Ordoliberalism

First published in jimsresearchnotes 24 Oct 2011

Ordoliberalism in Germany, Austria and Switzerland: Ordoliberalism gave birth to the Third Way, a comprehensive alternative to the 1800s ideology of laissez-faire that, after the end of the Cold War, re-emerged in the form of neoliberalism. Joining the newly created Institute for Housing and Urban Research in 1996, I decided to find co-researchers from the main countries with Third Way housing policies. This was not as easy as I had first hoped, but the rental market that I found most difficult to obtain information on was that of Germany. My hope was that I would find senior housing researchers who were familiar with their own countries and who also understood the principles of ordoliberalism, including, of course, the literature in their own respective countries.

Membership of the group of researchers I managed to put together fluctuated somewhat, but the researcher who was most supportive and interested was Philippe Thalmann, who was something of a linchpin in the group, thoroughly familiar with both ordoliberal theory and how this worked out in Swiss housing (see Kemeny, Kersloot and Thalmann, 2005; Lawson, 2009; Thalmann, 2012). Switzerland is the only country with ordoliberal housing policies that is not in the EU. Edwin Deutsch is the Austrian professor of Economics at the Technical University of Vienna whose work is of interest here, who, like Philippe Thalmann, I was lucky to be able to include in the research group. Deutsch (2009) is worth reading for the continuing existence of ordoliberal influence on Austrian housing policy.

The hardest country to find a senior co-researcher was Germany. This was a problem, because Germany is the most populous and the economically strongest member state of the EU. Despite several attempts, it proved impossible, and I was forced to abandon the attempt. Germany was, then, the only country with a unitary rental market that I was not able to learn much about. The reason for this was the re-unification of Germany, which with hindsight was more problematic than I had appreciated at the time.

Re-unification: I now realise that the re-unification of Germany  that began in 1990 meant that for many years afterwards the outcome in former East German housing market remained unresolved while its länder (hereafter Federated Provinces) began to integrate with those in West Germany. The same process took place in Berlin. The unification of the old-new German capital city (itself a federated province) was only accomplished when East Berlin passed from Soviet control in 1990. West Berlin had a specific legal status as it remained under the three western occupying powers. The text below is from the Wikipedia item http://en.Wikipedia.org/wiki/West_Berlin#Legal_status, and explains why:

“The Western Allies remained the ultimate political authorities in West Berlin. All legislation of the  “Abgeordnetenhaus”, the domestic state and the adopted federal law, only applied under the proviso of the confirmation by the three Western Allied commanders-in-chief. If they approved a bill, it was enacted as part of West Berlin’s statutory law. If the commanders-in-chief rejected a bill, it did not become law in West Berlin; this, for example, was the case with West German laws on military duty. West Berlin was run by the elected ‘Governing Mayor’ and the Senate of Berlin (city government) seated at Rathaus Schöneberg. Governing Mayor and Senators (ministers) had to be approved by the Western Allies and thus derived their authority from the occupying forces, not from their electoral mandate.”

So Berlin had to unite its divided parts and then the unified federated province could begin to integrate with the Federal Republic. At the same time its new-old capital, Berlin, replaced Bonn as the Seat of the Federal Government. This was only finalised a decade after re-unification after the Reichstag was modernised by first being gutted and then totally rebuilt and Parliament and the seat of Government moved there in 1999. See also Reichstag dome.

It has taken even longer for this process to be brought to some sort of conclusion and for the various data sources of the eastern provinces (including, of course, Berlin) see map to be harmonised and made useful for research. The new federated provinces joining the Federal Republic are Mecklenburg-Vorpommen, Brandenburg, Berlin, Saxony, Saxony-Anhalt, Thuringia, with a combined population of over 16 millions.

For an overview of the huge changes this involved see the wikipedia entries on German ReunificationEast Germany and East Berlin, and Die Wende. The item on German Reunification is in particular worth detailed examination, especially the strong opposition in many countries, including Britain, France, Italy and the Netherlands. The Discussion or “Talk” page, is also of interest.

This long and drawn-out re-organisation absorbed vast resources from Germany’s economy with a resulting political and economic inward-turning. It is therefore hardly surprising that I was unable to find a co-respondent in Germany in the mid-1990s.

The complexity of German ordoliberalism: Germany has not lost its ordoliberal housing market. Reunification involved integrating the former East German federated provinces with the West German federated provinces. In Germany’s Federal system and in terms of housing, this involved adapting the public sector of the East to the ordoliberal mixed economy of the West.

In terms of housing, this must have meant integrating East German housing into the West German housing policies and practices that existed at the time – and this would vary between federated provinces, just as it does between regions in unitary states, not to mention between culturally distinct countries within a unitary state (most glaringly in the UK in this respect is Scotland). So far I have treated these federated provinces of re-unified Germany as being basically similar in their housing markets. For the rest of the discussion I can no longer make that assumption.

The Federal policy towards the housing markets in the provinces in post-1990 Germany was very complex, two-tiered and fluid as old rental properties fall out of the subsidy system while this interacts  with local mietspiegel rent-setting. I don’t propose to repeat its description here, as I have described it in From Public Housing to the Social Market  (Routledge, 1995, Ch. 8 Germany pp. 119-123). More recent data can be found in Kofner (2011): See his pdf file: GermanHousingMarket.(downloadable – in English)

The other special characteristic of German housing markets is that privatisation means something different in Germany than in the common UK understanding of right to buy. It could and did involve non-profit or part-profit housing companies or trusts that buy up local stocks of rental housing owned by Federated Provinces or even by smaller local government units. The States of Germany wikipedia item needs careful analysis to understand just how complex Governmental structures are in Germany. This is a link to the Further Subdivisons section of the above item for ease of consultation (there are, for example, three city-states: Berlin, Bremen and Hamburg).

