Introduction

Summary

With the possible exception of Japan, no society has become more associated with its economic system than postwar Germany. The social market economy, introduced by Economics Minister Ludwig Erhard in 1948, ended Nazi-era economic controls, ushered in West Germany's “economic miracle,” and offered a socially conscious model of market capitalism. In a society in which national identity had been discredited, the social market economy gradually assumed a political and cultural significance in West Germany that transcended its ostensible purpose as a set of economic policies. Along with serving as an explanation for West Germany's remarkable economic and social success in the decades following World War II, the social market economy became a metaphor for social justice itself.

During the last several years, united Germany's social market economy has come under attack. Now well-nigh synonymous with the western European welfare state, the social market model is blamed for sclerotic rates of economic growth, a regulatory regime that inhibits innovation, and frustratingly persistent high levels of unemployment. After acquiring a well-deserved reputation for fiscal stability over fifty years, Germany now struggles with chronic budget deficits. Indeed, it appears unlikely that the Germans will meet the terms of the “stability pact” (that is, no budget deficit over 3 percent of gross domestic product [GDP] and no overall public debt exceeding 60 percent of GDP) that it forced upon its neighbors as a condition for entry into the European Monetary Union.