In the West, from the Second World War until the 1970s, the ideology that won the battle within civil society by becoming hegemonic was Keynesianism. From the 80’s onward a clear change occurred with the affirmation of neoliberal hegemony, albeit with different configurations according to different national contexts. First in Germany and then in Europe it was the German “ordoliberal” variant that won the debate, thus spreading through the “ideological apparatus of state”, becoming “common sense” and creating the conditions for a complex system of control. This was often done without the perception of the majority of the population, so much so that there is great confusion about its actual content. In the following article, we will try to clarify this issue, reconstructing its ideas and the historical period in which it was established.
Cristina Re holds a Master in “Economics and Polical Economy” from the University of Bologna (2018) and a Bachelor cum laude in “Economics” from the University of Roma La Sapienza (2015). She is coordinator of Rethinking Economics Bologna and is fighting for a radical change in economics education.
Cross-posted from economiaepolitica
Translated and edited by BRAVE NEW EUROPE
The founding moment of neo-liberalism can be traced back to the Walter Lippmann conference held in Paris in 1938, at which von Hayek, Röpke and von Rüstow, among others, took part (Dardot and Laval, 2013). At the conference, for the first time the term “neoliberalism” was used (Davies, 2014) and this represents in fact the first attempt to create a real “neoliberal international”. Nine years later, in 1947, Hayek founded the Mont Pelérin Society with the aim of following it up with a think tank that would bring together all the neoliberal intellectuals of the world. The new association became the bulwark of neoliberalism by dominating academia, media, and business in order to place members and sympathizers in key roles, both political and economic, and by becoming well known thanks to the eight Nobel prizes awarded to its members (including Milton Friedman and Hayek himself) (Miroski and Plehwe, 2009). The desire to influence long-term change in particular has led neoliberals to combine elite production with popular writing, theoretical analysis with populist simplifications, textbook production and creations from various international institutions and bodies, such as the Institute of Economic Affairs (IEA) and the World Economic Forum which takes place every year in Davos, Switzerland (Dardot and Laval, 2013).
Within the neoliberal international, however, two tendencies must be distinguished: the Neo-Austrian of Hayek and von Mises, and the German Ordoliberalism. However, according to the historian and philosopher Mirowski (2009), from the point of view of economics history both the ordoliberal and neo-Austrian ideologies can be assigned to what he called a single “neoliberal collective thought”. The aversion to socialism and collectivism, individual freedom and free competition are the common denominator, since their primary objective is to build a “competitive order” based on the price mechanism. One can see a substantial equivalence between the concept of signalling function of the price system mentioned by Eucken and the concept of competition as a “discovery procedure” developed by Hayek: both are considered the “principles of a liberal social order ” of the market (Forte e Felice, 2010, p.15).
Both recognise that a crisis of capitalism had been going on since the end of the 19th century, which had provoked a reorientation of the action of State towards policies of redistribution, social amortization, planning and protectionism. These policies were perceived as a step towards a collectivisation of the economy and therefore, in order to hinder the trend, a new ideology had to be created that would revitalise liberal economic thought of the 18th and 19th centuries.
What, however, differentiates these positions is the opposing view of the market: “naturalistic” for the neo-Austrians and “constructivist” for the Ordoliberals. For the former, the market is an autonomous reality with its own laws and mechanisms that, without any external intervention, is able to provide maximum wellbeing to individuals; for the latter, the market, in order to function competitively, requires an active ordering by the State. According to this vision, different results are derived for the role of public intervention: while the former recognize little legitimacy, the latter consider a “constitutional order” fundamental, which clearly establishes the fundamental principles of the economy and public intervention. Thus, the neo-Austrian ideology has furnished indications towards the privatization of the public enterprises, the deregulation of the markets and has placed the emphasis on a state role limited as safeguard from the monopolistic powers; the ordoliberal one, instead, has pushed towards an “ordering” State, capable of using competition as rule and instrument of the activity of government, up to the point of dealing, even, with social-anthropological questions. These differences are useful to understand why neoliberalism does not take place as a coherent and homogeneous international phenomenon, but creates, from time to time, different political combinations according to the national, social, economic and institutional realities encountered.
In Europe, it was the ordoliberal vision that became dominant, starting with its success in the Federal Republic of Germany and then in the subsequent construction of the European Union by the Maastricht Treaty of 1992 and above all in the Constitution of 2005, which later became the Lisbon Treaty, whose article 3 outlines the EU’s objective as “a highly competitive social market economy” with the recognition of the four freedoms of the internal market (of persons, goods, services and capital) as fundamental rights of European citizens.
