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Among the principles that underpin the “social market economy” model are the principles of subsidiarity and market conformity. However, even once these foundations are established, we still have the problem of aligning political actions in accordance with the market, authentically participating in subsidiarity, and yet not a part of the welfare state. It is at this level of the discussion that interpretative problems and threats posed by enemies within the model begin, posing the risk of deviating from the soul of classical social market economy.
In his discussion of the political process, economist Afred Müller-Armack’s interpretation of “conformity to the market” offers the greatest possibilities but also the increased risk of enemy infiltration. According to Müller-Armack, subsidies of social policy (in the form of direct subsidies and those for rents and construction of housing) are in accordance with market. Between measures that are against the market and those in full compliance with the market, there remains in practice an intermediate level of measures yet to be reconciled with the market economy. Moreover, even those measures that he would define to be clearly not in accordance with the market would not necessarily represent a problem, since the market economy would be able to tolerate a large proportion of non-conforming measures without losing its nature. The interpretation of Müller-Armack is an evident internal obstacle to the model of social market economy that, over time, has exposed such an idea to considerable misunderstandings, and has sided with severe criticism. Finally, Röpke, who has proposed a narrower and stricter interpretation of the notion of market conformity, denies that the distorting effects of intervening in the market may depend on the amount of intervention. He considers the qualitative aspect of the intervention to be more detrimental than the quantitative aspect. This means that an intervention dissimilar to the market, even if minimal, would be able to destroy the free market, while an intervention compliant, although massive, would allow market processes to absorb it and to resume their course.
The scope and discretion with which, over time, the internal enemies have interpreted the principle of “compliant intervention in the market” is at the base of a certain stigma that has affected the concept of a social market economy. In front of external enemies, this principle seems to be an “empty formula” to which anyone can appeal– or behind which they can hide, in order to justify increasingly massive interventions that are prejudicial to the principle of free competition.
In contrast, interventions compliant to the market are those which, although changing preferences of the operators, do not alter the logic of the market: optimal allocation of scarce resources to alternative uses. The preferences change along with market conditions, and in practice, are reabsorbed by the new equilibrium. By contrast, a non-compliant intervention gives a misleading signal, whereby investors receive bad information that will cause them to act accordingly. Practically, in the latter case, the changed behavior does not follow the real market conditions. It rather corresponds to the impulses that have been at the base of a policy simulation founded on wished-for market activity, which in turn is based on partisan, lobbyist and corporatist interests that inevitably dwell in any society. In this case, the changes are not absorbed by market processes, but by subsequent and more massive doses of non-compliant interventionism.
In the most authentic view of the social market economy, the logic of the market offers a compass to navigate the maze of its processes. We could say, by analogy, it is like the light of the lighthouse which allows sailors to return to port. The compliant intervention, even though not necessarily recommended by the theorists of social market economy, actually moves the mouth of the harbor, but, unlike the non-compliant intervention, keeps the authentic signal-light and does allow the ships to crash on the rocks. On the contrary, the non-compliant intervention is such that it has the ability to turn off the lighthouse of the market and turn on the deceptive lights of particularistic opportunism dictated by political contingency; and it turns them in an inopportune direction for the ships.
Among the principles that underpin the “social market economy” model are the principles of subsidiarity and market conformity.
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