The publication of our ECFR policy brief – ‘The long shadow of ordoliberalism: Germany’s approach to the euro crisis’ – a couple of weeks ago has triggered a broad debate. The ideas themselves were widely discussed (see, for instance, Business Week and the Irish Times), and an opinion piece in The Guardian led to hundreds of comments from readers. The ordoliberalism theme was also picked up in the blogosphere (see NPthinking, the European Tribune and Mainly Macro)
I was actually quite surprised by the emails and phone calls that I received from journalists who wanted to discuss the paper. Most German economists who were educated in the 1990s have come across the term ‘ordoliberalism’, but it seems to have drawn a complete blank outside the borders of Germany. By this I mean not only that few economists follow this paradigm, but that very little is know about it: even economists who specialise in the history of economic thought often cannot say much more than that the paradigm has some followers in Germany.
It also surprised me how positive some of the discussion that followed the paper was. Some bloggers comments applauded the fact that, in ordoliberalism, Germans at least subscribed to a coherent and widely respected approach. This was contrasted with a messier Anglo-Saxon pragmatic approach to economic thinking and policy making, with no single clear paradigm guiding the way.
This perception might be related to the fact that we tried to outline ordoliberalism in a neutral, objective way – the goal of the policy brief was to enlighten the rest of Europe about the German thinking, not to criticise it (after all, the likes of Paul Krugman, Wolfgang Munchau and Martin Wolf already do their fair share of this).
While fascination with everything German seems to be in fashion at the moment (not last with German politicians and business people themselves), in my eyes, the positive reactions to ordoliberalism’s set of values and conclusions is misplaced. In fact, there are good reasons that explain why ordoliberalism has never really spread beyond the geographic areas in which German is spoken.
The main issue is that one can actually dispute whether ordoliberalism is an economic paradigm (as a scientific paradigm) or just an ideology. Ordoliberalism might be internally coherent. However, so are the belief sets of many cults. In order to be a viable economic theory, there needs to be internal coherence (meaning that the single axioms do not contradict each other) and external coherence (meaning that your theory is roughly in line with empirical facts observed in the real world). Moreover, a proper theory (be it in social sciences, economics or natural sciences) must allow for itself to be tested empirically.
Ordoliberalism has always had a problem with external coherence and with allowing its own conclusions to be challenged. Rigorous empirical testing was never an important part of the ordoliberal approach. For example, a leading German newspaper columnist from the ordoliberal camp once wrote in an op-ed: “The problem with Keynesian policy prescriptions is not that they do not work. Actually, they might well work. The problem is that they stem from the wrong concept of human being engrained in Keynesian theory, of humans which can be manipulated to increase spending against their will.”
Here is another example: Usually, in the German debate, it is not a question whether for instance ECB bond purchases might actually cause inflation, but rather whether or not monetary and fiscal policy should be kept strictly separated. This also explains why the ordoliberals stick to their policy recommendations of austerity even though empirical evidence for their conclusions is extremely weak, if not non-existent.
The lack of rigorous empirics is probably also one of the reasons why ordoliberalism has few remaining overt followers at German universities . After all, to publish in modern economic journals, some kind of empirical testing is usually required. There are few, if any chairs devoted explicitly to ordoliberalism, even if its values linger on.
Taking this into mind, the world might actually be lucky that ordoliberalism still enjoys a large amount of support only in Germany. At least in my eyes, religion and strong beliefs belong into churches and other places of worship. In contrast, in an enlightened society, policy decisions should instead be based on collectively agreed policy goals (i.e. high economic growth or low unemployment) and the instruments applied to reach them should be subject to empirical testing.
12th March 2012 at 04:03pm
Dear Sebastian Dullien,
I have been arguing, in my tweets and blog posts, for months now that the problem is not Germany but a European economy neo-con tsunami. If your theory that Ordo-Liberalism is a dominant philosophy across German political parties and elites and it drives Merkozy austerity is true, then, I was wrong and, alas, the problem is Germany.
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