Ordoliberalism or the social market economy. An alternative model of capitalism?

The capitalism is the economic system based on private ownership of the means of production. Analyzing the different models of capitalism means taking into consideration the type of private ownership (with widespread, concentrated or family ownership), the role of the state in the economy, the importance of welfare policies and the role of non-profit organizations. Despite the emergence of emerging economies, starting with the collapse of the Soviet Union and the expansion of the European Union eastward, some common trends can be observed: the role of stock exchanges and internal and international financial markets , privatizations and liberalizations, while state intervention and coverage of the social security system decreased (with the exception of the United States under the Obama administration). Consequently to this rapidfinancialization of the economy , national economic policies have become less efficient and oligopolistic competition has increased. Finally, the 2008 economic crisis put the West in difficulty and changed the overall vision of public intervention.

 

The privatization process in some cases has been more formal than substantive (that has changed the legal entity of the service provider), but tend to aimed to entrust to market forces to achieve greater efficiency and rebalance public finance. In fact, the public enterprise generally concerns those sectors considered to be of public importance, that is natural monopolies, therefore it is not always oriented towards maximizing profits, and traditionally operates in markets that are not open to competition. Therefore, privatization must also be accompanied by the liberalization of activity, to avoid passing from a public monopoly to a private one.

 

To assess the role of the state in the economy , it is necessary to consider elements such as the weight of the public enterprise, public spending on GDP, the weight of taxation and social contributions and the role of the state in guiding production choices.

Generally speaking, it could be said that the presence of the state is strongly reduced in Anglo-Saxon countries, slightly higher in Japan and significantly high in European countries. Similarly, as regards public spending on welfare policies, it is lower in the Anglo-Saxon countries and in Japan and higher in France, Germany and the Nordic countries. In Italy, it is high for the pension system – despite the reforms of recent years – and more modest for children, the elderly and the unemployed. Finally, with regard to ownership, in the Anglo-Saxon countries most of the companies are widely owned (although pension funds and investment funds play an increasingly important role, guiding the choices of companies), while in Italy , In France and Greece there is predominantly family capitalism, with a few large families controlling the largest groups and myriads of small and medium-sized enterprises. In France, the State controls, directly or indirectly, the nerve centers of economic and financial power, the so-called “hard cores”, while in Germany there is a strong equity and administrative intertwining between banks and industry, also thanks to the presence of representatives of workers on supervisory boards, with a relatively small role in the stock market, which however has assumed greater importance since the end of the last century.

 

All this allowed the French economist Michel Albert to speak of only two models of capitalism: the Neo-American , or rather Reagan , and the German-Japanese . Albert’s work is placed in the years immediately following the collapse of the Soviet Union, characterized by the first conservative revolution in the economic sphere, the revolution of the minimal state promoted by Margaret Thatcher and Ronald Reagan, based on the principle that if the rich pay less taxes, economic growth will be more vigorous and beneficial to all. For this reason, the maximum rate increased in the United States from 75 to 33 per cent and in the United Kingdom from 98 to 40 per cent: for the first time, there was a worldwide race to reduce the tax burden. After the struggle between capitalism and communism with a clear victory of the former, at this point, according to Albert, the struggle, even more evident following the reunification of Germany by Chancellor Helmut Kohl, is among the different models of capitalism.

 

Heralded by the words “America is back!” and implemented through the Economic Recovery Act (ERA ), the conservative revolutionstarted by Reagan, president of the United States from 1981 to 1989, promised a big bang, an American economic miracle made of deregulation, backwardness of the state, easing the tax burden and exaltation of profit for profit and ended up also investing left of the whole of Europe, especially in the former socialist countries (just think of the Polish Balcerowicz plan). In 1990, Margaret Thatcher left the scene due to her positions against the construction of Europe, but by now her ideas had inspired the future great European market and it seems that she herself considered Tony’s Labor Party as her greatest success. Blair .

