Abstract
The title I have been given invites the inference that there are principles of ‘social policy’ and principles of the ‘market economy’ which, when integrated, provide the overall guiding principles of the ‘social market economy’ and that my task should consist of the identification of those principles as well as the evaluation of actual ‘social’ policies pursued in West Germany in the light of them. I did not expect the task to be simple, not least because the term ‘social policy’, used to identify something intrinsically distinguishable from ‘economic policy’, is inherently ambiguous, but also because I have had to rely essentially upon literature available in the English language and must consequently be prepared to discover that nuances apparent in the German sources have escaped me. But the available literature is extensive enough for me to feel fairly confident that I have missed nothing of fundamental consequence for this reason: my errors are more likely to result from misconceptions that would have emerged whatever source language I had used.
This paper has relied heavily on the help of Hans Willgerodt and Alan Peacock. In particular, the guidance provided by the former through a proliferating literature was invaluable. In its present form, the paper also owes much to the comments of conference participants.
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Notes and References
I do not, however, attach too much weight to the objection that my interpretation ‘is not really the Ordo position, which is to be found in the writings of “x”’, rather than in the sources I have cited. No doubt there are differences between individual authors. But if there are not also important unifying elements, in what sense can it be meaningful to speak of a ‘school’? Other interpreters might provide a different emphasis, but I do not believe the general interpretation to be seriously misleading.
The value added tax, for example, is a rare policy phenomenon in that the introduction of the tax followed upon serious discussion of its economic characteristics, rather than the more usual progression from the invention of a revenue-raising or other policy device to the academic study of its implications. The social market economy is similarly unusual.
Alfred Müller-Armack, ‘The Principles of the Social Market Economy’, German Economic Review, Stuttgart, Vol. 3, 1965.
Walter Hamm, ‘The Welfare State at its Limit’, Ordo, Vol. 34, 1982. Also in the companion volume of translations, Germany’s Social Market Economy: Origins and Evolution (London: Macmillan for the Trade Policy Research Centre, 1989).
Harold Hochmann and J. D. Rogers, ‘Pareto Optimal Redistribution’, American Economic Review, Menasha, Wisconsin, Vol. 59, September 1969.
The confusion of methods and criteria in the West German old-age pensions scheme can only partially be ascribed to the preoccupation of Ordo-liberals with production instead of distribution. It is true that they were inclined to discount redistribution by minimising the number of those who could not take care of themselves but the shaping of a new system of social security was mainly left to experts of the old paternalistic tradition and to socialists. But this does not mean that there was no discussion about principles of social security among those in favour of the market economy and with their adversaries. Many Ordo-liberals wanted to strengthen self-responsibility and private capital formation to provide for old age, admitting only the necessity of some state-enforced minimum standard with tax-like contributions. See Hans Willgerodt, ‘Die Krisis der sozialen Sicherheit und das Lohnproblem’ (The Crisis of Social Security and the Wage Problem), Ordo, Vol. 7, 1955, p. 185;
‘Der Familienlastenausgleich im Rahmen der Sozialreform’ (Family Allowances in the Framework of the Reform of Social Security), Ordo, Vol. 8, 1956, pp. 150–60 and passim;
Wilhelm Röpke, A Humane Economy: The Social Framework of the Free Market (London: Wolf, 1960);
Heddy Neumeister, ‘Autoritäre Sozialpolitik’ (Authoritarian Social Policy), Ordo, Vol. 12, 1960–61. On the other hand, there were socialists pressing for a comprehensive expansion of the state-enforced pension system, but also adherents of the market economy, mainly influenced by the Catholic neo-liberal Wilfried Schreiber, who considered saving and investment for old-age pensions both impossible and disastrous, arguing on Keynesian lines. Gerhard Mackenroth tried to ‘prove’ the irrationality of capital formation for pensions by the statement that all social security expenditure can only be paid from the gross national product of the same period. This ‘proof’ was immediately rejected by Ordo-liberals (Willgerodt, ‘Der Familienlastenausgleich im Rahmen der Sozialreform’, loc. cit.), but Wilfried Schreiber got the agreement of Chancellor Konrad Adenauer. He sold his concept to the government as ‘dynamic pensions’ financed by obligatory contributions of the working class as a percentage of their wages and salaries, the revenue being distributed immediately to pensioners who had no private investments. During growth periods the pensions could therefore rise with the general per capita income. With lower growth rates and decreasing birth rates the system was confronted by a crisis, especially as politicians used increases of pensions as a device to obtain the votes of the elderly, whereas Wilfried Schreiber—rather unpolitically—wanted to cut the pensions if revenues from contributions should decrease. In the meantime, the old position of the Ordo-liberals is in a state of renaissance, because more and more economists admit the possibility and advisability of investment for old-age pensions, thereby opening the way back to more personal responsibility.
See Manfred Neumann, Möglichkeiten zur Entlastung der gesetzlichen Rentenversicherung durch kapitalbildende Vorsorgemassnahmen (Possibilities of Relieving the Official Old-Age Pension Insurance by Investment) (Tübingen: J. C. B. Möhr [Paul Siebeck], 1986).
Röpke, A Humane Economy, op. cit.
Edmund Burke, A Letter from Mr Burke to a Member of the National Assembly in answer to some objections to his book on French affairs, 1791. Cited in Röpke, A Humane Economy, op. cit.
James M. Buchanan and Gordon Tullock, The Calculus of Consent (Ann Arbor, Michigan: University of Michigan Press, 1962).
See, for instance, John Rawls, A Theory of Justice (Cambridge, Massachusetts: Harvard, 1972)
and Robert Nozick, Anarchy, State and Utopia (New York: Basic Books, 1974).
Jack Wiseman, ‘Genesis, Aims and Goals of Social Policy’, Public Finance and Social Policy, Proceedings of the International Institute of Public Finance (Detroit, Michigan: Wayne State University Press, 1983);
‘Economic Efficiency and Efficient Public Policy’ in H. Hanusch, K. W. Roskamp and Wiseman (eds), Staat und Politische Okonomie Heute (Stuttgart and New York, Gustav Fischer, 1985).
See Wiseman, ‘Genesis, Aims and Goals of Social Policy’, loc. cit.
Jörn Henrik Petersen, ‘The Political Economy of Financing Old Age Pensions’, Zeitschrift für die gesamte Staatswissenschaft, Vol. 140, 1984.
Buchanan, The Limits of Liberty: Between Anarchy and Leviathan (Chicago: University of Chicago Press, 1975).
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Wiseman, J. (1989). Social Policy and the Social Market Economy. In: Peacock, A., Willgerodt, H. (eds) German Neo-Liberals and the Social Market Economy. Trade Policy Research Centre. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-20148-8_8
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