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Heinz Theisen
Social market economy in the age of globalization
1. Limits to Globalization. The global free market is not the result of a competition between different economic systems. Like the free market that was created in England in the mid-nineteenth century, it was established and maintained by political power. Unlike its English precursor, the global free market lacks checks and balances. Insulated from any kind of political accountability, it is much too brittle to last for long.
The idea of a global free market is the offspring of a marriage of positivist economies with the American sense of universal mission. Positivism means the idea that mathematics is the model for every branch of scientific knowledge. In economics, this methodology found expression in the idea of efficiency. American economists followed Positivism in thinking that productivity is the best measure of economic efficiency, but lacked their understanding that productivity alone does not make a humanly acceptable economy [1].
Nowadays even for the United States of America the global free market is no longer the priority. The Europeans recognise that China and Japan take the best from Globalization and leave the rest. It is probably only a matter of time that trade will return to being a matter of bilateral negotiations among governments. At worst a tit-for-tat protectionism would be the other extreme to Globalization and a new nationalism, new wars could happen.
The utopian dream that in the global free market all limits to growth will disappear has gone. Nowadays the limits to growth return as energy politics. Twenty-first century wars will be resource wars, made more dangerous and intractable by being intertwined with ethnic and religious enmities. Over the coming century, global warming may well overtake scarcity in energy supplies as a source of geopolitical conflict. In some areas it means desertification, in others flood. Food production is likely to be disrupted. These changes in the physical landscape will trigger large movements of population, as people attempt to flee to zones of safety.
There is a tension between two spheres of Globalization. Free capital flows coexist with stringent restrictions on the flows of people. By the late nineties, this combination was leading to large-scale illegal immigration. At the beginning of the twenty-first century, the pattern of global conflict is shaped by:
• population growth
• shrinking energy supplies
• irreversible climate change
• ethnic and religious enmities
• the collapse or corrosion of the state in many parts of the world.
The monopoly of organized violence is the defining power of the modern state. But in many parts of the world its monopoly of violence had broken down. Weapons of mass destruction were at risk of leaking out of controls of governments. Hundreds of millions of people are living in conditions of semi-anarchy. In much of Africa, parts of post-communist Russia, in Afghanistan and Pakistan, in Latin American countries such as Columbia and Haiti and even in some regions of Europe such as Bosnia and Kosovo, Chechnya and Albania, there is nothing resembling an effective modern state.
First we have to learn what we should not learn from each others: Russia had failed to catch up with the West, but maybe Russia is in the way to surpass the West. The transition from central planning to western-style free market failed, but the mafia-based economy that emerged from the ruins of the Soviet state has evolved into a hypermodern type of capitalism. Because of its origin in crime, Russian capitalism is well adapted to grow in a time when the fastest growing sectors of advanced western economies are illegal industries such as drugs,
prostitution and cyber-fraud. And Russia can exploit its energy resources for a new kind of superpower politics, as it did already towards the Ukraine.
We should not learn from market fundamentalism of the International Monetary Fund (IMF). As it does everywhere, the IMF demands fiscal austerity. No matter how different the problems are, the solutions are always the same. The IMF aims at installing one sort of capitalism everywhere. Inevitably, given the diverse histories and circumstances of the countries that have been subject to its policies, this goal has proved an illusion. The decreasing economy and the political anarchy in some third world countries and the increasing economy of China or Korea demonstrates, that it is not enough to build new bridges and new institutions, to promote and to finance the projects of the often corrupt elite, to ask for balanced budgets and to cut subsidies.
The spreading of corruption is the antithesis to competition and cooperation. Real property rights exist only in constitutional states, in combination with the freedom rights of the individual and in combination with their protection by the state. The constitutional state is even more important than democracy. It is the framework for development. Therefore it is not enough to build up a semi-democracy like the Russians did. Democracies without the rule of law are mostly even more corrupt than dictatorships, because a lot of different parties are trying to exploit the resources of the nation.
There should be no «either-nor» between socialism and liberalism, between state and market economy. The problem is that although states needed to be cut back in certain areas, they needed to be simultaneously strengthened in others. The state-building agenda is as important as the state-reducing one. The problem of neo-liberalism lays in a basic conceptual failure to unpack the different dimensions of stateness and to understand how they related to economic development [2].
2. European Culture as a Precondition of the Social Market Economy. We can see more clearly now, that the wealth and poverty of nations, the question, why some are rich and some are poor, finds many answers in cultural and political preconditions. In political terms, this means, that Good Governance, Social Market Economy, Culture and Education are the decisive elements for Human Development. We need a third way between the extremes of a utopian global free market and a new nationalism. I believe that a Social Market Economy and that the European Union could be such a third way.
