Myths of Sovereignty and British Isolation, VIII. Germany’s post WWII contribution to market liberalism

World War Two was largely won by the United States and the British Empire in alliance with the USSR. The idea of Britain’s place in the world being defined by its relationship with the US, a relationship in which the US is inevitably the leading partner, and is a very popular – even defining – idea for the predominant brand of sovereigntist-Eurosceptism in the UK. There is surely some paradox in holding onto a sovereigntist view, in which national sovereignty is understood in an absolute manner and national life is understood to be highly distinct, and even unique, while giving the dominant role to another country in matters of international relations, diplomacy, foreign policy, defence, intelligence and the unlimited number of areas which these are likely to spill over into, including trade and commerce.

The sovereigntist-Eurosceptic position in Britain tends to portray not only the EU as threatening sovereignty, but Germany as a threat to sovereignty as the strongest country in the EU. However it is clear enough that Germany is less strong than the United States, so what is the problem? The problem might be defined by the Eurosceptics as that the UK has transferred some sovereignty to the EU reducing the role of the British parliament, but if defence and diplomacy policy is dominated by the United States, along with other areas, there is an inevitable loss of effective parliamentary sovereignty. That the loss of sovereignty is not legally defined should not be the issue, and leaves open the possibility of greater loss of sovereignty because it is not defined by laws or treaties.

Returning to the issue of Germany, the standard sovereigntist position in Britain is dominated by those claiming to be small state free market advocates, and claim that an EU which includes Germany is allegedly a mere instrument of German interests, thus posing a threat to the possibility of a less statist Britain in economics and other matters. As the sovereigntist-Eurosceptics are normally for limiting immigration, their claim to superior purity in matters of individual rights and state power is itself lacking in credibility.

Moving back to more strictly economic issues (though of course free market economics requires a free labour market which means open immigration), Germany has not always been seen as more statist than Britain. There was a period in which Britain administered part of Germany, that is during the occupation of Germany by the Allies after World War Two, shared between the UK, USA, France, and the USSR. The occupation zones evolved into the Federal Republic of Germany (FRG) in the west and the socialist-communist Soviet satellite state, the German Democratic Republic in the east.

The FRG famously experienced an economic miracle in the post-war period. The main architect was Ludwig Erhard, who was strongly influenced by the Freiburg School of free market economists, itself heavily influenced by the Austrian School of Friedrich Hayek and Ludwig von Mises. Erhard had a particularly strong connection with the economist Wilhelm Röpke, who was not a member of faculty at Freiburg University, but was close to that school and was linked with it through the journal Ordo.

The economic liberalism of that period is sometimes known as Ordo liberalism, which is one of great moments in the history of market liberalism. It was a moment which came out of struggle with the British and American occupation authorities who enforced price controls, and other statist measures, and were not supportive of Erhard’s moves to liberalise the price mechanism and other aspects of the market. Erdhard had to defy the occupation authorities in announcing the end of price controls in the period in which German self-government was emerging in the period before the FRG was formed.

Erhard and Röpke developed a program in which federal Germany had a ‘social market economy’, meaning a free market economy, accompanied by a social welfare program to establish minimum living standards and the establishment of those institutions and polices thought most likely to promote a functional market economy and social consensus behind the market economy, as an antidote to the economics and politics of totalitarian statism in what had been Nazi Germany and the existing soviet model Germany in the east.

So successful and influential was this, it was a model, at least rhetorically, for the Margaret Thatcher led government elected in Britain in 1979. Thatcher’s major intellectual influence in British politics was Keith Joseph, who promoted the idea of freeing Britain from statism and collectivism by following the German social market economy. This is not something the surviving Thatcherites, and their successors who are prominent in sovereigntist-Eurosceptic circles, like to emphasise at all. This maybe goes back to the time that German unification became a possibility in the late 1980s as the Soviet Union ended its dominance of large parts of central and eastern Europe.

Thatcher as an imperial nostalgia British nationalist was instinctively opposed to a stronger Germany. Ever since Germany has been damned as a malign influence the sovereigntist Europsceptics, eager to bury memories of the long post-war period in which Germany was more of a market liberal country than Britain. They like to portray Germany as such a statist monster in economic decline that many would be surprised to check the tables of national GDP per capita (including tables adjusted for dollar based purchasing power parity) and see that Germany is ahead of Britain by a significant margin. The comparison should also take into account the issue that despite Margaret Thatcher’s nationalist reservations, the German people exercised their right to unify peacefully and democratically, so that the current Federal Republic of Germany carries the weight of eastern regions, which used to be socialist-communist and have yet to overcome the negative consequences for prosperity and enterprise culture. There are certainly some measures by which Germany has a more statist economy now than Britain, including the levels of public spending and the role of banks linked to regional governments, which suggests an inherently robust market economy, stronger than Britain’s in some ways, able to survive the less market liberal aspects of German political economy.

The period in which Margaret Thatcher did introduce more market based economics and public policy in Britain, an admirable achievement despite her less admirable inclinations towards national, social, and cultural conservatism, began with a centre-left government in the FRG, which had been far more market oriented than the centre-left government which preceded Thatcher in Britain. The FRG under Helmut Schmidt, at least towards the end of his term made cuts to public spending and the public deficit, which mean that it made a contribution, if a very moderate one, to the general shift of industrial democracies towards market liberalisation associated with the 1970s in its beginnings and with the 1980s in its strongest phase.

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4 thoughts on “Myths of Sovereignty and British Isolation, VIII. Germany’s post WWII contribution to market liberalism

  1. Reblogged this on Stockerblog and commented:

    My latest post in a rather long series on Myths of Sovereignty and British Isolation. This time, Germany and Market Liberalism. Refers to the Freiburg School/Ordo liberal program of Ludwig Erhard in the revival of post-war Germany and British Eurosceptic attitudes to Germany

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