As early as 1950, Röpke warned in a government-commissioned report that “a very strong trend” to overly restrict market-disciplines was already apparent. Röpke insisted that government welfare-spending — the “social” aspect of the social market — and the taxes which pay for it cannot exceed a certain level “without impairing the expansive and regulative aspects of a free market economy.”
In the decades that followed, Röpke’s critiques of West Germany’s welfare-programs grew sharper. He was deeply censorious of the Adenauer government’s 1957 decision to link state-pensions to cost-of-living changes. It was, Röpke said, a step towards the welfare-system becoming “a crutch for society.”
This “crutch” is alive and well today. In the hunt for votes before the scheduled 2009 federal election, for example, most German political parties are offering tax cuts, but simultaneously promise increased social spending. This is hardly responsible public finance. But Germany’s politicians know many Germans won’t vote for anyone openly intent on shrinking the state welfare.
Another time bomb identified by Röpke was the failure of German governments to prevent unions from establishing labor monopolies. In 1960, Röpke argued these monopolies would create wage inflexibilities that would eventually generate high unemployment. In low-unemployment 1960s West Germany, such propositions seemed alarmist. Given, however, contemporary Germany’s apparently intractable high unemployment levels, fewer today would scoff at Röpke’s predictions.
Dying in 1966, Röpke didn’t live to see his forecasts vindicated. But if any politicians are seriously interested in systematically reforming Germany’s economy, they need only read Röpke’s Economics of the Free Society. First published in 1937, this book remains a brilliant, jargon-free introduction to how markets work. Röpke understood that market economies rely on a few simple principles. There was, he often said, nothing miraculous about Germany’s post-1948 prosperity. It simply flowed from allowing basic market mechanisms to function.
For present-day Germany, the clues to its economic salvation may rest in the not-too-distant past. But is any mainstream German politician brave enough to say this? Now that may indeed require divine intervention.
– Dr. Samuel Gregg is research director at the Acton Institute and author of the forthcoming Wilhelm Röpke’s Political Economy (Edward Elgar, 2009).