The European culture is a good precondition for that. The core of European culture is the balance between the poles of:
• idealism and materialism
• individualism and solidarity
• ethics and science
• rights and duties
• individual interests and commonalities
• national and supranational interests
• religion and enlightenment.
And last but not least between social state and market economy.
The neo-liberals of the post world war period in Germany (the most well-known is Ludwig Erhard), had taken the prevailing best ideas from the traditional viewpoints and transported them into a cooperative relationship put with competing ideas. Social Market Economy takes from Socialism the accentuation of the social aspect and the dignity of labour, from Classical Liberalism the freedom of the individual and the coordination of the decentralised decisions by the market, from Catholic Social Doctrine the unimpeachability of a person, the subsidiary and the idea of property serving public interests, of the Evangelical Social Doctrine the professional ethics and the thrift.
The putative contrasts should not be annulled by a utopian dialectic, but should be supplemented in a tension-rich cooperation. The originality of the Social Market Economy
finds its reason not in a specific idea, but in the mutual complement of ideas regarded as incommensurable before. Instead of social conflicts cooperation become the prevailing organization form of the economical and social spheres. Provided that there is an agreement about the idea of the Social Market Economy, the political parties all move above that more closely to the middle.
By loosing the balance between the poles we are utopians and those who try to implement utopia becomes necessarily totalitarian. We can interpret the totalitarian answers to that confusion as an attempt to enforce the recombination of the separated subsystems. But this way, like fundamentalism, destroys the complexities and the chances for complementarity. It destroys pluralism. We can compare the fundamentalism of today with the totalitarian answers to failing modernization processes during the 20th century.
On the other hand a total neo-liberal separation of the subsystems leads to the kind of secularism, which nowadays constitutes a moral crisis. If there are no interactions between religion and politics, economy and ethics, science and culture, individualism and society, the sustainability of this culture is in real danger. A lot of people even in the west believed, that this pluralistic culture is in a moral and in a cultural decline. We have a lot of socio-cultural problems like:
• stagnating and aging of populations
• huge government deficits
• a declining work ethics
• social disintegration
• drugs and crime
3. Social Market Economy means Good Governance. The wealth of a nation depends to a high degree on its organizational capacities. For a Social Market Economy are not the mineral resources and not the amount of land or people important, it is the quality of the human capital, the human resources which decide about the quality of life. The richest nation in the world - per head capital - is Switzerland, a small country of seven million inhabitants -without any mineral resources, with four different ethnic groups and four different languages. They must be doing something right.
Good Governance means the reciprocity between economy and society. It is more than „Good Government» by a good administration (this is only a small part of it) and it is not the romantic idea of the political left, that the common people are better and wiser than the elite and which is why everything has to be decided through the people. It is something else.
Good Governance means the reciprocity of the different subsystems of society between:
• religion and politics
• culture and economy
• state and society
• state and science
• state and market economy
• science and market economy
• men and women etc.
To the ideal of Good Governance belongs:
• the separation of private and public interests
• the transparency of political decisions
• the universality of decisions
• the priority of efficiency and effectiveness
• cooperation instead of corruption
• control over and sharing of power in politics and civil service.
The constitutional state, property rights for the people and in sum „good governance» are the most important parts of democracy. They are the framework for development. Good Governance affords political and social reformatory efforts. It is a very complex task to
develop a nation. It is not enough to reform the political system like the Russians did and it is not enough to install a market economy like the Chinese did.
Good Governance should combine things in a complementary manner, which in former times were seen as contradictions. Like the combination of freedom and morality in the constitutional state and solidarity and profitability in the social market economy, we need a new balance between religion and politics, between culture and economy, between hardware and software.
As the collapse of the Soviet Union and the success of the European Union demonstrate, nowadays not the possession of land but the possession of knowledge, investments and the combination of them in a Good Governance are decisive for the wealth of a nation. In the information society or knowledge-based society not the possession of land or industry but of knowledge will decide.
In the knowledge-based society it is not so important whether the land belongs to Germany or Poland - if you work together. But it is important that the land belongs to an individual person with rights and duties. Without personal property rights there will be no ambition to develop the land. It is not important from which state you get your property rights. It is just important that the state is a constitutional state and that there is a kind of Good Governance [3].
