Social market economy in a pincer

More state in China, more market in America: the success of the largest economies is fueling doubts about the German model. Does “Prosperity for All” have a future?

Competition from the east: a car from the Chinese manufacturer Nio in Beijing

ILife returns in the United States. Every second adult there has received the first corona vaccination, the economy is picking up, compared to the previous year, the world’s largest economy is likely to grow by at least 5 percent. Far east, too, in China, the misery has vanished. A hard-handed, brief lockdown had temporarily paralyzed the country, but it is now paying off. Because the world’s second largest economy has largely switched back to normal operations, experts even believe a double-digit growth rate is possible in the current year.

Germany, on the other hand, is standing still. Politicians are also arguing about corona measures in the second year of the pandemic, the vaccination campaign is not yet far enough, digital contact tracking does not work. In the first quarter, the gross domestic product shrank; in their spring forecast, economic researchers are only expecting a recovery of less than 4 percent this year.

This snapshot symbolizes what experts have been warning of for a long time: Germany with its social market economy has become sluggish and can neither keep pace with the revived American market economy nor with Chinese state capitalism. Germany and the EU have to become more Chinese, so say some who want to impose a stronger industrial policy and more protectionism on the continent. The others demand “more market” and see the welfare state, which has grown steadily in relation to gross domestic product in recent years, as a brake block. So is the social market economy an obsolete model and “prosperity for all” a utopia in the systemic competition of the 21st century?

In the first league of prosperity

Such illusion may get a lot of attention, but it is hardly covered by the facts. Clemens Fuest, President of the Munich Ifo Institute, says: “Social security and competition, these two pillars are and will remain strong in this country.” Of course, there are undesirable developments when it comes to prosperity “or better opportunities” for everyone – for example, that the parental home still has a major impact on educational success and that normal wage earners in cities can hardly afford real estate. In addition, instruments such as the rent cap are being used to distance oneself from the principles of the social market economy. “But overall the picture is positive,” says the economist.

Ralph Wrobel, professor of economics at the West Saxon University of Applied Sciences in Zwickau, sees this as follows: “It is always said that inequality continues to grow, but the data show that the situation has remained almost unchanged for more than fifteen years.”

A look at important prosperity indicators underpins that Germany and other countries with comparable welfare states such as Japan and the Benelux countries do not have to hide from China, Great Britain and the United States. The gross domestic product per capita is highest in America, but Germany plays in the top league internationally, while China will lag behind for a long time despite enormous growth rates (see chart).