the ordoliberal variety of neoliberalism
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OrdoliberalismTRANSCRIPT
Electronic copy available at: http://ssrn.com/abstract=2142529
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The Ordoliberal Variety of Neoliberalism
Gerhard Schnyder and Mathias Siems∗
Abstract: Ordoliberalism differs from other liberal theories in not supporting the
simplistic idea that the ‘government is the problem’. The aim of this chapter is therefore
to explain the core features of ordoliberalism and distinguish it from other varieties of
liberalism. We also show that ordoliberal concepts are not isolated phenomena but that
they are related to institutional economic ideas under different names. Such
‘ordoinstitutional’ perspectives have gained in appeal in the context of the current
financial crisis, because they seem to attenuate extreme views of market libertarianism,
while still accommodating broadly neoliberal, anti-Keynesian and anti-socialist ideas.
Keywords: ordoliberalism, neoliberalism, Chicago school, institutional economics,
financial crisis
JEL codes: A12, A14, B00, B25, B41, B52, G01, K20, N42, N44, P51
Final version published in
Suzanne J. Konzelmann and Marc Fovargue-Davies (eds.),
Banking Systems in the Crisis: The Faces of Liberal Capitalism,
Abingdon: Routledge, 2013, pp. 250-268
∗
Department of Management, King’s College, London and Durham Law School, Durham University.
Electronic copy available at: http://ssrn.com/abstract=2142529
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INTRODUCTION
Contrary to Margaret Thatcher’s well known slogan that ‘there is no alternative’ to a
radical market liberalism, not all liberal theories support the simplistic idea that the
‘government is the problem’. A core example is ordoliberalism. The aim of this chapter
is to engage with the defining features of ordoliberal theory1 and distinguish it from
other varieties of liberalism. By comparing ordoliberalism to other varieties of liberal
theory we also show that it is not an isolated theory that mattered only in Germany from
the 1930s to the 1960s but that it is closely related to other liberal and institutional
concepts.
Our focus is not the analysis of how precisely ordoliberal concepts have been
implemented throughout the twentieth century; rather, we discuss their theoretical
implications and attempt to explain differences with other brands of neoliberalism
against the backdrop of the historical context. Still, it is worth noting that the literature
on the role of ideas in political science provides ample evidence that ideas and interests
are intrinsically related and both matter in politics and economics (cf. in particular Blyth
2002; Hall 1989).
The remainder of this chapter is structured as follows. The first part explains the core
features of ordoliberalism. Then, we address US neoliberal schools of thought and in
particular the influential Chicago school. This approach to liberalism is often portrayed
as being opposite to ordoliberalism but both varieties of liberalism also share some
often-neglected similarities. Next we deal with the various approaches to institutional
economics, which overlap with ordoliberalism to an even more significant degree than
the Chicago school. The final part concludes.
1
Arguably ordoliberalism does not constitute one single and coherent theory. Authors that are commonly
associated with the movement defended quite different views on certain aspects (cf. Kolev 2010).
However, in this chapter we seek to single out a number of points that can be considered as the defining
features of what is commonly defined as ordoliberalism and are hence shared by the large majority of its
proponents.
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CORE FEATURES OF ORDOLIBERALISM
‘Ordoliberalism’ was originally conceptualised by the economist Walter Eucken and
the lawyers Franz Böhm and Hans Grossmann-Doerth at the German University of
Freiburg during the interwar period (Boas & Gans-Morse 2009).2 Drawing on the
concept of ‘ordo’, the Latin word for ‘order’, ordoliberalism refers to an ideal economic
system that would be more orderly than the laisser faire economy advocated by
classical liberals (Oliver 1960, 133-34). While there are many overlaps with other forms
of neoliberalism, two distinctive features of ordoliberalism can be identified: a
prominent and positive role for the state in upholding the liberal economic order and the
importance of the ‘social question’ due to the need to embed economic activity in a
sound society. Indeed, Peck (2010, 17, 65) characterises ordoliberalism as a humanist
form of liberalism that seeks to achieve a socially embedded market through state
intervention. In the following paragraphs we discuss these specificities of
ordoliberalism in some detail.
First, the crucial and positive role of the state to create the conditions for a liberal
economy, which led to the seemingly contradictory concept of ‘liberal interventionism’
coined by Alexander Rüstow, is a hallmark of German neoliberalism (cf. Ptak 2009). To
be sure in its original formulation all forms of neoliberalism distinguished themselves
from the nineteenth century laisser faire liberalism by acknowledging a positive role of
the state. While classical liberal theories conceived of laissez faire as a means, the
twentieth century neoliberalism rejected this view and saw competition as the means to
achieve a free economy (Peck 2010, 3-4). However, as we will show below, this
fundamental difference between neoliberalism and laisser faire liberalism has been
increasingly eroded during the second half of the twentieth century in particular in the
US. The role of the state is rejected and oftentimes goes barely beyond the guarantee of
the ‘rule of law’ and an ‘independent’ central bank. Ordoliberalism advocates a more
2 It should be noted that designating the German neoliberals of the Weimar period as ‘ordoliberals’ to
distinguish them from other brands of neoliberalism is strictly speaking an anachronism. The term
‘ordoliberalism’ was first used in a 1950 issue of the review ORDO. The proto-ordoliberals who did not
necessarily form a coherent school of thought before World War II would refer to themselves mostly as
neoliberals, a term which is said to have been coined in 1938 by Alexander Rüstow – later one of the
central members of the ordoliberal group – at the Colloque Walter Lippman in Paris.