When I read Droste and Knorr-Siedow (2007) I found it difficult to make out what the authors were arguing. They kept referring to Germany’s social housing instead of the social rental market, but it was unclear whether this referred to housing in the East German Federated Provinces only or to the whole of Germany. And if the latter how much was bought by part-profit, non-profit, or profit companies. Even then it would be necessary to know how this affected local mietspiegel rent-setting. The social rental market and Ordoliberalism are notable by their absence from their discussion. But then Whitehead and Scanlon’s edited collection was entitled Social Housing in Europe and was published as an online London School of Economics and Political Science manuscript that can be freely downloaded. So perhaps Droste and Knorr-Siedow who are housing consultants were simply adopting the approach of the book as a whole.

Then three years later Peter Kemp and Stefan Kofner (2010) used a quite different narrative, essentially applying my own unitary rental market approach to Germany. Peter Kemp is one of Britain’s most senior housing researchers, and was founder-professor of the Centre for Housing Policy at York University. The article was published in International Journal of Housing Policy in 2010. How are we to decide which of these two narratives more closely reflect German rental housing today?

There is mounting evidence that German housing has always been marktkonform as a social market economy, so really the onus is on those who believe owner occupation should be sheltered from non-profit competition to explain what has changed.

Fritz Scharpf, Professor and Director Emeritus of the Max Planck Institute, Cologne) in  his interview “The only solution is to refuse to comply with ECJ [European Court of Justice] Rulings” in Social Europe Journal Autumn 2008, puts it like this:

“It may have been possible to talk about a European Social Model when you were comparing the EU 15 with the USA, but even that is not sustainable now the EU has 27 member states. In fact, however, Britain’s welfare state and industrial relations are constructed in an entirely different way from Sweden’s and both differ from Germany’s.” (p. 16)

There are three points to note from this. The first is that Scharpf alludes to the difference between the 15-member EU and the expanded 27-member EU that followed the collapse of the Warsaw Pact. This was exactly the point made by Ray Pahl in his 1989 IJURR article (see Ray Pahl’s Political Sociology).

The second is that Scharpf emphasises the varieties of forms of welfare capitalism even in the first 15 members. The other two strongholds of Ordoliberalism are Austria and Switzerland. The latter is not in the EU, but any serious claim to pronounce the Third Way as dead, needs to build on more than hope, and to produce evidence in support – from all three countries with ordoliberal policies.

Another indication is the research of Bo Bengtsson. His article in Housing, Theory and Society has to be partly understood as a reaction to  the unwillingness in housing researchers to examine issues of political power and the state. And this is in a supposedly globalised world where differences between the organisation of housing varies greatly, both regionally within nation states (such as Scotland and England in the UK) and between nation states. Bengtsson (2006) Why so Dissimilar? was an excellent demonstration of just how remarkably dissimilar the small group of otherwise culturally similar Nordic countries are in their housing policies. See also the Housing, Theory and Society special issue on path dependency in housing (2010 27, 3), with Bo Bengtsson and Hannu Ruonavaara as its special issue editors.

In From Public Housing to the Social Market (Routledge, 1995) I argued that we need to beware of making The Romeo error in comparative renting (Chapter 2 pp. 21-36). I recognise that EU intervenes in the housing market in favour of home ownership. But there is also the matter of path dependency in combination with often very substantial local and regional differences. These cannot be changed by supranational command and so remains an intractable problem, as Doling (2006: 339) clearly showed when he argued that some rates of home ownership in some EU member states would need to be reduced to match the lower US rate.

References

Bengtsson, Bo (2009)  “Political Science as The Missing Link in Housing Studies” Housing, Theory and Society 26, 1 (March): 10-25

Bengtsson, Bo and Hannu Ruonavaara (2010, eds) Housing, Theory and Society Special Issue on Path Dependency in Housing Vol. 20 No. 3.

Deutsch, Erwin (2009) “The Austrian Social Rented Sector at the Crossroads for Housing Choice” International Journal of Housing Policy 9, 3 (Sept): 285-311

Doling, John (2006) “A European Housing Policy?” International Journal of Housing Policy 6. 3: 335-349

Droste, Christiane and Thomas Knorr-Siedow (1997) “Social Housing in Germany” in Christine Whitehead and Kathleen Scanlon (edsSocial Housing in Europe London School of Economics and Political Science pp.90-104

Kemeny, Jim, Jan Kersloot and Philippe Thalmann (2005) “Non-profit Housing Influencing, Leading and Dominating the Unitary Rental Market: Three Case Studies” Housing Studies 20, 6 (Nov): 855-72 (Switzerland section 862-4)

Kemp, P.A. and Kofner, S. (2010) ‘Contrasting varieties of private renting: England and Germany’. International Journal of Housing Policy, 10(4), 379-398

Kofner, Stefan (2011) “Housing Market and Housing Policy in Germany” Presentation at Osaka

Lawson, Julie (2009) “The Transformation of Social Housing Provision in Switzerland Mediated by Federalism, Direct Democracy and the Urban/Rural Divide” International Journal of Housing Policy  9, 1 (March): 45-67

Scharpf, Fritz (2008) “The only solution is to refuse to comply with ECJ [European Court of Justice] Rulings” in Social Europe Journal Autumn 2008 4, 1: 16-21.

Thalmann, Philippe (2012) “Housing Market Equilibrium (almost) without Vacancies” Urban Studies (forthcoming)

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