Social market economy

The social market economy (German: Soziale Marktwirtschaft) is the main economic model used in West Germany after World War II. It is based on the political philosophy of Ordoliberalism from the Freiburg School. Ordoliberal ideas were most prominently developed in the academic journal ORDO and implemented in practice by Ludwig Erhard, Minister of Economics and Vice Chancellor under Konrad Adenauer's chancellorship (from 1949 to 1963) and afterwards Chancellor himself (1963 - 1966).

The social market economy seeks a market economic system rejecting both socialism and laissez-faire capitalism, combining private enterprise with measures of government regulation in an attempt to establish fair competition, low inflation, low levels of unemployment, a standard of working conditions, and social welfare. Erhard once told Friedrich Hayek that the free market economy did not need to be made social but was social in its origin.^[1] The term "social" was chosen rather than "socialist" to distinguish the social market economy from a system in which the state directed economic activity and/or owned the means of production,^[2] which are privately-owned in the social market model.

In a social market economy, collective bargaining is often done on a national level not between one corporation and one union, but national employers' organizations and national trade unions.

Important figures in the development of the concept include Franz Oppenheimer, Walter Eucken, Wilhelm Röpke, Franz Böhm and Alfred Müller-Armack, who originally coined the term Soziale Marktwirtschaft.^[3]

At first controversial, the model became increasingly popular in West Germany and Austria, since in both states economic success (Wirtschaftswunder) was identified with it. From the 1960s, the social market economy was the main economic model in mainland Western Europe, pursued by administrations of both the centre-right (usually led by some Christian democratic parties) and the centre-left (usually led by some social democratic parties).

Southern European states preferred large-scale public services, high salary growth rates and a low unemployment rate over low inflation, low national debt, low public expenditure and other economic health policies.

The term “Social market economy” is still the common economic basis of most political parties in Germany^[4][5][6] and a commitment to some form of social market economy was present in the European Union Constitution (a project which was abandoned in 2005 following the negative outcomes of referenda in France and the Netherlands).

The main elements of the Social Market Economy in Germany are basically:^[7]

• The Social Market Economy contains the central elements of the free market economy such as private property, free foreign trade, exchange of goods and free formation of prices.

• Other elements shall diminish occurring problems of the free market economy. These elements, such as pension insurance, health care and unemployment insurance are part of the social security system. The payments to the social security system are mainly made by the labor force. In addition, there are provisions to restrain the free market (e.g. anti-trust code, laws against the abuse of market power etc.).

• Criticisms of Socialism
• Mixed economy
• Welfare state
• Ordoliberalism
• Social Market Foundation
• Social democracy
• Rhine Capitalism
• Socialism with Chinese characteristics
• Socialist market economy
• Corporatism
• Social corporatism

• The Social Market Economy - U.S. Library of Congress
• Essay on Germany's Social Market Economy
• Short Definition from the Economist