Towards An African Liberation Economics

Published on 19th August 2014

How to strengthen the call for an ethical basis for a social market economy in Tanzania/Africa

Introductory Remarks on Social Market Economy

The social market economy seeks a middle path between socialism and laissez-faire economic liberalism (i.e. a mixed economy), combining private enterprise with government regulation to establish fair competition, maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, social welfare, and public services, by using state intervention.

In a social market economy, collective bargaining is often done on a national level not between one corporation and one union, but national employers' organizations and national trade unions.

At first controversial, the model became increasingly popular in West Germany and Austria, since in both states economic success was identified with it. From the 1960s, the social market economy was the main economic model in mainland Western Europe, pursued by administrations of both the centre-right (led by the Christian Democratic Union - CDU & Christian Social Union of Bavaria - CSU) and the centre-left (led by the Social Democratic Party - SPD). In early 1960s former Yugoslavia adopted modified social market economy and after that had average GDP growth of 6.1% for 30 years until the 1980s.

The term "Social market economy" is still the common economic basis of most political parties in Germany and a commitment to some form of social market economy was present in the European Union Constitution (a project which was abandoned in 2005 following the negative outcomes of referenda in France and the Netherlands).

Some of the main elements of the Social Market Economy in Germany are the central elements of a free market economy such as private property, free foreign trade, exchange of goods and free formation of prices. However, different from the free market economy, in the social market economy the state is not passive, but actively takes regulative measures. Some elements, such as pension insurance, universal health care and unemployment insurance are part of the social security system. These insurances are funded by a combination of employee contributions, employer contributions and government subsidies. The social policy objectives include employment, housing and education policies, as well as a socio-politically motivated balancing of the distribution of income growth. In addition, there are provisions to restrain the free market (e.g. anti-trust code, laws against the abuse of market power etc.). These elements help to diminish many of the occurring problems of a free market economy.

This brief is based on the social market economy guidelines as issued by KAS (Tanzania).

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By Dr. Camillus D. N. Kassala
Research Fellow, Lecturer and Dean of  Students,  Eastern Africa Statistical Training Centre in Dar es Salaam.

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