Ordoliberalism is the German variant of

economic liberalism Economic liberalism is a political and economic ideology that supports a market economy based on individualism and private property in the means of production. Adam Smith is considered one of the primary initial writers on economic liberalism ...

that emphasizes the need for government to ensure that the

free market In economics, a free market is an economic market (economics), system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of ...

produces results close to its

theoretical A theory is a systematic and rational form of abstract thinking about a phenomenon, or the conclusions derived from such thinking. It involves contemplative and logical reasoning, often supported by processes such as observation, experimentation, ...

potential. Ordoliberal ideals became the foundation of the creation of the post-

World War II World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...

German

social market economy The social market economy (SOME; ), also called Rhine capitalism, Rhine-Alpine capitalism, the Rhenish model, and social capitalism, is a socioeconomic model combining a free-market capitalist economic system with social policies and enough re ...

and its attendant . The term "ordoliberalism" () was coined in 1950 by and refers to the academic journal ''

ORDO ''Ordo'' (Latin "order, rank, class") may refer to: * A musical phrase constructed from one or more statements of a rhythmic mode pattern and ending in a rest * Big O notation in calculation of algorithm computational complexity * Orda (organizati ...

''.

Linguistic differentiation

Ordoliberals separate themselves from classical liberals. Notably, , with , founder of ordoliberalism and the Freiburg School, rejected

neoliberalism Neoliberalism is a political and economic ideology that advocates for free-market capitalism, which became dominant in policy-making from the late 20th century onward. The term has multiple, competing definitions, and is most often used pe ...

. Ordoliberals promote the concept of the

, which favors a strong role for the state with respect to the market and which is in many ways different from the ideas connected to the term "neoliberalism". The term "neoliberalism" was originally coined in 1938 at the by , who is regarded as an ordoliberal today. Because of the connected history, ordoliberalism is sometimes referred to as "German neoliberalism". This has led to frequent confusion and mix-ups of terms and ideas in the discourse, debate and criticism of both economic schools. In 1991 political economist published ''Capitalisme Contre Capitalisme,'' and in 2001 Peter A. Hall and

David Soskice David William Soskice, FBA (born 6 July 1942) is a British political economist and academic. He is currently the LSE School Professor of Political Science and Economics at the London School of Economics. Early life and education Soskice was b ...

published ''

Varieties of Capitalism ''Varieties of Capitalism: The Institutional Foundations of Comparative Advantage'' is a 2001 book on economics, political economy, and comparative politics edited by political economists Peter A. Hall and David Soskice. The book established an ...

'', and both separated the concepts and developed the new terms " liberal market economy" and "

coordinated market economy A regulated market (RM) or coordinated market is an idealized system where the government or other organizations oversee the market, control the forces of supply and demand, and to some extent regulate the market actions. This can include tasks s ...

" to distinguish neoliberalism and ordoliberalism.

Development

The theory was developed from about 1930 to 1950 by

German German(s) may refer to: * Germany, the country of the Germans and German things **Germania (Roman era) * Germans, citizens of Germany, people of German ancestry, or native speakers of the German language ** For citizenship in Germany, see also Ge ...

economists An economist is a professional and practitioner in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there are ...

and legal scholars from the Freiburg School, such as

Walter Eucken Walter Eucken (; 17 January 1891 – 20 March 1950) was a German economist of the Freiburg school and father of ordoliberalism. Ordoliberalism was based on the concept of social market economy balancing free markets with regulatory oversight. The ...

