Skip to main content

Social Market Economy

The social market economy is an economic order that combines a free-market system with state intervention to secure social balance.

Social market economy​

  • The state intervenes in a steering role
  • Goal: economic success and social balance
  • Advantages: social security, high standard of living, social balance
  • Disadvantages: bureaucracy and state intervention can slow innovation

Free market economy (for comparison)​

  • No or only minimal state intervention
  • Goal: profit maximisation

Key thinkers​

Ludwig Erhard​

  • "Father" of the social market economy
  • In 1948 introduced the currency reform and free competition in West Germany
  • Book: Prosperity for All

Adam Smith​

  • Founder of the free (liberal) market economy
  • Book: The Wealth of Nations
  • Idea: the "invisible hand" of the market, free markets lead to prosperity

Why competition?​

  • Drives the economy and progress
  • Lowers prices, increases quality, encourages innovation
  • Forces firms to be efficient
  • Larger choice for consumers

Disadvantages: pressure on small firms, environmental burden.

Does free competition need rules?​

Yes, to protect against monopolies, cartels and social inequality. This is exactly the role of competition law and the competition authority.