How can collectivism work in capitalist societies

Economics I

Economic order

1. Economic order and society

The economy is part of society. Because of this, the Economic order not from the Social order be separated.

Every social order is of Core valuesthat can be more or less realized, such as freedom or dependence, equality or inequality, rule of law or arbitrariness, unlimited individualism or solidarity with the weaker. Social orders cannot be created simply by laws. Rather, they are based on long and relatively slow development processes of a cultural nature.

Accordingly, there was one in history Variety of social orders with different characteristicssuch as tribal societies, feudal societies, socialist societies (preparing for the transition to communism), and capitalist societies.

Read a text about "inequality"by Lester C. Thurow!

If one tries to structure social systems, one can find two - albeit idealized - Basic types distinguish:

Individualistic social orderFreedom of the individual from group interests
Priority for private initiatives
Personal equality
Distribution of results according to performance
The state only sets framework conditions
Private ownership of the means of production
Free market economy
Collectivist social orderGroup interests over freedom of the individual
Priority for government initiatives
Class struggle (goal: classless society)
Equality in the distribution of the results
Dominant role of the state
No private ownership of the means of production
Centrally managed planned economy


The western societies that actually exist today have been substantially changed by the Philosophers of classical liberalism influenced. These include Adam Smith, John Stuart Mill and the Austrians (or later Austrians abroad) Ludwig von Mises and the Nobel Prize Laureate Friedrich A. von Hayek.

In the west today the post-industrial "civil society" ("Pluralistic society"), which is characterized by a large number of democratically oriented interest groups and organizations as well as by the family as a social nucleus. Although this social order is fundamentally individualistic, it is based on a balance between individual and group interests.

"Law, contract, and economic rationality provide a necessary but not sufficient basis for both the stability and prosperity of postindustrial societies; they must as well be leavened with reciprocity, moral, obligation, duty toward community, and trust, which are based in habit rather than rational calculation. The latter are not anachronisms in a modern society but rather the sine qua non of the latter's succes. "
Francis Fukuyama, Trust, p. 11; Penguin Books, London 1996

The Catholic social teaching, which goes back to a large extent to papal encycles, takes a similar - albeit Christian - based position. For them, individuality of personality with simultaneous commitment to the common good, solidarity and subsidiarity play a special role.

The social order also determines the economic order - and the economic order has a retroactive effect on the social order. A Market economy requires freedom of decision and action for the economic subjects as well as a remuneration of the economic activities according to performance and is therefore only with one individualistic social order compatible.


2. Ideal economic systems

Economic systems are shaped by the prevailing social order and thus by the most varied of cultural developments. Ideal economic systems therefore do not occur in practice. Nevertheless, it is necessary to define such economic systems in order to Principles of Operation of economic systems.

The basic question of any economic order is this Coordination of production with the needs of consumers, provided that the means of production are scarce. There are basically two ways of doing this: Via the market or over central plans.

Accordingly, there are two types of ideal-typical economic systems, namely the "free market economy" and the "centrally managed planned economy (also "Central administration economy"). The essential properties of these ideal-typical systems are shown in the following table:

Free market economy
  • Decentralized planning by producers and consumers
  • Private ownership of the means of production, free company formation
  • Free labor market, freedom of contract
  • Coordination of the individual plans through the signaling function of the market prices
  • Rewarding economic performance through profit
  • Sanctioning of mistakes through loss (up to bankruptcy)
  • Setting of economic framework conditions by the state
centrally managed planned economy
(Central administration)
  • Central planning by the state
  • State ownership of the means of production
  • State-regulated labor market, no freedom of contract
  • Coordination of the individual plans by the planning authority
  • Rewarding performance in line with the plan through bonuses, titles and medals
  • Sanctioning of failures in relation to the plan through control
  • Total state intervention in the economy

In the ideal-typical construction of the free market economy takes over Country only tasks for Protection of Citizens (e.g. national defense), but does not intervene in economic life. In the centrally managed planned economy will that Economic activity content completely determined by the state.

Both in the free market economy as well as in the centrally managed planned economy becomes planned. The main difference is that in the free market economy from the economic agents decentralized and is planned without government intervention and the macroeconomic coordination by the The context of the markets is made while in the centrally managed planned economy the Country, albeit on the basis of detailed economic statistics and in coordination with the branches and regional representatives, one binding business plan (consisting of many partial plans).

