The five tasks of the social market economy

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Article Highlights

  • The economic policy agenda of Müller-Armack on the social market economy still retains its value after 35 years

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  • The social market economy thrives on competition and dies in its absence

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  • Freedom-economy tirelessly and creatively seeks new paths to reach the "social compromise" btwn liberty and justice

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In 1978, the German economist Alfred Müller-Armack published an interesting essay with an eloquent title: The Five Major Themes of Future Economic Policy. The article begins with the assumption that classical liberal democracy is a constitutive element of the economic model called the "social market economy" and therefore, that this model should be taken as the instrument of social and economic policy by which a truly freedom-oriented political system pursues its goals.

Müller-Armack identified five tasks and measured them against a basically freedom-oriented order, that of the Federal Republic of Germany, which had assumed the typical institutions of social market economy as instruments of economic policy. It is interesting to note the relevance of such a political and economic program for a country like Italy which is about to experience yet another "strange government", supported by a "strange majority", strongly wanted by a President of the Republic "strangely" re-elected for a new seven-year mandate.

First of all, such a freedom-oriented order would have to make clear that any attitude, more or less radical, which was contrary to the market economy, would have condemned it to a certain shipwreck. For Müller-Armack, it is nothing other than to plan the final outcome of such a wreck well in advance: through controlling investments, with the resulting brake on growth, promoting the expansion of the State, and finally with price controls.

Secondly, a freedom-oriented system, established according to the principles of the social market economy, would have favored the full extent of mobilization of financial resources, through the instrument of the "tax credit". The Müller-Armack proposal is such that vouchers would have the function to repay, with the payment of taxes by companies (for example in the payment of VAT), a certain percentage, say 10%, in tax credit, which, for example staggered over five years to five installments, can be spent by the taxpayer or by the person who has acquired such tax credit for subsequent years, with the payment of this or that tax of one's choice. Such a procedure, says Müller-Armack, would improve the companies' income situation, it would not change the revenues of the state today, but they would be greatly reduced in subsequent years. This seems possible and bearable if through such income support for companies, these are then given the possibility of increased investment and the economy as a whole is set in motion.

The third task expected of a freedom-oriented system inspired by the model of social market economy, would be in reference to the "spiritual forces" that underlie the democratic experiment and the same market processes. Here Müller-Armack seems overwhelmed by certain pessimism and denounces the cultural and moral deficits that would have made it more difficult to understand how freedom, democracy and competition all depend, from a particular anthropological perspective, on one's ability to grasp the real. Müller-Armack denounces the loss of a general outlook that probed the depths of the structure of the market processes. Ultimately, he denounces the lack of accountability of those in the sphere of politics. According to Muller Armack, absent from the public arena is the idea of competition and the constitution background which supports it. The social arena of the German Republic lacks the knowledge of the positive social and political effects of a free market and the idea that a free-market is compatible both with justice and raising the living conditions of the most disadvantaged. It is here that we can see one of the fundamental principles of German economic policy after World War II, one that is considered a cornerstone theory of social market economy. Today it is barely even criticized by those who see in the rigor imposed by the European institutions a reflection of the claim hegemony of German economic policy. In practice, it is the idea that a policy of monetary stability is the only basis, in the long run, for economic growth and greater employment.

In as much as Müller-Armack avoids the temptation to offer a dogmatic interpretation of social market economy, he recognizes that there is however a theoretical core that acts as a pivot-point around which possible interpretations and different public policy recipes revolve. In practice, social market economy needs a public policy geared to integral and indivisible freedom, it is faithful to the principles of classical liberalism, combines the principle of free competition, it does not theorize any limitation of social guarantees in favor of freedom and vice versa. This model promotes economic growth, from which social benefits and many possible assurances spring: wages, pensions, annuities, and capital formation at the widest possible basis of the population.

The fourth task that Armack Müller assigns to a system inspired by the social market economy model is the establishment of a European order that reaches up to the establishment of a stable monetary order. Müller-Armack was aware that no monetary order would ever have been born if it had not been preceded by a progressive convergence of different parameters that serve as fundamental economic policies of individual countries. Even for a father of social market economy such as Müller-Armack, as long as different rates of inflation and different rates growth in individual countries existed, a single monetary order would never have been able to be born. The responsibility of each of the individual countries and the European institutions would have been that of creating the preconditions of an economic policy which would have favored financial stability, a balanced budget and long-term growth. In this context, the monetary order would be come to pass as the spontaneous result of a long process, perhaps an objective farther away than it was in reality, but certainly not impossible. From this point of view the model of the social market economy in the most radical way expresses the belief that only a "relatively stable" monetary order can be the basis for growth which is orderly and lasting. This is a fundamental prerequisite to ensure the best conditions for businesses, workers, consumers and the public administration.

Finally, the fifth task Müller-Armack assigns to a freedom-oriented system inspired by social market economy is to always seek tirelessly and creatively new institutional paths that may achieve the "social compromise" between liberty and justice, though always within the situation of the free market and to conform to it.

After thirty-five years, the economic policy agenda of a father of the social market economy such as Müller-Armack retains its value, a value that can be measured in terms of defense and promotion of the free institutions, of responsibility for future generations, and awareness about the distribution of income and the social function of the principle of competition. The market thrives on competition and dies in its absence, but the market in primis requires a culture that presupposes an arbitrator which defends it from unfaithful merchants, from the spirit of fraud and from abuse; it needs a mature and free political system that puts itself at the service of civil society, punishing and expelling anyone - including corporations and factions - which would try to subjugate it and turn it into a sad playground where the winners are always the same (and, of course, never the best).

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