One of my most formative experiences as an aspiring scholar came one cold winter day in 1993. I was a young graduate student, making extra money by teaching a course in economic policy to social work students at a small, rural college in northern Sweden.
I spent a good half hour of a class explaining some intricate part of economic theory. I felt very good about myself, believing I had made the complex theoretical point understandable to them.
I looked out over the class. The students were all silent. Eventually, one of them raised his hand and said:
Before I went to college, I worked for the park service in my hometown. Basically, I raked leaves for ten years in the city parks. Can you explain what this that you just said has to do with me going around there, raking leaves?
I was unprepared, but fortunately, I was able to answer it to the satisfaction of him and most of the other students.
From that moment on, I pledged that whatever I was going to do for the rest of my career, I would make sure that it would always be useful in one way or another. I promised myself that I would try to use my scholarly skills to make a difference.
This is a big ambition, of course, one that you can easily drown in—especially if you take yourself too seriously. It is easy to end up thinking that you are going to change the world. I have, so to speak, never thought that highly of myself.
At the same time, if you can avoid aggrandizing yourself, a scholar’s pledge to stay connected to the real world can be very useful. The aspiration to make a difference becomes a litmus test on your work, separating what ‘makes sense’ from what is ‘a waste of time.’
That is not to say highly theoretical work is useless—quite the contrary, in fact. Theory is an essential tool for our efforts at understanding the world we live in. I spent my own doctoral thesis exploring the higher levels of economic theory. Without a thorough understanding of political, economic, and philosophical theory, any desire to make the world a little bit better implodes into an ad-hoc walk around town. But if we do not aspire to let our theoretical work at some point make a difference—even if it happens many years into the future—we might want to ask ourselves what the point really is of our pursuit of better theory.
For the longest time, I have felt a bit frustrated with how the conservative movement has lacked this commitment to reality. That is changing: the conservative movement today, in America, in Europe, and in the rest of the world, is blessed with an increasingly vibrant link from high theory to political impact. This was not always the case, but rather than delving into why we have not been more effective in the past, we should take pride in our recent accomplishments along the whole line from sharpening our theoretical tools to putting the tools to work.
One of the ways to make a difference is to establish conservatism as a force of reform and betterment in legislation. American conservatives took a solid step forward last year when the Republican party, driven in part by a Trump-inspired conservative momentum, won back the majority of the House of Representatives.
In Europe, especially in the European Parliament, the right-of-center movement is sprawling with increasingly impactful ideas for the future of the continent. Among the most compelling tools for introducing theory to reality is the concept of the ‘social market economy.’ It is an essential building block of the platform for the Group of the European People’s Party, EPP, which presents itself as
the largest and oldest group in the European Parliament. Our roots reach back to Europe’s Founding Fathers—Robert Schuman, Alcide De Gasperi and Konrad Adenauer—and our Members come from all of Europe’s Member States.
A center-right formation, the EPP emphasizes the original purpose of a modern, integrated Europe. While not explicitly mentioning the four freedoms that carried the old European Communities over into the EU back in the 1990s, the EPP firmly commits to “a more competitive and democratic Europe” where people, capital, goods, and services are free to move without undue interference.
This is a welcome commitment, but it is only the beginning. It is easy to make such declarations and then forget the practice. The EPP has decided not to make that mistake: not only do they have an elaborate section on their website where they explain “what we stand for,” but they also go to great lengths explaining “how we make it happen.”
One of the key concepts linking the former to the latter is the “social market economy,” which the EPP explains as follows:
The European economy must be committed to the principle of the Social Market Economy, a model combining social awareness with dynamic market principles, which has, in the last three decades, ensured high living standards and social/health benefits to all European citizens in need. Jobs, growth, and business are the three pillars of the Social Market Economy.
This concept comes with a long history. The late Christian Watrin, a German economist with the University of Cologne, gave an excellent historic review of it in his article “The Principles of the Social Market Economy—its Origins and Early History” (Journal of Institutional and Theoretical Economics, Sept. 1979). Among his many contributions, Watrin identified two steps in which a social market economy brings conservative principles to life in public policy.
The first step separates the concept of the social market economy from socialism. It consists of a decision on which mechanism we prefer for the allocation of economic resources: state planning or the free market. The originators of the theory of the social market economy easily chose the latter, in particular since already in the early to mid-20th century, the Soviet economy was showing clear signs of systemic ineptitude.
The second step separates the concept of the social market economy from libertarianism. As the prefix gives away, proponents of the social market economy do not find it desirable to leave the free market entirely to itself. They recognize its virtues, especially in terms of elevating us from poverty to prosperity, but they also acknowledge that capitalism and the free market are deficient in terms of moral values.
