Social Market Economy – Third Way or Compassionate Capitalism?
In conclusion of activities of the 2008-2009 Season of Birzeit Legal Encounters, the Institute of Law (IoL), in cooperation with the Faculty of Law and Public Administration, at Birzeit University hosted Professor Marcus Marktanner, Professor of Financial Economics and Legal Expert at the American University of Beirut (AUB), to present a lecture on the Social Market Economy – Third Way or Compassionate Capitalism?
As moderator of the legal encounter, Dr. Nassr Abdul Karim welcomed Professor Marktanner, the delegation from the Konrad Adenauer Foundation's Amman Office, and the audience. Especially under the current international economic crisis, Dr. Abdul Karim highlighted the importance of Professor Marktanner's presentation.
Expressing how glad he was for visiting Birzeit University and meeting with students, Professor Marktanner stated that the legal encounter provides a good opportunity to view the nature of the social market economy system. Professor Marktanner initiated his presentation with a number of substantive questions: Is the social market economy a third way or a compassionate capitalism? Why is the social market economy a better alternative to socialism and neo-liberalism? What do we need to apply the social market economy system in practice?
To answer these questions, Professor Marktanner explained that despite the longstanding history of economic charters and laws, the concept of social market economy is still subject to substantial debate and confusion. Though always present, this concept has been embedded within other larger notions, including socialism or capitalism. With the demise of socialism and failure of economic reforms introduced by neo-liberalism to enhance the status of all social classes, the social market economy system is a model that has gained increasing importance. All developed and developing countries are also interested in this system.
Elaborating on the concept, Professor Marktanner addressed the mechanisms necessary to draw a distinction between the social market economy and other economic philosophies, such as neo-liberalism and socialism. By analysing these models, it seems that the social market economy shares the socialists' concerns of social inequity as well as neo-liberalists' fear of allocations inefficiency. However, the social market economy dissociates itself from the above two models to a great extent. According to Professor Marktanner, the latter system varies from the socialists' trend to centralising the economic activity.
Similarly, it also differs from the neo-liberalists' attitude towards a blind dependence on the market forces. Pursuant to the concept of social market economy, Professor Marktanner stressed that equity and efficiency are not alternatives, of which societies need to choose. On the contrary, these components are complementary to one another.
Additionally, Professor Marktanner cast light on the notions of neo-liberalisms and socialism. Though grounded on the redistribution of wealth, socialism lacks a theory of allocation. On the other hand, neo-liberalism is imperfect despite the fact that it relies on allocation. Neo-liberalism lacks a theory of redistribution. In contrast, the system of social market economy combines both models of efficiency and balance. Basically, the theory of social market economy encompasses market efficiency and social equity. To achieve these ends, the state must play a particular role to create a definite economic-social system.
Highlight an important conclusion, Professor Marktanner asserted that even though the social market economy has set forth major principles of the economic policy, many states have neglected these principles. As a result, states have suffered from several crises that could have otherwise been avoided. The current international economic crisis is a good example. To solve the crisis, Professor Marktanner believes that principles of the social market economy should be in place in order to correct present errors in a timely manner. Principles of the social market economy not only ensure stability, but also help avoid future crises.
To answer the question whether the social market economy is a third way or a compassionate capitalism, Professor Marktanner concluded that the theory of "definite economic-social system" makes the social market economy a third way in place of compassionate capitalism. Therefore, the social market economy theory can be better articulated as an economic-social theory that seeks to render the concept of social market economy a third way, not a form of a compassionate capital system. In other words, the social market economy is a model that achieves stability at times of crises.
