Sociology Index

Social Market Economy

Social market economy is market capitalism that is combined with a social policy favoring union bargaining and also social insurance with similarities with the economic order in certain Western European countries.

The term Social Market Economy was first introduced in 1946 in post-war West Germany by Alfred Müller-Armack. The social market economy was later promoted and implemented by Chancellor Konrad Adenauer in 1949 in West Germany.

A social market economy is an economic system where free market economics elements combined with social security schemes ensuring economic development and poverty alleviation.

Designed to be somewhere between Laissez Faire economic liberalism and social democratic mixed economies, social market economy was inspired by the Christian ethics and “Ordoliberalism” which seeks to regulate, put “order” into, liberalist economies through government regulation in order to prevent market failures.

Germany is a Social Market Economy. The state guarantees the free play of entrepreneurial forces, while at the same time endeavoring to maintain the social balance. Also on account of this concept, made popular in the post-War era by the Minister of Economics at the time, Ludwig Erhard, even in economically difficult times Germany enjoys a high degree of social harmony.

The social market economy aims to protect the freedom of all market participants on both the supply and demand side, while simultaneously ensuring social equity.

Social Market Economy as Europe's Social Model?
Christian Joerges, University of Bremen - Faculty of Law; Hertie-School of Governance
Florian Roedl - EUI
Abstract: Europe continues to search for its - "European" - social model and the, search seems to become increasingly urgent. The Constitutional Treaty, indeed, makes a new commitment: "The Union shall work for a Social Market Economy". History entails some pitfalls for the Convention's intentions, as the German "Social Market Economy" involved not only a claim of integrating social concerns into the market economy, but also served to restrict claims for instruments of social policy remarkably at the same time. Moreover, the Convention has failed to confer a new and independent content to the concept of the "Social Market Economy", which could help to overcome the concept's ambivalent history, as well as the Union's real "social deficit". The paper concludes that the invocation of the "Social Market Economy" in the Constitutional Treaty is conceptually flawed and is politically an all too risky promise which may raise expectations which it will subsequently fail to deliver.