The constitutional state is not a secondary condition for democracy and market economy. Instead, it is the precondition of both. The law is the condition of freedom. Without a constitutional state, there is no security for private property and investment, without an independent system of justice and good working civil service, there will be no stability no a sustainable development. A market economy without a framework by the state means not freedom but anarchy. Not the best but the most unscrupulous will do well.
We do not have to search for new victories between state and capitalism in the sense of «either - or», but for the balancing „as well as». The new balance transmits the successful concept of the Social Market Economy to political theory by freeing thoughts from onesidedness and putting thoughts into a supplementary correlation. After all, the complementary „as well as» of the Social Market Economy had succeeded in letting the class-welfare-polarization of capital and labour stand behind the benefit of consensus-oriented social partnerships.
The complexities of the modern world cannot be explained and arranged anymore by the one-sidedness of old ideologies. The putative contrasts should be supplemented in a tension-rich cooperation. We need the mutual complementarity of ideas that had been regarded as incommensurable before. We need the complementarity of rights and duties. We need the balance between them.
Culture and economy should create a great coalition against pre-modern and modern ideologies. The modern national conflicts between Germany, France and Poland nearly destroyed Europe. The modern ideological conflicts between democracy and socialism nearly destroyed the world. In the new post-modern world we have to search for new correlations and complementary ways to balance the poles, we have to search a new reciprocity between:
• Nation and Globalization (European Union)
• secularism and religion (Enlightened Religion)
• efficiency and solidarity (Social Market Economy)
• individualism and collectivism (Rights and Duties for everyone)
• modernization and identity
• technology and ethics
• state and market
4. Social Market Economy in the European Union. Since it was born, in the rubble of World War II, the vision of a united Europe has grown dramatically from a coal-and-steel trading arrangement to a common market to a community to the European Union, a new kind
of state in which the member nations have handed over much of their sovereignty to a transcontinental government in a community that is becoming legally, commercially, and culturally borderless. The EU, with a population of nearly half a billion people stretching from Ireland to Estonia, has a president, a parliament, a cabinet, a central bank, a bill of rights, a unified patent office, and a court system with the power to overrule the highest courts of every member nation. It has a 60,000-member army, its own space agency and it has a 22,000-person bureaucracy and an 80,000-page legal code governing everything from criminal trials and corporate taxation to peanut butter labels.
In the 1990s the EU became broader and deeper. On the deeper side, the member states agreed to the common currency, the single central bank, borderless travel, uniform food and health regulations, and numerous other changes that increased the power of the EU government in Brussels and decreased the power of the national members to govern these issues individually. At the same time the fifteen members opened their arms to their eastern cousins to make their union broader by taking in new member states. Now the EU is a big, but not global market. With new members like Turkey, the Balkan states and the Ukraine the European Union is in a real danger of overstretching and of just being a branch of the globalized economy [4].
The European Union started with the economy. After endless political quarrels it was the best to change the vision. First it was the economy. Afterwards political cooperation could start. The next step must be to heal the wounds between the religions. After endless religious and political wars on the Balkans and between Israel and the Arabic World, it is still not just the economy that is at stake.
The European Union seems to be a good way for the restructuring of technologies, national economies, different nations and religions, which were divided during centuries. Nearly up to its end the 20th century had been an age of extremes. On the other hand, its better eras based on negotiation and mixed programs, which are interacting public and private affairs as well as state and society with each other.
In the late twentieth century Europe has been bound together by an extraordinary dense complex of international institutions: the European Union, NATO, Council of Europe, Organization for Security and Cooperation in Europe, and others. East Asia has nothing comparable except ASEAN; which does not include any major power; has generally eschewed security matters, and is only beginning to move toward the first steps of economic integration. The APEC incorporating most of the Pacific rim countries is an even weaker discussion club than ASEAN.
The revolutionary progress in the communication-technologies helped to tear down the wall in Berlin and the fences between the nations. Now the nation states of Europe are competing for know-how, for new technologies, new products and for selling the products. This competition is hard but it is harder to ignore it like the socialist countries tried to do. If you are not involved in that competition, you stand apart like the African countries today. But the European Union means competition and cooperation at the same time, means the cooperation of nations and a supranational state, of state and society, of the social state and the market economy. This is in a certain way a renaissance of old European dialectic of culture and world, idealism and materialism, religion and enlightenment, solidarity and profitability [5].
We can learn from the European Union that former enemies can cooperate first in the field of economics and afterwards in the field of politics, although there were a lot of borders and even a wall, although they have different national cultures which were in former times as important like the religion identities of today and although they struggled for centuries about the possession of land.
