Abstract
Powerful centrifugal forces of nationalism and protectionism are currently threatening the economic, social, and political achievements of Europe and the Western community, undermining the prospects for sustained growth, employment, productivity and social progress. They could reinforce rather than reverse the fateful trend of growing inequality of income and wealth within and among nations. The shortcomings of globalisation, such as the excessive role of volatile short-term finance, make it difficult to benefit from its advantages. Among the large spectrum of different models of market economy implemented in Europe since the 1940s, the “social market economy” has been by far the most successful in both economic and societal terms. Today many elements of the social market economy are incorporated in the tradition and policy “rulebooks” not only in Germany, its country of origin, but also in numerous other European countries, and the European Union itself. There have been two major distinct trends with respect to the model of the social market economy: (1) the original version developed and implemented by Ludwig Erhard that put the emphasis on growth and social progress, and (2) the one promoted by the “Ordo-liberals” with their emphasis on austerity and market fundamentalism. The conclusion of this chapter is that the European Union and its member countries should work together to develop a new social market economy for the years to come inspired by the original first version of the social market economy with emphasis on growth and social progress.
The Union shall work for the sustainable development of Europe based on balanced economic growth, a social market economy , highly competitive and aiming at full employment and social progress, and with a high level of protection and improvement of the quality of the environment…It shall combat social exclusion and discrimination and shall promote social justice and protection…It shall promote economic, social and territorial cohesion, and solidarity among Member States…
(“Article 3: The Union’s Objectives”, Draft Constitutional Treaty, in Norman, Peter ( 2003 ): The Accidental Constitution. The Story of the European Convention, EuroComment, Brussels, pp. 352–353, emphasis added)
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Notes
- 1.
See Hieronymi, Otto, Bensky, Daniela and Stoyanova, Teofana (2008): “Quale Ordine Politico Interno e Internazionale Futuro per l’Europe et per il Mondo?” in: La Politica, Festival della Modernità, Spirali, Milano, pp. 101–147.
- 2.
From the literature on the social market economy see the following examples: Hieronymi, Otto (2002): “Wilhelm Röpke, the Social Market Economy and Today’s Domestic and International Order”, in Otto Hieronymi, Chiara Jasson and Alexandra Roversi, Editors: Colloque Wilhelm Röpke (1899–1966), The Relevance of His Teaching Today: Globalization and the Social Market Economy, HEI-Webster University, Cahiers HEI, Geneva; Hieronymi, Otto (2005): “The “Social Market Economy” and Globalisation: The Lessons from the European Model for Latin America”, in Emilio Fontela Montes and Joaquin Guzmàn Cueva (Eds): Brasil y la Economia Social de Mercado, Cuadernos del Grupo de Alcantara, pp. 247–300; Hieronymi, Otto and Lo Cascio, Martino, Editors (2016): A New Social Market Economy for the 21st Century Emilio Fontela: Economist and Global Researcher, ARACNE Editrice, Roma; Lenel, Hans Otto and Others, (Editors) (1997): Soziale Marktwirtschaft, Anspruch und Wirklichkeit Seit Fünfzig Jahren, ORDO, Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, Band 48, Lucius und Lucius, Stuttgart; Müller-Armack, Alfred (1946, 1990): Wirtschaftslenkung und Marktwirtschaft, Kastell Verlag, München; Müller-Armack, Alfred (1949): Diagnose unserer Gegenwart, C. Bertelsmann Verlag, Gütersloh; Müller-Armack, Alfred (1971): Auf dem Weg nach Europa, Erinnerungen und Ausblicke, Gemeintschaftsverlag Rainer Wunderlich, Tübingen und C.E. Poeschel, Stuttgart; Müller-Armack, Alfred (1974): Genealogie der Sozialen Marktwirtschaft, Frühschriften und weiterführende Konzepte, Verlag Paul Haupt, Bern; Posluschny, Myra (2006): Walter Eucken und Alfred Müller-Armack: Ein Vergleich ihrer Konzeptionen des Ordoliberalismus unde der Sozialen Marktwirtschaft, GRIN Verlag GmBH, Norderstedt; Röpke, Wilhelm (1950): Mass und Mitte, Eugen Rentsch Verlag, Erlenbach-Zürich; Röpke, Wilhelm (1951): “Austerity”, reprinted in Röpke Wilhelm (1962): Wirrnis und Wahrheit, Eugen Rentsch, Erlenbach-Zürich; Röpke, Wilhelm (1958): Ein Jahrzehnt Sozialer Marktwirtschaft in Deutschland und Seine Lehre, Verlag für Politik und Wirtschaft, Köln-Marienburg; Schlecht, Otto (1990): Grundlagen und Perspektiven der Sozialen Marktwirtschaft, J.C.B. Mohr (Paul Siebeck), Tübingen; Wünsche, Horst Friedrich (2015): Ludwig Erhards Soziale Marktwirtschaft—Wissenschaftliche Grundlagen und politische Fehldeutungen, Lau Verlag, Reineck, München.
