History of Social Market Economy | FNF Sri Lanka

Germany´s swift economic recovery after World War II looked like a “miracle”. Yet, it was based on implementing an economic order that allowed entrepreneurs, innovators and workers the freedom to achieve their best. It guaranteed the rule of law and a high degree of political predictability and stability. This economic order, the Social Market Economy, was based on the ordoliberal idea that governments andmarkets both have essential roles to play in a modern, open society. The state sets general rules, oversees and enforces them. Within these rules, everybody is free to compete without state intervention. Therefore the state acts as a referee, observing the game and enforcing its rules, while abstaining from participating in the moves of the game

Starting in the 1930s, a group of thinkers around Walter Eucken and Franz Böhm, an economist and a lawyer at the University of Freiburg, developed a new school of thought called #ordoliberalism

Having just experienced the Great Depression and facing the rise of communism and fascism, they focused on reforming the existing capitalist order. Without institutional backguards, they feared, some market actors can accumulate too much power. Adam Smith, the founder of modern economics, already knew that entrepreneurs have strong incentives to restrict competition. Eucken and Böhm argued that these developments had a severe negative impact on consumers, e. g. higher prices, and on competitors who were pushed out business. They also feared that the accumulation of power can threaten democracy itself.

To preserve free competition, the ordoliberals emphasized the
need for institutions charged with protecting free markets.

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