German Ordoliberalism

There is a growing realisation of the domination by Germany in the EU: read the triumphalist article on German superiority in Spiegel Online (6 May 2013): Its opening paragraph puts it like this:

“Subject of Envy: Britain Discovers Germany as a Model

By Carsten Volkery in London

“Britain, which has yet to recover from the 2008 financial crash, is peering enviously at Germany’s economic structure with its focus on engineering, its medium-sized firms, apprenticeships, regional banks and long-term business approach. The opposition Labour Party, but also the Conservative-led government, are starting to embrace German ideas.”

This is, to say the least, a bit glib. It is not easy to “embrace German ideas” when their society is so fundamentally different from post-Thatcher Britain. Even Swedish ordoliberalism is a degenerated form of ordoliberalism. Here the change has been slow and harder to detect in the short run. Much of this concerns not housing directly but government policies which have become ever more stringent and neoliberal rather than ordoliberal.

When, together with Kerstin, I first arrived in Sweden directly from Minnesota in 1972, the degeneration process was well-advanced. In The Myth of Home Ownership: private versus public choices in housing tenure (Routledge 1981) Chapter 6 “Sweden: Cost-renting in Crisis” I described Swedish housing as being “in crisis” because of the massive 10-year long million-programme  which created the giant high-rise outer suburbs. By the time we arrived in 1972 the programme was almost complete and the 10-year building programme was finally ended in 1974.

But behind all this lay subtler, more profound, changes that had more to do with the financing of housing and overall budget balancing. In the early 1970s Swedish Governments still used contra-cyclical financing, adding to the national budget surplus during times of boom, while using deficit-funding, by spending a proportion of the surplus, to counteract the bust period. The idea behind this was to cushion unemployment during the economic slumps. So in the recessions Government spending would be directed to investing in modernising the infrastructure – transport and communications, ensuring that as many as possible of the labour force were employed rather than on the dole.

This was during the dying years of the first Olof Palme administrations, 1969-76.  I don’t know how this compares with the years of Sweden’s dramatic rise in material living standards in the immediate postwar decades, under the Tage Erlander Government of 1946-69, as this was before I arrived in Sweden, before I knew that Sweden was different, that it had ordoliberal housing policies. The Wikipedia article on Tage Erlander shows  this clearly. I have italicised key parts I want to emphasise:

“Ascending to the World War II coalition government in 1944, Erlander rose unexpectedly to leadership upon the death of Prime Minister Per Albin Hansson in October 1946, cementing the position of the Social Democratic Party as the virtual government of Sweden. Known for his moderation, pragmatism and self-irony, Erlander constantly sought approval from the liberal-conservative opposition for his policies, de facto dropping all pretences of wide-scale nationalisations whilst introducing reforms such as universal health insurancepension additions and a growing public sector while stopping short of raising tax levels above the average OECD levels at the time. Until the 1960s, income taxes were lower in Sweden than in the United States.[2] Despite a general lack of majority, Erlander’s domination of Swedish politics was near-complete. In 1951-1957, he espoused a coalition government with Peasants’ League chairman Gunnar Hedlund in order to secure majority and stability, led by himself.”

This gives echoes of the German Economic Miracle: Wirtschaftswunder under Ludwig Erhard who introduced Ordoliberalism in German economic and political policy (the same applies to Austria, as the Wikipedia article makes clear). The next paragraph of the Tage Erlander article continues (my italics):

“In foreign policy, he initially sought an alliance of Nordic countries, but without success, instead maintaining strict neutrality while building up among the most impressive armed forces in the world (surpassed only by the United States, the Soviet Union and Israel in terms of per-capita spending), making the Swedish Air Force the third largest in the world, while ultimately rejecting nuclear capability, signing the nuclear non-proliferation treaty in 1968. Erlander’s mandate coincided with the post-World War II economic expansion, in Sweden known as the record years, in which Sweden saw its economy grow to one of the ten strongest in the world, and subsequently joined of the G10.”

The decline of Swedish ordoliberalism and the continued strength of German and Austrian ordoliberalism has to be understood in terms of wider issues of cyclical investments. But the uniqueness of German ordoliberalism is that it was also based on local banks, so avoiding the oligopoly of the free market – another ordoliberal principle that Sweden, for one, never adopted, while Germany only adopted it in some respects. On the contrary, Sweden has a very centralised banking sector, a handful of nationally operating banks. What saves these banks is the safety-valve of a large customer base in the Baltic States – Lithuania, Latvia and Estonia – that Swedish banks could exploit because of the naivety of the Baltic State customers and their hunger for western living standards purchasable by borrowing heavily on the never-never.

Sweden has always had a very centralised statist polity ever since the days of Gustav Vasa in the 1500s, the era of the enlightenment with the revolt against Roman Catholicism and the rise of the nonconformist religions. The relative autonomy of the kommuns have, until recently been a strength of Swedish localism, but even this is now being whittled away. Each government, it seems, weakens localism as and when it is convenient for party political advantage. Worst of all are Sweden’s banks, where oligopoly continues to be important – too big to be allowed to fail. See the later post here:

The whittling away of Sweden’s ordoliberal rental market has continued in the years since the start of the Million Programme in the mid-1960s, by all governments involving the connivance of all political parties. At the expense of boring repetition I have to stress that this is not a party political issue! All political parties have contributed to the degeneration of Sweden’s ordoliberal market since the end of the Second World War almost 70 years ago. It is part of the compromise that strives to reach wider agreement. The same goes for ordoliberalism in The Netherlands though that is a process that needs a Dutch researcher to examine. It goes as well for other member states whose ordoliberal  policies have gradually been whittled away, like Denmark and Finland.

