Concept and Significance of Economic Constitutional Law
Das Economic Constitutional Law refers to the part of constitutional law that establishes the fundamental legal framework for the economy in a state. It regulates the relationship between the economy and the state, the economic system, and the constitutional guiding principles for the economic constitution. Economic constitutional law thus represents the basic constitutional order of economic relations and sets out the fundamental principles that legislation and administration in the economic sector must follow. In Germany, the core of economic constitutional law is found in the Basic Law (Grundgesetz, GG), but it is supplemented by European requirements and international law.
Historical Development of Economic Constitutional Law
Origin and Development in Germany
Historically, economic constitutional law arose from the debate about the economic order after the First World War. The Weimar Constitution (WRV) of 1919 contained for the first time, through Articles 151–165 WRV, independent provisions specific to the economic constitution, which sought to establish a socially oriented economic order. After the Second World War and the founding of the Federal Republic of Germany, the debate on economic constitutional law was renewed within the scope of the Basic Law. Unlike the WRV, the Basic Law does not contain pronounced constitution articles specifically for the economy, but rather sees the economic order reflected in general state objectives, fundamental rights, and certain specific provisions.
European and International Influences
With increasing Europeanization and globalization, national economic constitutional law is influenced by European law and international legal obligations. In particular, the regulations of the European Single Market and the fundamental freedoms (Arts. 26 et seq. TFEU) significantly shape the legal framework in Germany.
Constitutional Foundations of Economic Constitutional Law
The Guiding Principles of Economic Constitutional Law in the Basic Law
The Basic Law establishes various principles that together define the economic constitution. The most important principles include:
1. The Principle of the Economic Order (Social Market Economy)
The Basic Law does not set a specific economic system, but in its interpretation by the Federal Constitutional Court, it guarantees fundamental openness to various forms of economic order, with the ‘social market economy’ serving as a model. What is crucial is the balance between individual economic freedom and social responsibility.
2. Freedoms and Fundamental Rights Relevant to the Economy
Essential fundamental rights that shape economic constitutional law in particular are:
- Art. 12 GG: Freedom of occupation – protects the free choice and pursuit of occupation, place of work, and training institution
- Art. 14 GG: Property guarantee – protects property and the right of inheritance, allows expropriation only in the public interest with compensation
- Art. 2 GG: General freedom of action
- Art. 9 GG: Freedom of association – including the freedom to form unions (trade unions and employers’ associations)
- Art. 3 GG: Principle of equality – prohibition of discrimination and equal treatment, especially in economic life
3. Principle of the Social State
The principle of the social state found in Art. 20 para. 1 GG obliges the state and legislature not only to protect economic freedom but also to ensure social balance and social peace. From this arise state duties and powers in economic life, for example, in the regulation of public services and the welfare state.
State Responsibilities in Economic Constitutional Law
Economic constitutional law largely regulates the relationship between economic freedom and state economic activity. The state’s duties include (Art. 87 GG):
- Supervision and framework-setting for economic activity and securing resources
- Supervision of certain economic sectors (e.g., finance, energy, telecommunications)
- Regulatory function (creation of legal frameworks)
At the same time, the Basic Law prohibits a centrally planned economy, as may be found in command economies.
Regulatory Areas of Economic Constitutional Law
Property System and Expropriation
Art. 14 GG regulates the system of property. Property entails obligations, and its use should serve the public good. Expropriations are only allowed by law or based on a law and require compensation. The Federal Constitutional Court distinguishes between expropriation and determinations of the content and limits of property.
Freedom of Occupation and Freedom to Conduct a Trade or Business
Art. 12 GG guarantees the freedom of occupation and trade, subject to laws. Permissible restrictions must satisfy the requirements of proportionality and are, in practice, applied for reasons such as averting danger or protecting essential common goods.
Competition Regulation
The Basic Law does not provide independent provisions for competition regulation, but ensures a framework via fundamental economic rights that is specified by ordinary statutes (e.g., GWB – Act against Restraints of Competition). The safeguarding of competition is also an expression of the principle of economic freedom in economic constitutional law.
Obligation of Property and its Social Responsibility
Tying property to the common good is a central element in German economic constitutional law. Property is significantly restricted through social obligations (e.g., tenant protection, environmental protection) to avoid excessive disadvantages to others or the general public.
Possibilities for Shaping Economic Policy
The Basic Law provides the legislature with considerable leeway in shaping the economic system (e.g., tax law, subsidy policies, regulation of prices and tariffs), but limits state action through the protection of fundamental rights and the principle of the social state.
Public Enterprises and State Economic Activity
Economic constitutional law is neutral towards state-owned enterprises but sets certain boundaries for these companies via principles of equality and competition rules.
Public Procurement Law and Public Contracts
Procurement law, i.e., the rules for awarding public contracts, is also influenced by economic constitutional law. In particular, the principles of free competition, equal treatment, and transparency serve as standards.
Economic Constitutional Law and the European Union
German economic constitutional law is in constant interaction with European Union law. Particularly relevant are:
- The fundamental freedoms of the internal market (free movement of goods, services, capital, and establishment)
- the prohibition of discrimination in the internal market (Art. 18 TFEU)
- The EU competition rules (Art. 101 et seq. TFEU)
National economic constitutional law must comply with these supranational requirements.
Control Mechanisms and Legal Protection
The Federal Constitutional Court reviews legislation and administrative acts for their compliance with economic constitutional norms. Legal protection against infringements of economic fundamental rights is available, for example, through constitutional complaints.
