Neo-Liberalism and Consensus Politics

As A. J. Nicholls has noted, the ‘economic platform described as the social market economy’ decisively shaped the early aspirations of the Christian Democratic Union (CDU) in West Germany. It was on this platform that the CDU fought the first elections to the Bundestag in 1949, and this economic programme underwrote the ‘Düsseldorf Principles’ that were adopted by the party on 16 July of that year. The programme ‘sharply rejected state planning and bureaucratic controls, but also opposed the “free economy” associated with traditional laissez-faire liberalism’, Nicholls summarizes. Before 1945 the term ‘social market economy’ was not in use and the term ‘neo-liberalism’ was sometimes used to refer to the ‘intellectual tendency’ it pointed to. Throughout his book, Freedom with Responsibility: The Social Market Economy in Germany, 1918-1963 (1994), Nicholls adheres to the usage ‘neo-liberal’ to describe supporters of the social market economy; I will follow this practice here.[i]   

Nicholls records that the term ‘neo-liberal’ was first used in 1938 at a colloquium held at the Palais Royal in Paris marking the publication of Walter Lippmann’s The Good Society (96-97). Post-war, in 1946, the Münster economist Alfred Müller-Armack set out his conception of the ‘social market’ economy as what Nicholls calls ‘a third form of economic system, replacing both laissez-faire and collectivist controls’. Such an economy would ‘not just be a liberal market economy left to function by itself, but should be deliberately steered in a socially acceptable direction’ (143).

The mid-twentieth-century German conception of neo-liberalism was thus notably distinct from the conception of ‘neoliberalism’ which historian Philipp Ther has classified as the ‘guiding ideology’ of the USA and Europe post-1989 (up until its demise ‘around the year 2014’). Ther defined such neoliberalism as a process of ‘privatizing state enterprises, liberalizing previously regulated sectors (such as banks and the stock exchange), and generally withdrawing from the economy’.[ii] Quite unlike its earlier, interventionist German form, post-1989 neoliberalism corresponds to what Nicholls presented as the 1990s ‘resurgence of what [Alexander] Rüstow might have described as “paleo-liberalism”’, that ‘denies any validity to the concept of social justice and rejects a role for the state in the economy other than the policing of property’ (392). Amidst the contemporary global collapse of such a neoliberal model, and the lack of movement towards a new conception of neoliberalism, the postwar German definition of a social market economy seems to me to be worth a second look as a possible signpost to the future.

Though distinguished by their ambition to intervene in the economy, mid-twentieth-century German neo-liberals did not advocate a command economy, and precisely because their economic vision of neo-liberalism emerged as a reaction to German totalitarian politics. With reference to Friedrich von Hayek’s The Road to Serfdom (1944), with its stress on the ‘interrelationship between economic and political systems’ (Nicholls), Müller-Armack maintained that ‘it is impossible to choose an economic solution which contradicts the fundamental [democratic] spiritual values to which one is committed’ (143, quoting Müller-Armack). The neo-liberals of the immediate post-war period did not recommend state control of the economy, but instead simply ‘sought to harness the dynamic forces of competition’, at the same time as seeking to ensure ‘that economic activity for private benefit should help to create a just and harmonious social order’. Nicholls emphasizes the political origins of this economic project, writing that ‘ideologically it was particularly well-suited to post-war Germany, where the doctrines of collectivism had been discredited by Hitler and by a widespread fear of Communism’ – but where ‘the need for social responsibility’ was also imperative ‘as the country faced the results of its military catastrophe’ (146).

Yet Nicholls also points to how the mid-twentieth-century German conception of neo-liberalism emerged out of debates the subject matter of which was clearly more (purely) economic than political in substance. He cites an article written in October 1946 by Ludwig Erhard – at that time the Bavarian Economics Minister – for Die neue Zeitung, in which Erhard argued that ‘the real contradistinction is not between free and planned economic systems, not between capitalist and socialist systems’, but instead ‘between a market economy with a free price level adjustment on the one hand and an authoritarian economy with state controls extending into the sphere of distribution on the other’ (quoted on 154). Later in this piece I will highlight the consequence for German politics itself of mid-twentieth-century neo-liberalism not being a political (and politically divisive) Weltanschauung : the widespread cross-party popularity of the social market economy enabled the Federal Republic to redefine politics as consensus politics, understood as a ‘permanent search’ for a new form of social order transcending the alternatives of collectivist socialism and laissez-faire capitalism.

Nicholls stated the aim of his book to demonstrate that ‘the real social market economy of Ludwig Erhard was not an uneasy mixture of laissez-faire and a welfare state’, it being instead ‘an attempt to maximize enterprise and competition whilst retaining the state’s responsibility for the creation of a decent society’ (vi). Essentially this neo-liberalism represented an advocacy of a strong state plus intervention to protect economic competition. Writing of Walter Eucken’s influential 1939 text Grundlagen der Nationalökonomie [Foundations of Economics], Nicholls summarizes ‘the system to which his [Eucken’s] theories lent support’ as ‘a consumer-dominated market economy in which the state lays down the rules of operation but refrains from direct interference’. Nicholls adds that ‘this was an ideal quite at variance, not only with Marxist theories, but also with the production-orientated, power-seeking [interventionist] eclecticism of Nazi economic policy’ (111).

The advocates of the social market economy, then, held that the market needed, as Nicholls puts it, ‘a clear legal framework supported by a powerful state to protect it from malpractice and distortion’ (5). For instance Eucken, in lectures on economic policy published shortly after the Second World War, propounded his idea of ‘ordered competition’; ‘this meant state-protected competition in which the rules prevented unscrupulous individuals manipulating the market by abusing their economic strength’ (Nicholls, on 325). Nicholls describes as ‘organizing an open competitive system’ what was always the ‘central core’ of Erhard’s economic priorities: ‘the liberation of market forces, first from state controls and then from private cartel restrictions’. Eucken argued that whilst competition can be criticized for its ‘cut-throat’ character, in fact those aiming to eradicate competition through monopolistic practices exhibited the nastiest behaviour (394, quoting Eucken).    

