Ordoliberalism

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

Germany Federal parliamentary republic in central-western Europe

Germany, officially the Federal Republic of Germany, is a country in Central and Western Europe, lying between the Baltic and North Seas to the north, and the Alps, Lake Constance and the High Rhine to the south. It borders Denmark to the north, Poland and the Czech Republic to the east, Austria and Switzerland to the south, France to the southwest, and Luxembourg, Belgium and the Netherlands to the west.

Social liberalism is a political ideology and a variety of liberalism that endorses a regulated free market economy and the expansion of civil and political rights. A social liberal government is expected to address economic and social issues such as poverty, health care and education in a liberal state. It does so in allowing autonomy of the individual and products of the market economy unrestricted access with the goal to increase wellbeing for all.

In economics, a free market is a system in which the prices for goods and services are determined by the open market and by consumers. In a free market, the laws and forces of supply and demand are free from any intervention by a government or other authority and from all forms of economic privilege, monopolies and artificial scarcities. Proponents of the concept of free market contrast it with a regulated market in which a government intervenes in supply and demand through various methods, such as tariffs, used to restrict trade and to protect the local economy. In an idealized free-market economy, prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy.

Contents

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

World War II 1939–1945 global war

World War II, also known as the Second World War, was a global war that lasted from 1939 to 1945. The vast majority of the world's countries—including all the great powers—eventually formed two opposing military alliances: the Allies and the Axis. A state of total war emerged, directly involving more than 100 million people from over 30 countries. The major participants threw their entire economic, industrial, and scientific capabilities behind the war effort, blurring the distinction between civilian and military resources. World War II was the deadliest conflict in human history, marked by 50 to 85 million fatalities, most of whom were civilians in the Soviet Union and China. It included massacres, the genocide of the Holocaust, strategic bombing, premeditated death from starvation and disease, and the only use of nuclear weapons in war.

The social market economy, also called Rhine 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.

<i>Wirtschaftswunder</i>

The term Wirtschaftswunder, also known as the Miracle on the Rhine, describes the rapid reconstruction and development of the economies of West Germany and Austria after World War II. The expression referring to this phenomenon was first used by The Times in 1950.

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

German language West Germanic language

German is a West Germanic language that is mainly spoken in Central Europe. It is the most widely spoken and official or co-official language in Germany, Austria, Switzerland, South Tyrol (Italy), the German-speaking Community of Belgium, and Liechtenstein. It is also one of the three official languages of Luxembourg and a co-official language in the Opole Voivodeship in Poland. The languages which are most similar to German are the other members of the West Germanic language branch: Afrikaans, Dutch, English, the Frisian languages, Low German/Low Saxon, Luxembourgish, and Yiddish. There are also strong similarities in vocabulary with Danish, Norwegian and Swedish, although those belong to the North Germanic group. German is the second most widely spoken Germanic language, after English.

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.

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]

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.

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. While it is most often associated with such ideas, the defining features of neoliberalism in both thought and practice have been the subject of substantial scholarly discourse. These ideas include economic liberalization policies such as privatization, austerity, deregulation, free trade and reductions in government spending in order to increase the role of the private sector in the economy and society. These market-based ideas and the policies they inspired constitute a paradigm shift away from the post-war Keynesian consensus which lasted from 1945 to 1980.

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]

The Walter Lippmann Colloquium, was a conference of intellectuals organized in Paris in August 1938 by French philosopher Louis Rougier. After interest in classical liberalism had declined in the 1920s and 1930s, the aim was to construct a new liberalism as a rejection of collectivism, socialism and laissez-faire liberalism. At the meeting, the term neoliberalism was coined by Alexander Rüstow referring to the rejection of the (old) laissez-faire liberalism.

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.

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.

Michel Albert was a French economist. He was born in Fontenay-le-Comte, Vendée and was the Permanent Secretary of the Académie des Sciences Morales et Politiques since 1 January 2005.

David William Soskice, FBA is a British political economist and academic. Currently, he is LSE School Professor of Political Science and Economics at the London School of Economics.

<i>Varieties of Capitalism</i> book by David Soskice and Peter A. Hall

Varieties of Capitalism: The Institutional Foundations of Comparative Advantage is a 2001 book on economics authored by political economists Peter A. Hall and David Soskice.

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

Liberal may refer to:

A market economy is an economic system in which the decisions regarding investment, production and distribution are guided by the price signals created by the forces of supply and demand. The major characteristic of a market economy is the existence of factor markets that play a dominant role in the allocation of capital and the factors of production.

Governmentality is a concept first developed by the French philosopher Michel Foucault in the later years of his life, roughly between 1977 and his death in 1984, particularly in his lectures at the Collège de France during this time.

Wilhelm Röpke German economist

Wilhelm Röpke was Professor of Economics, first in Jena, then in Graz, Marburg, Istanbul, and finally Geneva, Switzerland, and one of the spiritual fathers of the social market economy, theorising and collaborating to organise the post-World War II economic re-awakening of the war-wrecked German economy, deploying a program sometimes referred to as the sociological neoliberalism.

The Anglo-Saxon model or Anglo-Saxon capitalism is a capitalist model that emerged in the 1970s based on the Chicago school of economics. However, its origins date to the 18th century in the United Kingdom under the ideas of the classical economist Adam Smith.

The Walter Eucken Institut is a German ordo-liberal economic think tank based in Freiburg im Breisgau, Baden-Württemberg, Germany.

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

Economic liberalism is an economic system organized on individual lines, which means the greatest possible number of economic decisions are made by individuals or households rather than by collective institutions or organizations. It includes a spectrum of different economic policies, such as freedom of movement, but its basis is on strong support for a market economy and private property in the means of production. Although economic liberals can also be supportive of government regulation to a certain degree, they tend to oppose government intervention in the free market when it inhibits free trade and open competition.

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.

The Freiburg Circles were a school of economic thought founded in the 1930s in Germany.

Friedrich August Lutz was a German economist who developed the expectations hypothesis.

The Birth of Biopolitics is a part of a lecture series by French philosopher Michel Foucault at the Collège de France between 1978 and 1979 and published posthumously based on audio recordings. In it, Foucault develops further the notion of biopolitics introduced in a previous lecture series, Security, Territory, Population, by tracing the ways in which the eighteenth-century political economy marked the birth of a new governmental rationality. Foucault uses the term Governmentality and raising questions of Political science, political philosophy and social policy concerning the role and status of the State and neo-liberalism in twentieth century politics.

Maurizio Lazzarato French sociologist

Maurizio Lazzarato is an Italian sociologist and philosopher, residing in Paris, France. In the 1970s, he was an activist in the workers' movement in Italy. Lazzarato was a founding member of the editorial board of the journal Multitudes. He is a researcher at Matisse/CNRS, Pantheon-Sorbonne University, and a member of the International College of Philosophy in Paris.

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.
  7. Gabler Verlag (ed.), Gabler Wirtschaftslexikon, Stichwort: Freiburger Schule (online)
  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.
  13. [ dead link ]
  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