SOCIAL MARKET ECONOMY: ORIGIN AND CHARACTERISTICS - ECONOMY - 2025

The social market economy is a socioeconomic model that combines a free market capitalist economic system with social policies, establishing fair competition within the market and a welfare state.

This economy refrains from planning and guiding production, workforce, or sales. However, he advocates planning efforts to influence the economy through the organic means of comprehensive economic policy, along with flexible adaptation to market research.

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Combining monetary, credit, trade, fiscal, customs, investment and social policies, as well as other measures, this type of economic policy seeks to create an economy that meets the well-being and needs of the entire population, thus fulfilling its ultimate goal.

It is up to policymakers to define the regulatory environment that will deliver on the promise of prosperity for all.

Mixed economy

The term "social capitalism" is used with roughly the same meaning as social market economy. It is also called Rhine capitalism, generally when compared to the Anglo-Saxon model of capitalism.

Rather than see it as an antithesis, some authors describe Rhine capitalism as a successful synthesis of the Anglo-American model with social democracy.

Most people who have heard of the social market economy think it means a mixed economy, combining market efficiency with social justice.

The latter requires government intervention, especially to distribute the fruits of the market economy fairly.

Origin of the social market economy

The social market economy was born and formed in times of severe crisis, both economic and socio-political. Its conceptual architecture was established by historical experiences and particular political requirements.

This led to the final development of the social market economy, as a viable socio-political and economic alternative between the extremes of laissez-faire capitalism and the collectivist planned economy, combining apparently conflicting goals.

One of the main factors for the emergence of the German model of capitalism was to improve the conditions of the workers in capitalism and thus avoid the threat of the socialist movement of Karl Marx.

Germany implemented the world's first state healthcare program in the 1880s.

Chancellor Otto von Bismarck developed a program in which industry and government worked closely to stimulate economic growth by providing greater security for workers.

To defeat the militant socialists, Bismarck granted the workers corporate status in the legal and political structures of the German Empire.

Establishment in West Germany

These were German concerns: the social question from the late 19th century, criticisms of liberal capitalism sparked by the global economic crisis of the early 1930s, and a heightened anti-totalitarianism and anti-collectivism shaped by the experiences of the Third Reich..

The social market economy was originally promoted and implemented in West Germany by the Christian Democratic Union, under the leadership of Chancellor Konrad Adenauer, in 1949.

Ludwig Erhard, the German Federal Prime Minister for Economic Affairs, under Chancellor Konrad Adenauer, is seen as the father of the social market economy.

This economy was designed to be a third way between laissez-faire economic liberalism and socialist economics. It was strongly inspired by ordoliberalism, social democratic ideas, and the political ideology of Christian democracy.

characteristics

- The human being is at the center of all measures, allowing consumers to decide according to their needs. The best way to empower them is with fair competition.

- It forces companies to strive for excellence.

- Reduces the influence of public institutions in the task of individual life.

- Functional price system, monetary and fiscal stability.

- Policy of ordering, not of interventionism. The instruments prevent any power, whether public or large companies, from reducing the possibilities of choice and freedom of the individual.

- It depends on a legal environment that provides legal security for companies and social security for people. The best way to achieve this is to leave as much as possible on the market and keep red tape to a minimum.

- Government intervention in the wealth creation process seeks to be minimal. However, the state is much more active in distributing the wealth created.

Social economy and socialism

The social market approach rejects socialist ideas of replacing private property and the market with social property and economic planning.

Instead, the social element of the model refers to support to provide equal opportunities and protection to those unable to enter the free market workforce due to old age, disability, or unemployment.

The objective of the social market economy is the greatest possible prosperity with the best possible social protection. It's about benefiting from the free market, which includes a free choice of workplace, price freedom, competition, and a wide range of affordable products.

On the other hand, its disadvantages are absorbed, such as monopolization, price fixing and the threat of unemployment.

The state regulates the market to some extent and protects its citizens against illness and unemployment, through social security plans.

