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European Union on the way to a green planned economy

24.01.2022
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By R. Zitelmann

The European Union (EU) has set fleet-wide CO2 emission targets for car manufacturers, essentially telling car companies which cars they should build. The EU has also introduced a new Taxonomy regulation that defines which investments are good and which are bad. Now, with his revised Energy Performance of Buildings directive, he has also placed complex obligations on property owners to renovate and decarbonize property.

These three examples serve as evidence, if any, of how Europe's understanding of the market economy is changing. So, a reminder: the market economy is based on the principles of private property and competition - companies decide what and how much to produce. In making decisions, they are helped by prices that are formed in the market. Entrepreneurs play a central role as they are the ones who develop new products and discover new market opportunities. Consumers also play an important role, as it is their individual purchases that ultimately determine the success or failure of an entrepreneur. Under socialism, on the contrary, there are no real prices, and decisions about what products and in what quantities should be produced are decided by the centralized state planning bodies.

Of course, none of these systems exist in their pure form anywhere in the world. In the real world, all systems are mixed systems. In socialist systems there were and are elements of a market economy. There are also many components of a socialist and planned economy in the capitalist countries today. The problem is that the balance is increasingly shifting towards elements of a planned economy.

This is clear from the three European Union directives mentioned in the first paragraph: The Taxonomy Regulation establishes criteria for determining whether an economic activity can be considered “environmentally sustainable” or not. It is no longer companies, but politicians and civil servants who determine what investments should be made. The impact of governments making such decisions can be seen from the ongoing debate about whether nuclear power and gas should be considered "green". Members of the German Green Party oppose the use of atomic energy for ideological reasons. The French are for her. Result: Political considerations and trade-offs ultimately determine the investment landscape.

The same applies to CO2 emission targets for the entire EU vehicle fleet. It is no longer car manufacturers or, ultimately, consumers who decide which cars to produce, but the state. In Germany, Oliver Luksic, FDP transport expert and Parliamentary State Secretary to the Federal Minister for Digital Affairs and Transport, said: “We have entered the era of a green planned economy, where it is no longer supply and demand, but the state that determines which cars will be built. Instead of being open to technology, the focus is solely on battery-powered electric vehicles.” Auto companies obediently comply and demand government subsidies. Reports such as "Volkswagen Group exceeds EU CO2 emission targets by 2020" are increasingly reminiscent of the socialist GDR.

Third example: The EU Commission wants to oblige Member States to enforce minimum energy efficiency standards. Private property owners will have to upgrade their buildings to the strictest specifications by 2030, while public buildings will need to be renovated by 2027. The mandatory renovation directive will affect 15 percent of the approximately 220 million homes in the EU. The insulation manufacturer's lobbyist couldn't be happier: "Every building that consumes too much energy will need to be refurbished in the next few years." In the housing industry, an unconditional obligation to meet certain standards—with penalties for non-compliance—is tantamount to expropriation, with certain buildings virtually impossible to meet.

State intervention in the mechanisms of market self-regulation cannot be considered a harmless experiment. However, it is difficult to deny the objectivity of the tendencies of shifting capitalist economies towards the spectrum of socialist economic principles. Whether these trends are positive or negative, time will tell.

 

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