The Social Market Economy: an Export for the Third World?
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A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Fasbender, Karl; Holthus, Manfred Article — Digitized Version The social market economy: an export for the Third World? Intereconomics Suggested Citation: Fasbender, Karl; Holthus, Manfred (1990) : The social market economy: an export for the Third World?, Intereconomics, ISSN 0020-5346, Verlag Weltarchiv, Hamburg, Vol. 25, Iss. 6, pp. 293-299, http://dx.doi.org/10.1007/BF02928798 This Version is available at: http://hdl.handle.net/10419/140271 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu ECONOMIC SYSTEMS Karl Fasbender and Manfred Holthus* The Social Market Economy: An Export for the Third World ? Long before the socialist industrialized nations began to call their centrally planned, or government controlled, economies into question, policymakers in many developing countries with dirigistic, interventionist systems, including capitalist oriented ones, had started to rethink their economic philosophies. Now that the former exporters of the concept of the centrally planned economy are themselves interested in importing free-enterprise ideas, reform in the Third World is likely to take on more momentum and interest in the social market economy will increase. s the developing countries and their hybrid forms of growth measures have often failed to meet expectations centrally planned economy and market economy or have not taken effect at a politically acceptable pace. differ greatly, the reasons for the increased interest in the In the search for models, increased interest is being social market economy are many and varied and are of shown in the social market economy, the economic order disparate relevance from case to case. Christa Luft, of the Federal Republic of Germany, 3 whose economist and former socialist Deputy Chairwoman of achievements in post-war reconstruction, economic the Council of Ministers in East Germany, delivered the growth and social stability make it extremely attractive? following judgement of the centralized, bureaucratically planned economy in her country, which also holds true of The hallmark of the market component of the social many developing countries: "... lacking in innovative market economy is that decision-making over the power, unable to motivate people adequately, and hence allocation of scarce resources is decentralized; decisions inefficient, ecologically inadequate and of limited are taken by individual consumers, producers, those effectiveness in the social sphere.'" The negative supplying and demanding capital, employers and aspects of centrally planned economies were revealed employees. This multiplicity of individual planning most clearly by external shocks (such as the oil price decisions is coordinated on the goods and factor markets crises and the drop in raw materials prices) and the via the price mechanism and competition. impacts of growing foreign indebtedness. For example, if demand for a given good rises, its Experience has shown that centrally planned scarcity increases, as the supply cannot be enlarged economies cannot cope with the challenge of the immediately (supply is not infinitely elastic). Because the continually increasing division of labour in national volume of demand exceeds that of supply the price of the economies. Countries with market economies thus good in question goes up. This shortage signal tells the usually solve the problem of scarcity - the fundamental producer that the manufacture of the good has become problem of all economic activity - more efficiently than those with a centrally administered economy, 2 which is C. Luft : Marktwirtschaftals Chancezur Wettbewerbsf&higkeit, in: why many developing countries are more amenable to a Handelsblatt, No. 48, March 1990. 2 Cf. among others A. J. Halbach, R. Osterkamp, H.-G. decentralized market system than before. Braun, A. G~.lli: Wirtschaftsordnung, sozioSkonomische Ent- wicklung und weltwirtschaftliche Integration in den Entwicklungs- Many countries, however, harbour serious misgivings Itindern, Bonn 1982. towards the pure market economy, understood as laissez 3 Cf. A. Borrmann, K. Fasbender, H.-H. H~,rtel, M faire capitalism. Of the many different reasons for this, a H o I t h u s : Social Market Economy - Experiences in the Federal Republic of Germany and Considerations on its Transferability to major one is that the trickle down and spread effects of Developing Countries, Hamburg 1990. 40nthisandthefollowingcf. K. Fasbender, M. Holthus: Zur * Hamburg Institute for Economic Research (HWWA), Hamburg, 0bertragbarkeit der Sozialen Marktwirtschaft auf Entwicklungsl~.nder, Germany. in: Aus Politik und Zeitgeschichte, B 30-31/90, pp. 5 ff. INTERECONOMICS, November/December 1990 293 ECONOMIC SYSTEMS more attractive. He will expand production until the afforded the common citizens a degree of prosperity surplus demand has been met. An equilibrium price is which was unthinkable prior to its inception. attained, where the price and quantity needs of sellers Arguably, the high level of production and its and buyers coincide and the market is cleared. The price responsiveness to consumption is the most important mechanism informs the producers rapidly and reliably of social achievement of the market economy. This is social the wishes of consumers and thus decides what is in a genuine sense because it is based on voluntary produced. transactions, through which the free and mature persons Competition means that producers of a good that involved expect to improve their situation. In addition, the operate less economically than other suppliers of the efficiency of the social market economy creates the same good are ousted from the market in the long run conditions for self-reliance. because the price is under their long-term unit cost Role of the State minimum and, hence, their profit (adequate rewards to the entrepreneur plus return on capital) is under the average Unlike systems of capitalist-style market economy, the for the branch or they even make a loss. Competition social market economy and the related social contract therefore decides how goods are produced and who (democracy) confer an active role on the state, primarily in produces them, namely the manufacturers with the four main areas: cheapest production methods. This engenders a [] Establishment and securing of the legal order.There permanent incentive to offer new or improved products will only be a readiness to provide goods and services and (product innovation) and promote technological progress to take risks if certain individual rights and freedoms are in developing cheaper manufacturing methods (process guaranteed: the right to own and dispose over private innovation). property, private liability to the value of this property, Further, the price mechanism and competition prevent freedom to choose a trade or profession, freedom of scarce resources from being squandered, because contract, freedom of association and free collective wage producers are obliged to obtain their profit targets with as bargaining. The legal order must limit the exercise of little input of resources as possible. Consumers, for their these freedoms where they impinge on the rights and part, will allocate their limited income to various goods in freedoms of others. such a way as to derive optimum utility from their [] Maintenance of effective competition. The consumption. sanctioning effects of competition and the price This system already possesses a social component in mechanism provide an incentive for market participants that the market economy with its highly developed to curb competition or even to do away with it by entering mechanism of sanctions and incentives ensures the into an agreement with competitors or by their removal. efficient allocation of the scarce factors of production and The market economy system is thus in danger of hence an optimum supply of goods and satisfaction of disintegrating. The state is thus entrusted with the task of needs with the given resources. Its forces for safeguarding effective competition by appropriate development, its high adaptability to changing consumer legislation, such as a ban on cartels, the setting up of a needs, make it far superior to the centrally planned body to monitor possible abuse by market-dominating economy or dirigistic systems of a milder form. It has businesses and the vetting of mergers. This aim is also WELTKONJUNKTURDIENST This quarterly report-