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positive role that the state has to play and a more sophisticated theorisation of the state
(cf. Van Horn 2009). The members of the Freiburg School argued that for the free
market to function effectively, the state should assume an active role, supported by a
strong legal system and appropriate regulatory framework. Without a strong
government, they argued, private interests, in a system characterised by differences in
relative power would undermine competition (Oliver 1960; Boarman 1964; Gerber
1994). Moreover, the rules of the game should not favour the powerful and wealthy
(Gerber 1994, 38).
This assessment was based on the experience of the Weimar Republic (1919-1933)
during which ordoliberalism emerged. The weakness of the Weimar democracy and its
perceived permeability to interest group influence led early ordoliberals to lean towards
a preference for strong government bordering even on support for non-democratic
authoritarian rule. Ptak (2009) argues that this constitutes a proximity with a nationalist
theory of the state – such as the anti-liberal theory by Carl Schmitt – and made the
ordoliberal conception of state and society compatible with the Nazi ideology. But it is
also close to the crucial classical liberal claim of the separation of state and society, i.e.
that neither should the state infringe on civil society, nor should it be ‘colonised’ by
private interests of any kind. This crucial concern of ordoliberalism with striking an
appropriate balance between private and public power (Peck 2010: 59) was present in
ordoliberal thinking since the 1920s. To be sure, the rhetoric of strong state and the
early ordoliberals’ disdain for the seemingly harmful party politics of the Weimar
Republic, which brought about disorder and instability, may have made some of these
authors sympathetic to Schmitt’s claims for a strong state capable of leadership.
However, the isolation of the state from particularistic interests is clearly a liberal claim
and most ordoliberals did not approve of Schmitt’s rejection of a Weberian bureaucracy
and hence the rule of impersonal legal-rationalistic norms in favour of a strong
executive power, governing ‘at will’.
Secondly, ordoliberalism stands for a ‘sociological’ conception of the economy, which
stressed the need for a market economy to be embedded in a functioning society and the
fact that the ‘market economy constitutes a narrow sector of societal life only’ (Röpke
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1946, 82-3; cf. Peck 2010: 61). Eucken (1932) used the concept of ‘interdependence of
orders’ in order to underscore that the economic order is interdependent with all other
governmental, societal and cultural orders in a society. The ‘social question’, i.e.
preventing the negative effects of ‘proletarianisation’ of the working class, was a major
concern for ordoliberals. To be sure, the ordoliberal post-war programme of the Social
Market Economy developed mainly by Müller-Armack was at the outset explicitly
conceived of as an alternative to universal welfare (Ptak 2009). However, the
theoretically strong role for the state, the importance attributed to the ‘social question’
and the pragmatic and ‘irenic’ way of implementing the ordoliberal precepts in post-war
Germany,3 made it possible for left-wing ideas to re-appropriate the concept of the
Social Market Economy and increasingly introduce social policy as part of the package
(Ptak 2009). Peck (2010, 58) calls the pragmatic, outcome-orientated neoliberalism of
the German ordoliberals the ‘first third way’, which contrasts with Hayek’s principled,
procedural rules-oriented neoliberalism.
Rather than fundamentally objecting to state intervention that relied on taxation to
finance its activity, some ordoliberals such as Alfred Müller-Armack and Alexander
Rüstow (1957) have shown sympathy with the idea of social policy and the welfare
state as long as it was market-conforming (cf. Siems 2004, 27). To be more precise,
Rüstow (and Röpke) rejected ‘purely material’ social policies, i.e. those advocated by
supporters of the welfare state, and developed instead the concept of ‘Vitalpolitik’,
which should aim to improve people’s living standards and wellbeing not just through
cash transfers, but by including a transformative structural societal policy (strukturelle
Gesellschaftspolitik) including for instance questions of housing standards (cf. Ptak
2009: 104). Contrary to socialist ideas, these policies were not aimed at a social
egalitarianism, but rather at stabilising the ‘natural order’ of society where different
social strata co-existed. Eucken’s concept of ordo, was indeed based on Thomas
Aquinas’ medieval conception of a hierarchical natural order in society, which led
different commentators to label ordoliberalism as ‘socially reactionary’ (cf. Ptak 2009).
Be that as it may, the fundamental opposition to the state’s legitimacy to tax and
3 The ordoliberals concern to maintain social peace contrasts starkly with the confrontational strategies of
the US and UK governments during the 1980s for instance.
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redistribute income was much weaker in ordoliberalism than in other schools of
liberalism.
The rather traditionalistic conception of a social order based on the medieval Thomist
concept of ordo contrasts with a strong modern conception of individual freedom in the
economic sphere; a contradiction which Herf (1984) has termed ‘reactionary
modernism’. The ordoliberals believed that liberalism – the freedom of individuals to
compete in markets – should be separated from laisser faire – the freedom of markets
from government intervention. Thus, they favoured a rigorous competition law, but also
state intervention (cf. ‘liberal interventionism’) in order to ‘de-concentrate’ economic
power when a market became dominated by one or a few large players. This leads
ordoliberals to be more willing to err on the side of too much state intervention than
other neoliberals would be. While the principle of ‘in dubio pro libertate’ was accepted
by ordoliberals too, market concentration was seen as the greater evil than limited state
intervention. This distinguishes them notably from other neoliberals like Friedrich von
Hayek who also accepted the principle of a need to de-concentrate economic power, but
saw in the ‘invisible hand’ of the market a sufficient mechanism to make market-power
concentration a merely temporary phenomenon, and refusing on these grounds, state
intervention to de-concentrate economic power (Gamble 1996: 72). As we will show in
the next part, this is also a crucial difference that emerged between ordoliberalism and
the Chicago brands of neoliberalism during the 1950s.