Erhard’s implementation of anti-cartel and anti-monopolistic policies post-war and through into the 1950s, Nicholls notes, ‘served to inculcate the idea of competition into the political culture of West Germany as something positive’. Yet Erhard also set in motion social-welfare policies, such as subsidized housing, controlled rents and higher pensions, that obviously ‘did not fit into the social-market framework in the way purists would have liked’. Crucially, however, as Nicholls also notes, the neo-liberal accent on social spending advanced ‘the concept that social spending could be assimilated with market economics so long as it was marktgerecht [market-driven]’. This entailed the additional twin concept that neo-liberal social spending could ‘enable parties like the Christian Democrats and then even the Social Democrats to accept the principles of market competition without surrendering their commitment to family security or social justice’ (395). Market economics was becoming acceptable to politicians on the left – whilst the bourgeoisie could fight less shy of facing social issues:

‘By reconciling social democrats and Roman Catholic populists to the market economy, and by teaching liberal middle-class citizens that social problems could be solved in ways which did not violate market principles, the neo-liberals created a consensus in favour of the pragmatic yet principled search for material well-being, personal freedom, and social balance […].’ (396-97)  

Nicholls had already quoted the original remark from historian Christian Watrin in connection with this ‘search’: ‘A social market economy may be described as a permanent search for an economic and social framework designed to encourage both an efficient production of the means of material well-being and personal freedom in a socially balanced order.’ (396) But though conceived of as being in a way a lifestyle, the social market economy did not represent for neo-liberals a morality or a political ideology. Really the market was merely a means to an end. ‘The social market economy cannot and should not be a Weltanschauung, in the sense of old-fashioned liberalism or socialism.’ (Müller-Armack, quoted on 391) It is worth concluding now with a stress on the effects of neo-liberalism’s lack of status as a political world-view: the transpolitical appeal of the social market economy and its contribution to the formation of the consensus politics of the Federal Republic.

Nicholls does point to a tone of ‘pessimism and frustration’ in the ‘markedly more conservative’ March 1958 ‘action programme’ put out by the neo-liberal Action Group for the Realization of the Social Market Economy [Aktionsgemeinschaft Soziale Marktwirtschaft – ASM] (361, 359, 298). ‘With its stress on minimalist social welfare and complete “neutrality” on the part of the state in economic affairs’, the programme ‘seemed to be heading towards a reassertion of those laissez-faire market principles which its protagonists had always strongly disowned’. As the neo-liberals aged and wearily rowed back to a less hopeful perspective on the development of the capitalist economy, the idea of the social market economy began to lose its appeal ‘first on the young and then on the electorate’ (361, 363). Then by the late 1960s, as Nicholls adds, the social market economy seemed to have ‘been overtaken by a more ambitious social agenda’: the sense of security now established in West Germany enabled the younger generation to rebel against its parents, and the neo-liberals could be attacked as ‘Cold Warriors’ (366). But the influence of their ideas had been undeniable. As Nicholls shows, by 1959 the Social Democratic Party (SPD) itself shared the neo-liberal advocacy of a strong state which would intervene to protect economic competition.

‘There is no doubt that the need to grapple with the challenge presented by neo-liberalism had a major impact on the SPD and forced it to rethink its intellectual position.’ (387) The ‘daring’ (Nicholls) Godesberg Programme produced by the SPD after its congress of November 1959 hence contained clear statements articulating German social democracy’s new-found commitment to economic freedom combined with a mildly interventionist state:

‘The state cannot evade this responsibility for the out-turn [Ablauf] of the economy. It is responsible for a forward-looking policy to control the business cycle, and should restrict itself mainly to indirect methods of influencing the economy. Free consumer-choice and free choice of work-place, free competition and free initiative on the part of the entrepreneur are important elements in it. […] The totalitarian directed economy destroys freedom.’ (367, quoting the Programme)

With its generally reformist rather than revolutionary quality, evocative of what Nicholls calls a ‘new, post-Marxist social democracy’ (368), the Godesberg Programme both ‘remained the basis of SPD policy and served it well electorally’. For with its fusion of ‘ethical commitment’ and ‘economic pragmatism’ the Programme ‘helped the SPD to broaden its appeal and move out of the social ghetto in which it had apparently been imprisoned since the Weimar Republic’ (388). Crucially, the broadening of the electoral appeal of the SPD, post-Godesberg, rested on its proposal of a ‘“market economy of the left” which accepted enough common ground with its liberal opponents to make consensus politics work’ (Nicholls). With its transpolitical commitment to the idea of a social market economy, ‘Germany was spared the oscillations between laissez-faire and socialism which proved so disastrous for Britain in the years which followed.’ (387) What a contrast too with the present-day US, where the aftermath of post-1989 Western neoliberalism is accompanied not by consensus politics but instead by a mile-wide Republican/Democrat split.

19.8.22    

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[i] Freedom with Responsibility: The Social Market Economy in Germany, 1918-1963 (Oxford: Oxford University Press, 2004; first publ. 1994), pp. 11, 12 (n. 5); further references to Freedom with Responsibility are given after quotations in the text.

[ii] Europe since 1989: A History, trans. by Charlotte Hughes-Kreutzmüller (Princeton, NJ: Princeton University Press, 2018; first publ. 2016), pp. 32, xii, 5.