 

The neo-American model found its foundation in Milton Friedman’s monetarist theories : faced with the phenomenon of stagflation , or the coexistence of economic stagnation and inflation, the new disease of Western economies, already in the second half of the seventies the European powers had noted that it was impossible to respond with the classic Keynesian tool of stimulating aggregate demand (French Prime Minister Jacques Chirac in 1975 and German Chancellor Helmut Schmidt in 1978 failed). The Phillips curve, which postulated an inverse relationship between the inflation rate and the unemployment rate, was disproved by the facts because the two elements coexisted. The new economic model took to its extreme consequences the deregulation in the oil, telecommunications, aviation, banking and competition sectors undertaken in 1978 by Reagan’s predecessor, Jimmy Carter, and promised a tough fight against inflation through drastic control of the money supply.

 

In fact, according to Albert, Reaganism led to the triumph of the so  called non-cities, characterized by degradation, drug trafficking and poverty, an increase in inequalities in the distribution of household incomes, measured by the Gini coefficient, and a resounding decline in industry caused by the relative reduction of the size of the internal market, to conquer foreign markets in competition with the Japanese and Europeans, more advanced on the technological level, due to the decline in the qualification of American workers and an administration that is not always optimal. Furthermore, it led to a sick school, health care and democracy and also failed in the last of its promises, debt relief: according to economist Lester Turow, Reagan’s epitaph could be: “Here lies the man who has led, with unprecedented speed, great powerfrom the status of creditor to that of world debtor “. Finally, according to Albert, the Alpine insurance model would be much more efficient than the Anglo-Saxon one.

 

The triumph of the less efficient model would be due to a progressive Americanization of Europe , evident in a series of attitudes such as the decolpevolization of money, the triumph of individualism, the growing cruelty of society and the spread of a certain conformity of behavior under the hegemonic influence of television, in addition to a greater effectiveness of American indifference towards social aid compared to a welfare system like the French one which is not accompanied by effective economic growth. In this sense, only Rhine capitalism has managed to combine more generous social protection with better economic results.

 

According to Marco Zanobio , however, the reality would be more complex. In particular, there are four different models of capitalism: the Anglo-Saxon one, market-oriented and characterized by widespread ownership structures, short-term objectives, the excessive power of the manager and the scarce relevance of trade unions, employees, financiers and public administration; the Rhenish one, relational or dedicated capital (Porter), characterized by collaboration between shareholders, long-term objectives and a double control system, consisting of a board of directors and a supervisory board; the Japanese one, characterized by even longer-term objectives but entered into crisis in the 1990s; and the Italian one , a modelsui generis characterized in a first phase by the binomial State and small and medium-sized enterprises and in the second, following the privatization process, by a family capitalism, with administrative roles not yet clear.

 

Finally, there would be a pathological form of capitalism, an oligarchic capitalism , typical above all of the countries of the former Soviet Union, but also of Latin America, the Middle East and some African countries, in which there is a public protection of private assets. .

According to Marino Regini , in agreement in considering the Italian model a sui generis model , the challenge of globalization, requiring interventions of deregulation and reduction of social spending, where these interventions have been implemented by seeking popular consensus, has led to a rethinking of concertation , with new social pacts for development on the German model (suffice it to compare the failure of the Berlusconi I government in implementing a unilateral pension reform, which caused a general strike and the consequent cancellation of the provision, with the success of the Dini reform of 1995, obtained through the negotiation between government and unions).

 

L ‘ ordoliberalism was born in 1936 with the founding of the journal Ordo the work of Franz Böhm , Walter Eucken and Hans Grossmann-Dörth . Ordoliberalism was born in contrast with the fatalism typical of the German historical school and of Marxism, which pushes the scientist to surrender in the face of the necessity that governs the historical process, and for this reason it presupposes the free market , in the conviction according to which it belongs. to the economic constitution identify a demarcation line between unfair competition and authentic competition, that is regular , orderprecisely the market in such a way that it is effectively free. Therefore, compared to the classical vision of laissez-faire , already in the manifesto of Ordo , entitled Our task , a new principle was affirmed, that of the inseparable link between politics and economics. Furthermore, the manifesto was in continuity with the social doctrine of the Church inaugurated by Leo XIII’s encyclical Rerum novarum (1891).

