The Social market economy was the West German and Austrian economic model during the Cold War era. Known as Soziale Marktwirtschaft in German, it is not to be confused with the socialist market economy - the economic system of the People's Republic of China.
In West Germany, the social market model was implemented by Ludwig Erhard, Minister of Economics under Konrad Adenauer's chancellorship and German Chancellor from 1963 to 1966.
The social market economy steeres a middle path between socialism and liberalism and aimes at maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, public welfare and public services by using state intervention. Spiritual fathers of the concept are Franz Oppenheimer, Walter Eucken, Wilhelm Röpke, Franz Böhm and Alfred Müller-Armack.
Being first controversial, the model became increasingly popular in West Germany and Austria, since in both states economic success (Wirtschaftswunder) was identified with it. From the 1960s, the social market economy was the main economic model in mainland Western Europe, pursued by administrations of both the centre right (usually led by Christian Democratic parties) and the centre left (usually led by Labour, Social Democrat or Socialist parties).
Southern European states, especially Italy, preferred large-scale public services, high salary growth rates and a low unemployment rate over low inflation, low national debt, low public expenditure and other economic health policies. This Services State (Italian Stato Assistenziale, now derogatory) version of the social market is generally considered less successful than the more thrifty Northern European models.
Following the fall of the Berlin Wall in 9 November 1989, centre right parties gradually espoused neo-liberal economic policies while centre left parties developed the more free-market based Third Way. Nevertheless, a commitment to some form of social market economy was present in the European Union Constitution (now in limbo following the referenda in France and the Netherlands).
Art. I-3 of the Treaty establishing a Constitution for Europe
The Union shall work for the sustainable development of Europe based on
balanced economic growth and price stability, a highly competitive social
market economy, aiming at full employment and social progress, and a high
level of protection and improvement of the quality of the environment.
It shall promote scientific and technological advance.
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