Prosperity
for all - The Secret Behind the Success of the Social Market Economy
German
regulatory policy is a middle course between the dangerous extremes of the planned economy
on the one hand and turbocapitalism on the other – and it has been proved to work.
Regulatory policy "ensures that the economy ensures" that people can live well.
It is the rules that apply to the market that make it good or bad.
By Detlef
Gürtler
When communism
collapsed in Eastern Europe, many of the people involved would gladly have kept individual
aspects of it. Lech Walesa for example, the hero of system change in Poland. He dreamt of
an economic model that would combine the efficiency and prosperity of capitalism with the
social security of communism. Work like the Poles, but live like the Japanese – the
economists of the western world smiled indulgently at the ideas of their eastern
neighbours. Only the French economic philosopher Michel Albert defended them without irony
in 1991, asking: "Has everyone forgotten that the German system is not far removed
from this concept?"
We will never know
whether an economic system based on the German model would have handled the radical
changes in Poland, the Czech Republic or Russia better. In Germany, at any rate, the
social market economy has certainly overcome more than one major upheaval, making the
country the "world export champion" for many years. It has succeeded in
combining economic prosperity with social justice – with an intensity that is
unparalleled anywhere in the world. The German economic engine might be spluttering rather
at the moment; even so, Germany’s history of economic success has been such that it
is definitely worth looking into the secrets of its success.
That these secrets are
indeed very German is demonstrated by the fact that the most important terms are (a) all
German and (b) all practically untranslatable. Asked to translate them anyway, your
translator did his best and came up with the following: regulatory policy in a free market
economy (Ordnungspolitik), duty not to engage in industrial action (Friedenspflicht),
social welfare code (Sozialgesetzbuch), nonpartisan industry-wide trade unions
(Einheitsgewerkschaften), small and medium-sized firms (Mittelstand), autonomy in
negotiating pay agreements (Tarifautonomie), employee participation/codetermination
(Mitbestimmung), Federal Cartel Office (Kartellamt), income threshold for contributions
assessment (Beitragsbemessungsgrenze).
Ludwig Erhard is
regarded as the superstar of the social market economy, and for good reasons. As minister
of economics in the nineteen-fifties, the early days of the Federal Republic, he had
unleashed the productive forces of business and in this way conjured up an economic
miracle. He gave his economic philosophy the most attractive of all conceivable slogans:
"prosperity for all." Erhard was convinced that, if the economy was to do
justice to this slogan, the crucial factor was free and unfettered competition between
companies. To put it in his own words: "Protecting free competition is one of the
state’s most important tasks. If the state fails in this area, the social market
economy will soon be lost. Prosperity for all and prosperity by competition are
inseparably linked; the first postulate denotes the goal, the second the road that leads
to this goal."
Just as the
"pursuit of happiness" is the core element of the American Dream,
"prosperity for all" is the embodiment of the German Dream. Yet these are two
completely different dreams. To exaggerate a little: in the US the role of the state is to
ensure that everyone can seek his or her own fortune; in Germany the state’s role is
to ensure that everybody actually finds it. Just as the dreams differ, the economic
realities differ, too.
Competition, which
Ludwig Erhard emphasized as the way to achieve the goal of the social market economy, is
found to be similarly strong and (largely) unfettered on both sides of the Atlantic. Yet
in Germany it comes much closer to achieving "prosperity for all." For
Erhard’s philosophy was not just a singular flash of inspiration – it was part
of a long German tradition of seeking the happiness of the majority.
Imperial Chancellor
Otto von Bismarck laid the foundation stone for the social market economy when he
introduced the compulsory system of social insurance in the 1870s. Since then, the state
– or the social security system – has made sure that the most elementary of
life’s risks do not lead to economic disaster for the individual – a fundamental
idea that is still taken up today in all countries that are attempting the transition from
an agrarian to an industrialized country.
It is primarily thanks
to the trade union leader Carl Legien that the social market economy did not fall prey to
the attacks of either the extreme left or the extreme right. In the chaotic days after the
First World War he made a pact with the employers to prevent anarchy and revolution; and
in 1920 he called a general strike against the reactionary Kapp Putsch. Greater loyalty to
the state can hardly be expected of a trade unionist.
Despite the fact that
the CDU economics minister Ludwig Erhard did not think much of the trade unions,
historically speaking they have been one of the crucial success factors of the social
market economy in Germany. They saw themselves not as fighters in the class struggle, but
as one of the parties in a distribution conflict; they were not fighting progress, but
rather had a real interest in raising the level of productivity. In the ostensibly so
consensus-conscious country of Germany they installed one of the most sophisticated
conflict-management systems in the world: collective bargaining. Because, for all the
sabre-rattling, each of these conflicts ended with a collective agreement that both sides
could sign. The trade unions, therefore, have done at least as much for the economically
so beneficial competition as the Federal Cartel Office that Ludwig Erhard loved so well.
For they made sure that successful companies did not rest on their laurels. Wage pressure
always forced business to keep on investing and innovating. This productivity whip of the
trade unions not only ensures that workers get a fair share of the fruits of their work;
it also forces the employers to till their land in such a way that working there will bear
ever richer fruits.
