The Social Market Economy

The Social Market Economy

Europe, defined primarily as Central & Western Europe, and the United States have many similarities. Europeans were the ones who colonized the American continent and to this day it is not hard to find the European influence in American society. Whether it is food, language, or even last names, the US is clearly marked by its European ancestry. Yet there is one fundamental difference between America and her distant cousin Europe; their Economic models. The US uses a Free Market Capitalism model, whereas European countries largely use the Social Market Economy. But which model works out better overall? And how do you define overall? Working out better overall includes the well-being of your citizens, economic stability, a low level of unemployment, and economic wealth of your country, of course. The Social Market Economy provides all of the above for its citizens and even though it has met some issues in its past and is even dealing with some issues presently, the German Social Market Economy has proven one of the most efficient and best economic models in the world and it still holds this standard even with the current recession. When the world economy recovers from this recession, the German economy will come out more efficient than it was facing the crisis, as it has done with other economic challenges.
Ludwig Erhard was an "economist and statesman who, as economics minister (1949–63), was the chief architect of West Germany’s post-World War II economic recovery. He served as German chancellor from 1963–66" ("Ludwig Erhard"). He was the person who was responsible for creating the Social Market economy in the turbulent times after World War II. The mood in post World War II Germany was truly chaotic due to "total destruction and political and societal confusion" (Roesch). To ensure basic living conditions and establish a new political and economic system was the main task of Germany's politicians after World War II. A great variety of political groups in Germany were expecting to be adhered and made part of the rebuilding process. On the left, there were the Communists and Socialists, who wanted financial and political equality for everybody, and on the right, there were the Capitalists and Liberals, who wanted a free market that was subject only to the laws of economics. Pleasing both sides of the political spectrum was an extremely difficult task, yet it was one that Erhard mastered by proposing and introducing the Social Market Economy. As Roesch stated, "The Social Market Economy was the German contribution to the third way debate" and it was, beyond any doubt, the best solution to the problem at hand and it has proven and continues to be so.
According to the Encyclopedia Britannica, the Social Market Economy has a "'safety net' of benefits-including health protection, unemployment and disability compensation, maternity and child care provisions, job retraining, pension, and many others-paid for by contributions from individuals, employers, and public funds" (Germany). The Encyclopedia Britannica then goes on to describe how the Social Market Economy works; "In the social market economy the government attempts to foster fair play between management and labor and to regulate the relationship between the capitalist participants in the market, particularly with regard to competition and monopolies" (Germany). This means that the Social Market Economy enables the government to regulate certain areas of the Private Sector to ensure the well being of the workers and citizens while, at the same time, keeping competition at a maximum to spur further economic growth. The best of both sides of the political spectrum is what guarantees Germany's citizens a unique opportunity of well being by including Socialist ideological programs such as secure pension plans, free child care and other sorts of redistribution of wealth, while the competition in the market is guaranteed by the government thereby directly guaranteeing not the consumers well being but also to the employers'.
Once the Social Market Economy was well established and fully operational, Germany enjoyed continuous economic growth and a continuing increase in economic wealth. As the Encyclopedia Britannica explains, Germany's gross national product increased by 8 percent per year from 1951 to 1961 which was twice the rate of Britain and the United States and almost twice the rate of France. Exports were on a sharp increase, and Germany enjoyed economic growth until 1992 with only a few minor setbacks. The oil crisis of 1972-73 caused a short economic downturn in Germany as it did all over the world, yet the economy continued to grow after that (Germany). Germany's economy has proven to be extremely adapting, allowing it to come out of this Oil crisis stronger than it was going into it. It is this ability to cope with problems, learn from them and improve efficiency that makes the Social Market Economy so efficient. Not until the re-unification of East and West Germany would the Social Market Economy run into a challenge that it would not see easy to overcome.
Before the re-unification, Germany's economy was already considered one of the largest and most prosperous in the world and Germany was the leader in world trade. Low inflation was also a considerable upside to the German economy before the re-unification. After Germany's re-unification on October 3, 1990, Germany's economy continued to experienced rapid growth until 1992. In 1992, an economic slowdown occurred in the German economy due to the immense cost of the re-unification, as the Encyclopedia Britannica states (Germany). The Social Market economy began struggling with the cost of re-unification but it was the world-wide economic crisis in the following years that posed great danger and challenges for Germany's economy. With the introduction of former East Germans into the German economy, unemployment and the demand for unemployment benefits and other support from the state was high (Roesch). The East German economy also showed its weaknesses at the time of re-unification when it became clear how inefficient and outdated the industry of East Germany really was. Manufacturing plants were faltering, employment declined rapidly, and it was up to the now unified German government to keep its people from facing economic turmoil and to make sure their citizens were taken care of. The mixing of a strong economy that had just proven to be prosperous and extremely efficient with an economy that was on its way to failure is what brought Germany's economy to face its biggest economic challenge so far. Although the Social Market Economy will adapt to this challenge as it did to the other ones, this challenge has been proven to be a lot more complex and difficult, and the German economy will not fully recover quickly.
The Social Market Economy has shown that it is able to re-adapt and re-organize itself to overcome crisis like the Oil crisis and the problems associated with the re-unification of Germany. The Encyclopedia Britannica shows that after 1992, the growth rate for the German economy had an average annual rate of about 1.4 percent, which made is among the lowest in Western Europe (Germany). According to the CIA World Fact Book, Germany has a growth rate of 1.3% as of 2008. The recent recession has hit Germany hard due to a decrease in trade and exports of German goods even though Germany has been able to avoid mass layoffs by introducing the "Kurzarbeit" program which cuts down the time working in order for the company to be more financially secure (Staff). Germany's Chancellor Angela Merkel stated that this economic recession is "Germany's biggest challenge since re-unification" ("'Economic Crisis..") and after issuing a 50 Billion Euro stimulus plan ("Germany agrees on 50-billion-euro stimulus plan"), it remains to be seen how this economic recession is going to affect Germany in the long run. The "Kurzarbeit" program is a short solution to a long term problem and it is clear that something else has to be done in order to avoid mass layoffs in the future, as the world is continuing to endure a recession.
Germany enjoys a great amount of economic wealth today and it was this system that brought Germany to this position. According to the CIA World Fact Book, Germany has the 6th largest economy of the world, if counting the European Union and it has the 2nd highest export rate in the world, if counting the European Union. Only the European Union, the United States, China, Japan, and India have larger economies than Germany and it is only the European Union that exports more goods in terms of value than Germany. Germany has "among the world's largest and most technologically advanced producers of iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, shipbuilding, and textiles" (Germany). Germany's status as one of the world's strongest economies is because of the extremely well established and efficient Social Market Economy. Finding the balance between social equality and rewarding success by ensuring socialist programs but at the same time ensuring that the laws of economics take full effect in the market is a task that the Social Market Economy has mastered and perfected. Germany proves to be a primary leader when it comes to the well being of a country's citizens. Having free child care, guaranteed worker's rights, good available health care and a people who are happy with the way things are, is what defines a country's success and one can say that in these things, Germany is truly successful.

European constitutions allow for this. Ours doesn't. If it can be amended here, then we'd have what Europe has. Our constitution calls for limitations on what gov't can and can't do.

Not the point I was trying to make...