Ordoliberalism

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Ordoliberalism is the German variant of economic liberalism that emphasizes the need for the state to ensure that the free market produces results close to its theoretical potential. [1]

Contents

Ordoliberal ideals became the foundation of the creation of the post-World War II German social market economy and its attendant Wirtschaftswunder .

The term "ordoliberalism" (German : Ordoliberalismus) was coined in 1950 by Hero Moeller , and refers to the academic journal ORDO . [2]

Linguistic differentiation

Ordoliberals separate themselves from classical liberals. Notably Walter Eucken , with Franz Böhm , founder of ordoliberalism and the Freiburg School, [3] rejected neoliberalism. [4]

Ordoliberals promoted the concept of the social market economy, and this concept promotes a strong role for the state with respect to the market, which is in many ways different from the ideas connected to the term neoliberalism. Oddly the term neoliberalism was originally coined in 1938, at the Colloque Walter Lippmann , by Alexander Rüstow , who is regarded an ordoliberal today. [5]

Because of the connected history, ordoliberalism is also sometimes referred to as "German neoliberalism". This led to frequent confusion and "mix ups" of terms and ideas in the discourse, debate and criticism of both economic schools of liberalism until in 1991 the political economists Michel Albert with Capitalisme Contre Capitalisme and in 2001 Peter A. Hall and David Soskice with Varieties of Capitalism aimed to separate the concepts and develop the new terms liberal market economy and coordinated market economy to distinguish neoliberalism and ordoliberalism.

Development

The theory was developed from about 1930 to 1950 by German economists and legal scholars from the Freiburg School, such as Walter Eucken, Franz Böhm , Hans Grossmann-Doerth , and Leonhard Miksch .

Ordoliberal ideals (with modifications) drove the creation of the post-World War II German social market economy. They were especially influential on forming a firm competition law in Germany. However the social market economy was implemented in economies where corporatism was already well established, so ordoliberal ideals were not as far reaching as the theory's economic founders had intended. [6]

Since the 1960s, ordoliberal influence on economics and jurisprudence has significantly diminished [7] however many German economists define themselves as Ordoliberals through the present day, the ORDO is still published, and the Faculty of Economics at the University of Freiburg is still teaching ordoliberalism. Additionally, some institutes and foundations such as the Walter Eucken Institut and the Stiftung Ordnungspolitik are engaged in the ordoliberal tradition.

Implementation

Ludwig Erhard
with Konrad Adenauer
in 1956, while Erhard was Minister of Economics. Bundesarchiv B 145 Bild-F004214-0033, Konrad Adenauer und Ludwig Erhard.jpg
Ludwig Erhard with Konrad Adenauer in 1956, while Erhard was Minister of Economics.

Ordoliberalism was a major influence on the economic model developed in post-war West Germany. Ordoliberalism in Germany became known as the social market economy.

The Ordoliberal model implemented in Germany was started under the government administration of Konrad Adenauer . His government's Minister of Economics, Ludwig Erhard , was a known Ordoliberal and adherent of the Freiburg School. Under Adenauer, some, but not all, price controls were lifted, and taxes on small businesses and corporations were lowered. Furthermore, social security and pensions were increased to provide a social base income. Ordoliberals have stated that these policies led to the Wirtschaftswunder , or economic miracle. [8]

Theory

Ordoliberal theory holds that the state must create a proper legal environment for the economy and maintain a healthy level of competition (rather than just "exchange") through measures that adhere to market principles. This is the foundation of its legitimacy. [9] The concern is that, if the state does not take active measures to foster competition, firms with monopoly (or oligopoly) power will emerge, which will not only subvert the advantages offered by the market economy, but also possibly undermine good government, since strong economic power can be transformed into political power. [10]

According to Stephen Padgett "A central tenet of ordo-liberalism is a clearly defined division of labor in economic management, with specific responsibilities assigned to particular institutions. Monetary policy should be the responsibility of a central bank committed to monetary stability and low inflation, and insulated from political pressure by independent status. Fiscal policy—balancing tax revenue against government expenditure—is the domain of the government, whilst macro-economic policy is the preserve of employers and trade unions." [11] The state should form an economic order instead of directing economic processes, and three negative examples ordoliberals used to back their theories were Nazism, Keynesianism, and Russian socialism. [12] The Ordoliberal idea of a social market economy is often seen as a progressive alternative beyond left and right [13] and as a third way between collectivism and laissez-faire liberalism. [14]

