Basic models, essence, principles and functions of social market economy

Although Germany is a textbook example of a country with a social market economy, the history of this type of economic system goes far beyond the German experience. Socio-economic models used in different countries have a pronounced specificity depending on the achieved level of development, historical path and national traditions. Nevertheless, there are several models of a socially-oriented economy that can be classified according to the following criteria:

the place of social policy among national priorities (usually the alternative between social welfare and economic growth); the distribution of social functions between the State, civil society and the business sector; the size of the public sector, which is determined by both the volume of redistributable GDP and the share of people employed in the public sector; features of social policy.

The last criterion implies differences in the goals, directions and instruments of social policy. These are, for example, the attitude to the problem of full employment (the choice between maintaining full employment and stimulating the efficiency and competitiveness of production), the nature of the development of the social sector (social services can be provided both through public and private institutions and organizations), the share of social insurance in total budget expenditures for social purposes, targeting of social policy.

Classification according to the specified criteria, goals and instruments of social policy leads to the allocation of four main models in the literature.

The first model is traditionally called continental, or Germanic. In addition to Germany, the continental model is used in Austria, Belgium, the Netherlands, Switzerland, and partly in France. This model is characterized by high volumes of redistribution of GDP through the budget (about 50%), the formation of insurance funds mainly at the expense of employers, a developed system of social partnership, the desire to maintain full or at least high employment.

The second model, the Anglo-Saxon model, is used in the United Kingdom, Ireland, and Canada. It provides for a lower level of redistribution through GDP (no more than 40%), the predominantly passive nature of the state employment policy, a high proportion of private and public companies and organizations in the provision of social services. It should be noted that according to various composite indices of “comfort” and quality of life, Canada in recent years has come out on top in the world.

In the countries of Southern Europe (Greece, Spain and Italy), the Mediterranean model is being implemented. The amount of GDP redistributed through the budget varies significantly here (from almost 60% in Greece and Italy to 40% in Spain). Social policy is mainly addressed to socially vulnerable categories of citizens and is not comprehensive.

Finally, the fourth – scandinavian – model is used in Sweden, Denmark, Norway and Finland. The Scandinavian model is characterized by a very active social policy, an understanding of social welfare as a goal of the state’s economic activity, very high (50-60% of GDP) volumes of redistribution of national wealth through the budget, the implementation of the ideas of social solidarity and the active proactive nature of social policy. The main role in financing social expenditures is played by the state, providing financing both through the budget of the central government and through subnational budgets.

The financial problems faced by most economically developed countries in the 90s led to certain shifts in the principles of the implementation of social functions. Thus, states with significant amounts of financing of social expenditures from the budget system began to more actively use the principles of social insurance and introduce elements of payment for state social services.

The use of world experience becomes a kind of imperative of reforms, if you try to assess the state in which  the Republic of Belarus is, several years after the beginning of real market reforms. On the one hand, over the years, a huge step forward has been made – the foundations of the market system have developed in the country. On the other hand, this market is still extremely imperfect and “primitive” – the country lacks numerous institutions that mediate various links between market entities, between the market, the state and civil society, that is, the institutional and legislative environment that makes the economy social and sustainable. Belarus has not yet reached the hypothetical middle of the transition period, and there is still a deep and lasting transformation to be formed, during which modern institutions and ties must be formed.

The most useful lesson of Western social economics is the experience of forming relations between the state and the market, based on overcoming antagonism. However, in the Republic of Belarus, over the years of reforms, effective mechanisms for interaction and delimitation of functions between the market and the state have not yet arisen. Few will be able to find among the leaders of industry, entrepreneurs and merchants those who will agree to recognize the position of the state as truly favorable to business. They will give a huge list of omissions and mistakes of state power, indicating disregard for the interests of both large and small businesses. For its part, business does not want to support the state.

The necessary measure of state participation in the economy is determined by a simple principle: the state should do what the market cannot do. Such a principle is often considered liberal – and it is for this reason that many reject it a priori – although it relies less on liberal ideology than on common sense. After all, it is quite obvious that the market is more efficient in the short term, but it is not able to solve all the problems of the economy. It does not follow from this principle that the state should be “small” – it all depends on the specific conditions. The historical traditions of Belarus – the “path dependence” effect known from institutional theory, that is, dependence on the trajectory of previous development – in combination with the insufficient formation of market relations determine the obviously greater role of the state in the Belarusian transition economy than in other foreign countries.

