To navigate through today’s crises you need an ordoliberal compass. The world has been in constant political and economic crisis mode for years: The financial and euro crises were followed by the Ukraine, refugee and Brexit crises, there is the climate crisis and now there is also the Corona crisis. Students, for example, only know the world in this mode. Ordoliberalism is becoming contemporary again, as our time is particularly reminiscent of the time when ordoliberalism came into being in one respect: namely the growing perception of living in fragile orders. In the 1930s, the ordoliberals in Freiburg and other neoliberals in London, Chicago, Vienna and Geneva observed how common economic theory could not solve the problems of the global economic crisis. Above all, they became painfully aware that an economic disorder has the potential to disrupt the entire social order. The Weimar Republic did not survive the double blow of hyperinflation and depression.
However, if you look at the origin of the term, “crisis” does not mean a crash or collapse, but a fork in the road at which there is a need for reorganization. But with this reorganization can the economists redeem their debt as advisers to the insecure citizen? This claim goes back to the Kiel economist Herbert Giersch, who as an influential political advisor in the Bonn Republic understood that the citizen and not the politician should be the actual addressee of economic advice. It probably depends on the type of economics. Isolating economics focuses primarily on the concept of equilibrium within the economic system. Such an economy has little to say about many of the crises above. Contextual economics, on the other hand, focuses on the concept of order, thinking of the economic order in the context of the other social sub-orders and therefore offers something for the necessary reorganization.
This contextual approach to order economics is not only found among the ordoliberals in the founding history of the social market economy. When the subject, before it was rededicated to economics, saw itself as a political economy, i.e. always considered the political, even most economists were orderly thinkers. Some stayed that way afterwards. These included Nobel Prize winners such as Elinor Ostrom and James Buchanan, whose research programs show that ordoliberal thinking is internationally compatible. Ostrom has shown conditions under which people beyond the market and the state are able to give themselves a framework for the long-term management of resources. Buchanan’s constitutional economics points to regulatory frameworks that favor long-term thinking even in the often short-lived democratic process, for example in fiscal policy.
Today, one ordoliberal insight is central: the economy needs such a regulatory framework whose interface with the political order does not allow such destructive impulses as in the 1930s. The ordoliberals and other neoliberals divided the economic order into two layers: the dynamic economic process and, by comparison, the static regulatory framework. The economic order only becomes humane and stable when the regulatory framework tames the dynamics of the market processes.
After the unchecked growth in debt, a credible exit strategy is now needed
And we live in times that are perceived by many citizens as too dynamic due to the interweaving of globalization and digitization. But where there are such perceptions, the danger is not far of classifying orders as chaotic and then depriving them of their legitimacy. As a new type of regulatory policy, the regulatory framework must therefore offer fixed points that guarantee citizens a minimum of static and stability and thus counteract fears of market dynamics. Here are four examples of economic policy.
The citizen in the global digital age needs a new social policy. In order for it to be credible as a fixed point that no one is allowed to permanently fall out of the division of work and knowledge because, for example, digitization has devalued one’s own qualifications, a social policy geared towards constant learning is required. Education vouchers, which everyone is entitled to at all times, are at least as important in terms of regulatory policy as cash benefits.
Second, since the Corona crisis, fiscal policy has taken a similarly unusual path as monetary policy since the euro crisis. Regulatory economists should warn against the perpetuation of the state of emergency. If it is not possible to credibly communicate an exit strategy from the state of emergency as a fixed point, the unchecked growth in debt and money supply, perceived by many citizens as chaotic, can lead to the perception of a general disorder of the economy, together with destabilizing impulses for the order of the state .
Thirdly, the world trade order has gotten into an imbalance that could persist even after Donald Trump, as the simmering conflict with China suggests. A fixed point for everyone would be the resurgence of multilateralism and the World Trade Organization (WTO) in order to guarantee the most equal possible access to global markets. Instead, the expanding bilateral agreements bring a patchwork of privileges and discrimination.
Fourth, digitization needs its own regulatory policy, which does not slow down the innovation dynamic and at the same time conveys to citizens that they are not at the mercy of the tech giants. Fixed points such as the right to be digitally forgotten or to data portability can drive competition as an instrument of disempowerment and at the same time strengthen the perception of digitization as a humane part of our life.
The fragility of the orders thus offers good reasons for the new topicality of a contextually thinking order economy. The conversation between citizens and economists about how the division of labor between market, state and civil society should be rebalanced after Corona can benefit from this search for fixed points that create order security. Economics students, on the other hand, could proudly note that the history of their own subject has unexpected relevance for our crisis-ridden world.