, , Hans Grossmann-Doerth, and Leonhard Miksch. Ordoliberal ideals (with modifications) drove the creation of the post-

German social market economy. They were especially influential on forming a firm

competition law Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust ...

in Germany. However the social market economy was implemented in economies where

corporatism Corporatism is an ideology and political system of interest representation and policymaking whereby Corporate group (sociology), corporate groups, such as agricultural, labour, military, business, scientific, or guild associations, come toget ...

was already well established, so ordoliberal ideals were not as far reaching as the theory's economic founders had intended. Since the 1960s, ordoliberal influence on economics and jurisprudence has significantly diminished; however, many German economists define themselves as Ordoliberals through the present day, the ''

'' is still published, and the Faculty of Economics at the

University of Freiburg The University of Freiburg (colloquially ), officially the Albert Ludwig University of Freiburg (), is a public university, public research university located in Freiburg im Breisgau, Baden-Württemberg, Germany. The university was founded in 1 ...

is still teaching ordoliberalism. Additionally, some institutes and foundations such as the and the are engaged in the ordoliberal tradition. Germany's Free Democratic Party (FDP) is a traditional and committed supporter of ordoliberalism, the party having been influenced by the economic theories of

Wilhelm Röpke Wilhelm Röpke (; 10 October 1899 – 12 February 1966) was a German economist and social critic, one of the spiritual fathers of the social market economy. A professor of economics, first in Jena, then in Graz, Marburg, Istanbul, and finall ...

and

Alexander Rüstow Alexander Rüstow (8 April 1885 – 30 June 1963) was a German sociologist and economist. At the Colloque Walter Lippmann in August 1938 he popularised the term "neoliberalism". He became one of the fathers of the "Social Market Economy" that ...

. Historical FDP party grandee

Otto Graf Lambsdorff Otto Friedrich Wilhelm Freiherr von der Wenge Graf Lambsdorff, known as Otto Graf Lambsdorff (20 December 1926 – 5 December 2009), was a German politician of the Free Democratic Party (FDP). He was the German Federal Minister of Econom ...

, who served as Federal Minister of Economics, was a particular proponent of ordoliberalism.

Implementation

Ordoliberalism was a major influence on the economic model developed in post-war

West Germany West Germany was the common English name for the Federal Republic of Germany (FRG) from its formation on 23 May 1949 until German reunification, its reunification with East Germany on 3 October 1990. It is sometimes known as the Bonn Republi ...

. Ordoliberalism in

Germany Germany, officially the Federal Republic of Germany, is a country in Central Europe. It lies between the Baltic Sea and the North Sea to the north and the Alps to the south. Its sixteen States of Germany, constituent states have a total popu ...

became known as the social market economy. The Ordoliberal model implemented in Germany was started under the government administration of . His government's Minister of Economics, , was a known Ordoliberal and adherent of the Freiburg School. Under , some, but not all, price controls were lifted, and taxes on small businesses and corporations were lowered. Furthermore, social security and pensions were increased to provide a social base income. Ordoliberals have stated that these policies led to the , or economic miracle.

Theory

Ordoliberal theory holds that the

state State most commonly refers to: * State (polity), a centralized political organization that regulates law and society within a territory **Sovereign state, a sovereign polity in international law, commonly referred to as a country **Nation state, a ...

must create a proper legal environment for the economy and maintain a healthy level of

competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indi ...

through measures that adhere to market principles. This is the foundation of its legitimacy. The concern is that, if the state does not take active measures to foster competition, firms with

monopoly A monopoly (from Greek language, Greek and ) is a market in which one person or company is the only supplier of a particular good or service. A monopoly is characterized by a lack of economic Competition (economics), competition to produce ...

(or

oligopoly An oligopoly () is a market in which pricing control lies in the hands of a few sellers. As a result of their significant market power, firms in oligopolistic markets can influence prices through manipulating the supply function. Firms in ...

) power will emerge, which will not only subvert the advantages offered by the

market economy A market economy is an economic system in which the decisions regarding investment, production, and distribution to the consumers are guided by the price signals created by the forces of supply and demand. The major characteristic of a mark ...

, but also possibly undermine good government, since strong economic power can be transformed into

political power In political science, power is the ability to influence or direct the actions, beliefs, or conduct of actors. Power does not exclusively refer to the threat or use of force (coercion) by one actor against another, but may also be exerted thro ...

. According to Stephen Padgett, "a central tenet of ordo-liberalism is a clearly defined division of

labor Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the labour ...

in economic management, with specific responsibilities assigned to particular institutions.

Monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rat ...

should be the responsibility of a

central bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...

committed to monetary stability and low

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

, and insulated from political pressure by independent status.

Fiscal policy In economics and political science, fiscal policy is the use of government revenue collection ( taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...

—balancing

tax revenue Tax revenue is the income that is collected by governments through taxation. Taxation is the primary source of government revenue. Revenue may be extracted from sources such as individuals, public enterprises, trade, royalties on natural reso ...

against

government expenditure Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual o ...

—is the domain of the government, whilst

macro-economic Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (econ ...

policy is the preserve of

employers Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any other ...

and

trade unions A trade union (British English) or labor union (American English), often simply referred to as a union, is an organization of workers whose purpose is to maintain or improve the conditions of their employment, such as attaining better wages ...

." The state should form an economic order instead of directing economic processes, and three negative examples ordoliberals used to back their theories were

Nazism Nazism (), formally named National Socialism (NS; , ), is the far-right totalitarian socio-political ideology and practices associated with Adolf Hitler and the Nazi Party (NSDAP) in Germany. During Hitler's rise to power, it was fre ...

Keynesianism Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomics, macroeconomic theories and Economic model, models of how aggregate demand (total spending in the economy) strongl ...

, and Soviet socialism. It is also seen as a

third way The Third Way is a predominantly centrist political position that attempts to reconcile centre-right and centre-left politics by advocating a varying synthesis of Right-wing economics, right-wing economic and Left-wing politics, left-wing so ...

between

collectivism In sociology, a social organization is a pattern of relationships between and among individuals and groups. Characteristics of social organization can include qualities such as sexual composition, spatiotemporal cohesion, leadership, struct ...

and laissez-faire liberalism. While the ordoliberal idea of a social market is similar to that of the third-way social democracy advocated since the 1990s by the likes of the

New Labour New Labour is the political philosophy that dominated the history of the British Labour Party from the mid-late 1990s to 2010 under the leadership of Tony Blair and Gordon Brown. The term originated in a conference slogan first used by the ...

government (especially during the

premiership of Tony Blair Tony Blair's tenure as Prime Minister of the United Kingdom began on 2 May 1997 when he accepted an invitation from Queen Elizabeth II to form a government, succeeding John Major of the Conservative Party (UK), Conservative Party, and ended on ...

), there are a few key differences. Whilst they both adhere to the idea of providing a moderate stance between

socialism Socialism is an economic ideology, economic and political philosophy encompassing diverse Economic system, economic and social systems characterised by social ownership of the means of production, as opposed to private ownership. It describes ...

and

capitalism Capitalism is an economic system based on the private ownership of the means of production and their use for the purpose of obtaining profit. This socioeconomic system has developed historically through several stages and is defined by ...

, the ordoliberal social market model often combines

private enterprise A privately held company (or simply a private company) is a company whose Stock, shares and related rights or obligations are not offered for public subscription or publicly negotiated in their respective listed markets. Instead, the Private equi ...

with government

regulation Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...

to establish fair

(although German network industries are known to have been deregulated), whereas advocates of the third-way social democracy model have been known to oversee multiple economic

deregulation Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a ...

s. The third way

social democracy Social democracy is a Social philosophy, social, Economic ideology, economic, and political philosophy within socialism that supports Democracy, political and economic democracy and a gradualist, reformist, and democratic approach toward achi ...

model has also foreseen a clash of ideas regarding the establishment of the

welfare state A welfare state is a form of government in which the State (polity), state (or a well-established network of social institutions) protects and promotes the economic and social well-being of its citizens, based upon the principles of equal oppor ...

, in comparison to the ordoliberal's idea of a social market model being open to the benefits of

social welfare Welfare spending is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifically to social insurance p ...