Markets are not static (in the sense of a permanent "market equilibrium"), but dynamic, i.e. companies are at risk for advances, e.g. with new products, that may be successful or unsuccessful (or somewhere in the middle between these extremes). Unsuccessful attempts to make a profit on the markets are repeatedly revised. So that is Market a discovery process, i.e. you only know afterwards whether you have been successful.


3. Real-typical economic systems

The "ideal economic orders" are theoretical extremes. In the reality Is there a Variety of economic systems. You have to have these economic systems type again (and thus remove a piece of reality) in order to create a conceptual order. That is why this is from "real typical economic systems" the speech.

All real and real typical economic systems are Mixed economies on the one hand between the two extreme poles free market economy and centrally managed planned economy, on the other hand also with requirements that result from ruling social order and the historical situation surrender. E.g. they play existing institutions, such as the parties and the advocacy groups, and the historical existing economic structures, such as existing monopolies, play a role. This can be expressed with the following graphic:


If one tries to map some real-typical economic systems that are characteristic of European countries now or in the recent past Location between the two extremes Assigning "individualistic social order" and "collectivistic social order" or "free market economy" and "centrally managed planned economy" - without being able to claim exactness or absolute correctness - comes to the following result, for example:

The listed real-typical economic systems can be characterized as follows:

Social market

Social market economy is a practical application of the ideal type "free market economy". The main content - on the basis of private property and free competition - is equal opportunities for citizens, secured by a restrictive competition policy, an intensive educational policy, a stabilizing economic policy and a cautious correction of the income distribution by the state (secondary income distribution).

Market economy

Socialist market economy is the economic order of democratic socialism. It is fundamentally based on the free market economy and its defense through competition policy, but more than the social market economy emphasizes the equalization of income and thus more the secondary distribution of income by the state.

In economic policy, the focus is on employment policy, consumer protection, stabilizing budget policy (in addition to monetary policy) and social policy. If necessary, a correction of the market processes by a cooperative or a nationalized economic sector ("community economy") is accepted.


Neo-mercantilism, too, is fundamentally based on the free market economy. However, attempts are being made to promote branches of the economy that are of interest to exports through state measures (e.g. subsidies).

The advocates of neo-mercantilism are of the opinion that the success of Asian economies can be traced back to this approach and that the USA, for example, should use similar methods.

Neo-mercantilism thus presupposes the belief in the "feasibility" of highly competitive industries through separate "programs".

Planned economy

Socialist planned economy is based on totalitarian socialism as a preliminary stage of Marxist-Leninist communism. The aim of the socialist planned economy is thus the revolutionary replacement of capitalism by (totalitarian) socialism and finally communism with a classless society. In this society the goods should be distributed according to the needs and not according to the performance of the individual.

The economic order of the socialist planned economy is characterized by collective ownership (state property, cooperative property or property of social organizations) of the means of production (with the exception of ownership of the means of production by micro-enterprises) and central planning of demand and production.

As part of the central planning, "economic forecasts" (range 20 to 30 years, they serve as a working basis) are made with the help of "quantity balances" (about demand and the ability to meet demand through production, taking into account exports and imports) , "Long-term conceptions" (range 10 to 15 years, these serve as orientational specifications), "Five-year plans" (as a law) and "Annual plans" (also as a law).


In the socialist planned economy - as in every centrally managed planned economy - the Coordination of economic plans In contrast to the market economy, not as a decentralized discovery process afterwards, but after a complicated, time-consuming process in advance. This is also hers weakness: The increasingly complex economic events (which is increasingly based on the division of labor, dynamic and characterized by growing and more differentiated demands of consumers) less and less presented and coordinated in an overall plan become.


4. Ordoliberalism and the social market economy

The classic liberalism - continued today by the "Neoliberalism"- led in its concretization by the free market economy, as far as it was realized, in the opinion of many socio-politicians to great Income differences and possibly also to concentrations of power in the form of Monopolies. Last but not least, he was also a Trigger for countercurrents, like Marxism. However, it is disputed whether the free market economy as such has these disadvantages or whether the disadvantages, for example the monopolies, are caused by a incomplete application of the free market economy have arisen.