- 3.
The thinkers who were responsible for the concept of the social market economy also played an important role in the development of the post-war liberal international economic order. This was especially true for Wilhelm Röpke and the other members of the so-called “Geneva school”. See: Hieronymi, O. (Ed.). (1982). International order – A view from Geneva,. Geneva: IUHEI. Graduate Institute of International Relations; Hieronymi, O. (Ed.). (1987). Technology and international relations. London: Macmillan; Hieronymi, O., Bensky, D., & Stoyanova, T. (2008). Quale Ordine Politico Interno e Internazionale Futuro per l’Europe et per il Mondo? In La Politica, Festival della Modernità (pp. 101–147). Milano: Spirali; Slobodian, Q. (2018): The Globalists, the End of Empire and the Birth of Neoliberalism, Harvard University Press, Cambridge, Mass.
- 4.
See Chapter 1 on “From ‘Global Finance’ to the Crisis of Globalization” in Hieronymi, Otto, Editor (2009b): Globalization and the Reform of the International Banking and Monetary System, Palgrave, Basingstoke, pp. 1–69 and Hieronymi, Otto (1998): “Agenda for a New Monetary Reform”, in Futures, Vol. 30, No.8, pp. 769–781, Pergamon, Elsevier Science Ltd.
- 5.
“The first decades after World War II were marked by an expansion of free trade. This process was until the break in 1973/74, especially in Europe through in Europe associated with a massive expansion of the welfare state. The stabilization of incomes by social benefits facilitated the descent from economic protectionism and, combined with the general increase in wealth, reduced the resistance against the change of economic and social structures. Against these tendencies to civilize capitalism towards a decidedly social market economy, there have been strong counter-movements since the 1980s, especially in the United States … and in the United Kingdom. Ritter, Gerhard A. (2010), Der Sozialstaat. Enstehung und Entwicklung im internationalen Vergleich, Dritte, erweiterte Auflage, R. Oldenbourg Verlag, München p. 255.
- 6.
“The growing recognition in recent years of the shortcomings of the orthodoxy prevailing until 2008 by some their most vocal exponents and practitioners especially in central banks has been a major positive development. This radical shift of perception can be illustrated by the case of Martin Wolf, Chief Economics Commentator of the Financial Times.” in Hieronymi, Otto (2016): “The Crisis of International Finance, the Eurozone and Economic Growth”, in Rossi, Stefania A. and Malavasi, Roberto, Editors (2016): Financial Crisis, Bank Behaviour and Credit Crunch, Springer, New York, pp. 14–15.
- 7.
