We should care because it shapes the thinking of the policy establishment in Germany and therefore in the eurozone. Increasingly, ordoliberal ideas are being translated into some stonewashed version of laissez faire economics in Eastern Europe. But where does this thing come from and how is it different from laissez faire liberalism? Te short answer is that it comes from Germany and it allows for more state and social solidarity than market fundamentalists present it to be.
Built between the 1930s and 1950s by such luminaries of German economics as Walter Eucken, Wilhelm Röpke, Franz Bohm and Alfred Muller-Armack, Ordoliberalism sought a middle path between socialism and laissez-faire liberalism. It did so by promoting the use of a strong state in order to build and guarantee an institutional environment in which the free market produces results close to its theoretical potential (Röpke 1944; Watrin 1979; Rieter and Schmolz 1993; Gerber 1994; Koslowski 2000; Labrousse and Weisz 2001; Ptak 2009; Vanberg 2011). With some adaptations, Ordoliberal economic ideas shaped postwar Germany’s “social market economy” and are credited with shaping the institutions that made possible the country’s Wirtschaftwunder.
Ordoliberal theory holds that public policy should be guided by the imperative of building a competitive market economy through upholding a set of credible rules and institutions. Considered a form of “liberal conservatism” by one of its founding fathers (Röpke1944), Ordoliberal theory was slightly different from laissez faire liberalism and its linkages with select aspects of Austrian School and Historical School economics should hinder its conflation with the neoclassical tradition. Unlike other intellectual traditions closer to laissez-faire liberalism, Ordoliberalism was selectively skeptical of unfettered markets, although this skepticism used liberal arguments. Its proponents pointed to markets’ natural propensity to give birth to oligopolies, monopolies and worrisome social disruption; they consequently pleaded for “liberal interventionism,” a hybrid policy framework that blended collective bargaining, anti-monopoly/oligopoly institutions, centralized coordination among firms, minimal social safety nets, low inflation, independent central banks, balanced budgets and free trade. Thus, the state as such was seen not merely as a neutral aggregator of individual interests, but also as a meritocratic agent entrusted to advance the economic welfare of the nation through increasing economic competitiveness. In the words of Ordoliberal theorist Christian Watrin, the core statement of the Ordoliberal normative theory of the state was that
“Unless a liberal constitutional state is prepared to see itself deteriorate into an interventionist state in which economic processes are manipulated to suit political opportunism, the maintenance and enforcement of the rules of a competitive system must be regarded as one of its prime objectives (1979: 413).”
In other words, East European liberals rushing to equate Ordoliberalism with market fundamentalism should take it easy.