Renaissance of the Social Market Economy

RENAISSANCE OF THE SOCIAL MARKET ECONOMY

By Ulrich Thielemann

Translated by Marc Batko and Ulrich Thielemann; published as Renaissance der Sozialen Marktwirtschaft, in: Perspektiefe, Zentrum Gesellschaftliche Verantwortung der Evangelischen Kirche in Hessen und Nassau, Nr. 44, Dezember 2017, S. 2-3. (An extended version will be published in Meinzer, M./Pohl, M. (ed.): Finanzethik und Steuergerechtigkeit, Wiesbaden 2020) Background.

The social market economy was an episode in the history of capitalism. It dominated at the end of the Second World War to the end of the 1970s everywhere in the developed world, in the US (“New Deal,” “Great Society”) and in Germany (“Rhine capitalism”). “Together with dismantling the social security system, profitability extremism spreading through competition ensures that jobs and employment perspectives will be precarious.”

What was the Social Market Economy?

The social market economy was marked by a broad sharing in the high economic growth. It was the time of the “great compression,” the reduction of former income disparities and wealth concentrations. Lower incomes grew stronger than higher incomes. Employees with average qualifications had good earnings too. Jobs were stable, offered opportunities for advancement and gave a feeling of security.

All this was brought about by a complex mix of regulations on the one hand and the establishment and development of social security systems on the other hand. Regulations always tame the market’s dynamics. The Institute of Labor Law has a moderating effect. Certain restrictions as to working hours, continued pay in case of sickness and protection from unlawful dismissals make the economy social.

At the same time, global markets were not nearly as open as today. This gave entrepreneurs and managers the leeway for acting responsibly. The predominant spirit was to find a fair balance between conflicting claims. The economy was palpably “embedded” in the social values of fairness and meaningfulness (Karl Polanyi, Wilhelm Ropke).

The Regime of Neoliberalism

Bit by bit, all this came to an end with the neoliberal revolution that began everywhere around the year 1980. Market logic should now govern in all situations of life. Previous market regulations should be dismantled or adjusted in a market-conforming way. Capital should now be “courted” since capital creates jobs (Hans-Werner Sinn). Correspondingly, the profit share in national income rose, and the labor share fell correspondingly. Wealth also grew disproportionately in relation to economic output, mostly accruing to the top one percent. Polarization of incomes also increased among employees. The share of mid-level incomes fell everywhere (“middle class squeeze”).

New jobs are compensated either very well or miserably. Within businesses, the spirit of moderation and balance evaporates in favor of profitability extremism. With every fiber, businesses are now oriented in maximizing shareholder value. Businesses act consistently opportunistically toward social claims. In the study of economics, the up-and-coming generation is told anything else would be irrational. Morality is downgraded to one preference alongside others.

Together with dismantling the social security systems, the profitability extremism that spreads through competition ensures that jobs and employment prospects will be precarious. Status anxiety increases. Employees see themselves thrown back on themselves since moderation cannot be expected of businesses and the social systems cushion the consequences of market dynamics far less than in the past.

Responsibility for any deterioration of one’s economic situation is regarded as a matter of self-responsibility. Life becomes a permanent investment in one’s “human capital,” approached as far sighted as possible in order to keep the risk of falling into poverty as low as possible. Education is transformed into human capital formation. The seemingly self-initiated economization of one’s lifestyle is joined to the politically-driven economization of living conditions through privatization and deregulation. Competitiveness becomes the guiding star of all politics.

“Market-conforming democracy” (Angela Merkel) abandons political freedom in favor of an already pre decided goal: the competitiveness of the community degraded to a “location” to invest or to divest. Like a business, the competition state, in order to appropriate global purchasing power, seeks to make itself attractive for capital circulating globally and always ready to leave any less profitable location. Germany succeeds in this to a great extent. Since purchasing power is low in Germany because of “wage moderation” and the developed low-wage sector, purchasing power is sought abroad where unemployment is thereby exported, taking away the income streams which accrued to the workers now dismissed.

The constant balance of payments surpluses mean that foreign countries must become indebted to Germany if they do not want to shrivel. Though income polarization in Germany largely came to a halt around 2005, this is at the expense of foreign countries. Taming and Cushioning Beyond the inconceivable vision of the absence of market interactions, there is only one alternative to the neoliberal program of transforming society into a market society, the alternative of a social market economy. This is a paradigm, not a concrete political program. So there is room for different forms and more or less far reaching programs.

A social market economy is based on two political pillars: (1) taming the market dynamics via regulation and (2) mitigating its consequences in distribution policy. (3) The development and care of an economic culture of moderation and fairness in dealing with one another forms the third, the cultural pillar of taming and civilizing market interactions.