. Ordoliberals are also known for pursuing a minimum configuration of vital resources and

progressive tax A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term ''progressive'' refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the ...

ation. The ordoliberal emphasis on the

privatization Privatization (rendered privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation w ...

public services A public service or service of general (economic) interest is any service (economics), service intended to address the needs of aggregate members of a community, whether provided directly by a public sector agency, via public financing availab ...

and other public firms such as

telecommunication Telecommunication, often used in its plural form or abbreviated as telecom, is the transmission of information over a distance using electronic means, typically through cables, radio waves, or other communication technologies. These means of ...

services;

wealth redistribution Redistribution of income and wealth is the transfer of income and wealth (including physical property) from some individuals to others through a social mechanism such as taxation, welfare, public services, land reform, monetary policies, confi ...

and

minimum wage A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. List of countries by minimum wage, Most countries had introduced minimum wage legislation b ...

laws as regulative principles makes clear the links between this

economic model An economic model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework designed ...

and the

considered ordoliberalism to be "liberal conservatism", against

in his work ("A

Humane Humanity is a virtue linked with altruistic ethics derived from the human condition. It signifies human love and compassion towards each other. Humanity differs from mere justice in that there is a level of altruism towards individuals included i ...

Order of Society", 1944). also criticized

laissez-faire ''Laissez-faire'' ( , from , ) is a type of economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies or regulations). As a system of thought, ''laissez-faire'' ...

in his work ("The Failure of Economic Liberalism", 1950). The ordoliberals thus separated themselves from

classical liberal Classical liberalism is a political tradition and a branch of liberalism that advocates free market and laissez-faire economics and civil liberties under the rule of law, with special emphasis on individual autonomy, limited government, eco ...

s and valued the idea of

social justice Social justice is justice in relation to the distribution of wealth, opportunities, and privileges within a society where individuals' rights are recognized and protected. In Western and Asian cultures, the concept of social justice has of ...

. "

Social security Welfare spending is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifically to social insurance ...

and social justice", wrote , "are the greatest concerns of our time". also notes the similarity (beyond just historical contemporaneity) between the Ordo/Freiburg school and the

Frankfurt School The Frankfurt School is a school of thought in sociology and critical theory. It is associated with the University of Frankfurt Institute for Social Research, Institute for Social Research founded in 1923 at the University of Frankfurt am Main ...

critical theory Critical theory is a social, historical, and political school of thought and philosophical perspective which centers on analyzing and challenging systemic power relations in society, arguing that knowledge, truth, and social structures are ...

, due to their inheritance from . That is, both recognise the "

irrational Irrationality is cognition, thinking, talking, or acting without rationality. Irrationality often has a negative connotation, as thinking and actions that are less useful or more illogical than other more rational alternatives. The concept of ...

rational Rationality is the quality of being guided by or based on reason. In this regard, a person acts rationally if they have a good reason for what they do, or a belief is rational if it is based on strong evidence. This quality can apply to an ...

ity" of the capitalist system, but not the " logic of contradiction" that

Marx Karl Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, political theorist, economist, journalist, and revolutionary socialist. He is best-known for the 1848 pamphlet '' The Communist Manifesto'' (written with Friedrich Engels) ...

posited. Both groups took up the same problem, but in vastly different directions. The political philosophy of Ordoliberals was influenced by

Aristotle Aristotle (; 384–322 BC) was an Ancient Greek philosophy, Ancient Greek philosopher and polymath. His writings cover a broad range of subjects spanning the natural sciences, philosophy, linguistics, economics, politics, psychology, a ...

, , , , , , and .

Criticism

According to and , ordoliberalism is central to the German approach to the

European sovereign-debt crisis The euro area crisis, often also referred to as the eurozone crisis, European debt crisis, or European sovereign debt crisis, was a multi-year debt crisis and financial crisis in the European Union (EU) from 2009 until, in Greece, 2018. The ...

, which has often led to conflicts with other European countries.

References

External links

* , German Ordoliberal association. * , German research institute in the tradition of ordoliberalism. * , Italian Centre Studies on Social Market Economy and liberal tradition in the light of Catholic social thought.
ORDO official website

Back issues of ORDO Yearbook Vol. 1, Vol. 65 (1948–2014)
{{DEFAULTSORT:Ordoliberalism Economic liberalism Economic policy in Europe Economy of Germany Freiburg School Ideologies of capitalism Liberalism Political ideologies