Social Market Economy led to Germany’s economic growth – FNF Policy Advisor

By Rajiesh Seetharam | Published: 2:00 AM Oct 25 2021
FT Social Market Economy led to Germany’s economic growth – FNF Policy Advisor

By Rajiesh Seetharam

A Social Market economic model based on free market competition resulted in positive economic growth for Germany, stated Policy Advisor for Economic and Financial Affairs for Friedrich Naumann Foundation (FNF) Justus Lenz. Speaking at a conference organised by Friedrich Naumann Foundation, he said “ 1948 and 1989 are important years for Germany’s economic revolution. Post Second World War, Germany was divided into East and West Germany. Both sides were facing severe economic issues. In West Germany, rationing and fixed prices were in place to mitigate shortages. Price controls meant that prices were too low so owners could not sell their goods without losing money. 

There was no confidence in Germany’s currency. In 1949, Ludwig Wilhelm Erhard as Economic Minister, abolished price controls and transformed Germany into a social market economy in the 1950s. The direct effects were astonishing. Shops which were empty started to overflow with goods. Later antitrust laws were created. The first step towards the formation of the European Single Market was made in 1951 with the formation of the European Coal and Steel Community. Six member European Economic Community was established in 1957.” 

Justus Lenz noted that transforming Germany into a free market economy in the 1950s had opposing views too. However, in ten years’ time, there were many positive effects in the economy, which also led to the shortage of labour. In 1961, Germany started the first work immigration programme, said Lenz. “But East Germany followed the Soviet-style controlled economy where all activities of economy were centrally planned. For the first few years, West Germany was slightly ahead of East Germany. As the years progressed, the gap widened with East Germany becoming almost bankrupt. 

In the international market, East German products lost their position. In West Germany, there were losers due to the free market economy and the EU single market, but it brought in competition and efficiency, and overall the country’s economy benefited. With the fall of the Berlin Wall in 1989, and reunification of East and West Germany in 1990, former eastern parts of Germany started to enjoy the benefits of a market economy. “ Speaking at the panel discussion, Professor Sirimal Abeyratne stated that price controls never work. “It never sorts out supply shortage or eliminates poverty in the country. Politically, it can be a feel good policy but not a good economic policy. However, getting rid of price controls is not everything either, there should be an overall reform package where eliminating price controls should be part of it.”

By Rajiesh Seetharam | Published: 2:00 AM Oct 25 2021

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