The social market economy (SOME; , ), also called Rhine capitalism, Rhine-Alpine capitalism, the Rhenish model, and social capitalism, is a socioeconomic model and ideology combining a free-market capitalist economic system with social policies and enough regulation to establish both fair competition within the market and generally a welfare state. It is sometimes classified as a regulated market economy. The social market economy was originally promoted and implemented in West Germany by the Christian Democratic Union under Chancellor Konrad Adenauer in 1949 and today it is used by ordoliberals, social liberals and social democrats. Its origins can be traced to the interwar Freiburg school of economic thought.
The social market economy was designed to be a middle way between laissez-faire forms of capitalism and socialist economics. It was strongly inspired by ordoliberalism, which was influenced by the political ideology of Christian democracy. It refrains from attempts to plan and guide production, the workforce, or sales but supports planned efforts to influence the economy through the organic means of a comprehensive economic policy coupled with flexible adaptation to market studies. Combining monetary, credit, trade, tax, customs, investment, and social policies, as well as other measures, this type of economic policy aims to create an economy that serves the welfare and needs of the entire population.
The social segment is often wrongly confused with socialism by right-wing critics. Although aspects were inspired by democratic socialism and social democracy, the social market approach rejects the communist ideas of replacing private property and markets with social ownership and economic planning. The social element of the model instead refers to support for the provision of equal opportunity and protection of those unable to enter the market labor force because of old age, disability, or unemployment.
Some authors use the term social capitalism with roughly the same meaning as social market economy. It is also called "Rhine capitalism", typically when contrasting it with the Anglo-Saxon model of capitalism. Rather than seeing it as an antithesis, some authors describe Rhine capitalism as a successful synthesis of the Anglo-American model with social democracy. The German model is contrasted and compared with other economic models, some of which are also described as middle ways or regional forms of capitalism, including Tony Blair's Third Way, French dirigisme, the Dutch polder model, the Nordic model, Japanese - Korean - Taiwanese corporate East Asian model of capitalism, and the contemporary Chinese socialist market economy. A 2012 comparative politics textbook distinguishes between the "conservative–corporatist welfare state" (arising from the German social market economy) and the "labor-led social democratic welfare state". The concept of the model has since been expanded upon into the idea of an eco-social market economy as not only taking into account the social responsibility of humanity but also the sustainable use and protection of natural resources.
Countries with a social market economy include Andorra, Austria, Belgium, France, Germany, Italy, Liechtenstein, Ukraine, Luxembourg, Monaco, Netherlands and Switzerland.
Model
Social market economies aim to combine free initiative and social welfare on the basis of a competitive economy.Müller-Armack, A., Soziale Marktwirtschaft – Handwörterbuch der Sozialwissenschaften, vol. 9, Göttingen, 1956, p. 249. The social market economy is opposed to laissez-faire policies and to socialist economic systems,James C. Van Hook, Rebuilding Germany: The Creation of the Social Market Economy 1945–1957, Cambridge University Press, 2004, , p. 185 and combines private enterprise with regulation and state intervention to establish fair competition, maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, social welfare and public services.Gabler Wirtschaftslexikon: Soziale Marktwirtschaft The term "social" was established by Adenauer to prevent further reference to Christian socialism, p. 80 which was used in the early party agenda Ahlener Programm in 1947. p. 53
Although the social market economy model evolved from ordoliberalism, this concept was not identical with the conception of the Freiburg school as it emphasized the state's responsibility to work actively to improve the market condition and simultaneously to pursue a social balance. In contrast to Walter Eucken, who sought an answer to the social question by establishing a functioning competitive order within a constitutional framework, Alfred Müller-Armack conceived the social market economy as a regulatory policy idea aiming to combine free enterprise with a social program that is underpinned by market economic performance.Müller-Armack, A., Soziale Marktwirtschaft – Handwörterbuch der Sozialwissenschaften, vol. 9, Göttingen, 1956, p. 390; Idem, Wirtschaftsordnung und Wirtschaftspolitik, Studien und Konzepte zur Sozialen Marktwirtschaft und zur Europäischen Integration, Freiburg im Breisgau, 1966, p. 245. In putting social policy on par with economic policy, Müller-Armack's concept was more emphatic regarding socio-political aims than the ordoliberal economic concept. This dual principle also appeared in the name of the model. Although the adjective "social" often attracted criticism as a decorative fig leaf or conversely as a gateway for antiliberal interventionism,Hayek, F. A. v., "Was ist und was heisst 'sozial'?", in: Hunold, A. (ed.), Masse und Demokratie, Erlenbach-Zurich/ Stuttgart, 1957, pp. 71 ff. See also the contributions of Wünsche, H. F., Welcher Marktwirtschaft gebührt das Beiwort "sozial"? and Wartin, C., Zur sozialen Dimension marktwirtschaftlicher Ordnungen, in: Hohmann, K.; Schönwitz, D.; Weber, H. J.; Wünsche, H. F. (eds.), Grundtexte zur Sozialen Marktwirtschaft, Band 2, Das Soziale in der Sozialen Marktwirtschaft, Stuttgart/New York, 1988, pp. 21-31, and pp. 411-415. it meant more than simply distinguishing the concept from that of laissez-faire capitalism on the one side and of ordoliberal conceptions on the other.Nicholls, A. J., The Bonn Republic – West German Democracy 1945–1990, London/ New York, 1997, pp. 59 ff.
In drawing on Wilhelm Röpke's anthropo-sociological approach of an economic humanism leading to a Civitas Humana,Röpke, W., Civitas Humana – Grundfragen der Gesellschafts- und Wirtschaftsordnung, Erlenbach-Zürich, 1944. Müller-Armack pursued a "Social Humanism" or "Social Irenics"—the notion irenics derives from the Greek eirēnē (εἰρήνη), which means being conducive to or working toward peace, moderation or conciliation—to overcome existing differences in society. The social market economy as an extension of neoliberal thought was not a defined economic order but a holistic conception pursuing a complete humanistic societal order as a synthesis of seemingly conflicting objectives, namely economic freedom and social security.Müller-Armack, A., Auf dem Weg nach Europa. Erinnerungen und Ausblicke, Tübingen/ Stuttgart, 1971, pp. 50 ff. This socio-economic imperative actively managed by a strong state—in contrast to the ordoliberal minimal state solely safeguarding the economic orderIn regard to the different conceptions of the state see the study Lange-von Kulessa, J.; Renner, A., Die Soziale Marktwirtschaft Alfred Müller-Armacks und der Ordoliberalismus der Freiburger Schule – Zur Unvereinbarkeit zweier Staatsauffassungen, in: ORDO 49, Stuttgart, 1998, pp. 79-104.—is often labelled by the ambiguous but historical term Der Dritte Weg ("The Third Way").
The concept of the social market economy received fundamental impulses from reflection and critique of historical economic and social orders, namely Smithian laissez-faire liberalism on the one hand and Marxian socialism on the other. Furthermore, various Third Way conceptions prepared the ground for the socio-economic concept. Already in the late 19th century, the Kathedersozialisten ("Catheder Socialists") engaged in social reforms in the Verein für Socialpolitik, turning away from pure liberalism to demand a purposive state policy designed to regulate economic life and advocating a middle course between anarchic individualism, traditionalistic corporatism and bureaucratic statism.Nipperdey, Th., Deutsche Geschichte 1866–1918. Erster Band: Arbeitswelt und Bürgergeist, Munich 1993, p. 336.