German President defends the market economy By Alberto Mingardi

Germany’s President, Joachim Gauck, has given a talk at the Walter Eucken Institute. The Eucken Institute keeps the tradition of the Freiburg school of economics alive. For an introduction to Ordoliberalism, you may give a look to this paper by Viktor Vanberg. Also, Larry White has a very interesting (and most amusing) chapter on Ordoliberalism in his magnificent The Clash of Economic Ideas.

That the German head of state wanted to give a tribute to such an institution, is per se a very interesting fact. Mr Gauck, who was an anti-communist activist in East Germany, has perhaps a more profound appreciation of the market process than many of his fellow politicians, both in Germany and elsewhere.

The speech is available in German here. My friends Google Translator and Giovanni Boggero have helped me in making sense of it.

Gauck credited the importance of Ordoliberals for the German post-war economic miracles – as they provided the intellectual underpinning of Ludwig Erhard’s liberalisation efforts.

He said:

Here in Freiburg some independent spirits have designed a system of freedom, a vision of order that, after the Second World War, has helped in times of great skepticism about liberal economic systems to befriend Germans to the market economy and competition. Here a chapter of the history of freedom of the Federal Republic of Germany has been written.

But he also emphasized the cultural importance of economic liberty, as an indispensable part of the German civil awakening:

Freedom was introduced as an important issue in the society by talking about the freedom of the economy. For freedom in society and freedom in the economy belong together. Those who want a free society, should stand up for the market and for competition and against too much power in the hands of a few. But they must also know that a free society is based on conditions that the market and competition alone can not produce.

He also mentioned Hayek, somehow stressing the contributions of the German-speaking world to the ideas of liberty:

I wish for something more than historical awareness and appreciation for the wide range of liberalism in our country, including the vision of order of Friedrich August von Hayek who credited “spontaneous orders” over the State but who was also indebted to Eucken.

Of course, a head of state can’t speak as a libertarian economist – and Mr Gauck qualified his support to the market economy by pointing to the dangers of “economic power” (which is something Ordoliberals like Eucken and Bohm also did). But I was rather pleased in the way he did it, by underlining the perversion of the market process inherent in “too big to fail”:

[Eucken] writes that “guaranteeing freedom can be a danger to freedom itself, insofar as it permits the development of private power” (…) Don’t these words sound very familiar, a few years after banks and policy failures that were witnessed in many countries and thus millions of people were plunged into a deep crisis, because “too big to fail” banks had to be supported with billions of taxpayers’ dollars and saved?

Last but not least, the following are very beautiful and precious quotations: Mr Gauck linked clearly market competition to economic opportunity – and economic opportunity to failure, as a necessary part of the market economy.

Competition is fair and opens up for opportunity. It breaks down traditional privileges and cemented power structures and thereby provides space for more participation. it offers – also in the case of failure – ideally a second and more opportunities. And if it is designed

correctly, it is also just. Injustice thrives namely precisely where competition is limited: by protectionism, corruption or governmentally imposed consideration of individual interests. How liberal is an economic system, it is measured at the end not only of what is available to buy in the shops, but by whether it provides the opportunity for a self-reliant life to all citizens, and whether it offers many and many more options.

Also, he stated that “not less but better-designed competition will make our market economy fairer”.

Mr Gauck deserves great credit for a powerful defense of the market economy, particularly because the German “coalition contract” between his party, the center-right CDU, and the social-democrats, is apparently pushing the country in a rather different direction.