The term “social market economy” is used incorrectly

70 years ago, Ludwig Erhard pushed through the abolition of compulsory management and fixed prices. Since then, praises and occasional speeches, as well as party programs and coalition agreements refer to the model of the social market economy. In doing so, you are taking a risk.

Anyone who gives the impression that a market economy becomes morally acceptable only by adding “social” draws the opposite conclusion: the market economy as such is immoral and requires constant and corrective political intervention for ethical reasons.

We believe that this basic assumption is incorrect. It is also at the heart of the current crisis of acceptance of the market economy: although Germany is doing better economically than it has been for a long time, public confidence in the economic and social order is declining.

Alternative promises of salvation are gaining popularity – the keywords economy for the common good or unconditional basic income. Systemic narratives (“the economy only serves the rich”, “competition destroys solidarity”) are increasingly replacing Erhard’s “prosperity for all”.

Many people apparently feel a contradiction between the basic economic conditions of a market economy on the one hand and the moral ideas of freedom, dignity, solidarity and justice on the other.

These moral questions require moral answers. There is definitely a real narrative that lends itself to reconciling the normative foundations of our culture with the foundations of a market economy.

Because in the moral evaluation of the economic system, two factors must always flow equally: firstly, normative principles, and secondly, specific actual conditions of implementation. The normative goal of any economic order should be the happiness or prosperity of all people; it should combine the freedom and dignity of each individual and the cohesion of society.

Taking into account the empirical conditions for the realization of our modern world, and above all the scarcity of resources, the market economy is the best known economic system for the realization of these normative goals.

Competition does not destroy solidarity

Because it is an essential element of our political order, our economic success and social well-being. However, the condition for this task is to allow its two functional imperatives to speak out: competition and profit making by companies.

Competition does not destroy solidarity. A rather clever system of the market economy uses competition and the pursuit of individual happiness and entrepreneurial profit to ensure lasting solidarity.

If one takes into account the conditions for the realization of economic systems in modern, open, globally connected and free societies, then a well-ordered market economy surpasses all other known systems not only for its well-being, but also morally.

On the other hand, the planned economic approaches have repeatedly led to poverty and the loss of freedom and solidarity in practical tests. We should always bear in mind three aspects in the social discourse.

First, in pre-modern societies, there was no growth per capita, there was no increase in wealth for all. Those who got rich did so at the expense of others, plundering and dispossessing them. Many of the intuitive morals that we have assimilated through the generations have their roots in this time.

If we imagine the economic performance as a consistently large cake, we see the unequal distribution as unfair: whoever gets a lot has taken something away from someone else. In a modern market economy, innovations generate growth. The dough rises. Growing incomes no longer have to come at the expense of others. Everyone can participate in increasing prosperity at the same time.

The morality of St. Martin

Second: Our moral intuitions are evolutionarily and biographically geared towards small group problems and actions with manageable chains of effects. It is the morality of the Good Samaritan and St. Martin. They are essential in direct interaction.

But if you apply them to social or global contexts, they’re misleading. For example, redistribution alone will not solve the problem of global poverty. Rather, we need an answer to the question of how global welfare can be increased through the division of labor.

Third: the moral quality of competition in large modern societies based on the division of labor does not depend on the good intentions of the individual. The solidarity effect grows out of the efficiency of the system. It is impersonal solidarity. Therefore, we may lack immediate moral satisfaction.

But that does not detract from the moral quality: the market economy is the best known source of social welfare while preserving the freedom of the individual. It also gives us the opportunity to live in solidarity.

If we look at the market economy in this way, the supposed contradiction between the market and the community, between competition and solidarity, disappears. This observation is an appropriate benchmark for dealing with undesirable changes in empirical market economies.

Because no market economy is perfect. You always need a framework. The state must establish competition guidelines and intervene in market events in the event of a market failure or lack of coordination.

We call on the elite of science, business and society to support the market economy visibly and audibly.

Climate change is a good example: unregulated markets cause excessive greenhouse gas emissions. However, the solution to the problem is not about “breaking” the laws of the market or “taming” the market. Rather, they are clever (re-) designs that use competition as a principle of discovery. As a principle of discovery for innovations that enable effective climate protection.

Specifically: A uniform taxation of energy sources according to their CO2 content at European level would be such a redesign. State intervention changes the rules of competition by rewarding more environmentally friendly behavior and increasing the cost of environmentally harmful behavior. However, the state does not rule the actions of individual actors. The competition decides which CO2 saving technologies are used to generate electricity or heat.

The intended effect of prosperity is expressed in effective climate protection with affordable energy costs at the same time. A government “master plan” cannot do this because a single entity can never have all the information it needs to centrally control a complex and dynamic system. However, innovation may result from competition from many decentralized knowledge carriers.

Best order: market economy

Unfortunately, the German energy transition policy takes a different approach. In particular, it promotes particular technologies. Thus, it interferes with the movements of market participants and thus hinders competition. Only subgroups of society benefit from such restrictions of competition.

But they reduce the chance of prosperity – for everyone. Therefore, they are generally forbidden not only for economic but also ethical reasons. This applies even where competition in individual cases leads to difficulties.

Let us return to the social market economy. What is “social” does not serve to repair the market economy. Rather, it explains their further improvement or, better speaking, refinement. On the one hand, it means alleviating social difficulties in structural change.

On the other hand, “social justice and the principle of subsidiarity require that we, the losers in modernization, enable a meaningful social perspective not through alimony but through empowerment strategies.” This is what Norbert Lammert recently put it in his “Frankfurter Allgemeine Zeitung”.

We call on elites in science, business and society to support the market economy visibly and audibly and to take responsibility for discourse. It also means that they themselves adhere to a regulatory system that is primarily made possible by the market. And that they are clearly distancing themselves from individual offenses such as market manipulation, fraud or the use of regulatory deficits. Only in this way can we regain confidence in the market economy.

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