Agenda Introduction The Founding Ideas Walter Eucken and the Ordnungpolitik Alfred Müller-Armack and the Ethical Dimension of the Social Market Econom

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1 Sixty Years of Social Market Economy: Orientation in Post-War Times, after Reunification, and during the Current Economic Crisis Berthold U. Wigger Karlsruhe Institute of Technology (KIT) Chair of Public Finance and Public Management Academic Advisory Board of the German Federal Government ZEW Mannheim CESifo Munich KIT The cooperation of and Universität Karlsruhe (TH)

2 Agenda Introduction The Founding Ideas Walter Eucken and the Ordnungpolitik Alfred Müller-Armack and the Ethical Dimension of the Social Market Economy Implementation of the Social Market Economy after World War II The Social Market Economy after Reunification The Social Market Economy and the Current Economic Crisis The Social Market Economy in the 21 st Century Prof. Max Mustermann Fakultät für Musterwissenschaften: KIT The cooperation of and Universität Karlsruhe (TH)

3 Walter Eucken and the Ordnungspolitik Constitutional Principles Rationing by competitive market prices Primacy of monetary policy Free market access Precedence of private property Freedom of contract Private accountability Steady economic policy Prof. Max Mustermann Fakultät für Musterwissenschaften: KIT The cooperation of and Universität Karlsruhe (TH)

4 Alfred Müller-Armack and the Ethical Dimension of the Social Market Economy Market system in combination with social insurance and income redistribution superior to socialist economy even with respect to social aims and ethical standards Market system guarantees intellectual and political liberties as it decentralizes private economic powers and limits the power of the state Market conformity: those measures should be chosen by economic policy that are compatible with and that do not replace decentralized decision making Prof. Max Mustermann Fakultät für Musterwissenschaften: KIT The cooperation of and Universität Karlsruhe (TH)

5 Implementation of Social Market Economy after World War II Regulatory decisions in the 1950s Establishment of the Bundesbank Law against Restraints on Competition and establisment of the Bundeskartellamt Continuous opening of domestic markets for international trade Prof. Max Mustermann Fakultät für Musterwissenschaften: KIT The cooperation of and Universität Karlsruhe (TH)

6 The German System of Social Insurance Public old age insurance, health care insurance, unemployment insurance, accident insurance and longterm care insurance for all employees Social assistance for the needy Collective wage bargaining between employer representatives and labour unions Labour contracts are excluded from the general freedom of contract Co-determination rights of employees Prof. Max Mustermann Fakultät für Musterwissenschaften: KIT The cooperation of and Universität Karlsruhe (TH)

7 The Social Market Economy after Reunification Establishment of the Monetary, Economic and Social Union by July st, 1990 Immediate privatization of the East German economy Immediate welfare entitlement of East Germans Massive transfer of funds from West to East Germany Once again, the social aspect of the Social Market Economy paved the way for the adoption of free markets Prof. Max Mustermann Fakultät für Musterwissenschaften: KIT The cooperation of and Universität Karlsruhe (TH)

8 The Social Market Economy and the Current Economic Crisis Current crisis demonstrates the need for regulation The principle of the primacy of monetary policy has been ignored The principle of private accountability has been ignored Social Market Economy automatically stabilizes private demand Prof. Max Mustermann Fakultät für Musterwissenschaften: KIT The cooperation of and Universität Karlsruhe (TH)

9 The Social Market Economy in the 21 st Century Social aspect of the Social Market Economy also bears the potential to inspire new confidence in the market mechanism Emerging and developing economies can build on the social balance inherent in a Social Market Economy Social Market Economy of the 21 st implies a general consensus that economic decision making is decentralized and based on competitive markets Social Market Economy of the 21 st century implies a strong but subsidiary state Social Market Economy of the 21 st century calls for a partaking of all members of society in economic prosperity Prof. Max Mustermann Fakultät für Musterwissenschaften: KIT The cooperation of and Universität Karlsruhe (TH)