There is nothing controversial in this acknowledgment. Capitalism and the free market were not constructed to be conduits of any particular set of moral values; they are tools for economic growth and prosperity. As such, they are unprecedented in their success, but a society that does not supplement free-market capitalism with institutionalized moral values is a society with no moral compass.
Taken together, steps one and two connect the theory behind the social market economy with reality and provide conservatives with a forceful tool for politics and legislation. However, the strength of the concept does not only come from its inherent logic, but also from its long history. Christian Watrin explains how European conservatives already in the 19th century formulated a moral amendment, so to speak, to the free market. Gradually, the combination of ethics and markets grew into practical policy solutions with varying forms of government responsibility for the poor and the destitute.
One of the key aspects of putting the social market economy concept to work is the evolution of social-insurance programs in early 20th-century Europe. Thanks to the first step—socialist planning or free markets—conservatives were able to delineate between two ways to construct social-insurance programs:
- In the Nordic countries, they were incorporated into the traditional socialist welfare state;
- Continental Europe tended toward a system of privately organized and operated insurance models, with mandatory membership.
There is a plethora of literature delineating the ideological aspects of social amendments to the free market economy; for a succinct summary, see Gøsta Esping-Andersen’s book The Three Worlds of Welfare Capitalism (Princeton, 1990). However, the Nordic and the Continental models serve as a good bipolar illustration of the main ideological tension around social interventions in the free market.
The Nordic model, i.e., the socialist welfare state, comes with many problems. One of them is that over time, it creates an inevitable conflict between the social ambitions of government programs and the free-market capitalism that the welfare state is supposed to amend. The reason for this conflict is in the theoretical foundation of socialism, which dictates a gradual progress of society toward the point where there are no economic differences between individual citizens.
This Marxist component of socialism (there is no such thing as non-Marxist socialism) forces upon society increasingly invasive government programs to ‘correct’ the economic outcomes of the free market. This ambition to synthetically alter organic economic outcomes gives rise to systemic tensions between capitalism and socialism.
By contrast, when we choose the social market economy, we limit the state’s interference with the free market by—again in practical terms—making participation in private social insurance models mandatory. The role of government is limited to the mandate itself, and to the certification of what social insurance plans people can choose from under the mandate. Competition vouches for the best possible combination of quality and affordability.
With the free market allowed to do what it does best—and nothing more than that—we are guaranteed the highest possible growth in prosperity. With government confined to the social amendment to the free market, we put sideboards on the forces of the state, alleviating fears of government overreach.
Watrin refers to this limitation of the state’s purpose as preventing the ideologization of government in the economy. On the face of it, he goes too far: a social market economy built according to conservative principles is also ideological. However, his point is correct if we understand it as a cap on, not a prohibition of, ideological interference.
Social insurance programs are excellent examples of how we can turn the theory of the social market economy into practice. These are programs that help people provide themselves and their families with health insurance, and with protection against income losses due to, e.g., sickness, unemployment, and retirement.
In 2011, political scientist Heinz Theisen summarized the mission of the social market economy (“European Values and the Social Market Economy,” Participation and Reconciliation, 2011, p. 143):
The Social Market Economy takes the accentuation of the social aspect and dignity of labor from Socialism, and the freedom of the individual and the coordination of decentralised decisions by the free market from Classical Liberalism, the unempeachability [sic] of a person, the subsidiary and the idea of property serving public interests from Catholic Social teaching and from the Evangelical Social doctrine the professional ethics and the thrift.
Again, the social market economy is a good representation of the continental European approach to putting social sideboards on the free-market economy. At the same time, it comes with one question that illustrates how nothing is ever simple in the world of politics. This is the question of whether gainfully employed people permanently get benefits from government.
The answer easily leads us through a left turn. Many governments in Europe provide benefits based on the eligible citizen’s income. This means that as their income grows, people gradually lose their benefits. On the other end, taxes paying for those benefits are often progressive in nature, taking a larger share of the last earned euro as income increases.
When combined, these two effects are known as ‘economic redistribution,’ i.e., a reduction in ‘economic inequality’ by means of economic policy. Socialists engage in economic redistribution simply because they want to eliminate economic differences; conservatives have no intrinsic reason to do the same. If all we want to do is provide a more dignified life for the poor and for those with very low incomes, then there is no reason to let government dictate the design of entitlement benefits—such as social insurance programs—based on socialist architecture.
A market-based, morally amended system of social insurance is a good way to put the social market economy to work. It is only one example of how this economic model operates, but it is a good one to start with.