It is precisely regarding this aspect that Walter Eucken, one of the most influential
representatives of the Freiburg School, criticised laisser-faire liberalism for holding
onto the belief that the market is a ‘natural given’ order which occurs spontaneously if
the state does not hamper its emergence (Foucault 2004). On the contrary, Eucken’s
understanding of the market and of competition is very much at odds with the classical
(and neo-classical, see below) liberal notion that markets constitute some sort of natural
order, which requires protection from state interference. In Eucken’s view, market and
competition can only exist if a strong state establishes an economic order. The state’s
role must be clearly delimited; but in the area where the state has a role to play, it needs
to be powerful and active. For ordoliberals, government is the solution to the problem,
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as long as it is the right kind of government. Only specific constitutional and regulative
principles created and upheld by the state can establish competitive markets. It is not
about rolling back the state to free the underlying natural market order. Rather, it is
about a strong state creating a functioning and humane economic order (Goldschmidt &
Rauchenschwandtner 2007; Eucken 1932; Rüstow 1953 and 1957).
This conception of markets and the state made of an active competition policy is one of
the hallmarks of the ordoliberal political programme. In particular one of the earliest
ordoliberals, Franz Böhm was a very strong believer in the need for a strong and
rigorous competition law (Siems 2004, 37). His views had strongly influenced the
elaboration of the first German Competition Act (Gesetz gegen
Wettbewerbsbeschränkung; GWB) after World War II and were reflected in the Josten
proposal of 1949, which would have included both a plain prohibition of cartels and
legal and political intervention to prevent and reverse the concentration of economic
power (Quack & Djelic 2005, 259). It is interesting to note that the US occupation
authorities while strongly favourable to a prohibition of cartels similar to the one
enshrined in the US Sherman Act of 1890, were much less supportive of the second part
of the proposal and were indeed favourable to an ‘oligopolistic’ organisation of the
German economy, based on the US example (ibid). This contrasts starkly with one of
the central claims of the ordoliberal school, namely, creating an economy where
production is decentralised and takes place in relatively small units (Röpke 1950 and
1981; Rüstow 1953 and 1957). This episode illustrates a major difference between
German and US neoliberalism to which we come back in the next part: for ordoliberals,
like for classical liberals such as the Chicago economics professor Henry Simons, it was
not the state but private monopolies that were the main enemy of a free society. In order
to preserve a free society, the state had to be strong and impose a rigorous competition
policy. Indeed, establishing the competitive order necessary for a free society was the
raison d’être of the state (e.g. Rüstow 1932). Röpke, at the very beginning of the
ordoliberal school of thought, too defined the aim of ordoliberals as fighting for ‘the
idea of the state and against the lack of freedom in which private economic monopolies
– supported by government leading a shadow existence – keep the economy captive’
(Röpke 1923; quoted in Megay 1970, 425).
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The concern for interdependencies and the sociological understanding of the economy
leads ordoliberals also to be open to more interdisciplinary approaches than economics
since the ‘marginal revolution’. Röpke explicitly argued for an anthropological-
sociological approach to markets and the economy in order to achieve a truly socially-
embedded market economy (Peck 2010, 61). The ‘interdependence’ or ‘coexistence’
idea explains why ordoliberalism seems less prone to the hubris of other neoliberals
who advocate the application of market principles to all areas of human life both in
practice (e.g., the New Public Management) and academia (e.g., Gary Becker’s
extension of neo-classical models of man to the phenomenon of marriage). Aaron
Director a founding member of the Chicago School considered ‘politics’ to be
negligible in economic analysis and Chicago neoliberals generally deny the existence of
power in market relations (cf. Van Horn 2009). Ordoliberalism seems more aware of the
limits of the market mechanisms and competition and of the legitimacy of other
ordering principles that may coexist in other areas of a society. Competition and market
forces were thus not seen as a universal, absolute principle, but as one that had to be
confined within a given economic order. According to Wilhelm Röpke, another major
figure in ordoliberalism:
…[w]e must stress most emphatically that we have no intention to demand more
from competition than it can give. It is a means of establishing order and
exercising control in the narrow sphere of a market economy based on the division
of labor, but no principle on which a whole society can be built. From the
sociological and moral point of view it is even dangerous because it tends more to
dissolve than to unite. If competition is not to have the effect of a social explosive
and is at the same time not to degenerate, its premise will be a correspondingly
sound political and moral framework. There should be a strong state, aloof from
the hungry hordes of vested interests, a high standard of business ethics, and
undegenerated community of people ready to co-operate with each other, who
have a natural attachment to, and a firm place in society.
(Röpke 1950, 181; our translation; emphasis added).
