What is social about the German Social Market Economy?

von IMC-in-exile - 12.07.2002 23:48

Germany was divided into two, one to the Capitalist and the other to Communist spheres. As it happened the social-Market economy seem to have been the way to avoid the weaknesses of both systems, yet the statistics seem to say it was more a nicely curved slogan than the commitment of the politicians to serve the general interest. Today that is also part of the political debate within some circles. Dr.Grover McArthur took time off to bring some of the facts together for us.

statistics(1) from the German statistics office 

statistics 2 

statistics 3 

"What is social about the German Social Market Economy?"

By rover McArthur, Ph.D 

I would like to report on a statistical indicator, which is called the education participation rate. This statistical indicator says a lot about a society. It indicates social and educational disparities. Therefore, I have titled my report: 

"What is social about the German Social Market Economy"? 

The concept of the social market economy was created in 1947 by the order-liberals and Alfred Müller-Armack as an alternative to capitalism and socialism. It was considered to be the middle way. There was a great debate at the time among the ordo-liberals about the word "social". For those who are interested in understanding the truths and the untruths about the social market economy, see my dissertation, 1995. 

It was generally understood by the ordo-liberals that a social economy did not mean Rentengeld, Wohngeld, Kindergeld or Socialhilfe, Mutterschutz, i.e. income subsidy programs. The ordo-liberals agreed that instead of income subsidy programs, a social market economy should be one in which workers are given the chance to accumulate capital, which would give them the means for improving their social status in the social structure. There were two methods for achieving this goal: 

(1) to subsidize savings, for example, with incentives programs for savings; 
(2) to increase the access to higher education; 

The first method was unsuccessful. Since the recession of 1967, there was occurred a secular decline in fixed capital investments, and economic growth and therefore, a secular increase in unemployment. Since unemployed workers are not able to save, they are also not able to improve their social status. 

The second method suggested for improving the social status of workers was to increase their access to higher education. The access to higher education is shown by a statistical indicator, the "participation rate of education, which shows the rate of participation in higher education of young people between the ages of 19 and 24. See "Die wirtschaftliche and soziale Lage der Studierendien in der Bundesrepublik Deutschland 2000" for more detail information. The participation rate indicate two things: 

(1) the opportunity of life chances; and 
(2) social mobility. 

The rate changes according to how we define it. There are three ways of defining the participation rate 
(1) Participation of 19-24 year olds in higher education according the educational status of the father; 
(2) Participation of 19-24 year olds in higher education, according to the occupational status of the father; 
(3) Participation of 19-24 year olds in higher education, according to the monthly net income of the father. 

Let us look at the bar graph at the bottom of statistic #1. We are only interested in West Germany and in young people that study at universities. 59% of young people in West Germany have fathers, whose educational status is that of a Hauptschulabschluss. Of this 59%, only 10% attended a university in year 2000. 19% of young people in West Germany had fathers with a mittlere Reife. Of these, 32% attended a university. 22% of young people in West Germany had fathers with a Hochschuldiplom. Of these, 57% attended a university. In East Germany the percentages are lower. When we include East and West Germany together, only 9% of young people with fathers who have a Hauptschulabschluss, studied at a university; 20 of young people with fathers who have a mittlere reife, studied at a university, and 57% of young people with fathers who have a Hochschuldiplom, studied at a university. If we include Fachhochschule, 77% of young people with fathers, who have a Hochschuldiplom, studied at a university. 

The bar graph of statistic #2 shows the educational participation rate in higher education of 19-24 year olds, according to the occupational status of fathers. The statistic is not very reliable, because the definition of occupational status conceals more than it reveals. The occupation levels are workers, angestellte, selbststandig, and Beamten. Athough this statistic is not very reliable, it does show the long-term trend over a period of 15 years. 

Starting with workers, we see that of young people, whose fathers are workers, only 4% studied at a university in 1985. This rate increase over time to 7% in 1990, but it has remain constant since this time. The participation rate is higher for children of angestellten, selbststandige and Beamten. For young people, whose father are angestellte, the rate was 19% in 1985. It increased to 28% in 1991 and it has actually decreased since 1991. Only the participation rate of young people, whose fathers are selbststandig and Beamten has increase over the long term. In year 2000, approximately ¾ of students had fathers who were selbststandig or Beamten. 

What does this mean? It means that the access to education in Germany for young people of lower social status has remained very low and actually decreased since the early 90's. Indirectly, this means that social mobility within Germany remains very low. This means that workers remain workers all of their lives and their children become also workers. They are not able to accumulate capital and have little access to higher education, which would enable them to increase their social status. 

The third statistic reveals the participation rate of students according to the monthly income level of fathers. The social groups are defined on a net level of 2000 DM -8000DM per month. This statistic verifies the last statistic: that the participation rate of students from the working class has actually decline over the long time, from 24% in 1982 to 13% in 2000. 

Facet: The low participation rate reveals low opportunities of life chances in Germany and minimal social mobility of the underprivileged. So what is social about the social market economy? 
A international comparative study will be published in the near future. Germany does not perform very well, when it is compared to other OECD nations. 

In the Pisa study 2000, it was found that the educational disparities between children of the privileged and children of the non-privileged were the greatest in Germany. It the educational disparities were even greater than in the USA, which as we know is a country with great economic disparities, but obviously less educational disparities. This is because there is only one track to education in the USA. In Germany, there are several tracks to education. The Gesamtschule, Hauptschule, and Realschule creates these educational disparities. They lead to the formation of an underclass, whose children and children's children become imprison in their underclass status, believing in the myth of "aufstieg. See the article in the Zeit of May 8, 2002 about this fable of Germans. So what is social about the social market economy? 

The ordo-liberals thought that a social system is one in which workers would be able to accumulate capital. Friedrich von Hayek said, (Friedrich von Hayek was a German Jew, who taught at the University of Freiburg and who immigrated to the United States in the 1930's, before the outbreak of World War II) when he was asked what does he consider to be a social market. He responded that he did not know what the word social means. What Friedrich von Hayek meant was that a lot of people use the word social without understanding exactly what it means. For example, it is social to tell workers that you live in a social market economy, give them Kindergeld to appease them and then forced them to finance the system through high taxes, deducting these taxes from their wages? Is a society social, when the opportunity of life chances in this society is low? Is a society social when it denies access to higher education to most workers. These are things to think about. 

When I was in West Africa several years ago, I travel to a small village in the bush. In this village, I had an interesting conversation with the village chief, who was a simple man, which no formal education. He was trying to make me understand which things were important in his village and which things were not important. He said to me, we make a distinction between village beings and bush beings. I asked him what was the distinction based upon. He said, "Well, a village human being is civilized, because he is social in his behavior towards other human beings." This meant that a social system is social, and thus civilized, when each individual in the system behaves in a social manner towards each other, I then asked him, what is a bush being. He responded that a bush being is a uncivilized being that is not social in behavior towards other human beings. 

I believe that I prefer this African's Chief's definition of the word social. 
So what is social about the German social market economy?