The "German economic miracle” after the second world war is connected with the design of an economic policy labeled "Social Market Economy" which forms a third path between capitalism (pure or free market economy) and socialism (centrally planned economy). This notion is relevant for New Labor in Britain as well as for the Social Democrats in Germany. Social Market Economy is usually perceived as an idea aimed at reaching social justice and national peace and thus avoiding the traditional class struggle between capital and labor. However, this idea also requires a change in the paradigm of economic thinking from traditional self-organization by markets to a mixture of social control of both government and markets. Until now, however, economic theory has refused to follow this new paradigm, thus resulting in a deficiency of theory in the field of Social Market Economy. Microeconomic theory is dominating the current economic thinking. The realization of a "socially responsible market economy” should be done pragmatically by political recognition of changing challenges and situations, thus establishing the welfare state in democratic decisions. History has shown that governments have often alternated between the right wing and the left wing. During the sixties, the Social Democrats retained the well established concepts of a Social Market Economy, but attempted to design a "left wing” version thereof, aimed at more political control. In Germany, suffering from the first great crisis in the Federal Republic, this was done in order to reach a higher degree of economic stability. The ensuing governments, led by the Christian Democrats in Germany, attempted to reduce the welfare state using the slogan "more market, less state”. Not even the great challenge of transforming the former socialist parts of Germany into a market economy gave rise to the idea of a "new Social Market Economy”. Similarly, it is argued in this paper that there is no need for a "new Social Market Economy”: The old one is open for reforms from the left as well as from the right wing as experience over more than 50 years has demonstrated. The original Social Market Economy is worth being defended even in view of globalization and is recommended for many economies all over the world in order to avoid globalization of the traditional "class struggle” between capital and labor. A necessary condition for any "socially controlled market economy” are properly working political institutions and governments. Therefore, in order to ensure the necessary public interventions, national states must not vanish, as prophets of globalization often maintain. On the contrary, a political countervailing power is necessary to discipline the "global economic players” as well as to avoid political hegemony of one or more national states. In a global world, only the national states can guarantee decisions along the so called "subsidiary principle” of Social Market Economy.
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Paper provided by Universitaet Augsburg, Institute for Economics in its series Discussion Paper Series with number
229.
Find related papers by JEL classification: A0 - General Economics and Teaching - - General L0 - Industrial Organization - - General P0 - Economic Systems - - General
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