Added to this has been the EU and in particular the euro fiasco. My personal view is that ex-Warsaw Pact countries have been a driving force behind the privatisation of housing to create residual public rental sectors. One of the questions I put to Ivan Tosics in the early 1990s was whether Hungary or other Warsaw Pact countries had a social market sector in their large rental stocks. The answer was a clear “No”. They were purely state-owned rental sectors, high-rise for the most part.

East European countries are among the most vulnerable to high sovereign debt. They wish to emulate the USA in standard of living after decades of cold war deprivation. The answer is not to tempt and encourage more countries to join the euro by bribes giving transition subsidies but to avoid all actions that encourage the mañana culture. Croatia becomes a member of the EU on 1 July 2013, and so automatically begins to meet the euro membership criteria. The EU is also a product of the Cold War, a war begun in the mid-1940s when the Second World War ended. Making Germany a linchpin in the defence of Western Europe against the USSR. It was continued after the breakup of the USSR in 1990/91. Ambrose Evans-Pritchard pointed this out in an article in The Telegraph 19 September 2000 “Euro-federalists financed by US Spy Chiefs”.

The paradox of this is that Germany and Austria have strong ordoliberal markets. A third country, Switzerland, also has decentralised decision-making based on holding referenda in the canton system. This is something that has not been dealt with in the housing literature. My point here is that Swiss ordoliberalism is more than just the vaguely “social” market. It is anchored in a concept of citizenship in which citizenship is defined very narrowly. In these times of financial collapse it is used by the rich as a means of escaping taxation and as a tax haven, but measures to minimise this are continually updated. See The Swiss franc is currently floating against the euro to minimise further the flight of capital from the euro to the Swiss Franc.

There is very little written about the Swiss canton system in the media. One author, Henri F. Ellenberger, himself Swiss, wrote about this in the context of a publication on Carl Jung The Discovery of the Unconscious: the history and evolution of dynamic psychiatry Basic Books, New York 1981 [1970]. He drew this parallel with the Austro-Hungarian Monarchy:

“It is impossible to understand the personality and work of Carl Gustav Jung without considering his Swiss background and his family.

Switzerland is a multi-national state, as was Austria-Hungary, with the difference being that in Switzerland there were only three major ethnic groups and languages, and that political unity had been achieved before the rise of fierce nationalism. Those problems for which the Austro-Hungarian monarchy desperately sought a solution had already been solved in Switzerland through federalism. Although the three main ethnic groups speak the languages of the neighbouring countries – Germany, France and Italy – the Swiss National Identity is very strong because Switzerland’s political institutions differ considerably from those of the other European countries.” (p. 658)

Ellenberger continues by equating federalism and democracy as “almost synonymous terms”… “because every Swiss exercises his political rights on three levels – community, canton and federation”.

Summary: Ordoliberalism is not just about housing, housing rents and tenure forms. It is an all-round approach to counter the tendency to oligopoly as the big companies take over the smaller companies. Banks are a very clear example of this, especially given their role in the supply of money, inflation and quantitative easing. This is one neglected question that needs to be addressed to take further. I can only hope that the next generation of research on ordoliberalism will do so.

Meanwhile, it would seem that the only EU countries with ordoliberal policies are Germany, Austria and Switzerland. At the same time, each of these countries are unique, and differences between these three countries are very great. Germany has länder which have powers that lie partly outside the Federal level. Austria’s capital is the oversized Vienna (oversized in proportion to the rest of the country), dominated by the Social Democrats: Red Vienna as it has been dubbed. Finally, there is Switzerland and its canton system and strong grass-roots democracy.

Of these, by far the most important is Germany. At the same time, the social market is being increasingly neglected in other EU member state in the rush to privatize everything. There is clearly much confusion over what ordoliberalism is and is not. The result is likely to be the increasing dominance of Germany in Europe as the gap between the rich and poor member states grows. Norman Tebbit in his Telegraph Blog once argued that the single currency should really have been limited to the northern member states. I have searched his blog for this post but cannot find it.

This is something that will have to be sorted out by the next generation of researchers. Its implications for the EU are particularly interesting…See especially Jim Kemeny From Public Housing to the Social Market: rental policy strategies in comparative perspective (Routledge, 1995, especially pp.148-150 and the following chapter 10 From Command Economy to the Social Market). The paradox is deliberate, though I doubt if more than a small handful of readers understood this. The EU and each ordoliberal member state, have developed oligopolistic elements in their social markets. Only Germany has any democratic limit on local monopolies through its länder. The democratic limit in Switzerland is even more extensive.

Culture – whether ordoliberal or neoliberal – is important and enduring. It is not just an ephemeral passing phenomena that can be changed by legislation. Bo Bengtsson termed this path dependency. I tend to refer to Longue durée especially in relation to cyclical change instead of ever upward improvement.

The work of the Jewish Hungarian Karl Polanyi is another example of longue durée cyclical change. The period of cycles in this approach are about half a century. The original laissez-faire of the nineteenth century has produced two cycles of change in which extremes of left and right emerged in Europe: the first was the 1920s and 1930s leading to the Second World War. Fascism, nazism, communism and other extreme left movements resolved through war to reset the cycle of change. The next cycle began at the start of the second millennium, and that we are still in. The Polanyi children included Michael Polanyi, who married a convert to Catholicism, Magda Kemeny. In addition there is the little-known eldest child, Laura Polanyi, famous in her own right.

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