Social market economy in Germany: growth and prosperity

How does the social market economy work?

The aim of the social market economy is to achieve the greatest possible prosperity with the best possible social security. It is about profiting from the advantages of a free market economy such as freedom of choice of job, free pricing, competition and a wide range of affordable goods, while at the same time cushioning its disadvantages, such as the formation of monopolies, price fixing and unemployment that threatens people's livelihoods. The state therefore intervenes to a certain extent in the market by regulating it and protecting citizens against illness and unemployment through a network of social insurance schemes.

Is the social market economy anchored in the constitution?

No. However, central elements of the Basic Law form the basis for the social market economy. There is also no pure doctrine or manual for the social market economy. The social market economy has always been understood as a process and has always had to adapt to new circumstances – for example during reunification. In the Treaty on a Monetary, Economic and Social Union between the Federal Republic of Germany and the former GDR, the social market economy was legally enshrined for the first time as a common economic order in May 1990.

What challenges does the social market economy face?

Globalization, digitalization, climate change, aging and migration are currently posing major challenges for the social market economy. Politicians are required to adapt the framework conditions and finance social security for citizens. But in the 70 years of its existence, the social market economy has proven that it can adapt well to new framework conditions.