Social market economy in Mexico

The Mexican economy has become increasingly geared toward manufacturing since the North American Free Trade Agreement came into force in 1994. Per capita income is about a third of that of the US Income distribution remains highly unequal.

Mexico has become the second largest export market for the United States and the third largest source of imports. In 2016, the two-way trade in goods and services exceeded $ 579 billion.

Mexico has free trade agreements with 46 countries, putting more than 90% of trade under free trade agreements. In 2012, Mexico formed the Pacific Alliance with Peru, Colombia, and Chile.

The government of Mexico has highlighted the economic reforms, implementing energy, financial, fiscal and telecommunications reform laws. Its objective is to improve competitiveness and economic growth throughout the Mexican economy.

Moderate economic growth

Since 2013, Mexico's economic growth has averaged 2% per year, falling short of private sector expectations, despite extensive government reforms.

Growth is expected to remain below estimate, due to falling oil production, structural problems such as low productivity, high inequality, a large informal sector that employs more than half the labor force, the weak state of law and corruption.

Social market economy in Peru

Peru's economy grew annually an average of 5.6% between 2009 and 2013, with low inflation and a stable exchange rate.

This growth was partly due to high international prices in mineral and metal exports, which account for 55% of the nation's total exports. Growth decreased from 2014 to 2017, as a consequence of the weakness in world prices of these resources.

Peru's rapid expansion has helped reduce the national poverty rate by more than 35% since 2004. However, inequality persists and continues to be a challenge for the government, which has advocated a policy of more equitable distribution of income and inclusion Social.

The government in 2014 approved several economic stimulus packages to promote growth, including modifications to environmental regulations to encourage investment in the Peruvian mining sector.

Trade agreements and growth

Peru's free trade policy has continued under different governments. Peru has signed, since 2006, trade agreements with Canada, the United States, Singapore, Korea, China, Mexico, the European Union, Japan, Thailand, Chile, Venezuela, Panama, Honduras.

Peru has also signed a trade agreement with Colombia, Chile and Mexico, called the Pacific Alliance. With this agreement, the integration of capital, services and investment is sought.

Mining production increased significantly during 2016-17. This helped Peru achieve one of the highest GDP growth rates in Latin America.

However, economic performance was affected by delays in infrastructure megaprojects. Also due to the start of a corruption scandal associated with a Brazilian firm.

Social market economy in Chile

Chile has a market-oriented economy. It is characterized by a reputation for solid financial institutions and a high level of foreign trade, with a consistent policy.

Exports of goods and services represent a third of GDP. Commodities represent approximately 60% of all exports. Copper is Chile's main export product.

From 2003 to 2013, its growth averaged almost 5% per year, despite a slight contraction in 2009 as a result of the global financial crisis.

Growth slowed to an estimated 1.4% in 2017. Due to a continued decline in copper prices, Chile experienced its third successive year of slow growth.

Its commitment to trade liberalization was deepened with the signing of a free trade agreement with the United States in 2004.

In addition, it has 22 trade agreements covering 60 countries. Agreements with the EU, Mercosur, China, India, South Korea and Mexico are included.

Government policies

The government has generally followed a countercyclical fiscal policy. It accumulates surpluses in sovereign wealth funds during periods of high copper prices and economic growth, allowing deficit spending only during cycles of low growth and low prices.

In 2014, the government introduced tax reforms aimed at fulfilling its campaign promise to combat inequality, to provide access to education and also to health care. These reforms are estimated to produce additional tax revenue in the order of 3% of GDP.

References

1. Wikipedia, the free encyclopedia (2019). Social market economy. Taken from: en.wikipedia.org.
2. Deutschland (2018). 70 years of social market economy. Taken from: deutschland.de.
3. Daily FT (2015). What is a Social Market Economy? Taken from: ft.lk.
4. Indexmundi (2019). Mexico Economy - overview. Taken from: indexmundi.com.
5. Indexmundi (2019). Chile Economy - overview. Taken from: indexmundi.com.
6. Indexmundi (2019). Peru Economy - overview. Taken from: indexmundi.com.