involved agreements on prices, quotas and market shares, were seen as a remedy for the shortcomings of laissez-faire capitalism, which had failed to balance supply and demand in the post-war period. Proponents of this approach, including visionaries such as French Foreign Minister Aristide Briand, saw cartels as a means of promoting international peace and cooperation, and as a stepping stone towards a unified Europe capable of competing with the United States.

Today, in the face of multiple crises such as the long tail of the pandemic, energy shortages and Russia’s invasion of Ukraine – collectively referred to as the polycrisis – Europe is witnessing a resurgence of advocacy for similar economic strategies. Again, French figures such as Commissioner Thierry Breton are championing national and European champions and other industrial policies to facilitate greater industrial concentration with supposed benefits for competitiveness. Examples include the EU’s Net Zero Industry Act, the envisaged European „industrial alliances“ and the Important Projects of Common European Interest (IPCEI). Such policies are promoted as the way to a sovereign, unified Europe with a significant geo-economic presence.

The push for industrial partnerships within Europe, while relaxing the European Union’s (EU) competition rules, is clearly driven by the perceived need to compete with the technological might of China and the US. It has been given a further boost by the attractive subsidies offered by the US Inflation Reduction Act, which has prompted the Commission to allow governments to „match“ subsidies granted by non-EU countries such as China and the US. However, this policy shift is at odds with the EU’s commitment to maintaining a free market and fair practices, which are fundamental aspects of the founding treaties.

Societal beliefs about competition are changing

In addition to facilitating the spread of industrial concentration, the inter-war turn towards cartelisation also marked a significant normative departure from liberal economic values. Accelerated by the Great Depression from 1929 and the resulting unemployment, this shift was symptomatic of a wider collapse of free trade and the gold standard. The decline of liberalism culminated in the 1930s as European democracies succumbed to fascism and national economic planning. The erosion of faith in competition was both cause and effect of the wider collapse of traditional liberal economic beliefs – and ultimately affected the political, economic and legal orders of the day.

Today, the belief in free competition has been similarly shaken, especially in the aftermath of the 2007/08 financial crisis. This is also reflected in the continuing decline in confidence in economic experts and in mainstream economics as an academic discipline. Significantly, this period has been accompanied by a relaxation of EU state aid rules and an increase in subsidies by the largest member states, calling into question the integrity of the single market. Following the 2008 financial crisis, the EU relaxed its state aid rules to help both banks and the real economy. During the Covid-19 pandemic, the Commission again supplemented its package of anti-crisis measures with generous exemptions from its state aid rules, giving companies in rich member states an unfair advantage over their competitors in poorer member states. Following further adjustments to the EU’s state aid rules in March 2022 to deal with the economic crisis caused by Russia’s attack on Ukraine, France and Germany together accounted for 77% of the €672 billion in approved programmes.

Arguably, the French concept of national champions and calls to relax EU merger control predate the current polycrisis and were already evident, for instance, during discussions on the proposed Siemens-Alstom merger in the late 2010s, which was supported by some German actors such as Economics Minister Peter Altmaier but ultimately blocked. The key intuition behind this broader development, shared by many politicians and commentators, seems to be that in an economically globalised but politically fragmented world, it is worth sacrificing the benefits of competition and spending large sums on industrial policy in order to secure market shares in strategically relevant sectors. Particularly when this extends to demands for majority ownership of individual companies, this view is clearly at odds with liberalism’s original conception of competition; as well as with the level playing field rationale of EU competition law.

The war factor

It should be noted that another factor driving the rise of cartels in the inter-war period was the direct consequence of wartime exigencies, as Liane Hewitt describes in her Princeton dissertation on the rise and fall of „cartel capitalism“ in Western Europe between 1918 and 1957. Nations involved in the First World War supported cartels to mobilise their economies for the war effort by centralising production and distribution. This strategy, initially inspired by the German industrial model, became a necessity under wartime conditions. Even countries with liberal economic ideologies, such as Britain, the Habsburg monarchy and the US, temporarily abandoned free competition as resource scarcity forced industries to cooperate.