George Soros, one of the most famous and successful financial speculators of our time showed considerable contrition in the light of the near-meltdown of the world economy as a result of the 2008 crisis: “The prevailing paradigm cannot explain what is happening. The case for abandoning the prevailing paradigm is even stronger: The belief that markets tend towards equilibrium is directly responsible for the current turmoil; it encourages the regulators to abandon their responsibility and to rely on the market mechanism to correct its own excesses.” Soros, George (2008): The New Paradigm for Financial Markets. The Credit Crisis of 2008 and What it Means, Public Affairs, New York, p. 102.
- 8.
In European People’s Party (2009): The Social Market Economy in a globalised World, Congress Document adopted by the EPP Statutory Congress Bonn, 9–10 December 2009.
- 9.
See Müller-Armack, Alfred (1971): Auf dem Weg nach Europa, Erinnerungen und Ausblicke, Gemeintschaftsverlag Rainer Wunderlich, Tübingen und C.E. Poeschel, Stuttgart.
- 10.
By the beginning of the twenty first century, when the liberal market economy had triumphed beyond all previous hopes, points (1) and (2) were among the key elements of the social market economy that came to be most systematically forgotten and denied in our globalized world and world economy. Hieronymi, Otto (2002): “Wilhelm Röpke, the Social Market Economy and Today’s Domestic and International order” in Otto Hieronymi, Chiara Jasson, Alexandra Roversi (editors): Colloque Wilhelm Röpke: The Relevance of His Teaching Today. HEI-Webster University, Geneva, p. 11.
- 11.
Skidelsky, Robert (1989): The Social Market Economy, Social Market Foundation Ltd., Paper no. 1, London, pp. 3 and 6.
- 12.
“The democratic welfare state is not the finished product of history in the last 150 years. Much more, like the parallel phenomena of the nation state, the constitutional state and the constitutional state, it is necessarily unfinished. Its survival will depend on its ability to adapt to the changing economy, society and politics and to withstand the tension between freedom and social security. Ritter, Gerhard A. (2010), Der Sozialstaat. Enstehung und Entwicklun im internationalen Vergleich, Dritte, erweiterte Auflage, R. Oldenbourg Verlag, München p. 220” (1989 edition).
- 13.
In many respects the earliest and most influential book for the subsequent development of the model of the social market economy was the first volume of his famous trilogy written by Wilhelm Röpke (1942) under the title Die Gesellschaftskrisis der Gegenwart. Der Dritte Weg (The Societal Crisis of Our Time. The Third Way) Eugen Rentsch Verlag, Erlenbach-Zürich.
- 14.
Wünsche, Horst Friedrich (2015): Ludwig Erhards Soziale Marktwirtschaft – Wissenschaftlich Grundlagen und politische Fehldeutungen, Lau Verlag, Reineck, München p. 338.
- 15.
According to a recent comparison of Müller-Armack’s and Eucken’s theories: “Eucken’s ordo-liberalism and the social market economy of Müller-Armack are by no means the same two interchangeable concepts for one and the same theory. Rather, it is about two separate models…Muller-Armack argues that Eucken does not sufficiently consider social and sociological problems … According to Muller-Armack, the market economy requires additions in two directions. On the one hand through social policy, which brings the ethical values of social justice and social security…, and on the other by a societal policy that integrates fundamental common values (including individual freedom) that make competition and the market economy politically acceptable.” Posluschny, Myra (2006): Walter Eucken und Alfred Müller-Armack: Ein Vergleich ihrer Konzeptionen des Ordoliberalismus unde der Sozialen Marktwirtschaft, GRIN Verlag GmBH, Norderstedt.
- 16.
