Can Germany's social market economy system cope with another 70 years?
Germany's prosperity has often been pinned on its form
of business responsibility known as the "social market economy." It
moved with the times and withstood German unification, but can it hold
up to today's challenges?
The German economy is the third-strongest in the world and Germany is an export giant. Unemployment is low. Compared with their American counterparts, German employees work on average 400 hours less a year, enjoy long holiday breaks and a strong safety net. What accounts for all this good luck? Many point to the country's "social market economy" system, the soziale Marktwirtschaft.
The term was first coined by the German economist Alfred Müller-Armack in 1947 after the end of World War II. It was a time when the Allied military command rationed food and goods, enforced price and wage regulations, and cigarettes were a real substitute for currency.
Soon Ludwig Erhard started to use the phrase to describe his ideas for Germany's post-war economy. And though at the end of the war, Erhard was nearly 50 and had never held any political office what he said mattered, because he became economy minister of West Germany in 1949. It was a position he held until 1963.
Getting West Germany working again after the war was more important than simply making products or money. Getting people into jobs brought about social peace at a difficult time, and if the country was successful it could fend off communism.
Other countries like France, Italy and Austria also experienced a boom, but nothing like Germany, and these years have broadly come to be described as a time of miracles. Erhard for his part has been nicknamed the "father of the German economic miracle" and often called the "incarnation of prosperity" or simply the "miracle man."
Erhard's sense of fairness
"The outstanding economic development of Germany after the Second World War has been significantly influenced by the social market economy," Jörg Rocholl, president of the European School of Management and Technology (ESMT) in Berlin, told DW. "Its biggest merit is the balance between work and capital in enabling competition. On the one hand, it gives companies the greatest possible freedom. It uses social elements to ensure that those who cannot successfully participate in the economy are socially secure."
In the past 70 years the workings of Germany's social market economy have widened and now encompass more than Erhard imagined. His ideas were something between the extremes of ultraliberal laissez-faire economics and a Marxist socialist — in other words a planned — system. Performance-based competition was the key to it all.
Basically he wanted a minimally regulated free market economy without day-to-day government interference where supply and demand determined prices, wages and what was produced. He called for private property rights, tough antitrust laws and codetermination, a system that puts worker representatives on company boards in the hope of reaching a consensus on wages, benefits and working conditions.
Some
of Erhard's ideas are shown in the center's Room of the Future: Limit
taxes; create before you distribute;
support risk-taking, personal
initiative and entrepreneurship; strengthen competition and markets
Perhaps what Erhard wouldn't recognize today is the country's welfare system. He loved entrepreneurship and always put the "market" before the "social" in his social market economy and was not in favor of excessive social benefits. He wanted people to work hard and stand on their own as much as possible. Today's current health care, pension and unemployment systems go beyond his ideals.Also at D - W:
A new world order
Jörg Rocholl from ESMT notes that the principles of the social market economy are slowly being softened. He criticizes the government for increasingly intervening in pricing and market mechanisms. A perfect example of this is the current discussion around putting a temporary hold on housing rent hikes in Germany. Not only that, but authorities want to set price limits in the future to cushion rising rents.
"Any artificial slowing down of the price mechanism like we saw in East Germany leads to a decline in investment and the building infrastructure suffers. In the end, nobody benefits," said Rocholl.... ...MORE