Literature and Further Sources
- Federal Constitutional Court, established case law on Arts. 12 and 14 GG
- Dieter Grimm: ‘Economic Constitution,’ in: von Mangoldt/Klein/Starck, Commentary on the Basic Law
- Dreier, Horst: Basic Law Commentary, Vols. I–III
- Papier, Hans-Jürgen: Economic Constitution and Economic Order in the Basic Law
Summary
Economic constitutional law encompasses a central area of public law that defines the framework, fundamental rights, principles, and duties of the state in the economic sector. Its focus is on safeguarding economic freedom, protecting the common good through social obligations, the opportunities for shaping economic policy, and integration with the legal system of the European Union. Economic constitutional law is subject to continuous development and adaptation to social, political, and international changes, making it an essential element of the economic and legal order in Germany.
Frequently Asked Questions
What is meant by the guarantee of freedom of occupation in economic constitutional law and what restrictions are permissible?
Freedom of occupation is guaranteed as a fundamental right in German economic constitutional law under Art. 12 para. 1 GG. It protects the free choice and pursuit of an occupation, place of work, and training institution from state interference. The fundamental right primarily guards against bans, admission restrictions, or regulations that make a professional activity more difficult or impossible. Protection does not extend to access to specific offices or a guarantee of certain career opportunities. Restrictions on professional freedom are only permissible on the basis of a law and must comply with the principle of proportionality. According to the Federal Constitutional Court’s three-stage theory, interventions require varying degrees of justification: regulations on the practice of an occupation are most readily permissible, subjective access restrictions require significant reasons, and objective access restrictions are only allowed to protect overriding public interests. European requirements, particularly those governing freedom to provide services, must also be observed. If state regulations violate these criteria, they are unconstitutional.
What role does the property guarantee under Art. 14 GG play in economic constitutional law?
The property guarantee under Art. 14 GG has a prominent role in economic constitutional law, as it underpins the legal framework of the economy and protects individual proprietary interests. In principle, it guarantees existing property (guarantee of existence) and secures not only acquisition but also the use and disposal of property – with ‘property’ including not just things, but also rights and businesses. State interference with the property guarantee is only permitted in the form of content and limitation regulations that serve the public good and are based on law. Expropriations also require specific legislation, must be compensated, and are only permissible for the public good. Particularly relevant in economic constitutional practice is the distinction between permissible content regulation and interventions equivalent to expropriation. If a regulation crosses the threshold into expropriation, there are claims for compensation; if not, no such claim generally exists.
How does the principle of freedom of competition affect the economic system?
Freedom of competition is a central constitutional guiding principle of the economic order and is primarily derived from the protection of freedom of occupation (Art. 12 GG), property (Art. 14 GG), and from the general principle of equality (Art. 3 GG). It generally precludes state monopolization, discrimination, or measures restricting free competition. This principle is specified by ordinary legislation in the Act against Restraints of Competition (GWB) and European competition rules (especially Arts. 101, 102 TFEU). The competition principle requires that the state may only intervene in the market if it is necessary to redress market failures or to protect overriding public interests. The principle is particularly significant regarding the awarding of public contracts, monopoly regulations, and the privatization of formerly public services. However, the basic rights do not generally imply extensive protection of competitors in private law; rather, the competition principle mainly applies to acts of public authority.
How is the role of the state as an economic actor regulated under economic constitutional law?
The organizational principle of economic constitutional law follows the principle of subsidiarity of state economic activity. The state and municipalities are not free to participate in the economy without limits, but are bound to the so-called public welfare obligation and to a preference for the private sector (‘public economic management as an exception’). This results from a comprehensive reading of Arts. 12, 14, and 3 GG as well as the principle of democracy (Art. 20 GG). Requirements include justification for public enterprises under Art. 87 para. 1 GG, the mandate to separate sovereign and commercial activities, and the obligation to comply with European law, especially state aid rules and public procurement law. Thus, the state may only engage in economic activity where it is necessary to fulfill public interest tasks that private actors cannot adequately perform.
What is the significance of the principle of the social state in economic constitutional law?
The principle of the social state, enshrined in Arts. 20 para. 1 and 28 para. 1 GG, requires as a structural principle that the economy cannot be left entirely to the free market. The state is obligated to establish social balancing rules within the economic system that guarantee social participation, public services, and equal opportunities. This principle justifies the introduction of social protection mechanisms in economic constitutional law, such as in labor law, tenancy law, or through public services. It also limits property rights and professional freedom, as social responsibility must always be considered. The specific design of social benefits and interventions lies within the discretion of the legislature, but must always comply with the principle of proportionality.
What is the relationship between German economic constitutional law and European economic law?
The relationship is characterized by close mutual influence. German economic constitutional law is significantly shaped and limited by European Union law, particularly by the fundamental freedoms (free movement of goods, people, services, and capital) and competition law (Arts. 101 et seq. TFEU). National laws and administrative acts must not contradict the primacy, direct effect, and precedence of application of Union law. To avoid conflicts, national provisions must in principle be interpreted in conformity with European law or, if necessary, not applied. For economic constitutional law, this means that national restrictions—for example, on competition, freedom of occupation, or property—must also be measured against Union law standards and are subject to double scrutiny.
To what extent does German economic constitutional law permit state price regulations?
State price regulation is, as a rule, only exceptionally permissible under economic constitutional law because it constitutes a significant interference with the freedom of private enterprise, especially contract freedom and the guarantee of property (Arts. 2, 14 GG). Price regulations are only justified if they serve to protect overriding public interests – e.g., security of supply in the energy sector, consumer protection against monopoly price-setting, or in the case of dominant market operators. Every price regulation must be based on law and be proportionate, transparent, and non-discriminatory. The particularities of each market and the effects on competition must always be examined individually. European law must also be taken into account, as harmonization rules can especially limit sector-specific price regulations.