While the ordoliberal idea of a social market is similar to that of the third-way social democracy advocated by the likes of the New Labour government (especially during the premiership of Tony Blair), there are a few key differences. Whilst they both adhere to the idea of providing a moderate stance between socialism and capitalism, the ordoliberal social market model often combines private enterprise with government regulation to establish fair competition (although German network industries are known to have been deregulated), [15] whereas advocates of the third-way social democracy model have been known to oversee multiple economic deregulations. The third way social democracy model has also foreseen a clash of ideas regarding the establishment of the welfare state, in comparison to the ordoliberal's idea of a social market model being open to the benefits of social welfare. [16]

Ordoliberals are also known for pursuing a minimum configuration of vital resources and progressive taxation. [17] The ordoliberal emphasis on the privatization of public services and other public firms such as telecommunication services; [15] wealth redistribution and minimum wage laws as regulative principles makes clear the links between this economic model and the social market economy. [18]

Wilhelm Röpke considered ordoliberalism to be "liberal conservatism", against capitalism in his work Civitas Humana ("A Humane Order of Society", 1944). Alexander Rüstow also criticized laissez-faire capitalism in his work Das Versagen des Wirtschaftsliberalismus ("The Failure of Economic Liberalism", 1950). The ordoliberals thus separated themselves from classical liberals [9] [19] and valued the idea of social justice. [20] "Social security and social justice", wrote Eucken, "are the greatest concerns of our time". [21]

Michel Foucault also notes the similarity (beyond just historical contemporaneity) between the Ordo/Freiburg school and the Frankfurt School of critical theory, due to their inheritance from Max Weber . That is, both recognise the "irrational rationality" of the capitalist system, but not the "logic of contradiction" that Marx posited. Both groups took up the same problem, but in vastly different directions. [22] The political philosophy of Ordoliberals was influenced by Aristotle, de Tocqueville , Hegel , Spengler , Mannheim , Weber , and Husserl . [23]

Criticism

According to Sebastian Dullien and Ulrike Guérot , ordoliberalism is central to the German approach to the European sovereign-debt crisis, which has often led to conflicts with other European countries. [24]

Nobel laureate Friedrich Hayek commented on the Ordoliberals in his 1951 article, "The Transmission of the Ideals of Freedom". [25]

See also

Related Research Articles

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Neoliberalism Political philosophy that supports economic liberalization

Neoliberalism or neo-liberalism is the 20th-century resurgence of 19th-century ideas associated with laissez-faire economic liberalism and free market capitalism. It is generally associated with policies of economic liberalization including privatization, deregulation, globalization, free trade, austerity, and reductions in government spending in order to increase the role of the private sector in the economy and society; however, the defining features of neoliberalism in both thought and practice have been the subject of substantial scholarly debate. Neoliberalism constituted a paradigm shift away from the post-war Keynesian consensus which had lasted from 1945 to 1980.

Alexander Rüstow German academic

Alexander Rüstow was a German sociologist and economist. In 1938 he originated the term neoliberalism at the Colloque Walter Lippmann. He was one of the fathers of the "Social Market Economy" that shaped the economy of West Germany after World War II. He is the grandnephew of Wilhelm Rüstow, the grandson of Cäsar Rüstow and the father of Dankwart Rustow.

The social market economy, also called Rhine capitalism or social capitalism, is a socioeconomic model combining a free market capitalist economic system alongside social policies that establish both fair competition within the market and a welfare state. It is sometimes classified as a coordinated market economy. The social market economy was originally promoted and implemented in West Germany by the Christian Democratic Union (CDU) under Chancellor Konrad Adenauer in 1949. Its origins can be traced to the interwar Freiburg school of economic thought.

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Wilhelm Röpke German economist

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Walter Eucken German economist

Walter Eucken was a German economist of the Freiburg school and father of ordoliberalism. His name is closely linked with the development of the concept of "social market economy".

Franz Böhm was a German politician, lawyer, and economist.

The Freiburg School is a school of economic thought founded in the 1930s at the University of Freiburg.

ORDO — Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft is a peer-reviewed academic journal established in 1948 by the German economists Walter Eucken and Franz Böhm. The journal focuses on the economic and political institutions governing modern society.

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Stiftung Ordnungspolitik is a nonprofit organization dealing with the ordoliberal tradition of the Freiburg school of economics. It strives to maintain and further develop ordo-economics based on the ideas of Walter Eucken and Friedrich August von Hayek.

