According to the profusion of commentary produced about the crisis in the eurozone, a spectre is haunting Europe: the spectre of ordo-liberalism. Timothy Garton Ash, for example, has condemned the German government for holding on to the ordo-liberal idea of austerity and sound money as the revealed truth of economic policy (Garton Ash, 2012). The European pursuit of sound money does indeed guide and direct national economic policy in the EU member states, regardless of mass democratic demands for welfare and employment. It is also to the detriment of the democratic idea of government, which becomes a mere conduit of European rules of austerity and economic adjustment irrespective of democratic majorities. However, it is important to realise that ordo-liberalism does not in fact reject state intervention. On the contrary, it conceives of a free economy as an eminently political practice, not only in terms of economic policy, but also in social policy.
What is ordo-liberalism?
Ordo-liberalism originated towards the end of the Weimar Republic (1919-33), in a context of hyperinflation, depression, mass unemployment, politicised labour relations and mass movements, political violence, and social instability, as well as a politics of austerity that led to the characterisation of Heinrich Bruning (Chancellor from 30 March 1930 to 30 May 1932) as the Hungerkanzler: the famine Chancellor. The founding ordo-liberal thinkers were Walter Eucken (1891-1950), Alexander Rustow (1885-1963), Wilhelm Ropke (1899-1966) and Alfred Muller-Armack (1901-78). Genuinely anxious to restore a free economy, they asked what needed to be done to reassert and sustain one, focusing on the state as the concentrated force of the 'common wealth' and the political form of economic liberty.
Laissez-faire, they argued, does not extend to the state. Any such extension in the end pulverises that very institution, which alone can make competition effective. That is, they were convinced that laissez-faire is not a principle on which a liberal 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. For competition to be effective, the ordo-liberals maintained, it requires a sound political, social and moral framework. Economic liberty thus requires a strong state to secure the internal integration of society as the foundation of a competitive economy.
So for the ordo-liberals, liberalism cannot be indifferent to the state. On the contrary, it has to fight for the state to secure its power for the sake of a liberal economy. Ordo-liberals saw the Weimar Republic as a state of 'lamentable weakness', which had fallen 'prey' to the powerful economic interests of the cartels and big business and which had become 'socialised' by what they called the welfare-seeking interests of the labour movement. Instead of governing over society, society governed through the state. Weimar thus resembled a 'pluralism of the worst kind' (Rustow, 1932/1963, 255) and its unlimited democratic character had made the state ungovernable, leading to economic disorder, social dislocation, and moral decay. For the sake of economic liberty, they demanded that the state be rolled back from society to secure its liberal utility as a strong, market-enabling and facilitating state, depoliticising socio-economic relations, transforming quarrelsome workers into responsible entrepreneurs of their own labour-power, and opening up cartels and monopolies to international competition to secure market adjustment on the basis of factor competitiveness and by means of sound money. For ordoliberals, the strong state is defined by its capacity to limit itself to the achievement of a free economy. It therefore keeps mass democratic demands for welfare support at arms length. Welfare concessions, they argued, tend to 'unlimit' the state by making it responsible for the well-being of society, from the cradle to the grave. …