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The 60s were characterised by a heavy shift in favor of a stronger influence of the state.

The 60s were characterised by a heavy shift in favor of a stronger influence of the state. As a response to the first economic recession in 1966/67 and cyclical fluctuations, Keynesian teachings became very popular. The integration of the world economy advanced, public trade cycle policy and macroeconomic governance became established elements of economic policy. In spite of all this, the continuous inflation could not be repressed (Schlecht, 1998, p. 41).

Nevertheless, the 70s led to a period of extensive interpretation of the idea of the social state, so that the social component became more important than economic order. Consequently, economic necessities and financial solidity were not upheld. Bureaucratization, an inflation of expectations towards society and the state, the precedence of distribution policies heavily constrained economic efficiency, dynamics, flexibility, and the process of adjustment. The state and its representatives became responsible for employment levels. Willy Brandt significantly raised the share of government expenditure in GDP and the situation degraded to stagflation. High inflation occurred combined with economic recession. The years of full employment ceased and unemployment increased. Looking back, this can partly be explained by the negligence of the supply side and national debt. While Germany experienced a financial and socio-political “overkill”, core elements of the Social Market Economy persisted (Schlecht, 1998, pp. 42-44).

In the years of the 80s, a reflection on and return to the fundamental conception of Social Market Economy took place, changing the paradigm and the government in 1982. The new accentuation of regulatory policy aimed at growth, employment and structural change. The Keynesian approach was widely dismissed. Instead, budget consolidation, the reduction of the state’s ratio, debureaucratization, privatizations and fiscal reforms recreated economic dynamics and confidence finally building the basis for the German Reunification (Schlecht, 1998, p. 45).

The establishment of a monetary, economic and social union on 1st July 1990 and, therewith, the establishment of the Social Market Economy throughout Germany as well as massive financial transfer payments to the new federal states hugely distinguished the 90s. Notwithstanding the fact that the reunification took course without serious problems and that considerable improvements in the assimilation between East and West Germany have been made, a sustainable and self-supporting economic process could not be set up for a long time (Schlecht, 1998, p. 45).

Facing the new millennium with four and a half million unemployed, a huge budget deficit and economic stagnation, the new government, again led by the Social Democrats and Gerhard Schröder, finally had to realize that the current interpretation of the social state would not be able to master future challenges nor to guarantee the maintenance of the very high welfare level. Social security had become more and more a promise of full supply, which seemed to be irreplevisable by then (Streit, 1998, p. 182). It seemed obvious that everybody had to lower his or her standards, expectations, and to work more in order to transform society to fit for the future.

Therefore, the Agenda 2010 finally began to respond to the necessity of deeper reforms. However, after two years of economic growth in 2006 and 2007, a balanced national budget and a reduction of unemployment rates, the atmosphere again changed. The Social Market Economy went through all these crises, but, nevertheless, it has lost much of its former glamour and its attractiveness for foreign countries (Cassel, 1998, p. V). After 60 years, the Social Market Economy in Germany is in a conceptual crisis and discredited, despite all exporting and stability successes and the still high niveau of welfare According to Cassel and Rauhut (1998, p. 24), it is even degenerated to an empty phrase, used to argue arbitrarily in nearly every political argumentation, because politicians and economic scientists have failed in finding sustainable solutions to essential conflicts and changing challenges of globalizations and other trends. It seems crucial to bring to mind the original idea of the economic concept. Social Market Economy was never meant to be a set of rules with clear acting guidelines. Its adaptability can therefore be seen as its strength and guarantee for timelessness as well as its biggest weakness. While the liberty of the market is relatively precise in its meaning, debates and discussions have traditionally been strong about the question what social security really means and to which extent it should be realised in a welfare state. Although its openness to newer developments, problems and ideas, it cannot be blamed for the current situation. Being open to different accentuations of its two components “Social” and “Market Economy”, it is not surprising that different interest groups and parties pursue different and sometimes even contradictory objectives under the same maxim (Gutmann, 1998, p. 51). There remain only a few who argue that it is sufficient to realise a free market, because the result of a big Gross Domestic Product would facilitate social compensations. Despite all this, “social” became a likeable euphemism sometimes legitimating even unsocial reforms. It can be stated, that the element of social balance has often been dominated by opportunistic majority-seeking (Streit, 1998, pp. 180-182). Cassel and Rauhut (1998, p. 23) even claim that chances of a proper implementation of Social Market Economy are extremely low in a parliamentary-democratic system. It seems to be at least part of the problem that the term „social compensation” is ambiguous and, hence, not suitable for control of success and that it does not create a strong feeling of obligation to the concept.

Nowadays, the social state follows the principle of insurance, social autonomy, and pluralism of institutions (Althammer, 2007, p. 194). There are three layers of sociality: First, there are social effects of competition itself such as low prices. Erhard already assigned an automatical dependence as he stated in 1954: “The higher the level of economic freedom, the more social the economy is” (Erhard, 1954, p. 119). Second, there are social effects of public regulatory policies, and, third, there are social effects of public redistribution (Althammer, 2007, p. 198).

Currently, the interpretation of the component of social policy favors a relatively vast design and its social security net is one of the most expanded in the world (Paraskewopoulos, 1998, p. 228). Its expressions are the three pillars: Basic social care (social benefits and unemployment compensation), several further transfer payments like BAföG, child and housing benefits as well as social insurances in the form of health, accident, nursing, pension and unemployment insurance. At the same time, a relatively extended interpretation of freedom can be observed, although some sectors are not marked by competition and the labor market is completely exempted from competition (Cassel & Rauhut, 1998, p. 17). After all, it can be concluded that social security instead of economical progress became the center of attention and that there are several violations of the principle of subsidiarity. Further development was due to happen as a result of rent-seeking and political processes.

There certainly is a conflict of aims between social security, redistribution and economic efficiency (Paraskewopoulos, 1998, p. 224). However, today, it can be concluded that the economic political practice has essentially removed itself from the original conception and, yet, has not accomplished the conflict of aims towards a sustainable solution and reform of the German model of Social Market Economy (Paraskewopoulos, 1998, p. 224).

In times when the economic situation is unstable, when the budgetary situation is fierce, when unemployment rates are still high and trends like demographic development and especially the globalization are still seriously challenging the German society, there is a need to rethink the model of Social Market Economy. On account of this, it is important to clarify the omnipresent term of globalization and to define in what way society is precisely challenged.


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