fbpx

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.

Reader Discussion

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.

on June 02, 2020 at 07:10:04 am

Beautifully written and right to the point. Thank you Hans! Greetings from Thomas ;-)

read full comment
Image of Thomas
Thomas
on June 02, 2020 at 09:42:25 am

This seems a little too dismissive of the MASSIVE amount of regulatory impediments to a *free* market imposed by Brussels upon European producers as well as Brussels attempts to impose similar regulatory restrictions upon US firms(e.g. social media, Microsoft, etc). One need only look to the current "negotiations (herein read as "demands") over Brexit and the EU's continuing attempt to force Britain to comply with its regulatory overreach.
While there appears to be a continued respect for property qua property, there has been and continues to be a diminished respect for the use of that property and WHO gets to keep its fruits.

read full comment
Image of gabe
gabe
on June 02, 2020 at 10:53:12 am

Hello and thanks Gabe. I don't disagree with you. It is a topic all in itself. The individual policies of social democracy preceded the EU though, and for the more successful economies within it, that poses a major sticking point. Whether or not they can preserve their commitment to basic liberal market rules remains an open question. For German liberals at least, this was their greatest regret when the UK left. They looked to her remaining in the union to help keep the breaks on Brussels. So now their task is that much harder, but we will see I guess.

read full comment
Image of Hans Eicholz
Hans Eicholz
on June 02, 2020 at 11:30:36 am

Hans:

Good point, re: "German liberals".
I would add that oddly enough some of the German Greenies also support this view. although I can no longer find the link, sometime last year, a female leader of the German opposition (and she was a Greenie) excoriated Merkel and other German anti-Brexit types for precisely this reason ( as well as the potential loss of UK trade revenues).
So, Yep, good point.

read full comment
Image of gabe
gabe
on June 02, 2020 at 10:24:30 am

And once again we observe the EU's respect for property - DULY regulated by Brussels bureaucrats, of course.

https://www.breitbart.com/europe/2020/06/02/uk-no-progress-trade-deal-unless-eu-drops-regulatory-alignment/

read full comment
Image of gabe
gabe
on June 03, 2020 at 05:10:47 am

Currency stability is exactly what the southern members of the EU complained about following the introduction of the Euro. For salaried workers, pensioners on fixed income, and others with substantial savings, the value of their income streams and assets was essentially halved. Currency stability was maintained up North, but surely not down South.

read full comment
Image of William
William
on June 03, 2020 at 07:12:07 am

Quite right, and is why we must look to the "the most successful of these economies," which is to say, not those hampered by debt and inflation.

read full comment
Image of Hans Eicholz
Hans Eicholz

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.