Ordoliberalism began in the 1930s in Freiburg with economists such as Walter Eucken, jurists such as Franz Böhm and Hans Grossmann-Doerth, and sociologists such as Alfred Müller-Armack, Wilhelm Röpke and Alexander von Rüstow. It is defined as such because it was founded around the magazine Ordo founded by Eucken in 1940 and is affirmed as a dominant thought and policy with the foundation of the Federal Republic in 1949 and with the “monetarist turning point” of the Bundesbank in 1970, also through the appointment of Ludwing Erhard as Minister of Economy, a position maintained for fourteen consecutive years (Pühringer, 2016). His dogma was “competition first of all” (Dardot and Laval, 2013) and his “social market economy” was able to assert itself also thanks to the political circumstances of post-1945 Germany, mainly linked to the fact that the United States supported all his choices in order to build an antagonist block to Soviet collectivism and that the left-wing economists had been eliminated by the Nazis or had been forced to emigrate (Miroski and Plehwe, 2009). After a halt in the application of Ordoliberal policies in the 1960s and early 1980s, when Keynesian economic policies were established throughout Europe, with the rise to power of Christian Democratic Union (CDU) there was a return to the principles of ordoliberalism. In Italy, the economist closest to this ideology was Luigi Einaudi, linked to some leading exponents of the Ordoliberal tradition, in particular Wilhelm Röpke (Forte e Felice, 2010). To his thought refers Alberto Alesina, who has been defined as his “full heir”, and the network linked to the Bocconi University, the so-called “Bocconi Boys”, which includes economists such as Giavazzi, Tabellini, Perotti, Ardagna, Trebbi, Schiantarelli, Favero, Angeloni, Galasso and Grilli (Oddný , 2016).
The main characteristic of the ordoliberal ideology is that it is a social, political and economic proposal that presents itself as a third way between liberalism and planned economy and can paradoxically be defined as a state-centric neo-liberalism (Bonefeld, 2012). It is not the theorisation of a return to the dogma of laissez-faire, but of an economic organisation in which a state of law and a market order is juridically constructed, the so-called “social market economy” in which the term “social” refers to a form of society founded on competition as a mode of connection between economic actors. However, competition is not considered a natural fact, but a contingent creation of the legislator. It is therefore from this perspective that the role of the State is being reconsidered: an active policy, aimed at the conscious creation of a legal order within which private initiative can unfold freely, provided it is subject to the laws of competition. In fact, in addition to totalitarianism and collectivism, monopolies, cartels and, in general, concentrations of power within the markets are also considered deadly enemies, caused not by endogenous factors, but by policies of privilege and protection carried out by a state controlled by some private interest group.
In order to avoid such distortions, the fundamental rules of the economic order and of State intervention must be anchored in the State`s consitution, leaving no room for administrative intervention that might disturb or impede companies freedom of action and the price formation mechanism. In order to determine whether or not policy action complies with this principle, a procedural logic based on respect for competition must be regarded as discriminatory. Therefore, the great ideological turning point with respect to liberalism is not the consideration that the failure of market can authorise State intervention, but rather the theorisation of the transformation of public action that must be governed by rigid rules of competition and subjected to constraints of efficiency similar to those of private enterprises.
Moreover, competition must be placed at the base not only of the market but also of the political order: the ordoliberal social ideal prefers a society of small entrepreneurs, in which no one is able to exercise exclusive and arbitrary power over the market and at the same time a regime of democracy for consumers who exercise their individual power of choice on a daily basis.
It is a contract between consumers and the State, in which the “economic constitution”, prioritising the sovereignty of the consumer, also prioritises the general interest. In the name of the general interest, the idea of popular sovereignty is also being rethought. In order to be able to resist all pressure groups, a strong State governed by competent elites that do not represent popular interests or appetites is recognised as necessary. In order to avoid a generalized and unlimited intervention of the State, it is necessary to limit the power of the people to the sole election of the governments and to protect the executive from the capricious interference of the populations and, if necessary, temporarily suspend the democratic rules in order to intervene in emergency situations (Tribe, 2007). In practice, what is desirable is a de–democratisation of the State. This process means that political leaders are no longer accountable to their citizens, but to the control of rating agencies and the international financial community. This substantially modifies democratic relations because, assuming efficiency and financial performance as priority objectives, the relationship between State and citizens/clients is transformed into a mere calculation of costs/benefits, i.e. between taxes paid and services rendered, eliminating any possibility of participation and criticism that are not merely economic.
Social policy must therefore be limited to a minimum of legislation to protect workers, operating a very moderate fiscal redistribution that allows everyone to continue to participate in the “game of the market”. But since social justice must be guaranteed not only at the stage of the distribution of profits, but already during the production process to minimize the number of people who may need public social assistance, Ordoliberalism gives the state another goal, that of (Dardot and Laval, 2013). In the language of the ordoliberals this policy is called Vitalpolitik and is described as a social policy capable of transforming “recalcitrant workers into responsible entrepreneurs for their work” (Bonefeld, 2012). Individuals must develop entrepreneurial skills, which are recognised as non-natural and which must be built over time, with the ultimate aim of enabling them to perceive themselves as an enterprise. Workers need to be transformed into innovative, competitive, risk-taking, eternally mobile, self-sufficient and self-responsible individuals who see poverty as an incentive to do better and unemployment as an opportunity to improve. This transformation would enable workers to free themselves from their condition of economic dependence, thus realising their full freedom and responsibility.
To raise a minimal political building of European Union on the basis of the principles of a competitive market economy set at constitutional level seems to be the perfect concretization of the ordoliberal model, but obviously it is not a pure model affirmed in a univocal and linear way in all the European countries, since it had to adapt, like every ideology, to the specific national characteristics.