But, being a rational criterion for drawing a border between the functions of the state and the market, this principle makes it impossible to understand what is the fruitful symbiosis of the state and the market, which makes it possible to make state power an instrument for the development of an effective and social economy. In other words, how to come to the state of organic unity of the state and the market that distinguishes modern social market economies?

In studies on the theory of the transition economy, the idea has been repeatedly expressed that the state should not “decrease”, but become different. Indeed, a purely mechanical “reduction” is not only insufficient, but often leads to the loss by the state of those functions that are absolutely necessary and recognized by all theorists and practitioners – from liberals to statists. It is, for example, about maintaining law and order in the economy and in society as a whole.

The thesis that the state should be an instrument of economic activity does not contradict another well-known thesis – the separation of property and power. The latter means that the acquisition and use of property must be carried out in accordance with economic criteria and not depend on proximity to state power; the authorities, in turn, are not free to control the owners outside the framework of the law.

Overcoming the contradictions between the state and business requires long-term efforts in the field of constant development of democratic institutions and civil society and the maturation of new stereotypes of relations between society and the state in the public consciousness. Nevertheless, certain practical steps in this direction can be taken now. This is the strict implementation by the state authorities and economic structures of laws and obligations, primarily in the budgetary and financial spheres. Strict adherence to laws and regulations will eliminate a significant share of violations in the economic process and help to begin the recovery of the economy.

The second lesson from the experience of the social market system for the transitional Belarusian economy is the need for the full development of competition. Competition carries a social charge, making the consumer the owner of the market for goods and services. Encouraging a competitive environment is one of the aspects of strengthening the role of the state in the economy, which not only does not contradict market principles, but also directly follows from them.

Finally, the third lesson of the social market economy for countries with economies in transition is the role of social self-regulation through social partnership institutions. Although the idea of social partnership is quite unusual for Belarus, it has a chance to be implemented thanks to paternalistic stereotypes deeply rooted in social practice and consciousness. Formally, state paternalism in fact turns into cooperation at the level of economic units between employees and the management of enterprises, that is, it carries the germ of partnership between employees and employers. Contrary to popular claims, social partnership is possible not only with a developed middle class, but also with a relatively high degree of differentiation of the material well-being of the population. This is evidenced by the rather successful development of partnerships in Latin American countries, where they exist primarily due to the activity of trade unions and the vigorous protection of the state.

The Western European experience in the development of a social market economy cannot be a panacea for the ailments of the Belarusian economy and in no case should it become the subject of uncritical ideological fascination. At the same time, it deserves careful study not only as the experience of the functioning of the economic system, which has achieved exceptionally high socio-economic results, but also as the experience of creating and using economic mechanisms that led to such results – especially the mechanisms of interaction between the market and the state, the need for which is so acutely felt in today’s Belarus.

The choice of a model of a socially-oriented market economy was carried out in the Main Directions of Socio-Economic Development of the Republic of Belarus for 1996-2000 and the National Strategy for Sustainable Development of the Republic of Belarus until 2010. These documents define the conceptual foundations of a social market economy developed by the scientific and political structures of the country.

A socially oriented market economy is a highly efficient economy with developed entrepreneurship and market infrastructure, effective state regulation of income distribution, which interests entrepreneurs in expanding and improving production, and employees in highly productive labor. It guarantees a high level of well-being to conscientiously working members of society; decent social security – disabled, elderly, disabled, women on parental leave; effective protection of life, health, rights and freedoms – to all citizens.

It is based on the principles of constitutional guarantees of personal rights and freedoms of citizens, freedom and responsibility of entrepreneurship, choice of profession and place of work, equality of all forms of ownership, guarantee of its inviolability and use in the interests of the individual and society, ensuring mutual linkage between the welfare of the employee and the results of his work, social protection of disabled and other socially unprotected segments of the population, social partnership between the state, trade unions and employers’ unions.

Incorporating these typical features and basic principles, the Belarusian model includes already at the conceptual stage its specific features, reflecting the history of the country, the traditions of the people, its national character with a keen sense of human solidarity, collectivism and mutual assistance.

Therefore, striving for the chosen model, the country’s economic system, its state and public institutions eliminate such components of a purely market economy as egocentrism, excessive exploitation of other people’s labor, collapsed unemployment, and a sharp social differentiation of the population by income.

The main role of the entity directing and regulating the transition to a new economic system in the Republic of Belarus will be played by an effective state. It will ultimately determine the legal field, political and administrative conditions, economic policy, including the development of public and private property, a stable currency, free pricing, open markets, the development of competitive conditions, the strengthening and development of healthy principles of popular morality.