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In academic terms, this also implies that ordoliberalism is – in this respect at least –
closer to classical economics than neo-classical ones, in its openness to
interdisiciplinarity and a willingness to understand national economic systems as a
complex whole – or a national business system – with many interdependent parts, rather
than focusing merely on questions regarding the understanding of individual behaviours
and utility calculations.4
As regards its political impact, it is frequently said that ordoliberalism has influenced
the European Economic Community (now EU), in particular in terms of its approach to
competition law. According to Nölke (2011, 14), while ‘the overall influence of German
ordoliberal scholars in other economic regulatory policies has waned since the 1960s, it
continued to have a remarkable stronghold in EU competition policy for several
decades’ (similar Willks 2009; but see also Akman and Kassim 2010). However,
internationally, ordoliberalism has increasingly been pushed into the background by the
rise of the US neoliberal doctrines and in particular the Chicago School of law and
economics. The Chicago School has not only been politically tremendously influential,
notably through the international financial institutions based in Washington D.C., but
has also acquired a status of undisputed dominance in neoliberal theory. Ptak (2009:
126) claims that even in the area of competition policy the Freiburg School has quickly
converged with US neoliberal theory. The appointment of Friedrich von Hayek in 1962
to a chair at the University of Freiburg after an eight year spell in Chicago is seen as a
symbol of this convergence (also Foucault 2004). The dominance of US neoliberalism
may hence have obliterated somewhat the differences between ordoliberalism and other
neoliberalisms. By the 1980s Thatcher’s bon mot that ‘there is no alternative’ may
hence hold some truth at least in terms of relative dominance of one stream of
neoliberalism over the others.
As contributors in Mirowski and Plehwe (2009) show, neoliberalism from its inception
has evolved as a transnational intellectual project (also Peck 2010). Different schools
4 It is interesting to note that the idea of ‘interdependence’ seems quite close to, or at least compatible
with, the idea of complementarities between the institutional spheres of a national business system, which
has recently gained prominence in the comparative analysis of capitalism in political economy (cf. Hall &
Soskice 2001).
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have hence influenced each other notably by means of exchanges through the Mont
Pèlerin Society. However, it is still important to distinguish ordoliberalism as a coherent
and distinct political philosophy and economic theory. As such, ordoliberalism may
have achieved its most distinct and complete form during the first post-war years when
its theoretical premises were fully developed and when it was at the height of its
political influence. It is this version of ordoliberalism of the 1950s, which we use as
benchmark in the next section to compare it with the US neoliberalism.
ORDOLIBERALISM VS. US NEOLIBERALISMS
From the outset, neoliberalism was an international intellectual movement that was
initiated at the Walter Lippman Colloquium in Paris in 1938, which united neoliberal
thinkers from the US, France and Germany. It was then mainly purported by the Mont
Pèlerin Society founded by Friedrich von Hayek in 1947. This led to a situation where
neoliberals of different brands communicated and exchanged ideas on a regular basis.
Contrary to a wide-spread view that ordoliberalism is a purely European school of
thought, the founding fathers of ordoliberalism were strongly influenced by US
(neo)liberals. For example, Eucken was strongly influenced by the view of classical
liberal Henry Simons, professor at Chicago, and agreed with him that monopoly in all
its forms, including large corporations, are ‘the great enemy of democracy’ (Van Horn
2009, 204, 209). Therefore drawing the distinction between ordoliberals and US
neoliberals too starkly would be erroneous in particular in the immediate post-war
years. There were clearly points of agreement. In this section we further explore the
relationship between ordoliberalism and different brands of US neoliberalism, which
have arguably become the politically most influential versions.
The differences are starkest with the most extreme form of neoliberalism, i.e.
libertarianism of the Rothbartian anarcho-capitalist vintage (Rothbart 1978). Roger
Scruton (1982) defines libertarianism broadly as a radical form of laisser-faire
liberalism. One characteristic of such schools is that in the name of individual freedom,
they ‘wage war on all institutions’, including not only the state, but even marriage and
social institutions like the family (cf. Gamble 1996, 108).
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To be sure, only extreme forms of libertarianism such as the ones advocated by
Rothbart (1978) and, to a lesser extent, Nozick (1974) would go as far as rejecting any
kind of social norms as a constraint of individual liberty. But the rejection of state-made
institutions and of the legitimacy of the state’s tax monopoly and monopoly of
legitimate violence are but the US (and Austrian) neo-liberalism’s ‘principled anti-
statism’ (Peck 2010: 54) pushed to the extreme. Indeed, it is certainly more than a
coincidence that Rothbart was once Ludwig von Mises’s PhD student at New York
University. The ‘market-first’ (Peck 2010: 65) approach of Chicago and its belief in
markets as self-healing natural orders, made neo-liberal thinkers and politicians
increasingly receptive to even the most utopian forms of anti-state libertarianism.
Rothbart’s rejection of the state’s monopoly of legitimate force for instance can be seen
at work in the privatisation of penitentiary institutions and the rise of private security
firms. To be sure, in many instances, such movements of ‘rolling back the state’ had
soon to be complemented by movements towards neo-liberal re-regulation, simply
because markets turned out not to be able to play the role they were supposed to play in
theory (Peck 2010). Yet, the fact remains that despite the neoliberals’ early agreement
that the state had to play a positive role in the economy that goes beyond the night-
watchman state of the nineteenth century, had increasingly been forgotten in the US.
