Ordoliberalism is the
German
German(s) may refer to:
* Germany (of or related to)
** Germania (historical use)
* Germans, citizens of Germany, people of German ancestry, or native speakers of the German language
** For citizens of Germany, see also German nationality law
**Ge ...
variant of
economic liberalism
Economic liberalism is a political and economic ideology that supports a market economy based on individualism and private property in the means of production. Adam Smith is considered one of the primary initial writers on economic liberalism ...
that emphasizes the need for government to ensure that the
free market
In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any o ...
produces results close to its theoretical potential but does not advocate for a
welfare state
A welfare state is a form of government in which the state (or a well-established network of social institutions) protects and promotes the economic and social well-being of its citizens, based upon the principles of equal opportunity, equitabl ...
.
Ordoliberal ideals became the foundation of the creation of the post-
World War II
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
German
social market economy
The social market economy (SOME; german: soziale Marktwirtschaft), also called Rhine capitalism, Rhine-Alpine capitalism, the Rhenish model, and social capitalism, is a socioeconomic model combining a free-market capitalist economic system alon ...
and its attendant . The term "ordoliberalism" (german: Ordoliberalismus) was coined in 1950 by Hero Moeller, and refers to the academic journal ''
ORDO
''Ordo'' (Latin "order, rank, class") may refer to:
* A musical phrase constructed from one or more statements of a rhythmic mode pattern and ending in a rest
* Big O notation in calculation of algorithm computational complexity
* Orda (organizati ...
''.
Linguistic differentiation
Ordoliberals separate themselves from
classical liberals
Classical liberalism is a political tradition and a branch of liberalism that advocates free market and laissez-faire economics; civil liberties under the rule of law with especial emphasis on individual autonomy, limited government, econo ...
. Notably , with , founder of ordoliberalism and the
Freiburg School
__notoc__
The Freiburg school (german: Freiburger Schule) is a school of History of economic thought, economic thought founded in the 1930s at the University of Freiburg.
It builds somewhat on the earlier historical school of economics but stresse ...
,
rejected
neoliberalism
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
.
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. Ironically, the term neoliberalism was originally coined in 1938, at the , by , who is regarded as an ordoliberal today.
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 with Capitalisme Contre Capitalisme and in 2001 Peter A. Hall and
David Soskice
David William Soskice, FBA (born 6 July 1942) is a British political economist and academic. He is currently the LSE School Professor of Political Science and Economics at the London School of Economics.
Early life and education
Soskice was bor ...
with ''
Varieties of Capitalism
''Varieties of Capitalism: The Institutional Foundations of Comparative Advantage'' is a 2001 book on economics, political economy, and comparative politics edited by political economists Peter A. Hall and David Soskice.
Contents
''Varieties of ...
'' aimed to separate the concepts and develop the new terms
liberal market economy
''Varieties of Capitalism: The Institutional Foundations of Comparative Advantage'' is a 2001 book on economics, political economy, and comparative politics edited by political economists Peter A. Hall and David Soskice.
Contents
''Varieties o ...
and
coordinated market economy
A regulated market (RM) or coordinated market is an idealized system where the government or other organizations oversee the market, control the forces of supply and demand, and to some extent regulate the market actions. This can include tasks s ...
to distinguish neoliberalism and ordoliberalism.
Development
The theory was developed from about 1930 to 1950 by
German
German(s) may refer to:
* Germany (of or related to)
** Germania (historical use)
* Germans, citizens of Germany, people of German ancestry, or native speakers of the German language
** For citizens of Germany, see also German nationality law
**Ge ...
economists
An economist is a professional and practitioner in the social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...
and legal scholars from the
Freiburg School
__notoc__
The Freiburg school (german: Freiburger Schule) is a school of History of economic thought, economic thought founded in the 1930s at the University of Freiburg.
It builds somewhat on the earlier historical school of economics but stresse ...
, such as
Walter Eucken
Walter Eucken (; 17 January 1891 – 20 March 1950) was a German economist of the Freiburg school and father of ordoliberalism. He is closely linked with the development of the concept of "social market economy".
Early life
Walter Eucken was born ...