In the process of transition to a socially oriented market economy, there will be changes not only in the ratio of economic and administrative, but also in the economic mechanism itself. First of all, this concerns the strengthening of its external part (the so-called interstate regulation) as the integration processes of including the national economy in world economic relations increase.

The highest value and goal of the development of society and the state is the person, his rights, freedoms and guarantees of their implementation. To ensure them, the state creates conditions for the sustainable and dynamic development of production, improving the level and quality of life of the population on the basis of the development of a multi-structured economy and a new technological method of production, the formation of a post-industrial society, taking into account the national characteristics of the country.

The experience of many states that have embarked on the path of transforming their economies has shown that it is not enough to create the necessary economic, technical and technological conditions for effective development. The active participation of the state as a partner in the implementation of these conditions by business entities is required. At the same time, important conclusions were drawn about the unacceptability of both the development model of the country with the dominant role of the state, and about the fundamental impossibility of ensuring progress in economic development without an effective state, as well as the conclusion that public welfare cannot be achieved only with the help of the mechanisms of the market system with its many flaws in relation to the effective distribution of resources. solution of social and environmental problems, safe development.

The developers of the “Concept of socio-economic development of the Republic of Belarus until 2015” believe that the strategy for transforming the statehood of the country for the future should be to increase the role of the state in maintaining economic and social well-being; combination and harmonization of various mechanisms of market, state and social regulation to ensure stable development on the basis of reliable guarantees in the implementation of laws, partnership, active participation of citizens in the joint formation of state policy through various public groups and state institutions.

To implement this strategic direction in conditions of limited resources, the functions of the state in the near future should be brought into line with its potential. Therefore, it is planned to clarify the range of functions performed by the state, first of all, to ensure the vital economic and social needs of society, these are:

ensuring guarantees of the rights and freedoms of the individual, the rights of the owner and the business entity; formation of a sustainable macroeconomic situation, including the effective functioning of financial institutions; implementation of an active foreign economic policy aimed at developing integration ties with the countries of near and far abroad; investment in social security and infrastructure development of national importance; guaranteeing a minimum of goods and services for sharing (education, health, culture, communications and other life-supporting goods and services); support for socially unprotected groups of the population; environmental protection; formation of rational territorial proportions of reproduction and integrated development of productive forces of regions; ensuring the national security of the country; and the establishment of a legal framework and its strict enforcement.

In the coming years, it seems expedient to complete the codification of legislation regulating the main types of social relations, primarily socio-economic and labor relations, subject to the convergence and unification of the legal systems of Belarus and Russia and bringing national legislation in line with generally recognized principles of international law.

Not only the theory, but also the experience of the formation of a social market economy in a number of Western countries allow us to derive some basic principles of this type of economic system. What are they?

First, a social market economy can be realized only on the basis of law, in a state governed by the rule of law, where universal respect for generally accepted laws is affirmed, especially in the economic sphere.

Secondly, the principle of freedom of economic activity within the framework of existing laws. Everyone is free to choose his own business and work for its benefit, to take economic responsibility for the results.

Thirdly, the principle of full employment of the able-bodied population, which should be provided by the state by various methods.

Fourthly, the principle of establishing social guarantees equal for all opportunities.

Fifth, the principle of social justice for all segments of the population and citizens.

Sixth, the principle of social protection of people who are unprotected.

Seventh, the principle of sustainability of economic growth as the material basis for universal and equitable well-being.

Eighth, the principle of social partnership, meaning equal and equitable relations between employers, employees and the state.

And, ninth, the principle of social responsibility of citizens for the economic efficiency of their and general activities, for their way of life.

Based on such principles, it is possible to present the main functions of the economic system under consideration.

If we recall that the general function of any economic system is to ensure the material conditions for the viability of society, then it naturally remains the main function of the social market economy. Then its other, specific functions will be:

meeting the social needs of society and citizens; ensuring social justice; ensuring the growth of material and spiritual well-being of all strata of society to the extent of economic growth; social peace, mitigation of social contradictions.

The main components (components) of a social market economy with such a view are:

market economy; social sphere.

Their ratio, i.e. the structure can not be designated strictly, since it will undoubtedly depend on the specific conditions of implementation (on the country, its development, potential, mentality, etc.)

It is not for nothing that the debate still does not subside in the literature about where in this formula (social market economy) to put emphasis, what is more in it? The duality of the concept has its pros and cons. The plus, apparently, first of all, is that this formula allows you to vary, to create models that on different “soil” will grow more (or less) large and bright economic and social fruits.