Benchmarking the German social market economy model (Part 1)
First of all, let me congratulate Konrad Adenauer Foundation for convening a Roundtable on such an important topic. I am delighted to share my thoughts with you about the virtues of the Social market model and what we in Nigeria could learn for it. I have been a regular visitor to Germany over several years now. I remember having tea one glorious afternoon with the then German President Christian Wolff. I also had a memorable dinner with parliamentarians in the Bundestag. Under the exceptional leadership of Chancellor Angola Merkel, Germany represents the voice of civility, and enlightenment in international relations. I am always struck by the orderliness of Germany and the efficiency of its industrial-technological civilisation. For as long as I can remember, I have been inspired by German poets such as Goethe, Schiller, Holderlin and Rainer Maria Rilke. Bach, Handel and Beethoven represent for me the summit of the human spirit in music. When I think of the life and heroism of men such as Dietrich Bonhoeffer and Hans von Dohnanyi during the darkest days of German history, it brings tears to my eyes. Dietrich Bonhoeffer was for me the greatest among the theologians and moral philosophers; a harbinger of the New Enlightenment.
The trade and diplomatic relations between our two nations have continued to grow from strength to strength. Germany and Nigeria have a lot in common First of all, we are both regional hegemons; Germany in Europe and Nigeria in Africa. Secondly, we are both populous nations; Nigeria with a population of 182 million and Germany with 82 million. Thirdly, we are both federal democracies; Germany with 16 constituent länder and Nigeria with 36 states.
But there ends the similarities. We are sadly poles apart in levels of economic development. Germany is an advanced industrial economy with a GDP of $3.842 trillion and a per capita income of $47,000. Contrast that to our own GDP of $481 billion and a per capita income of $2,500. Germany is one of the world’s greatest trading nations, with an exports volume of $1.33 trillion, compared to our $48.4 billion. Germany is a world leader in industrial machinery, automobiles, petrochemicals, sustainable energy systems, pharmaceuticals, ICT, petrochemicals and precision engineering. Nigeria, by contrast, is a monocultural dependent petro-dollar rentier economy. Oil still accounts for 70 percent of government revenue and over 90 percent of our foreign earnings.
Germany also scores highly on the Human Development Index, standing at number 7 globally, compared to Nigeria at number 152 out of 170 countries. In terms of the Global Competitiveness Index, Germany is at number 4 in the global rankings as contrasted to Nigeria at a lowly number 124. Interestingly, Germany with less than half our population generates over 120,000 MW of electricity annually while our country generates a paltry 4,285. What is even more disquieting is the fact that Nigeria has experienced total system failure in its electricity generation at least twice in the last one year alone.
The main thrust of my argument is that the German social market model has been a key factor in shaping the country’s post-war ‘economic miracle’. And it is a model that we can learn from. I have also always believed that we need to benchmark ourselves with Germany, due to our many existing similarities.
Contrary to what is imagined there is no one universal model of capitalism. Given the predominance of the Anglo-Saxon Model as practised in such countries as USA, Britain, Ireland, Australia and New Zealand, many in the English-speaking world are inclined to believe that this model is the mirror-image of our universal common future. Francis Fukuyama probably had that in mind when he waxed lyrical about The End of History. Anglo-Saxon neoclassical economics has been the most dominant intellectual paradigm in the last century. More than half the Nobel laureates in economic science have operated within the ambit of Anglo-Saxon economics. Indeed, so dominant has it been that it has influenced the so-called Washington Consensus which dominated the philosophy of world development promoted by the international financial agencies.
The reality is that there are varieties of capitalism and there is no one standard, universal model of a market economy. Apart from the Anglo-Saxon Model, we can identify the continental European model (Belgium, Netherlands and Austria); the German social market model; the Japanese Nippon corporate capitalism model; the Nordic Model associated with Sweden, Norway and Denmark; the French dirigiste model; and the Chinese socialist market model.
There is, of course, something to learn from all these models. Our preoccupation is the German social market model and what we in Nigeria can learn from it. At the end of the day, every country has to evolve the model that works for her people – that reconciles the imperatives of liberty with the demands of welfare and prosperity.
The intellectual origins of the social market economy model date from the social debates that accompanied the unification of Germany during the Bismarckian period. The great ideological debates between Austrian pure liberalism on the one hand, and Marxist socialism on the other, forced thinkers such as Gustav von Schmoller, Werner Sombart and Max Weber to seek a middle way that will reconcile the two extremes in the ideological divide.
As a graduate student in England in the late 1980s, it was my privilege to have sat at the feet of the late Sir Ralf Dahrendorf, Provost of St. Antony’s College Oxford — one of Europe’s wisest intellectuals and statesmen — as he pontificated on the issues of liberty, economics, justice and peace.
