Transcript Matthias_Schäfer_Eng - Center for Economic and Social Development

Social Market Economy as a Development Strategy
The Social Market Economy – From a German to a European Development
Strategy
Matthias Schäfer
Konrad-Adenauer-Foundation Berlin
030/26996-3515
[email protected]
Baku, April 9th 2013
Social Market Economy as a Development Strategy
Outline
1.
Historical Background
2.
Ideologies behind the concept of Social Market Economy
3.
Structure and implementation of Ordoliberalism within a social market economy
4.
Social Market Economy and the EU/Globalization
5.
Past and present of Social Market Economy
Social Market Economy as a Development Strategy
1.
Historical Background
The postwar period in Germany
Both capitalist and socialist approaches have proven to be „historical aberrations“ (Walter Eucken)
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Strong discrediting of the capitalist economic model
Experiences of Industrialization and the Weimar Republic (esp. cartel formation)
Big Industry, Trade Unions and (social) government constitute a „German Triangle“ (Paul Nolte)
Immediate proximity of soviet influence (Soviet zone of occupation)
Experience of massive state interventions (Third Reich)
Dramatic shortages for the German people after the war (Winter of Hunger)
Consequences of the global financial crisis (Great Depression of the 1930s):
Development of two major concepts:
Keynes: government intervention to stablize economic development
Eucken/Röpke: government establishes a regulatory framework, but does not directly intervene in the economy
Social Market Economy as a Development Strategy
2.
Ideologies behind the concept of Social Market Economy
a. The human idea of the social market economies
Principles of human dignity and social behaviour (inspired by Christian Social Teaching)
Personality:
Man is free, mature and bases his decisions in responsibility towards god and society.
Common Good:
Man bases his decisions as part of a social environment.
Solidarity:
The stronger parts of society help out their weaker counterparts, if these contribute to the overcoming plights.
Subsidiarity:
The responsiblity for the solutions and risks of life starts on the lowest level, which may only be helped, if it cannot
sustain itself.
1891: Social encyclica „Rerum Novarum“ (Papst Leo XIII.)
1991: Encyclica „Centesimus Annus“ (Papst Johannes Paul II.)
1920: „The protestant ethic and „spirit“ of capitalism“ (Max Weber)
Social Market Economy as a Development Strategy
2.
Ideologies behind the concept of Social Market Economy
a. The human idea of the social market economies
Further principles of the human image
- Cardinal virtues of the european cultural area
Sagacity, justice, courage, moderation (Platon)
- German resistance against Hitler
1938-1943: Contacts of the Freiburg School to Carl Goerdeler and Dietrich Bonhoeffer
Wilhelm Röpke in Istanbul and in Genf
Alexander Rüstow in Istanbul
The Social Market Economy is a principle „beyond supply and demand“ to overcome Germany‘s economic, social
and moral destruction, as well as establishing it an accredited partner of the global community.
Social Market Economy as a Development Strategy
2.
Ideologies behind the concept of Social Market Economy
b. Role of the State (government)
- "Freiburg School“ and the (german) ordoliberalism
Walter Eucken at the University Freiburg
The state is responsible for a functioning system of competition. It takes the role of a referee and not
that of a player (Politics of competition, law and security)
The state empowers its people, by securing equal starting opportunities (Education, Infrastructure,
Social Policy)
Quotes:
„Free economy, strong state“ (Alexander Rüstow)
„I want to grow out of my own power and stand in for the risks of life. The state shall only make sure
that I am able to do so.“ (Ludwig Erhard)
Social Market Economy as a Development Strategy
2.
Ideologies behind the concept of Social Market Economy
Ludwig Erhard (Director for money and currency in the american-english bizone and first economic
minister in the cabinet of Konrad Adenauer) and his secretary of state Alfred Müller-Armack turned the
theoretical principles into a concrete draft for political implementation.
Their names become synonym for „economic wonder“ and „prosperity for all“.
Alfred Müller-Armack‘s connecting formula turns out to be his most famous sentence:
The Social Market economy connects the freedom of the market with social balance.
Conclusion:
The social market economy is a „third way“ (Wilhelm Röpke) beyond socialism and capitalism.
It realizes a „new“ form of liberalism (Neoliberalism). Germans also use the term ordoliberalism.
Social Market Economy as a Development Strategy
Germanys Social Market Economy does not stand
for liberal market capitalism as practised for
example in the US.
It was introduced in Germany by Ludwig Erhard after
World war II as the new post-war economic system.
The trigger o economic development were the
Currency reform (from Reichsmark to DM) and
liberation of prices in 1948.
The German basic Law (Grundgesetz) took over many
regulations which framework a Social Market Economy
His decisions as first Minister of Economics laid the foundations for Germany’s economic system, which has been
quite successful in the last sixty years
“I want to prove myself under my own steam. I want to take my own risks in life; I want to be
responsible for my own fate. So make sure, state, that I am in position to do this.” (Ludwig Erhard)
Social Market Economy as a Development Strategy
The economic order provides the institutional framework for a free market economy including:
• Free Markets and personal rights
• Relative price system, built by
supply and demand
(not by public intervention)
• Sound money and sound
public finance
• To keep the economic order stable a tough state is
needed.
