Social Market

A theory that is designed to deal with market failure and traditional normative values. It became especially prominent in West Germany after the Nazi experience of extensive regulation of markets and dictatorship. The West Germans wanted an economy with less intensive regulation that would be responsive to the needs of its citizenry and not just the wealthy.

The concept is premised on the idea that competition can price the less fortunate out of the market and that the unchecked market is capable of evolving into monopolistic and oligopolistic structures. As such, economic policy since the 1950s has been directed at money and banking, monopolies and cartels, the labor market, and exchange rate policy.

The term social was preferred over socialist to differentiate the intensity of government intervention in the market. Social market could then be seen as a variant of the capitalist conception of markets and the response to market failure—the desire to bring free order to the market (Ordo-Liberalismus)—rather than total control of economic exchange. Yet it formed the basis of extensive socialist networks in Germany that are closely reflective of the social, political, and economic normative traditions. German unification and stabilization issues have made it much more difficult for the government to play a limited role in the market.

Tribe (1990) points out that the term gained definition only after economic recovery was under way in the Federal Republic and has consequently thereafter been associated with the more positive aspects of German economic development. As such, the concept has been identified with whatever is thought to be essential to the success of the postwar German economy. The theory best encapsulates the traditional idea that the state has some role to play in the economy but that some amount of precautionary intervention is desirable. For more information, see Tribe (1990).