Social Market

The concept of the social market is rooted in the perspective of economic sociology, which understands the capitalist market as a system of exchange based on social as well as economic foundations. It consists of economic transactions embedded in a complex network of formal and informal social interactions and organizations. Rejecting both the liberal, free market economy and the socialist, centrally planned economy, it seeks to achieve a third way by linking social safeguards to market processes. With the understanding that economic exchange is a collective reality shaped by social norms and values, the social market underscores the potential for cooperation, challenging classic liberal economists' assumption that the governance of capitalist markets is determined by individualized, rational decision making. Instead, it perceives symbolic and dynamic interpersonal and interinstitutional interaction as important in generating multiple meanings in exchange relationships.

The idea of the market as a set of social customs and organizational rules is part of a broader social market theory developed in Germany in the 1930s. In an attempt to transition away from a planned economy, while avoiding the undesirable effects of free markets (e.g., monopolization, excessive economic inequity, and social exclusion), it underscored two key elements: (1) managed markets as a means of striking a balance between personal freedom and societal equity on the one hand and economic efficiency and social justice on the other and (2) a clear legal and political regulatory framework to support and protect these markets. Implemented after World War II by market regulators, this model came to be known as the social market economy.

What mechanisms contribute to developing and preserving social markets? Key elements such as private property and competition are drawn from classic economic theory. However, the social market deemphasizes utility maximization and profit as the primary motives for economic action. Additionally, it rejects the price system as the central means of economic coordination, as well as the notion that markets work best absent state interference. Instead, it relies on a strong but limited state to uphold the competitive economic order, mediate between competing societal interests, and protect citizens from social risk.

By counteracting market failures and undesirable developments in the labor supply, the state serves a corrective function in the economy. However, it does so through institutional forms of coordination involving vertical and horizontal power sharing. The former occurs through the inclusion of the third sector in the exercise of public functions, and the latter involves the unification of labor and capital in the formulation and implementation of public policy. Constituting a network of rules and norms that restrain the exercise of power and facilitate participation and solidarity, these public-private partnerships provide the foundation for effective governance.