Neoliberalism and ordoliberalism

One of the things that has persistently puzzled me over the last few years is the disconnect between the Anglo-Saxon and German debates about the euro crisis. The mainstream view among Anglo-Saxon economists is broadly Keynesian: they see surpluses as a problem as well as deficits and therefore argue it is not only debtor countries that need to adjust. But the only German economists you hear making such arguments are those such as Heiner Flassbeck who are perceived as being on the far left. (Flassbeck was the state secretary in the German finance ministry during the short-lived tenure of Oskar Lafontaine at the beginning of the Schröder government. Lafontaine subsequently left the German Social Democrat party and became one of the leaders of the Linke, or Left party.) It seems as if, in this respect, Germans are to the right of the Anglo-Saxons.

If that is true, it is particularly puzzling because the German economic theory of ordoliberalism is generally thought to be to the left of, and more moderate than, neoliberalism. The theory of ordoliberalism is associated with the idea of the Sozialmarktwirtschaft, or social market economy, and more generally with the German economic model (“Rhineland capitalism”), which is often thought of as being more “social” than the supposedly more brutal Anglo-Saxon version of capitalism. And yet, if Germany’s response to the current crisis is based on ordoliberalism at all (something that, as I suggested in a previous post, is not entirely clear), it sometimes seems to collapse into neoliberalism. So what is the relationship between neoliberalism and ordoliberalism? Is ordoliberalism an alternative to neoliberalism or a version of it?

What makes this even more confusing is that ordoliberalism was itself originally known as neoliberalism. In fact, the term “neoliberalism” was first used in a positive sense by the exiled German economist Alexander Rüstow at the Colloque Walter Lippmann in Paris in 1938 to refer to an alternative to classical liberalism, which, following the Great Depression, was perceived to have failed. At the same time, Rüstow rejected the planned economy of Nazi Germany and the Soviet Union. His idea of a “third way” was picked up by the Freiburg school around Walter Eucken – the group of economists we now describe as ordoliberals. It was only much later that the term “neoliberalism” was used in a negative sense by left-wing critics of General Augusto Pinochet’s economic policy in Chile and then applied to the economic policies associated with Margaret Thatcher in the UK and Ronald Reagan in the United States in the 1980s.

The relationship between ordoliberalism and neoliberalism is particularly interesting in the light of the critique of the European Union by German left-wing intellectuals such as Wolfgang Streeck. Streeck sees the EU as a neo-liberal project – in fact, in his book book Buying Time, he describes Friedrich Hayek’s 1939 essay “The Conditions of Interstate Federalism” as a “blueprint for today’s European Union”. It is not exactly clear how and when Streeck thinks the EU became a neo-liberal project. But what is striking, as I argued in a review of the book for the Times Literary Supplement, is that he suggests that what might be called the “neoliberalisation” of the EU has been driven by Germany rather than the UK as you might expect. In particular, he sees the creation of the single currency and the German-led response to the euro crisis as the crucial steps in this neo-liberal transformation of the EU.

If ordoliberalism – which was originally a theory about how to run a national economy rather than a single currency area – has indeed informed Germany’s approach to Europe, it is perhaps above all in the emphasis it places on rules. As Jürgen Stark (the economist who represented Germany on the executive board of the European Central Bank until he quit in 2011 in opposition to its bond buying programme) put it in an op-ed in the Financial Times the other day, ordoliberalism is based on the idea that “markets needs rules to be set and enforced by government”. The problem, however, is that the eurozone is quite different from a democratic nation state, where the rules are set by governments that have been elected by the people and therefore have legitimacy. In the eurozone, the rules are the outcome of power relations between states and, since the crisis began, have come to be seen as instruments of coercion by creditor countries and above all Germany.

German economists influenced by ordoliberalism believe that, within this framework of rules, the market should function freely without state intervention. As Stark put it in his op-ed, “individuals should bear the risks of their own decisions”. When applied to the eurozone, this idea – the “liberal” part of ordoliberalism – seems to treat countries in the eurozone as the equivalent of individuals, or companies, within a national economy. Based on this “principle on individual responsibility”, German economists such as Stark oppose debt mutualisation and believe the market should be left to discipline debtor countries in the eurozone. Whether or not this makes sense in economic terms – Stark obviously thinks it does – it seems to me not so much “social” as marktfundamentalistisch, or market fundamentalist. In the context of the eurozone, ordoliberalism seems to be not just a version of neoliberalism but a rather extreme one.

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5 thoughts on “Neoliberalism and ordoliberalism

  1. Pingback: A “normal” creditor country? | Hans Kundnani

  2. What do you mean “to the right”? When you look at UK conservatives in the European Parliament they pursue radical “pro-business” policies while Austrians and Germans pursue “pro-market” policies.

    Ordoliberalism does not mean fraternization with business stakeholders but quite the opposite. The rules engineer a market under which business operate and the market mechanism unfolds or “is made to unfold”, because the creation of a functional market requires intervention. Unlike the pro-business fraction that worships the big bulls and ultimately power, ordoliberals let’s the cows harvest on their grass, milk and slaughter them.

    Ordoliberalism is Kantian reason plus economics.

    The “too big to fail” argument can be reduced to “too big”, in other words the market concentration needs to be combated so that an enterprise may fail, the market diversified so that the risk can be contained. Strategic dependencies of an economy, on specific banks, on Putin’s oil, on software providers like Microsoft and so forth have to be reduced. Economic sovereignty is the goal.

  3. Pingback: Neoliberalism and its Intellectual Forebears: Friend or Foe? An Insight into Critics of the Modern Neoliberal State vs. its Ideological Roots | The Libertarian Alliance Blog

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