•It has to create and adjust the framework for the
economic process; the state is not the better
entrepreneur
Rule of law (“Ordnungspolitik”)
Social Market Economy as a Development Strategy
What makes the social market economy so very attractive as the only pragmatic alternative to the free-market
liberalism? Its a dynamical concept, which can be adapted to political and economic changes.
Sustainable
Society
economic
order
social
order
It aims to achieve a synthesis between efficiency and equity by combining the efficiency gains of a free market
economy with a publicly induced social balance. (But note: SME in the perspective of the founding fathers is a
clealy liberal concept.)
Social Market Economy as a Development Strategy
The provisions of the social order are oriented towards the needs of society’s members and also
attempt to provide equal opportunity for each individual in the society. The main components:
• a tax system based on a progressive income tax that forces people with higher incomes to
finance a bigger share of public expenditures.
• a systems of social security protecting against the risks of unemployment, diseases and
ageing;
• labour unions and employers associations decide autonomously on the conditions and
wages on the markets.
• an educational system based on the equality of chances.
Social Market Economy as a Development Strategy
Some Conclusions
• The concept of the Social Market Economy is a market oriented and non-socialist approach.
• The term Social Market Economy is used for two not necessarily in every detail identical concepts: for the
economic system in Germany since 1948 and for a theoretical concept.
• The concept of Social Market Economy is a dynamical concept, which has to be adapted to political and
economic changes. The consensus on what the word “social” means, must be redefined continuously.
Therfore, it is not a blueprint.
• Protection of the individual’s freedoms and independence in the face of arbitrary actions by the state.
• Safeguard of the free market rule, i.e. competition, private property of production means, free prizing,
contract freedom, warranty systems and controls against monopolies and power abuses, free international
trade and monetary stability.
• Guarantee of the principles of solidarity and subsidiarity with respect to the safeguard of social peace.
Quote:
„The most social with the Social Market Economy is, that it creates efficient markets and makes the biggest
possible number of people independent of the welfare state.“
(Ludwig Erhard)
“All we are asking for is the creation of an economic and social order which equally guarantees economic
activity and humane living conditons. We call for competiton because it can be utilized to reach this goal –
in fact, the goal cannot be reached without it. It is a means, not an end in itself.“
Social Market Economy as a Development Strategy
4.
Social Market Economy and the European Union/Globalization
The European Union has adopted many principles of social market economies:
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Common internal market (single market)
Free movement of goods, services, capital and workers
Common currency / independence of monetary policy
competitive framework, competition commission
Framework (Rules) for social standards and common taxation
reduction of bureaucratic burden (deregulation)
Social Fund to mitigate the effects of structural change
Social Market Economy as a Development Strategy
4. Social Market Economies and the European Union/Globalization
The principles of social market economies also enables finding a consensus with other cultures (i.e. China, India)
about the conventions of mutual exchange (justice of merit, fair exchange, social standards and a stable legal
framework)
In this context, it is important to consider the incorporation of international organizations (WTO, UNO, ILO) and
reliable cooperations of the EU and the world (USA).
WTO: “…recognizing that their relations in the field of trade and economic endeavour should be conducted with a
view to raising standards of living, ensuring full employment and a large and steadily growing volume of real
income and effective demand, and expanding the production of and trade in goods and services, while
allowing for the optimal use of the world’s resources in accordance with the objective of sustainable
development,…”
OECD: “convinced that broader co-operation will make a vital contribution to peaceful and harmonious relations
among the peoples of the world; recognising the increasing interdependence of their economies; determined
by consultation and co-operation to use more effectively their capacities and potentialities so as to promote
the highest sustainable growth of their economies and improve the economic and social well-being of their
peoples…”
Social Market Economy as a Development Strategy
4. Social Market Economies and the European Union/Globalization
IMF: “to facilitate the expansion and balanced growth of international trade, and to contribute thereby to the
promotion and maintenance of high levels of employment and real income and to the development of the
productive resources of all members as primary objectives of economic policy”.
Worldbank: “the long-range balanced growth of international trade and the maintenance of equilibrium in balances
of payments by encouraging international investment for the development of the productive resources of
members, thereby assisting in raising productivity, the standard of living and conditions of labour in their
territories.”
ILO: “all human beings, irrespective of race, creed or sex, have the right to pursue both their material well-being
and their spiritual development in conditions of freedom and dignity, of economic security and equal
opportunity...”
Social Market Economy as a Development Strategy
5.
Social Market Economies – Past and Present
Past
Present
Low public debt
High public debt
Strong growth
Smaller growth rates
Demographic stability
Demographic change
Full employment
Long-term unemployment
Social Market Economy as a Development Strategy
5.
Social Market Economy – Past and Present
Past
Present
Justice of merit
Justice of distribution
Personal responsibility before
collective responsibility
(subsidiarity)
Collective Responsibilitiy before
personal responsibility (Centralism)
Balance of Rights and obligations
one-sided claims against welfare state
Less Regulation (labor market)
Higher regulation
High rate of investment
Low rate of social expenditures
low rate of investment
high rate of social expenditures
High liability of labor agreements
(strong role of social partners)
low liability of labor agreements