, , Hans Grossmann-Doerth, and Leonhard Miksch.
Ordoliberal ideals (with modifications) drove the creation of the post-
World War II
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
German social market economy. They were especially influential on forming a firm
competition law
Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust l ...
in Germany. However the social market economy was implemented in economies where
corporatism
Corporatism is a collectivist political ideology which advocates the organization of society by corporate groups, such as agricultural, labour, military, business, scientific, or guild associations, on the basis of their common interests. The ...
was already well established, so ordoliberal ideals were not as far reaching as the theory's economic founders had intended.
Since the 1960s, ordoliberal influence on economics and jurisprudence has significantly diminished however many German economists define themselves as Ordoliberals through the present day, the ''
ORDO
''Ordo'' (Latin "order, rank, class") may refer to:
* A musical phrase constructed from one or more statements of a rhythmic mode pattern and ending in a rest
* Big O notation in calculation of algorithm computational complexity
* Orda (organizati ...
'' is still published, and the Faculty of Economics at the
University of Freiburg
The University of Freiburg (colloquially german: Uni Freiburg), officially the Albert Ludwig University of Freiburg (german: Albert-Ludwigs-Universität Freiburg), is a public university, public research university located in Freiburg im Breisg ...
is still teaching ordoliberalism. Additionally, some institutes and foundations such as the and the are engaged in the ordoliberal tradition.
Implementation
![Bundesarchiv B 145 Bild-F004214-0033, Konrad Adenauer und Ludwig Erhard](https://upload.wikimedia.org/wikipedia/commons/f/fa/Bundesarchiv_B_145_Bild-F004214-0033%2C_Konrad_Adenauer_und_Ludwig_Erhard.jpg)
Ordoliberalism was a major influence on the economic model developed in post-war
West Germany
West Germany is the colloquial term used to indicate the Federal Republic of Germany (FRG; german: Bundesrepublik Deutschland , BRD) between its formation on 23 May 1949 and the German reunification through the accession of East Germany on 3 O ...
. Ordoliberalism in
Germany
Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
became known as the social market economy.
The Ordoliberal model implemented in Germany was started under the government administration of . His government's
Minister of Economics A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Ec ...
, , was a known Ordoliberal and adherent of the
Freiburg School
__notoc__
The Freiburg school (german: Freiburger Schule) is a school of History of economic thought, economic thought founded in the 1930s at the University of Freiburg.
It builds somewhat on the earlier historical school of economics but stresse ...
. Under , 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 , or economic miracle.
Theory
Ordoliberal theory holds that the
state
State may refer to:
Arts, entertainment, and media Literature
* ''State Magazine'', a monthly magazine published by the U.S. Department of State
* ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States
* ''Our S ...
must create a proper legal environment for the economy and maintain a healthy level of
competition
Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...
through measures that adhere to
market principles. This is the foundation of its
legitimacy
Legitimacy, from the Latin ''legitimare'' meaning "to make lawful", may refer to:
* Legitimacy (criminal law)
* Legitimacy (family law)
* Legitimacy (political)
See also
* Bastard (law of England and Wales)
* Illegitimacy in fiction
* Legit (d ...
.
The concern is that, if the state does not take active measures to foster competition,
firms with
monopoly
A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
(or
oligopoly
An oligopoly (from Greek ὀλίγος, ''oligos'' "few" and πωλεῖν, ''polein'' "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result from ...
) power will emerge, which will not only subvert the advantages offered by the
market economy
A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers ...
, but also possibly undermine good government, since strong economic power can be transformed into political power.
According to Stephen Padgett, "a central tenet of ordo-liberalism is a clearly defined division of
labor
Labour or labor may refer to:
* Childbirth, the delivery of a baby
* Labour (human activity), or work
** Manual labour, physical work
** Wage labour, a socioeconomic relationship between a worker and an employer
** Organized labour and the la ...
in economic management, with specific responsibilities assigned to particular institutions.
Monetary policy
Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...
should be the responsibility of a
central bank
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
committed to monetary stability and low
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
, and insulated from political pressure by independent status.
Fiscal policy
In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables ...