Since the 1950s even mainstream Chicago School economists and lawyers have
increasingly embraced a more optimistic view of the play of markets and an increasing
suspiciousness of state intervention to correct market failures. Conversely, ordoliberals
– while broadly adopting the ‘equilibrium theory’ of neo-classic economics (Ptak 2009)
– remain much closer to the Austrian school of economics regarding its focus on the
‘rational irrationality’ of capitalism (cf. Schumpeter’s ‘creative destruction’). Indeed,
ordoliberalism acknowledges the destructive tendencies of markets and sees state action
as a necessary correction to these tendencies.
The US neoliberals’ view on the illegitimacy and damaging effect of, even the most
basic, state intervention in the economy and indeed society, is a fundamental difference
between ordoliberalism and US neoliberalism and relates to the above-mentioned belief
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that markets are ‘natural orders’ rather than a man-made social construct. The market
and not the state is the ‘state of nature’ and state intervention is a corruption of this
natural order and a constraint on individual liberty. The implication of this is a radical
anti-government rhetoric, which is not limited to far-right libertarians, but has also
influenced the policy choices made in the US (and elsewhere) since the 1980s. A
striking example is Ronald Reagan’s one-liner: ‘Government is not the solution to our
problem; Government is the problem’. From this perspective, the effective functioning
of markets was best assured by ‘rolling back the state’ (or reducing it to a protector of
property rights)5 in order to make way for market mechanisms, theorised to be inherent
in any human society.
As mentioned above, this difference between US neoliberals and ordoliberals was not
present from the outset, but emerged increasingly since the 1950s. Since then US
neoliberalism seems to have increasingly evolved backwards into some form of ‘retro-
liberalism’, or what ordoliberals used to call ‘paleoliberalism’ of the nineteenth century
anarcho-capitalist brand (cf. Peck 2010, 17).
In the late 1940s when neoliberal thinking was boosted by the establishment at the
University of Chicago of a new research programme on Free Market Studies (FMS),
established by von Hayek and financed by the William Volker Fund (Van Horn 2009
and 2011), differences with German neoliberalism started to increase. While the
academics working on this programme (Aaron Director, Edward Levi, Milton Friedman
etc.) first defended ideas close to Simons’ more classical liberalism, during the early
1950s they started to depart from classical liberalism. In particular, the question of
monopoly power, market dominance by ever larger corporations and competition law,
led the academics of the ‘Second Chicago School’ to defend increasingly non-interven-
tionist laisser faire policies that contrasted starkly with classical liberals’ concern not
just with concentration of political-, but also economic power. The leniency with which
the Chicago School started to look on big business was the crucial difference to the
ordoliberals. While the ordoliberals attempted during the same period in Germany to
establish a competition law, which would rigorously fight economic power
5 See Cioffi 2009, 243 (‘The legal liberalism underlying the American market model relies on an
enforceable framework of legal rights and obligations that facilitate and inform market transactions.’).
13
concentration and thus support production in small and medium-sized (SME)
companies (see above), the Chicago neoliberals increasingly turned their attention away
from the concentration of economic power towards the (supposedly) increasing state
power in the US, but also abroad.
The diverging paths that the two streams of neoliberalism started to take after the
Second World War can at least partially be attributed to the differences in the historical
context. On the one hand, the role of neoliberalism in Germany was one of contributing
to a massive exercise of ‘state building’ after the fall of the Nazi dictatorship. The new
Bundesrepublik’s legitimacy – established in 1949 – was closely intertwined with the
precept of a liberal economic order to whose establishment the ordoliberals contributed
directly. In such a situation a radical anti-statism did not make any sense. The goal was,
on the contrary, to establish new state institutions, which would draw their legitimacy
on the guarantee of individual political and economic liberty (Lemke 2001; Foucault
2004).
In the US, on the other hand, the neoliberals’ main adversary became increasingly the
welfare state, which was expanding with Roosevelt’s New Deal policies. The fear of
‘collectivism’ and ‘socialism’ was further spurred by the Cold War and the international
situation where the US became the main power opposing the Soviet Union and the
diffusion of communism. It is no coincidence that the radicalisation of the Chicago
School and its increasing anti-government ideas coincided roughly with the rise of
McCarthyism (late 1940s, early 1950s) in which the suspiciousness of any form of
‘collectivism’ – including the welfare state – reached its apex. In other words, while the
task of building a strong and functioning state on the ruins of the Third Reich prevented
the German ordoliberals from adopting anti-state views, the US neoliberals were
certainly encouraged by the public debates during the 1950s to increasingly see
collectivism and the state – and not private economic power – as the main enemy of a
liberal society.
In the process, US neoliberals also came to increasingly accept ‘big business’ as a
legitimate form of economic organisation, something which classical liberals contested
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and even neoliberals doubted as late as the 1940s. Friedman is on record as having
proposed to the FMS measures that would eliminate the separation of ownership and
control in modern corporations by transforming directors into owners. According to him
this would ‘eliminate holding companies’, it ‘would make mergers more difficult’, and,
as a result, it should also ‘retard the tendency (if it exists) toward increasingly large and
monopolistic organizations and stimulate the breakdown of existing giant corporations’
(quoted in Van Horn 2009, 215). Similarly, Aaron Director, in his presidential address
to the Mont Pèlerin Society in 1947 stated that
…[t]he unlimited power of corporations must be removed. Excessive size can be
challenged through the prohibition of corporate ownership of other corporations
[…] and perhaps too through a direct limitation of the size of corporate enterprise.
(quoted in Van Horn 2009, 212).
These radical liberal anti-concentration arguments seem astounding in the light of the
approach to competition policy that the Chicago School developed starting in the 1950s.
