What is Ordoliberalism?
Ordoliberalism is a form of economic liberalism that developed in Germany in the 1930s and 1940s. Its name comes from the Latin word ordo, meaning order. Ordoliberals believe that a free market does not maintain itself. Without clear rules, they argue, firms can form cartels and monopolies, and interest groups can capture government. The task of the state is therefore to set and enforce a stable economic constitution, the basic legal order of the economy, rather than to steer prices or production directly. This idea is often called Ordnungspolitik, or order policy.
Core beliefs
- Competition is the best protection against both private and public concentrations of power.
- The state should be strong enough to enforce rules but should not plan the economy.
- Strict competition law is needed to prevent cartels and monopolies.
- Stable money and sound public finances are basic conditions of a free economy.
- Economic policy should follow general rules rather than case by case intervention.
- Private property and freedom of contract must operate within a legal framework.
History
Ordoliberalism began at the University of Freiburg in the early 1930s, when the economist Walter Eucken and the jurists Franz Böhm and Hans Großmann-Doerth began working together on how law and economics shape each other. They had seen the economic chaos of the Weimar Republic and the concentration of economic and political power that followed. Related thinkers such as Wilhelm Röpke and Alexander Rüstow, sometimes called sociological liberals, added concerns about community and social stability. After the Second World War, ordoliberal ideas influenced West German economic policy. Ludwig Erhard, as economics director and later minister, ended price controls in 1948 alongside a currency reform. Alfred Müller-Armack coined the term social market economy, which combined ordoliberal competition policy with social protection. The yearbook ORDO, founded in 1948, became the school's main journal.
Variants
The Freiburg School proper focused on law, competition and the economic constitution. The sociological liberals, such as Röpke and Rüstow, placed more stress on decentralization, small firms and social cohesion. The social market economy is a related but broader program that added more social policy than the founders favored. Later constitutional economists, including James M. Buchanan, drew on similar ideas about rules limiting government.
Criticisms
Critics on the left argue that ordoliberalism puts budget discipline and price stability ahead of employment and social needs, and some economists link it to strict austerity policies in the eurozone after 2010. Keynesian economists argue that its suspicion of active demand management can deepen recessions. Critics from more market oriented libertarian schools, including some Austrian economists, argue that its strong competition authorities give the state too much power to judge market outcomes. Some scholars also question how democratic a rule based economic constitution can be.
In practice
Ordoliberal ideas shaped the West German economic recovery after 1948, the German Act against Restraints of Competition of 1957, and the independence of the German central bank. They also influenced European Union competition law and the rules on budget deficits and central bank independence in the European monetary union. In German debates today, the social market economy remains widely accepted across major parties.