—balancing
tax revenue
Tax revenue is the income that is collected by governments through taxation. Taxation is the primary source of government revenue. Revenue may be extracted from sources such as individuals, public enterprises, trade, royalties on natural resou ...
against
government expenditure
Public expenditure is spending made by the government of a country on collective needs and wants, such as pension, provisions, security, infrastructure, etc. Until the 19th century, public expenditure was limited as laissez faire philosophies b ...
—is the domain of the government, whilst
macro-economic policy is the preserve of
employers
Employment is a relationship between two party (law), parties Regulation, regulating the provision of paid Labour (human activity), labour services. Usually based on a employment contract, contract, one party, the employer, which might be a co ...
and
trade unions
A trade union (labor union in American English), often simply referred to as a union, is an organization of workers intent on "maintaining or improving the conditions of their employment", ch. I such as attaining better wages and Employee ben ...
." The state should form an economic order instead of directing economic processes, and three negative examples ordoliberals used to back their theories were
Nazism
Nazism ( ; german: Nazismus), the common name in English for National Socialism (german: Nationalsozialismus, ), is the far-right totalitarian political ideology and practices associated with Adolf Hitler and the Nazi Party (NSDAP) in Na ...
,
Keynesianism
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output ...
, and
Russian socialism. It is also seen as a
third way
The Third Way is a centrist political position that attempts to reconcile right-wing and left-wing politics by advocating a varying synthesis of centre-right economic policies with centre-left social policies. The Third Way was born from a ...
between
collectivism
Collectivism may refer to:
* Bureaucratic collectivism, a theory of class society whichto describe the Soviet Union under Joseph Stalin
* Collectivist anarchism, a socialist doctrine in which the workers own and manage the production
* Collectivis ...
and
laissez-faire liberalism
Economic liberalism is a political and economic ideology that supports a market economy based on individualism and private property in the means of production. Adam Smith is considered one of the primary initial writers on economic liberalism, ...
.
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
New Labour was a period in the history of the British Labour Party from the mid to late 1990s until 2010 under the leadership of Tony Blair and Gordon Brown. The name dates from a conference slogan first used by the party in 1994, later seen ...
government (especially during the
premiership of Tony Blair
Tony Blair's term as the prime minister of the United Kingdom began on 2 May 1997 when he accepted an invitation of Queen Elizabeth II to form a government, succeeding John Major of the Conservative Party, and ended on 27 June 2007 upon his res ...
), there are a few key differences. Whilst they both adhere to the idea of providing a moderate stance between
socialism
Socialism is a left-wing economic philosophy and movement encompassing a range of economic systems characterized by the dominance of social ownership of the means of production as opposed to private ownership. As a term, it describes the e ...
and
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
, the ordoliberal social market model often combines
private enterprise
A privately held company (or simply a private company) is a company whose shares and related rights or obligations are not offered for public subscription or publicly negotiated in the respective listed markets, but rather the company's stock is ...
with government
regulation
Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. For ...
to establish fair
competition
Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...
(although German network industries are known to have been deregulated),
whereas advocates of the third-way social democracy model have been known to oversee multiple economic
deregulation
Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a ...
s. The third way social democracy model has also foreseen a clash of ideas regarding the establishment of the
welfare state
A welfare state is a form of government in which the state (or a well-established network of social institutions) protects and promotes the economic and social well-being of its citizens, based upon the principles of equal opportunity, equitabl ...
, in comparison to the ordoliberal's idea of a social market model being open to the
benefits of
social welfare
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
.
Ordoliberals are also known for pursuing a minimum
configuration of vital resources and
progressive tax
A progressive tax is a tax in which the tax rate increases as the taxable amount increases.Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), ''Concepts of Taxation'', Dryden Press: Fort Worth, TX The term ''progre ...
ation. The ordoliberal emphasis on the
privatization
Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...
of
public services
A public service is any service intended to address specific needs pertaining to the aggregate members of a community. Public services are available to people within a government jurisdiction as provided directly through public sector agencies ...
and other public firms such as
telecommunication
Telecommunication is the transmission of information by various types of technologies over wire, radio, optical, or other electromagnetic systems. It has its origin in the desire of humans for communication over a distance greater than that fe ...
services;
wealth redistribution
Redistribution of income and wealth is the transfer of income and wealth (including physical property) from some individuals to others through a social mechanism such as taxation, welfare, public services, land reform, monetary policies, confis ...
and
minimum wage
A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century. Bec ...
laws as regulative principles makes clear the links between this economic model and the social market economy.
considered ordoliberalism to be "liberal conservatism", against
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
in his work ("A Humane Order of Society", 1944). also criticized
laissez-faire
''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups. ...
