The Social Market Economy : Germany

Since the war, the Federal Republic has developed a socially responsible market economy. This system rejects both the laissez-faire doctrine of the Manchester school and government intervention in business and investment decisions. The Basic Law, which guarantees private enterprise and private property, stipulates that these basic rights be exercised for the public good. Under the motto “as little government as possible, as much government as necessary", the state plays a mainly regulatory role in the market economy. It creates the general conditions for market processes.

Within this framework, the millions of households and companies decide freely what they want to consume and produce. The question as to which and how many goods are produced and who gets how much of what is decided above all in the marketplace. The government forgoes any direct intervention in price and wage fixing.

The prerequisite for a well-functioning market system is competition. Without it there can be no market economy. Competition ensures that the individual pursuit of profit translates into a maximum supply of goods for the community as a whole. It encourages initiative and forces companies to improve their market position by lowering prices, improving the quality of their products, and offering better payment and delivery terms as well as additional services. It is also conducive to innovation and rationalization. Open competition is undoubtedly hard for all concerned. Entrepreneurs time and time again try to neutralize competition, whether through agreements with rivals or mergers.

Preventing this is the purpose of the 1957 Law against Restraints of Competition (Cartel Act). It forbids concerted practices and agreements which influence market conditions by restricting competition. The law has undergone numerous improvements, and its observance is monitored by the Federal Cartel Office in Berlin and the state antitrust authorities. In the course of European integration and the globalization of the economy, responsibility for competition policy is increasingly being shifted to the European Commission in Brussels.

The aim of the Federal Government has been and continues to be to gradually privatize such enterprises as the Deutsche Bundesbahn (German Federal Railway), the Reichsbahn (the railway of the former GDR), and the Deutsche Bundespost (German Administration of Posts and Telecommunications) in order to increase competition, ease the financial burden on the national budget, and provide more efficient services for the public.

The shortage of housing resulting from the war initially led to the housing market being state-controlled. In the meantime, many of the restrictions have been lifted. The state does, however, ensure that competition does not result in socially intolerable conditions, chiefly by means of laws protecting tenants, the payment of housing supplements to low-income households, the promotion of building projects and the modernization of housing.

In several sectors where, in principle, there is free competition, lawmakers have made entry into the market subject to conditions. Thus craftsmen and retailers, for instance, must prove they have the necessary vocational qualifications before they can set up in business. For other occupations and professions the state requires special training and a minimum age, for example in the fields of health, legal practice, accountancy and tax consultancy. It nonetheless regularly considers whether such government controls are still necessary and are not misused to protect some sectors of the economy from competition.