The Social Market Economy

- Formation and Implementation International Summer Academy, Klaipda, July 28 31, 2011

Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy

The Social Market Economy is never an alliance of the weak against the strong, it is always an alliance of the strong with the weak ()
(Dr. Angela Merkel)

The Social Market Economy was developed in Germany as a third way to capitalism and socialism. It is not a combination of both. It was introduced in Germany by Ludwig Erhard after World war II as the new postwar economic system. His decisions as first Minister of Economics laid the foundations for Germanys economic system, which has been quite successful in the last sixty years

Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy

Rules of the game vs. Playing of the game

The term Social Market Economy is used for two not necessarily in every detail identical concepts: for the economic system in Germany since 1948 and for a theoretical concept. The concept of Social Market Economy is a dynamical concept, which must be and can be adapted to political and economic changes.
Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy

Today, we are the engine of Europe, because we have the lowest unemployment since 1992, our economy is growing significantly, the dreaded credit crunch has failed and the banks in Germany are stable again.

Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy

What makes the Social Market Economy so very attractive as the only pragmatic alternative to the free-market liberalism? Its a dynamical concept, which can be adapted to political and economic changes.

economic order

social order

It aims to achieve a synthesis between efficiency and equity by combining the efficiency gains of a free market economy with a publicly induced social balance.
Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy

The economic order provides the institutional framework for a free market economy including:
Free Markets and personal rights Relative price system, built by supply and demand (not by public intervention) Sound money and sound public finance To keep the economic order stable a tough state is needed. It has to create and adjust the framework for the economic process; the state is not the better entrepreneur Rule of law (Ordnungspolitik)

Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy

Development of national debt (in % of GDP)

All these measures during the crisis have been expensive and increased the already too high national debt further. The major cause of the high levels of debt in the past decades is that we - in terms of our public budgets - have lived well beyond our means. A responsible approach to the state finances is part of the Social Market Economy. Much of what we have seen before and during the crisis, is contrary to the spirit and principles of the Social Market Economy

Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy

The provisions of the social order are oriented towards the needs of societys members and also attempt to provide equal opportunity for each individual in the society. The main components:

a tax system based on a progressive income tax that forces people with higher incomes to finance a bigger share of public expenditures. a systems of social security protecting against the risks of unemployment, diseases and ageing; labour unions and employers associations decide autonomously on the conditions and wages on the markets. an educational system based on the equality of chances.

Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy

In conclusion, we can state that the Social Market Economy is based on the following three main pillars:

Protection of the individuals freedoms and independence in the face of arbitrary actions by the state. Safeguard of the free market rule, i.e. competition, private property of production means, free prizing, contract freedom, warranty systems and controls against monopolies and power abuses, free international trade and monetary stability. Guarantee of the principles of solidarity and subsidiarity with respect to the safeguard of social peace.

Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy

Thank you very much for your attention.

Hauptabteilung Politik und Beratung Dipl.-Pol. David Gregosz, Bs. Sc., Researcher, Department of Economic Policy