Social Market Economy (SME) is an economic system that combines principles of a market economy with social policies aimed at achieving certain social goals, such as greater equality and security for citizens. The concept was developed in Germany after World War II as a way to rebuild the economy and promote social welfare.
The social market economy, also known as Rhine capitalism, Rhine-Alpine capitalism, the Rhenish model, and social capitalism, is a socioeconomic model that combines a free-market capitalist economic system with social policies and sufficient regulation to establish both fair competition within the market and a welfare state in general. It is occasionally referred to as a regulated market economy.
The core principles of SME include:
- Private ownership of property and means of production: SME recognizes the importance of private enterprise and entrepreneurship, and encourages private investment and ownership of businesses.
- Free competition: SME promotes free competition as a way to ensure efficiency and innovation in the market.
- Social policies: SME recognizes the importance of social policies aimed at promoting social welfare, such as healthcare, education, and social security.
- Stability: SME aims to promote economic stability by balancing the interests of different stakeholders, including businesses, workers, and consumers.
SME has been adopted by several countries, particularly in Europe, as a way to promote economic growth while also addressing social needs. Some of the key features of SME include a strong welfare state, progressive taxation, and regulation of markets to ensure fair competition. The goal of SME is to create a balance between economic growth and social welfare, and to ensure that the benefits of economic growth are shared by all members of society.
The Christian Democratic Union of Germany under Chancellor Konrad Adenauer promoted and implemented the social market economy in West Germany in 1949, and the term is now used by ordoliberals, social liberals, and social democrats, who generally reject full state ownership of the means of production but support egalitarian distribution of all goods and services in a market segment. Its roots can be traced back to the interwar Freiburg School of Economics.
The social market economy was intended to be a compromise between laissez-faire capitalism and socialist economics. It was heavily influenced by ordoliberalism, which was influenced by Christian democracy’s political ideology.