Education as Precondition for the Social Market Economy. In the materialistic marxist or neo-liberal belief, economy is the basis of culture. But in the age of knowledge-based economies, it seems to be the other way around. Culture is more and more the basis of politics and economy. As we can read in the great book from David Landes, the cultural preconditions are very decisive for the wealth and the poverty of nations [6].
I want to mention only three examples.
you cannot separate technical inventions from the liberty of thoughts and science.
you cannot separate the declining birth rate in Europe from our individualistic lifestyle
software is the most important precondition for a knowledge-based economy.
Education and good governance are the most important preconditions for investments. For cooperation between the subsystems of the society and between different nations and for Good Government we need to have cultural preconditions like:
• good communication
• good knowledge of each other
• trust in each other
• a new vision of the future.
Tow aspects of culture are relevant for the economy. One is how outward your culture is: To what degree is it open to foreign influences, best practices and ideas? How well does it „glocalize»? The other is how inward your culture is. To what degree is there a sense of national solidarity and a focus on development, to what degree is there trust within the society? Local cooperation in times of Globalization is called glocalization. The more you have a culture that naturally glocalizes the greater advantage you will have in a flat world. The natural ability to glocalize has been one of the strengths of Indian culture, American culture, Japanese culture and, lately, Chinese culture. They did not lose their identity by joining the process of Globalization. They try to take the best and leave the rest [7].
There will be more losers than winners as long as there are more market victims and market objects than participants. The hopes placed by free traders in the comparative advantages of competition are correct for those who are competitive, but not for the others. The modern individual has more and more the task to make his/ her living without the help of ethnic groups or pressure groups. And education is the best shelter against the often corrupt elite. Through market integration the rich lose the shelter, behind which they can exploit the consumers and workers of their own country. Some of the poor are receiving a chance to sell their products on the global markets. China is using this chance in a way which is a real challenge for the competitiveness of Europe. We cannot be cheaper than the Chinese workers, so we have to be better.
Education will decide. We need education for a knowledge-based economy, for Good Governance and Social Market Economy. Are people market objects or market participants? Are people political objects or political participants?
Education is more than information. We need knowledge and we need the wisdom of an old culture. A total separation of the subsystems leads to the kind of secularism which nowadays triggers a moral crisis. If there are no interactions between religion and politics, economy and ethics, science and culture, individualism and society, the sustainability of this culture is in real danger. A lot of people even in the west believe that this pluralistic culture is in a moral and cultural decline. But - compared to others regions of the world - the Muslim world is in an economic decline. If both pre-modern and modern societies are suffering from a feeling of decline, they should cooperate to find solutions which will improve their situation.
For a new Social Market economy we need a renaissance of the European dialectic between culture and society, idealism and materialism, religion and enlightenment, solidarity and profitability. The balancing of those poles is deeply rooted in our best traditions. A Social Market Economy cannot mean the enlargement of the German or French social state towards eastern European countries. But it means: There are different sectors of public life following
different signals and not only one economic signal for all of them. The different sectors of our public life should be in a sustainable balance.
We have to search for new compromises beyond flexibility and security (Flexicurity), beyond competition and cooperation (Coopetition), and beyond containment and engagement (Congagement). These new words are symbolizing, that the old either-or between progressives or conservatives, between liberals or socialists, between state and market cannot explain the complexities of the post-modern world. A new Social Market Economy should combine things, which were seen in modern times as contradictions in a complementary manner.
References:
[1] John Gray. Al Qaeda And What It Means To Be Modern. London, 2003, 48f
[2] Francis Fukuyama. State-Building, Governance and World Order in the Twenty-first Century. London, 2004.
[3] I taught this idea to Palestinian students, but they did not accept. In Europe we needed two World Wars to learn the new rules. See Walid Mustafa, Heinz Theisen (eds.). Beyond Fundamentalism and Nationalism. New Visions for the Holy Land, Bethlehem, 2006.
[4] Heinz Theisen. Die Grenzen Europas. Die Europäische Union zwischen Erweiterung und Überdehnung. Opladen, 2006.
[5] Reid T.R. The United States of Europe. The Superpower nobody talks about - from the euro to eurovision. London, 2004.
[6] David Landes. The Wealth and Poverty of Nations. Why Some Are So Rich and Some So Poor. New York, 1998.
[7] Thomas L. Friedman. The World is Flat. A Brief History of the Globalized World in the Twenty-first Century. London, 2005.