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
in his work ("The Failure of Economic Liberalism", 1950). The ordoliberals thus separated themselves from
classical liberal
Classical liberalism is a political tradition and a branch of liberalism that advocates free market and laissez-faire economics; civil liberties under the rule of law with especial emphasis on individual autonomy, limited government, econom ...
s
and valued the idea of
social justice
Social justice is justice in terms of the distribution of wealth, opportunities, and privileges within a society. In Western and Asian cultures, the concept of social justice has often referred to the process of ensuring that individuals fu ...
. "
Social security
Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specificall ...
and social justice", wrote , "are the greatest concerns of our time".
also notes the similarity (beyond just historical contemporaneity) between the Ordo/Freiburg school and the
Frankfurt School
The Frankfurt School (german: Frankfurter Schule) is a school of social theory and critical philosophy associated with the Institute for Social Research, at Goethe University Frankfurt in 1929. Founded in the Weimar Republic (1918–1933), dur ...
of
critical theory
A critical theory is any approach to social philosophy that focuses on society and culture to reveal, critique and challenge power structures. With roots in sociology and literary criticism, it argues that social problems stem more from soci ...
, due to their inheritance from . That is, both recognise the "irrational rationality" of the capitalist system, but not the "
logic of contradiction" that
Marx
Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
posited. Both groups took up the same problem, but in vastly different directions. The political philosophy of Ordoliberals was influenced by
Aristotle
Aristotle (; grc-gre, Ἀριστοτέλης ''Aristotélēs'', ; 384–322 BC) was a Greek philosopher and polymath during the Classical period in Ancient Greece. Taught by Plato, he was the founder of the Peripatetic school of phil ...
, , , , , , and .
Criticism
According to and , ordoliberalism is central to the German approach to the
European sovereign-debt crisis
The European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, is a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone memb ...
, which has often led to conflicts with other European countries.
See also
*
Allocative efficiency
Allocative efficiency is a state of the economy in which production is aligned with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the mar ...
*
Dirigisme
Dirigisme or dirigism () is an economic doctrine in which the state plays a strong directive (policies) role contrary to a merely regulatory interventionist role over a market economy. As an economic doctrine, dirigisme is the opposite of ''lai ...
*
Freiburg School
__notoc__
The Freiburg school (german: Freiburger Schule) is a school of History of economic thought, economic thought founded in the 1930s at the University of Freiburg.
It builds somewhat on the earlier historical school of economics but stresse ...
*
Liberal conservatism
*
Neoliberalism
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
*
Radical centrism
Radical centrism (also called the radical center, the radical centre or the radical middle) is a concept that arose in Western nations in the late 20th century.
The '' radical'' in the term refers to a willingness on the part of most radical ce ...
*
Social market economy
The social market economy (SOME; german: soziale Marktwirtschaft), also called Rhine capitalism, Rhine-Alpine capitalism, the Rhenish model, and social capitalism, is a socioeconomic model combining a free-market capitalist economic system alon ...
References
Further reading
*
*
*
External links
*, German Ordoliberal association.
*, German research institute in the tradition of ordoliberalism.
*, Italian Centre Studies on Social Market Economy and liberal tradition in the light of Catholic social thought.
ORDO official websiteBack issues of ORDO Yearbook Vol. 1 - Vol. 65 (1948-2014)via
JSTOR
JSTOR (; short for ''Journal Storage'') is a digital library founded in 1995 in New York City. Originally containing digitized back issues of academic journals, it now encompasses books and other primary sources as well as current issues of j ...
{{Freiburg school economists
Economic liberalism
Economic policy in Europe
Economy of Germany
Freiburg School
Ideologies of capitalism
Liberalism
Political ideologies