In particular in relation with the follow-up research programme to the FMS – the
Antitrust Project – Chicago neoliberals increasingly defended the view that private
monopoly power was merely a transitory phenomenon, which will ultimately be eroded
by market forces. By considering that in face of a monopoly competition would still
play and ultimately erode the monopoly, the Chicago school moved from a stance
opposed to the concentration of economic power to a hands-off, laisser faire approach
towards markets characterised by an unswerving belief in the self-healing powers of
markets. In other words, the Chicago School started to embrace during the 1950s a ‘the-
market-can-do-no-wrong’ ideology based on the neo-classical belief that markets tend
towards competition not monopoly if left to their own device. In some sense, the maxim
‘in dubio pro libertate’ has increasingly been confused with the maxim ‘in dubio pro
foro’, implying that the market per se – not the competition it creates if functioning –
constitutes the ordering principle, which maximises individual liberty. Monopolies, it
was held, could resist the competitive forces of markets only where governments openly
supported them (Friedman 1951: 17).
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All three main proponents of the Chicago programme published articles during the
1950s with diametrically opposed views on the danger of economic power
concentrations and monopolies from their views expressed during the 1940s (Director
1951; Friedman 1951; Director & Levi 1956). This radical departure from classical
liberalism is considered as the birth hour of the US neoliberalism and constitutes a
crucial break with the German ordoliberalism (cf. Van Horn 2009: 216ff). It was at that
historical juncture that US neoliberals – paralleling the evolution of US public discourse
that reached its apogee in McCarthyism – started to see the government as the problem,
not the solution allowing the maintenance of a competitive market economy.
This volte face regarding the role of the state also implies a reversal of liberal positions
vis-à-vis de concentration of economic power. ‘Big business’ is not just accepted as
inevitability in a modern economy, something that thinkers of the left such as Galbraith
(1967) and German communists (cf. the idea of STAMOKAP, or state monopoly
capitalism) but also rather right-leaning intellectuals have observed for a long time
(Schumpeter 2003[1943]). Large companies have come to be seen as the basis for
economic efficiency (economies of scales) and US economic power abroad
(international competition in increasingly liberalised markets). This would ultimately
contribute to the vulnerability of the US variety of liberalism. Indeed, the leniency with
which concentration of economic power in the financial industry was accepted
constitutes arguably one of the major causes of the Global Financial Crisis of 2008-11
in that it allowed banks to grow ‘too big to fail’ (see also Siems and Schnyder 2011).
Without overstressing the influence that such academic debates had on concrete
policies, it is no small irony of history that the robustly anti-concentration draft proposal
for the first German Antitrust Law (the Josten proposal of 1949, which was strongly
influenced by Böhm’s view; see above), was watered down during the 1950s not just
because of business opposition, but also because of the US occupation authorities
preference for an oligopolistic market structure. This preference was apparently also
related to a concern of creating strong capitalist companies in an era of communist
threat to the capitalist economic world order (Quack and Djelic 2005, 259). This may
not directly have been a consequence of the new developments in Chicago, but it is
16
striking to see that in 1956 – a year before the German competition law was finally
adopted – Director and Levi had published a book summarising the Chicago School’s
new doctrine on antitrust, which advocated the use of a ‘rule of reason’ by judges (as
opposed to applying automatically fixed rules) to monopoly situations and stating that
industries dominated by just three or four companies could no longer be considered as
necessarily being a case of excessive concentration (Director and Levi 1956: 287).
Indeed, oligopolistic industries were now considered to be a characteristic of a new era
of capitalism and splitting up oligopolies would mean punishing companies for the
successful and efficient pursuit of economies of scale (cf. Van Horn 2009: 224). In other
words, monopolies were no longer considered as being necessarily the result of abusive
and coercive exclusionary practices, but could result from successful internal growth
strategies aimed at increasing efficiency (ibid, 1956: 290). Given that monopoly power
did not stem from exclusionary practices and was not enhanced by such practices, they
were hence not to be considered as illegal per se.
To sum up, most contemporary schools of neoliberalism go back to the effort of the
interwar period to revive liberal theory in order to ‘save’ the crisis ridden capitalist
market economies from socialism and collectivism. At the outset, they shared common
goals and many common precepts. To be sure, many commentators, notably on
ordoliberalism, may underestimate the communalities and overdraw the differences
between different schools (e.g. Foucault 2004). Ptak (2009, 99) states that
‘ordoliberalism is substantially less different from other streams of neoliberal thought
than many have thought’.6 However, there are clear indications that different streams of
neoliberalism have indeed specific features and the meetings of the Mont Pèlerin
Society – the ‘peak organisation of world neoliberalism’ of sorts – were often
characterised by very strong conflicts and heated debates, notably over the role of the
state (Peck 2010). It is telling that it never managed to formulate a ‘manifesto’ defining
what neoliberalism is and what role the state should play, despite attempts to do so
during the first meeting in 1947 (Peck 2010; Plehwe 2009). The minimal common
6 See also Lai 2011, 7 (‘Friedman won his Nobel Prize in the age of nuclear deterrence not because of his
libertarian pro-market views, but because his policy proposal for tight control of money supply in an era
of double-digit inflation. It is said that Friedman’s policy perspective is similar to ‘ordoliberalism’
developed by the German economists Eucken and other’).
