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The social market economy (German: Soziale Marktwirtschaft) is the main economic model used in West Germany after World War II. It is based on the economic philosophy of Ordoliberalism from the Freiburg School. The economic-political instruments were implementated first by Ludwig Erhard, Minister of Economics under Konrad Adenauer's chancellorship (from 1949 to 1963) and Alfred Müller-Armack, head of the policy department of the economic ministry.
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The social market economy seeks a middle path between socialism and laissez-faire economic liberalism (i.e. a mixed economy), combining private enterprise with government regulation to establish fair competition, maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, social welfare, and public services, by using state intervention.[1] The term "social" was chosen rather than "socialist" to distinguish the social market economy from a system in which the state directed economic activity and/or owned the means of production,[2] which are usually privately-owned in the social market model.
In a social market economy, collective bargaining is often done on a national level not between one corporation and one union, but national employers' organizations and national trade unions.
Important figures in the development of the concept include Walter Eucken, Wilhelm Röpke, Alexander Rüstow, Franz Böhm, Franz Oppenheimer, and Alfred Müller-Armack, who originally coined the term Soziale Marktwirtschaft.[3]
At 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 (led by the Christian Democratic Union - CDU & Christian Social Union of Bavaria - CSU) and the centre-left (led by the Social Democratic Party - SPD). In early 1960s former Yugoslavia adopted modified social market economy and after that had average GDP growth of 6.1% for 30 years until the 1980s.
The term "Social market economy" is still the common economic basis of most political parties in Germany[4][5][6] and a commitment to some form of social market economy was present in the European Union Constitution (a project which was abandoned in 2005 following the negative outcomes of referenda in France and the Netherlands).
The main elements of the Social Market Economy in Germany are:[7]