 

The position of the ordoliberals is not dogmatically against or in favor of the market, but concretely with the market . According to Eucken, a state that intervenes in economics contradicts the ideal of classical liberalism, an order of free competition coordinated by the price system. For this reason, the ordoliberals Röpke and von Rüstow in 1938 participated alongside Hayek in the Walter Lippmann colloquium in Paris, considered the founding moment of neoliberalism . In ordoliberalism, the state intervenes exclusively to make the market less anarchic. Competition is seen as a means of achieving social goals.

 

According to Müller-Armack , who in 1956 coined the expression social market economy , it is necessary to combine humanism and liberalism, opposing the two opposite tendencies of statism and laissez-faire “libertarianism” Indeed, even Walter Eucken in 1947 argued that ordoliberalism was born at a time when faith in the possibility of developing a good natural economic order through laissez-faire had disappeared and the apparatus of state officials had an impressive dominance over the people’s life. Eucken went so far as to argue that centrally managed economics and freedom are irreconcilable.

 

The relationship between ordoliberalism and Christian doctrine became even more evident in 1979, with the publication of the Economic and Social Order , an essay written by Constantin von Dietze , Walter Eucken and Adolf Lampe at the invitation of the Lutheran pastor Dietrich Bonhöffer . However, it was Wilhelm Röpke who completed the reflection initiated by Dietze, Eucken and Lampe through the publication in 1958 of the volume Beyond supply and demand. Towards a human economy . The title itself suggests Röpke’s revolution, which consists in having introduced an element of humanitarianism , consistent with what Luigi Einaudi defined human civitasAccording to Röpke, ordoliberalism must be posed as a real third way , as an alternative both to capitalism – the term by which Röpke means the classic view of laissez-faire – and to socialism, or collectivism and statism.

 

Albert claimed that Reagan’s and Margaret Thatcher’s theories triumphed in Europe, because, despite Delors’ efforts, the political and the social were atrophied. In reality, the Maastricht parameters of 1992, which consist of the obligation to keep the inflation rate below 2.7%, the budget deficit below 3% of GDP and the public debt below of 60%, seem more inspired by the policies of rigor typical of ordoliberalism. In fact, the nightmare of hyperinflation that hit the Weimar Republic between 1919 and 1923 also played a fundamental role in the formulation of the ordoliberal theories. The parameters of the European fiscal pact were even more rigorous . of 2012, which also introduced sanctions for countries that do not respect them.

 

The birth of the euro has contributed to creating a strong pressure towards greater flexibility of the markets, in particular that of labor, a factor that has led scholars such as Zanobio to speak of the Germanisation of the rules of European countries precisely in reference to banking legislation and discipline. monetary and financial policy. The liberalization of trade and capital movements has drastically reduced the effectiveness of national economic policies and contributed to increasing oligopolistic competition, while at the level of productivity the results have not always been optimal and public spending has been sharply reduced, with serious consequences in the pension and healthcare sectors.

 

Albert’s analysis had the merit of describing with the precision of a sociologist the dire consequences of the neo-American economic model. Ordoliberalism represented an alternative development model, perfectly functioning in Germany, and had the merit of introducing a humanitarian, ethical element within classical liberalism, while ensuring a broad consensus and a certain balance between the social partners. However, the main criticism of Angela Merkel’s Germany is to demand a policy of austerity at the European level to allow the implementation of strong social policies at the national level.

 

It seems that German ordoliberalism has not been able to respond adequately to the challenges of globalization and the economic crisis of 2008 , which, moreover, was overcome with extreme difficulty by European countries and required the implementation of extraordinary measures such as quantitative easing . After all, economies such as the Chinese, Indian and Brazilian economies are emerging, based on considerable control by the state, which decides which sectors to favor the growth of industry.

 

In short, the prospects for the future are uncertain, and it is still not known which is destined to be the winning model of capitalism

 

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