17
denominator which the Mont Pèlerin Society did manage to define was a six-point
document formulated in terms of areas of need for further research (Plehwe 2009).
Tensions continued to a stage where Hunold, a Swiss businessman and ordoliberal, and
Röpke finally left the society in the early 1960s over a dispute with von Hayek.
Therefore, while ordoliberalism certainly cannot be understood as a theory completely
independent and distinct from other neoliberalisms, it still seems sufficiently different
from other streams to create considerable space for debate and diversity. It goes beyond
the scope of this chapter to show how these differences mattered in terms of their
impact on concrete policies. Yet, the struggle over the first German competition law
after World War II, shows that such seemingly academic debates, may very well have
had considerable influence on economic outcomes (Quack and Djelic 2005).
The next section explores the modernity within ordoliberal theory by pointing out
similarities that it held with newer institutional approaches in economics.
ORDOLIBERALISM AND INSTITUTIONAL APPROACHES TO
ECONOMICS
Ptak (2009: 126) sees ordoliberalism as an ‘embryonic neo-institutionalist doctrine
avant la letter’. Indeed, it seems to have some affinities with the recent resurgent
‘institutional approaches’ to economics, which tend to come back to a more socially
grounded understanding of economics than the narrow, non-sociological form
economics has increasingly taken since the ‘marginalist revolution’. The ideas of Walter
Eucken and colleagues are also sometimes referred to as ‘German Institutional
Economics’ (Richter 1999) or the ‘Freiburg School of Law and Economics’ (Vanberg
1998). Such terminology is not surprising, given that ordoliberalism is interested in the
relationship between state law and markets, addressing both the constitutive principles
of the market economy and regulatory principles that make it function smoothly (see
Aßländer 2011, 43-4). It is therefore worth exploring how ordoliberalism is related to
other institutional approaches to economics.
18
Even classical economics did not ignore the role of institutions. Yet, it was usually
taken for granted that institutions are available to guarantee the enforcement of contracts
(Kirstein 2006). More specifically, David Hume can be regarded as a predecessor of
both institutional economics and ordoliberalism. Hume highlighted the general role of a
supportive government in order ‘to promote the conventions of justice and virtue, and
embed them in institutions’ (Dow 2009). In particular, Hume suggested that the
economic constitution of the state should be based on principles of private property,
freedom of contract and personal liability, similar to ordoliberalism (Richter 2011).
A more direct predecessor of ordoliberalism can be seen in the old institutional
economics of the early 20th century, the most prominent proponents being Thorstein
Veblen, John R. Commons and Wesley Mitchell. Of course, the views of old
institutionalism were not homogenous, and Veblen’s critical attitude towards capitalism
was not shared by ordoliberals such as Eucken and Böhm.7 Still, at a general level,
institutional economics and ordoliberalism share the endeavour to understand
institutions more precisely, in particular in the way they interact and influence human
behaviour. Vatiero (2010, 691) also identifies similarities in their approach to
competition policy:
Many connections between OI [Old Institutional economics] and OL [Ordo
Liberalism] can be stated. Both of them had been dominant paradigms, and above
all they share the common idea that a legal system does not lead necessarily to a
restriction of ‘human interaction’ as in Douglass North’s definition of institutions.
The law could liberate individuals’ opportunities and activities and extend
freedoms. In particular, the institutionalist Robert Lee Hale advocated ‘freedom
through law’, which is also the title of his most important book. Similarly, OL
relies on (competition) law being seen as a liberation rather than a constraint.8
7 It is also worth noting that in the book on economic policy by Eucken (1990) which can be seen as the
clearest description of ordoliberal views, there are no references to any proponents of the (old)
institutional economics. 8
Note also the similarity of the OI and OL conception of institutions with recent developments in
institutional theory in political science and political economy, which argues – contrary to North – that
institutions are not just constraints, but can also be resources for actors (Jackson 2010).
19
Interestingly, Vatiero contrasts this similarity with a different view of New Institutional
Economics, referring to North (1990). Though New Institutional Economics too is a
conglomerate of different approaches, some more historical some more conceptual, in
general, it is more neo-classical than the old institutional economics and ordoliberalism
in embracing the use of mathematical and econometric methods (see Kirchgässner
2009).
However, frequently, the literature also highlights similarities between ordoliberalism
and the New Institutional Economics. According to Cesaratto and Stirati (2011, 18)
both subscribe to the idea that, while ‘the market economy is the best instrument to
achieve social welfare’, there remains to be ‘the role of the state in establishing and
protecting pro-market institutions’. Kuhner (2006) observes that due to these
commonalities ordoliberalism attracts growing attention in the English-speaking world.
More specifically, Richter (2011) discusses similarities between ordoliberalism and
Williamson’s transaction cost economics: though Walter Eucken and others did not
explicitly use the term of transaction costs, their ‘ideal typical description and ordering
of institutional frameworks by way of ‘isolating abstraction’’ (ibid, 1), is seen as akin to
Williamson’s approach (for the latter see e.g. Williamson 1985).
In the last few decades, a number of additional theories, schools and concepts have been
developed which are related to ideas of both institutional economics and ordoliberalism.
Explicit parallels have been drawn between ordoliberalism and Buchanan’s
Constitutional Economics, both being interested in the foundations needed for a
functioning market economy (Richter 1999).