There are trade unions
in many countries. But only in very few of them do these organizations represent a dynamic
element in the economy. This is why foreign observers are often confused by the strong
influence wielded by works councils on business decisions; yet this argument can be turned
around: nowhere in the world do works councils think in such an entrepreneurial way as in
Germany.
The second basic pillar
of the social market economy – Ordnungspolitik, or regulatory policy – sometimes
has a similarly confusing effect. After all, the Ordnung (order) referred to in
Ordnungspolitik has nothing whatsoever to do with the globally commonplace concept of
"law and order," which stands for the nightwatchman state of classical
liberalism. Government policy ensures that people can sleep at night and otherwise gives
business a completely free hand; people who can’t keep up just have to look out for
themselves. The other extreme is the all-embracing all-providing welfare state – what
used to be called state socialism – which ensures not only a good night’s sleep,
but also good food, good drink, good living, good housing, good clothing – and good
behaviour. However, it ensures that none of this actually works.
Regulatory policy of
German provenance is the only middle course between these dangerous extremes –
between political economy and night-watchman capitalism – that has so far been proved
to work in practice. Regulatory policy ensures that the economy ensures that people can
eat, drink and live well. It first installs the framework within which economic dynamics
can unfold; thereafter, economic activity can simply take place in the economy. The basic
idea behind this is not so much an ideological as a pragmatic conception of the market
economy. The market itself is neither good nor bad. It is the rules that govern it that
make it good or bad, efficient or unproductive. And it is politicians who make these
rules. Ludwig Erhard put it like this: "It is the task of politics, a matter for
society, to point the economy in the right intellectual, psychological and material
direction."
Finding this direction
has recently again become one of the most important tasks of German politics. For the
social market economy is getting on: 125 years after Bismarck, 85 years after Legien, 55
years after Erhard there is not much left of the dynamics that distinguished the German
economy for so long. And there is trouble brewing: the timberwork of the welfare state is
groaning under the strain. With GDP stagnating, there is simply not enough money around to
guarantee equal living conditions throughout Germany.
As a result the debates
on the future direction of economic and social policy are becoming fiercer. Yet the
classic liberal position is still very rarely championed. And the same applies to the
opposite view that advocates achieving prosperity for all by distributing profits equally
throughout the population. Instead, all the parties and institutions are discussing how to
adjust the social system to these lean times: what services are indispensable, which ones
can we cut to save money? Which measures create the wrong incentives? Should they be
abolished or revamped? "Reshaping and renewing the welfare state are tasks that
cannot be avoided. It is not a matter of dealing it a deathblow, but of preserving its
essence," says Federal Chancellor Gerhard Schröder.
Whatever the subject
– be it pension insurance, health insurance or unemployment insurance – the
search is on for ways to move away from one-for-all solutions and towards more individual
responsibility. Why should the state determine when a person has reached retirement age?
Why should the public-at-large have to pay medical costs for people with physically risky
hobbies? The trend towards individualization that can be felt in all areas of society has
now also reached the social system – following a detour via the financial crisis. In
the face of such delicate, but necessary, repair work, there is a theoretical danger that
the type of market economy that is left over will no longer be worthy of the adjective
"social." In practice, however, it will not come to that – the readiness to
practice solidarity, and people’s belief in the "for all," is too
pronounced in Germany.
Another danger is much
more real, however: that the Germans will only judge the quality of their economic system
by the quality of the social services it provides. Because, traditionally, the central
concept of the social market economy is a different one: it is productivity. The common
idea of companies, trade unions and politicians was to raise productivity. The German
economy owes its success in the world market precisely to this productivity orientation.
The more product-ive the market economy is, the more social it can afford to be. Because,
as Ludwig Erhard said many years ago: "The crucial issue is not the division but the
multiplication of the national product."
At the end 19th century
Imperial Chancellor Otto von Bismarck laid the foundation in Germany for a progressive
system of social insurance. It comprised the three compulsory insurance systems for wage
and salary earners (health, accident and pension insurance) that still characterize the
German system today.
"Agenda 2010" is the name of the Federal Government’s reform program in the
fields of business, the budget, employment, economics and social security. The 30 projects
include the equitable reform of the health service and measures to make the labour market
more flexible. http://www.bundesregierung.de/
Health
In Germany nearly all
inhabitants have health insurance, either with a statutory (90 percent) or private health
insurance scheme. The health insurance fund pays the costs of medical and dental
treatment, medicines, hospital treatment and prevention. Workers and employers each pay
half of the insurance premiums.
Accident
All workers in Germany
are insured against accident by law. Most of the insurance schemes are run by trade
associations, each of which covers all the companies of a certain occupation.
Pension
Statutory pension
insurance is a fundamental pillar of social security in Germany. It guarantees a
reasonable standard of living for people after they retire. Workers and employers each pay
half of the contributions. Demographic developments (fewer young employed people, more
older retired people) mean that pension insurance is in need of structural adjustments.
The aim is a balanced distribution of burdens between the generations. People are being
encouraged to supplement their statutory pension with private schemes.
Unemployment
All workers are covered
by unemployment insurance on principle (here, too, the contributions are split equally
between workers and employers). Unemployment benefit is 60 percent of a person’s last
net wage.
(Text courtesy:
Deutschland Magazine, Embassy of Germany, Kathmandu) |
