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Social market economy |
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The social market economy was the main economic model used in Western and Northern Europe during the Cold War era. It originated in West Germany, and it is known as Soziale Marktwirtschaft in German.
In West Germany, the social market model was created and implemented by the Christian Democrat Ludwig Erhard, Minister of Economics under Konrad Adenauer's chancellorship and German Chancellor in his own right from 1963 to 1966.
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The social market economy seeks an alternative economic system beside socialism and pure laissez-faire capitalism, combining private enterprise with measures of the state to establish fair competition, low inflation, low levels of unemployment, good working conditions, and social welfare. Basically respecting the free market, the social market economy is opposed to both a planned economy and laissez-faire capitalism. Erhard once told Friedrich Hayek that the free market economy did not need to be made social but was social in its origin.1
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.2
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 the most of 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 Germany345 and a commitment to some form of social market economy was present in the European Union Constitution (now in limbo following the referenda in France and the Netherlands).
The Union shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment.
– Art. I-3 of the Treaty establishing a Constitution for Europe
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