The social market economy was thus designed to be a third way between laissez-faire liberalism and socialist economics. Historically, it was influenced by what came to be known as the philosophy of Ordoliberalism associated with a group of economists and social thinkers at the University of Freiburg.
The years 1939-45 were particularly traumatic for Germany. Perhaps the greatest philosopher in the world during those years was Martin Heidegger. Sadly, he pitched his tent with National Socialism, as did the jurist and political theorist Carl Schmitt. Heidegger was appointed Rector of the prestigious University of Freiburg from 1933 to 1945. Paradoxically, the intellectual movement against the political, economic and philosophical foundations of Nazism also started at Freiburg.
The concept of Ordoliberalism aims to integrate the social democratic ideas with the ideals of Christian social teaching and ethics. The social market abjures Soviet-style system of planning or guided capitalism. Rather, it pursues an organic approach to a comprehensive economic policy aligned to a flexible adaptation to market imperatives. According to one authority, “Effectively combining monetary, credit, trade, tax, customs, investment, and social policies, as well as other measures, this type of economic policy creates an economy that serves the welfare and needs of the entire population, thereby fulfilling its ultimate goal.”
The social market also allows for the provision of equal opportunity and for protection of those unable to enter the free market labour force because of old-age, disability, or unemployment. Its corporate practices involve worker participation in decision-making at management and board levels, with widespread consultation across the ranks before major decisions are made. It is also informed by socially progressive rather than regressive, taxation.
Chancellor Konrad Adenauer was a champion of the post-war Social Market Economy Model in Germany. The so-called German Economic Miracle was essentially anchored on the principles of the social market: national competitiveness, exports drive, vibrant SMEs, economic and monetary stability, employee participation in corporate management, subsidised housing, child benefits, dynamism of pensions and so on. In June 1948, his Christian Democratic Union (CDU) distilled the key elements of the social market approach as being solidarity, open and fair competition, free market principles, social harmony and welfare.
Particularly influential in this regard was Ludwig Erhard, Economy Minister of the Federal Republic of Germany during the years1949–1963. The underlying principles of the social market economy centre on protecting the freedom of all market participants on both the supply and demand side of the economy while at the same time providing social safety nets for the most vulnerable segments of society. Ludwig Erhard’s colleague, Alfred Müller-Armack, who was head of the Economic Affairs Ministry’s Directorate-General for economics policy before becoming became State Secretary for European policy, was the first credited with using the term, “social market economy” in formal writing.
The social market economy forms a pivotal part of Germany’s status as a free and open society; a society characterised by solidarity; a model that aims to advance economic prosperity while promoting full employment, social welfare and a robust social fabric.
Under this model, it is the market that balances supply and demand through the price mechanism. It ensures that the means of production are used efficiently while consumer costs are kept low. For the system to function as effectively as expected there has to be sufficient competition within the framework of an open market system that prevents individual economic actors from exercising monopolistic market dominance. Through this process, the market mechanism ensures greater choice for consumers while encouraging suppliers to develop more innovations and technological advances while ensuring distribution of income and profits in accordance with individual achievements. Within this system the key responsibilities of government would centre on maintaining a regulatory environment that promotes fair competition and an even playing field for all actors. At the same time, the state seeks to foster an environment in which all are willing and able to assume responsibility while taking their own initiatives.
A crucially important pillar of the social market economy, apart from the free market, is a generous welfare provision. The system provides social security for citizens who are not in a position to help themselves due to old age, infirmity, unemployment or other social challenges. The system not only provides a level playing field for businesses and an enabling investment climate but also encourages equality of opportunity and opportunities of participation by all those who are willing and able to work.
The social market economy has been an inherent part of the philosophy of public management in Germany. It was never specifically mentioned in Germany’s constitution as such, although the May 1990 Treaty creating the Monetary, Economic and Social Union between the Federal Republic of Germany and the former German Democratic Republic expressly states that the social market economy constitutes the common economic order for the New Germany.
Walter Eucken, a leading economist of the Freiburg school proposed seven principles of economic order: first, prevalence of a vibrant market and functioning price system; second, primacy of monetary policy which aims at stabilizing the value of money and taming inflation; third, open markets that allow potential suppliers to enter the market so as to expand the degree of competition in the economy; fourth, sanctity of private property and private ownership of means of production; fifth, sanctity of contracts and their resolute and transparent enforcement by the law; sixth, respect for the principle of the complete liability of property owners, such that public bailouts that encourage moral hazard are to be kept to the minimum; seventh, permanence, continuity and stability of economic policy, anchored on price stability and an environment that promotes stable and long term growth while preserving the value of investment assets and savings through a stable currency; and finally, redistribution of income through social welfarism, social safety nets, progressive transaction and a minimum wage.
(Being Abridged Version of a Keynote Address to a Roundtable Organised by the Konrad Adenauer Foundation, Held at Sandralia Hotel, FCT Abuja, Thursday 8 December 2016)
Obadiah Mailafia