In this context, early ordoliberal scholars such as Walter Eucken and Franz Böhm emphasised the link between concentration, competition and the peace order. They formulated their first joint theses some 18 years after returning from the First World War and a few years before Germany attacked again. The legal scholar Rupprecht Podszun has recently pointed out that these wartime experiences must have influenced the founding fathers of the Freiburg School of ordoliberalism in their thinking on economic law: „These men built their intellectual edifice on the ruins of a doomed society and with a view to an economy already geared to the next war“. (own translation)

Indeed, in his Principles of Economic Policy, Eucken describes not only the allocative advantages of a social market economy based on free competition, but also the interaction between war and monopolisation in the course of the 19th century:

„The more the war demanded the full use of the available means of production and labour, the more obvious it became to intervene in the economic process by means of compulsory military service, confiscations and central production orders. The aim was to achieve a concentration of production for war purposes. – And since wars were usually associated with inflation, they also exerted pressure towards the realisation of a centrally administered economy“. (own translation, based on the 1990 edition, pp. 152f.)

In other words, ordoliberal thinking advocates a decentralised economy with free competition not only for reasons of allocative efficiency, but also to prevent the instrumentalisation of a war economy.

In the current era of violence and new wars, a similar dynamic can be observed. Unfortunately, decentralisation as prescribed by the Freiburg School scholars was not implemented in Putin’s oligarchic empire after 1990, which threatens to lead to a new spiral of concentration and war. The defence of Ukraine against Russia’s invasion requires support from the EU states, especially in the field of arms production. This includes, for example, the establishment of the European Defence Fund (EDF), a Directorate-General for Defence Industry and Space (DG DEFIS) and the European Peace Facility to support the delivery of military assistance to Ukraine. The EU’s justifiable commitment to provide substantial military assistance has increased pressure on the industry.

On a more abstract level, the global „war“ on the pandemic, as Chinese President Xi Jinping famously quipped, and the long-term fight against climate change have also led to calls for greater industrial cooperation and concentration. These challenges are couched in military terms and metaphors, and are seen as justifying departures from strict economic principles such as competition. The author Ulrike Herrmann, for example, has argued that climate change requires a restructuring of capitalism into a „survival economy“, using the British war economy during the Second World War as a conceptual model. Concentration, it seems, is the only hope for Western societies in the face of these major crises.

Is bigger always better? No.

While this argument may be morally compelling in the face of Russian aggression and accelerating climate change, the pragmatic political question remains: are more concerted paths to the EU’s goal of countering these trends likely to succeed? The historical parallels with Europe’s inter-war period suggest caution, suggesting that such strategies, driven by cartelization and monopolization, may not be the most effective in the long run – and may even backfire. Instead of promoting consolidation through costly industrial policies alone, the EU should strengthen its single market – home to more than 450 million consumers and 23 million businesses – by removing regulatory barriers and cutting red tape, which could unlock €713 billion by the end of 2029, according to one estimate. Accordingly, the report on reforming the single market that former Italian Prime Minister Enrico Letta will present to EU leaders at a summit in the spring is a step in the right direction.

Moreover, the experience of the Freiburg School and the parallels with the inter-war period show that competition policy and industrial policy should be understood and assessed not only in economic terms, but also in the context of current foreign and security policies, which together provide the inevitable framework for economic exchange. This is where open markets can play a role that goes far beyond maximising efficiency, as early ordoliberals were well aware.

In this context, a more targeted European investment strategy should aim to promote technologies that enable diversification and thus promise strategic sovereignty and resilience, while keeping competition alive. This list of technologies that support greater competition includes 3D printing for manufacturing, which allows for the „homeshoring“ of critical supply chains; AI applications driven by small but equally efficient language models, which will boost Europe’s large SME landscape; and blockchain technology, which helps decentralise finance and supports economic inclusion. By investing in these and similar technologies, while avoiding an all-out subsidy race with the US and China, Europe can secure its economic sovereignty and foster a more robust market landscape.

Copyright Header Picture: Andrey Suslov