A few weeks ago, there were heated discussions in the European Union about the so-called “Taxonomy” rule. This will give the EU Commission and other European authorities the power to determine which investments are good (i.e., green and sustainable) and which are not.
The classifications issued in Brussels would then steer investors’ money in the “right” direction. The main bone of contention was whether nuclear energy and natural gas should also be deemed “sustainable.” The French and the Eastern Europeans were in favor, but the Germans opposed.
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Now, the EU Commission led by Ursula von der Leyen has proposed a new idea: European politicians are again focusing on “social sustainability.” And again, companies are to be classified. Except this time, it will not be according to environmental aspects but rather to a catalog of “social” criteria.
If politicians and civil servants feel a company is not paying its employees the “right” wages, they can classify that business as harmful to society. For example, if EU politicians feel members of the board of directors are earning too much compared to an average employee, this would be interpreted as another indication of social perniciousness. If politicians and officials believe the rents a real estate company charges should be lower, there is a risk the company would be classified as detrimental to society.
The EU wants to assess the overall benefit of a company for society, i.e., whether the company serves the “public interest” or not. In the case of some companies, such as cigarette manufacturers, the answer will be an automatic no. For other types of companies, the EU will create classification systems.
Whether companies serve the “public interest” will then be decided by political committees, not the market. Lobbyists will likely be delighted because they now have a whole new area of business: convincing politicians why their company is “socially beneficial.”
Of course, none of this has anything at all in common with a market economy.
Instead, it reflects state-planned economic systems in which politicians are the ones to decide how money should be distributed, what should and should not be produced, and in what quantity it should be produced. In a market economy, companies decide — and whether a company is “beneficial” or not is determined every day by the basic rule of law and consumers via their buying decisions.
We can predict where this will lead.
There have been at least 24 socialist experiments in the last 100 years. All of them, without exception, have failed.
Rainer Zitelmann is a historian and author of The Power of Capitalism.