The concept of Regulatory Capitalism has been linked to New Institutional Economics
(Levi-Faur, 2005, 17). It argues that it is mistaken to regard the current economy as
being purely ‘neoliberal’ but rather that ‘(t)he corporatisation of the world is (…) a
product of regulation and the key driver of regulatory growth, indeed of state growth
more generally’ (Braithwaite 2005). Thus, it can also be said that it shares with
ordoliberalism an interest in the regulatory framework underpinning national and global
economies. An alternative interpretation is offered by Peck (2010): he interprets the rise
20
of ‘the regulatory state’ and the re-regulation of policy areas from which the state had
previously retreated, as reaction to the failure of anti-state liberalism not as a logical
complement to it. Re-regulation is seen as a pragmatic – and theoretically
fundamentally inconsistent – reaction to the failure of the laisser faire system put in
place following neoliberal precepts.
Finally, it is worth noting the interdisciplinary scope of ordoliberalism, integrating law
and economics, in order ‘to give the economic process the desired legal form’ (Meijer
2007, 183). Thus, ordoliberalism is linked to contemporary law and economics, as there
is an overlap between the New Institutional Economics and law and economics (Posner
1993). Of course, there are differences as well: at its core, ordoliberalism is an approach
to political economy, while it also has wider ramifications which bring it close to a
‘political philosophy’, a social theory or even a Weltanschauung. NIE on the other hand
is more narrowly an economic theory, and law and economics the application of
economic methods to law. There are also aspects of law and economics, in particular its
empirical extension to law and finance (see Siems and Deakin 2010), which are more
market libertarian than ordoliberal thinking.
CONCLUSION
This chapter has shown that ordoliberal concepts are not isolated phenomena but that
they are related to institutional economic ideas under different names. Such ‘ordo-
institutional’ perspectives have gained in appeal in the context of the current financial
crisis, because they seem to attenuate extreme views of market libertarianism, while still
accommodating broadly neo-liberal, anti-Keynesian and anti-socialist ideas. We have
also explained that there have always been different liberal theories not all of which
support the simplistic ‘government is the problem’ idea (cf. Plehwe 2009). Indeed,
ordoliberalism constitutes such an alternative to Chicago School neoliberalism.
Ordoliberalism should not, however, be seen as a theory that will remedy all of
neoliberalism’s weaknesses since both share some basic assumptions. A look at the
history of this school of thought shows that ordoliberalism has coevolved with other
neoliberalisms in a consciously coordinated process of academic exchange in which von
Hayek played an important role (see Gamble 1996; Kolev 2010). Yet, there are also
21
fundamental points on which ordoliberalism is distinct from US neoliberalism, and has
increasingly grown distinct during the early post war decades.
Ordoliberalism may hold some lessons for present-time policy makers in order to
prevent the possibility of a recurrence of a financial and economic disaster like the one
the world witnessed since 2008. The weakness of the left in most industrial countries
and the framing of the crisis as a result of state- and not of market failure seem to
indicate that the post-crisis economics will not be a simple return to Keynesianism, but
will continue to largely rely on neoliberal policies. In such a context, ordoliberalism
may be an important source to inform policy makers in order to at least avoid the
libertarian excesses of previous decades (for details see Siems and Schnyder 2011).
It is an interesting thought experiment to speculate about what a neoliberal economic
system would have looked like that took its inspiration from ordoliberalism rather than
from the anti-state neoliberal ideologies that were declared during the 1980s to be the
only way out of the crisis of Fordism. Ordoliberal theory reminds us, for instance, that
any economic order has necessarily to be embedded in a sound society where a certain
living standard and security is guaranteed for all members of society. Ordoliberals never
aimed to install a generous, universal welfare state or pursue egalitarian goals but still
put the individual’s emotional, economic and cultural wellbeing at the centre of a
functioning market economy. This neo-Kantian concern for ‘human dignity’ seems
worthwhile considering when devising strategies out of the current crisis since ‘broken
societies’ are not a fertile ground for economic activity, entrepreneurship and growth.
Ordoliberalism also shows that in a functioning democracy, classical liberal aversion
towards the state may seem absurd given that the fundamental idea is one of a
government by the people for the people. US neoliberals, in their decades-long struggle
against socialism and soviet communism, have come to equate the democratic state with
the authoritarian regimes against which the classical liberals developed their theories.
This leaves modern societies with a lack of means to govern and restrain ever more
global and powerful economic interests (see Soros 2008). The more optimistic view of
22
the role of the state in ordoliberalism opens up new ways of thinking about how the
state might contribute to the development of a sustainable economic order.
In this context, the most important lesson that this theory may have for policy makers
after the Global Financial Crisis of 2008-11 is to remind us that the concentration of
economic power in private hands and the emergence of dominant corporations was once
considered by liberals of all brands as a major threat to any economic order and
democratic society. This knowledge has been lost in the post-war decades among
adherents to the Chicago School who embraced a rather blue-eyed believe in the self-
correcting forces of markets. This historical shift away from a traditional suspicion of
large organisations may have contributed to the emergence of an unsustainable banking
system with many financial institutions growing too big to fail. Ordoliberalism also
points out that such economic power is not just an economic, but also a political
problem, thus breaking with another tenet of the Chicago School, which argues that
‘politics’ and ‘power’ do not matter (cf. Director 1951). Thus, the ordoliberal openness
to a multifaceted understanding of economic phenomena and multidisciplinary analysis
may provide us with intellectual tools to work towards a sounder basis for financial and
economic regulation.
23
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