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References

  1. Ptak, Ralf (2009). "Neoliberalism in Germany: Revisiting the Ordoliberal Foundations of the Social Market Economy". In Mirowski, Philip; Plehwe, Dieter (eds.). The Road From Mont Pèlerin: The Making of The Neoliberal Thought Collective. Cambridge, MA.: Harvard University Press. pp. 124–25. ISBN   978-0-674-03318-4.
  2. Ptak, Ralf (2004). Vom Ordoliberalismus zur Sozialen Marktwirtschaft: Stationen des Neoliberalismus in Deutschland (in German). VS Verlag. p. 23. ISBN   978-3-8100-4111-1.
  3. Nils Goldschmidt (2005). Wirtschaft, Politik und Freiheit: Freiburger Wirtschaftswissenschaftler und der Widerstand. Mohr Siebeck. p. 315. ISBN   978-3-16-148520-6 . Retrieved 21 July 2013.
  4. Lüder Gerken (2000). Walter Eucken und sein Werk: Rückblick auf den Vordenker der sozialen Marktwirtschaft. Mohr Siebeck. p. 37. ISBN   978-3-16-147503-0 . Retrieved 21 July 2013.
  5. Boas, Taylor C.; Gans-Morse, Jordan (2009). "Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan". Studies in Comparative International Development. 44 (2): 137–61. doi: 10.1007/s12116-009-9040-5 . ISSN   0039-3606.
  6. Abelshauser, Werner (2005). The Dynamics of German Industry: Germany's Path toward the New Economy and the American Challenge. Berghahn Books. pp. 146–148. ISBN   9781782387992 . Retrieved 9 October 2018.
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  8. "Ordoliberals". Commanding Heights: The Battle for the World Economy. PBS. 2002.
  9. 1 2 Megay, Edward N. (1970). "Anti-Pluralist Liberalism: The German Neoliberals". Political Science Quarterly. 85 (3): 422–42. doi:10.2307/2147878. JSTOR   2147878.
  10. Massimiliano, Vatiero (2010). "The Ordoliberal notion of market power: an institutionalist reassessment". European Competition Journal. 6 (3): 689–707. doi:10.5235/ecj.v6n3.689.
  11. Padgett, Stephen (2003). "Political Economy: The German Model under Stress". In Padgett, Stephen; Paterson, William E.; Smith, Gordon (eds.). Developments in German Politics 3. Duke University Press. pp.  126–27. ISBN   978-0822332664.
  12. Foucault, Michel (2010). Senellart, Michael (ed.). The Birth of Biopolitics: Lectures at the College de France (1978–9). Translated by Burchell, Graham (1st Picador Paperback ed.). New York: Palgrave MacMillan. pp. 107–10.
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  14. "Google Drive Viewer" . Retrieved 2013-08-01.
  15. 1 2 Siebert, Horst (28 May 2003), "Germany's Social Market Economy: How Sustainable is the Welfare State?" (PDF), Paper presented at the American Institute for Contemporary German Studies, Johns Hopkins University
  16. "Soziale Marktwirtschaft". Gabler Wirtschaftslexikon (in German). Retrieved 2013-08-01.
  17. "Archived copy" (PDF). Archived from the original (PDF) on 2013-12-03. Retrieved 2012-11-09.CS1 maint: archived copy as title (link)
  18. Kingston, Suzanne (27 October 2011). Greening EU Competition Law and Policy. Cambridge University Press. ISBN   9781139502788 . Retrieved 1 August 2013.
  19. Friedrich, Carl J. (1955). "The Political Thought of Neo-Liberalism". American Political Science Review. 49 (2): 509–25. doi:10.2307/1951819. JSTOR   1951819.
  20. Oswalt, Walter (2008). "Zur Einführung: Walter Eucken (1891–1950)". In Goldschmidt, Nils; Wohlgemuth, Michael (eds.). Grundtexte zur Freiburger Tradition der Ordnungsökonomik (in German). p. 128. ISBN   978-3-16-148297-7.
  21. OSO (1999-02-22). Ordoliberalism: A New Intellectual Framework for Competition Law. Oxfordscholarship.com. doi:10.1093/acprof:oso/9780199244010.001.0001. ISBN   9780199244010.
  22. Michel Foucault, The Birth of Biopolitics , 105.
  23. Foucault, The Birth of Biopolitics, 103–105.
  24. Dullien, Sebastian; Guérot, Ulrike (2012). The Long Shadow of Ordoliberalism: Germany's Approach to the Euro Crisis (PDF). London: European Council on Foreign Relations. ISBN   978-1-906538-49-1.
  25. Hayek, Friedrich A. (2012). "The Transmission of the Ideals of Freedom". Econ Journal Watch. 9 (2): 163–69.

Further reading