The Advantages of liberalism are anyway undisputed. There is no better system of coordinating production and consumption than the free market, and no other system can safeguard the innovative strength of the economy and economic growth equally effectively.

It thus turned out to be necessary for the classical liberalism in a practically applicable form to bring that avoids the disadvantages mentioned as possible. The economics professor in particular undertook this task Walter Eucken (1891-1950). Eucken drafted the economic policy system of the "Ordoliberalism"and thus had a major influence on the one introduced in Germany by Ludwig Erhard and Alfred Müller-Armack after World War II"Social market economy".

Walter Eucken has his ideas over Market economy in seven constituent principles, four regulatory principles and two principles of economic policy summarized:

Constituent principles
  • functional pricing system with full competition
  • Monetary constitution to stabilize the value of money
  • Opening up the markets
  • Securing private property
  • Freedom of contract
  • as universal personal liability as possible
  • Constancy of economic policy
Regulatory principles
  • Dissolution or supervision of monopolies
  • Correction of income distribution according to social criteria
  • Correction of an inadequate business budget
  • Avoidance of abnormal behavior of the job offer
Economic policy principles
  • Control of economic power
  • Shaping the forms of order in the economy, no steering of the economic process

Source: Prof. Dr. Matthias-W. Stoetzer, Jena, Eucken's regulatory policy as a theory of
Economic Policy, WiSt, Heft 4, April 2001, p. 209; appropriately adapted for teaching

The "constituent principles"have the goal of creating the market economy system proposed by Eucken. Most of these principles are already known from what has been said so far. Key point is this "functional pricing system with full competition". The necessary for the functioning of the price system"Monetary constitution to stabilize the value of money"should - as the only exception to free competition - be guaranteed by a central, independent central bank (as the EU created in the euro zone in the form of the European Central Bank).

The "Opening up the markets"means free foreign trade (as it is realized today, for example, within the EU through the internal market) and internally avoiding restrictions on economic activities (e.g. by hindering business start-ups).as universal personal liability as possible"(the entrepreneur and the manager) should ensure fair competitive conditions and careful handling of the production factors. The"Constancy of economic policy " is necessary for economic growth, since entrepreneurs are only prepared to invest in the future if there is a predictable, steady economic policy.

The "regulatory principles"should compensate for deficiencies that a competitive economic system brings with it. Monopolies should be resolved as much as possible; this is not possible, for example in the case of "natural network monopoles" (see Dictionary), the monopolies are to be prevented from abusing their power through supervision. These tasks should be a independent monopoly authority be perceived.

A "Correction of income distribution according to social criteria"is necessary to (according to social standards) in order to avoid large income differences that result from free competition in the form of"primary income distribution " revealed to prevent. This is done by a "secondary distribution of income", e.g. with a moderately progressive income tax.

the "Correction of an inadequate business budget mainly relates to negative externalities (please refer Dictionary) that do not appear as costs in corporate accounting.In this case, too, corrections to the market mechanism (in the sense that the market mechanism should be brought to bear better) are necessary.

Under "Avoidance of abnormal behavior of the job offer"State measures (e.g. minimum wages) are to be understood, which are intended to counteract an increase in the labor supply (to maintain the standard of living) when wages fall.

The "Principles of economic policy " should shape the state economic policy in such a way that the economic order postulated by Eucken is preserved. The "Control of economic power is not only directed against monopolies, but also against positions of power held by associations, e.g. trade unions. The principle "Shaping the forms of order in the economy, no steering of the economic process"means that the state should not intervene directly in the economic process, but should only set framework conditions. Otherwise the state would become the plaything of diverse economic interests.

Ordoliberalism and the social market economy also play an important role for modern economic systems, e.g. for the Economic order of the EU (as expressed in the EC Treaty). Efforts are being made to adapt the social market economy to today's economic and social conditions, e.g. the problems of excessive welfare state or des rigid labor marketto which it led to dismantle and also the globalization to meet the needs of the economy. The CDU in particular represents a "New social market economy".


Web design, content, copyright: Dr. Klaus Zerbs, Linz 2002