Following the collapse of the communist regimes in 1989–1990 in Eastern Europe, the logical choice for the model for reconstruction and regime change would have been the social market economy. Yet, the only leader to have chosen this path was Prime Minister Jozsef Antall of Hungary. His government received no encouragement whatsoever from their foreign partners (including the Federal Republic of Germany) the major international organizations. See: Hieronymi, O. (1990). A ‘Grand Design’ for Balanced Growth, International Economic Integration and the Development of a Modern Social Market Economy in Hungary. In O. Hieronymi (Ed.), Economic policies for the new Hungary (pp. 10–18). Columbus, OH: Battelle Press ; Hieronymi, O. (2001). Du Communisme à l’Economie du Marché Sociale. Du Socialisme à l’Economie de Marché, sous la direction d’Andras November, Nouveaux Cahiers de l’IUD, No. 12, Genève; Hieronymi, O. (July 2013). Regime Change in Hungary, 1990–1994, the Economic Policies of the Antall Government, Hungarian Review, Budapest, pp. 36–47; Hieronymi, O. (1996). International capital markets and the financial integration of the transition countries. Unpublished Manuscript; Hieronymi, O. (2000). The main features and the current relevance of the European Model of the Social Market Economy. Unpublished manuscript.
- 17.
The mistaking of austerity for stability can be the principal obstacle to economic growth, the solution of the debt problem and the realization of a successful social market economy, See: Hieronymi, O., & Stephanou (Eds.). (2013). International debt – Economic, financial, monetary, political and regulatory aspects. Basingstoke: Palgrave; Blyth, M. (2013). Austerity. The history of a dangerous idea. Oxford: Oxford University Press.
- 18.
In the strategy for growth adopted by the European Union the social dimension plays an important role. The Pillar of Social Rights is about delivering new and more effective rights for citizens. It builds upon 20 key principles, structured around three categories: (1) Equal opportunities and access to the labour market (2) Fair working conditions and (3) Social protection and inclusion.
- 19.
OECD (2018), Beyond GDP: Measuring what counts for economic and social performance, OECD Publishing, Paris—https://doi.org/10.1787/9789264307292-en
- 20.
Dyson, Kenneth and Featherstone, Kevin (1999): The Road to Maastricht, Negotiating Economic and Monetary Union, Oxford University Press, Oxford, pp. 261–262.
- 21.
“This book has shown that the euro can be saved, should be saved in a way that creates the shared prosperity and solidarity that was part of the promise of the euro.” Stiglitz, Joseph E. (2018): The Euro. How a Common Currency Threatens the Future of Europe. With a New Section on Brexit, W.W. Norton & Co., New York, p. 325.
- 22.
Hieronymi, Otto (October 2009a): “Rebuilding the International Monetary Order: the Responsibility of Europe, Japan and the United States”, Revista de Economia Mundial, Madrid, No. 29, pp. 197–226, p. 197.
- 23.
Hieronymi, Otto (1995) “The Case for an ‘Extended EMS’: A New International Monetary Order to be Built by Europe, Japan and the United States”, in SZABO-PELSOECZY, Miklos (Editor): The Global Monetary System After the Fall of the Soviet Empire, (In Memoriam Robert Triffin—1911–1993, Sixth Conference of the Robert Triffin-Sziràk Foundation, Sziràk, 1993), Averbury, Aldershot, 1995, p. 63.
- 24.
Toyoo Gyothen in Volcker, Paul and Gyothen, Toyoo (1992) Changing Fortunes: The World’s Money and the Threat to American Leadership, Times Books, New York, 1992, p. 66.
- 25.
“We have not had a rule-based international monetary system since President Nixon ended the Bretton Woods Agreement in August 1991. Today there are compelling reasons—political, economic and strategic—for President Trump to initiate a new international monetary system.” Shelton, Judy (2018): “The Case for a New International Monetary System”, in Dorn, James A., Editor (2018): Monetary Policy in an Uncertain World. Ten Years After the Crisis. Cato Institute, Washington, DC, p. 291.
- 26.
On the nature and risks of economic and monetary nationalism see Hieronymi (1980).
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Hieronymi, O. (2019). Realizing a New Social Market Economy in Europe in the Coming Years. In: Paganetto, L. (eds) Yearning for Inclusive Growth and Development, Good Jobs and Sustainability. Springer, Cham. https://doi.org/10.1007/978-3-030-23053-1_14
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