European Social Democracy Isn't What You Think It Is

Werner Sombart, the great socialist interlocutor of the equally brilliant liberal sociologist Max Weber, once remarked that socialism would never work in America so long as the allure of abundance through markets continued to have even the slightest credibility among workers. In America, he wrote, “all socialist utopias came to nothing on roast beef and apple pie.”

With unemployment soon to reach and perhaps exceed 20 percent, however, it may well be that our homegrown socialists will have their best days since the Great Depression. But what form will their hopes and aspirations take?

In this context, many have noticed the frequent allusion to European-style social democracy. Before we rush down this path, though, we would do well to ponder the economic principles that actually sustain the most successful of these economies.

As it turns out, there is far more of old fashioned liberalism here than may at first be apparent to an American, whether such a person be a socialist or not. In fact, I would go even further. The core of the economic engine that sustains Europe has far more to do with a very real form of economic liberalism than what most of our home-grown socialists are probably willing to countenance for America’s future.

The vital core of the social market economy is to be found not among the disciples of Marx or even Sombart, but in the ordoliberal tradition of such thinkers as the economists Walter Eucken, Hans Grossman-Doerth, and Franz Böhm.

It is true that one finds in Europe a much greater role for the state in the provision of a social safety net. The level of transfer payments, not counting U.S. defense spending, are indeed more generous, but all of this is afforded because the main engines of economic growth are preserved through a commitment to the most basic rules of a still largely free market. And in some cases, those commitments actually run deeper than in the US.

For all of America’s much-ballyhooed commitment to property rights, Kelo v. City of New London exposed just how fragile ownership can actually be in the land of the free.

These rules are, in order of appearance: 1) stability of currency due to a very deep-seated phobia against inflation; 2) a deeper existential commitment to private property rights; and 3) a commitment to competition. One might add other ancillary commitments such as greater restraint in torts, but these three get to the essential areas.

On the question of anti-inflationism, I will simply reference the tragic history of the early Weimar years in Germany and its effects on culture. As I said once before, it is amazing how much intervention an economy can endure so long as currency stability is maintained. This commitment will be sorely tested in the coming months as the new unprecedented financial side of the recent German and French aid package works its way through the system. But up until now, at least, the aversion to inflation has been the singularly most enduring part of the northern countries’ monetary culture on both the left and the right.

On the second point, for all of America’s much-ballyhooed commitment to property rights, Kelo v. City of New London exposed just how fragile ownership can actually be in the land of the free. Not so in the social market economy. To take private property in Germany requires, on balance, far more than just a public need: it requires proof of the necessity. If there is any alternative option, the claim for a taking will fail.

Respecting the final category, Walter Eucken was especially concerned to preserve competition. In large measure, this was the result of the peculiar history of German contract law respecting the cartelization of industries. An excellent overview of that history can be found in Eucken’s This Unsuccessful Age (1952), in which he outlined the classic problems of regulatory capture.

This concern for preserving competition continued to be vigorously pursued, even if contentiously debated throughout the remainder of the 20th century. And on this point, there can be no doubt but that, at least in its initial performance, the system of largely free markets with multiple private producers succeeded in the superior provisioning of certain essential medical supplies and tests.

Reflecting, then, on these three dimensions, we can see that there would be no “social” in Europe’s “social market economy” without the strictly market-friendly rules essential for economic efficiency. Going into our new hyper-mortgaged future, we will have to take very serious cognizance of these core principles, whatever degree of “socialization” our home-grown socialists may seek to implement.