Ludwig Erhard ifo Center for Social Market Economy and Institutional Economics

The research program focuses on the question of the future of the social market economy in a changing economy and society. The breadth and complexity of this question requires a strong networking of different sub-disciplines of economic research. The Ludwig Erhard ifo Center for Social Market Economy and Institutional Economics therefore sees itself as a platform for economic research on the central challenges currently facing the social market economy.

To this end, the Ludwig Erhard ifo Center for the Social Market Economy and Institutional Economics links the expertise of the research departments of the ifo Institute, the Faculty of Economics and Social Sciences of the Friedrich-Alexander University Erlangen-Nuremberg and other national and international cooperation partners. Together with the Ludwig Erhard Zentrum (LEZ) in Fürth, the ifo Research Center organizes events aimed at academia, business, politics and the general public.

Friedrich-Alexander-Universität Erlangen-Nürnberg
Schloßplatz 4, 91054 Erlangen

Ludwig Erhard Zentrum
Ludwig-Erhard-Straße 6, 90762 Fürth

Stiftung Ludwig-Erhard-Haus
Friedrichstraße 4, 90762 Fürth

Friede Springer Stiftung
Pacelliallee 55, 14195 Berlin

Social Market Economy and the Digital Transformation

The process of digitalization is changing almost all areas of the economy and society. For the social market economy, limiting market power through competition policy and combating the formation of monopolies and cartels are just as fundamental as social balance and broad participation. The digital transformation of the economy is changing the conditions of competition and can – for example, through the growing importance of platforms – lead to a restriction of competition. Digitalization favors the emergence of “winner takes all” markets; this is not compatible with broad participation in prosperity. While private property is fundamental to the social market economy, digitalization brings with it a “sharing economy” that does not replace or challenge private property, but places its importance in new contexts. Labor markets are being transformed by automation and new forms of gainful employment (gig economy). All these innovations require a further development of the economic and social policy concepts of the social market economy.

Inclusion and Equal Opportunities in the Social Market Economy

In recent years, the debate on the distribution of income and wealth has intensified. The demand that economic growth should be inclusive, i.e., that broad sections of the population should participate in it, is gaining ground. The fact that as many citizens as possible should be able to take advantage of the opportunities available to them in a market economy is one of the most important attributes of the social market economy. Of particular importance here is the aspect of equality of opportunity. Here, as a first step, it is important to understand which economic factors shape and change the opportunities for earning income. Technical change and globalization, but also demographic change and reforms of the tax and transfer system play a central role here. Correcting distributional outcomes through taxes and transfers or through regulation is an important part of government activity, but it encounters limits because of the negative incentive effects associated with it. This is why it is crucial to create equal opportunities in the sense of activating measures. The aim here is to create the best possible conditions for inclusion in educational investments and to create incentives in the tax and transfer system to invest in education and take up work.

Demographic Change and Sustainability

Demographic change in Germany and Europe poses major challenges. If, with an aging and shrinking population, skilled workers become scarcer and innovation and risk-taking decline, a drop in economic growth threatens. At the same time, the demands on social security systems are growing. The economic policy responses to these developments range from increased investment in education and health to provisioning through capital investment abroad and targeted immigration policies. Immigration policy, however, is particularly controversial. Its success depends heavily on the ability to recruit skilled workers and on the integration of immigrants into the labor market and into society as a whole.

Environmental Protection, Natural Resources, and Energy Policy

Sustainability and the careful use of natural resources are also central concerns of the concept of the social market economy. The spectrum of tasks here ranges from local and spatially concentrated environmental problems to global challenges such as climate change. Reconciling protection of the environment and the natural foundations of life with successful economic development is one of the central economic policy challenges of our time. Energy policy and transport policy play a key role in this. In this context, the consistency of the instruments used and the consideration of possible side effects are of paramount importance. At the same time, new technologies, especially through digitalization, are opening up new possibilities for organizing energy supply and mobility and making them environmentally compatible.

Governance of European Integration

The process of European integration has been stalled by the United Kingdom’s decision to leave the European Union and growing skepticism about deepening integration in other member states. While advocates of further deepening emphasize above all the need to give the EU more weight and capacity to act at the global level, critics point to the remoteness of decisions in Brussels from citizens and call for competencies to be decentralized again. In important policy areas, such as migration policy or the further development of the European monetary union, the differences also go deep. The partly divergent economic development, especially since the global financial crisis and the debt crisis in the euro area, intensifies the contrasts. From the perspective of the social market economy, the goal must be to use European integration’s potential for increasing prosperity as a tool in the further development of European institutions and policies, while at the same time enabling economic convergence and thus broad participation in these prosperity gains.

The Rise of China and the Third System Competition

China’s growing economic and political influence worldwide is increasingly causing concern in Europe. China’s economic success raises the question of whether the prevailing economic system there, with its combination of market-based elements, strong state control, and an authoritarian political system, can compete with or even potentially replace the European model of a social market economy. Competition with Chinese state capitalism can be understood as a new form of cross-system competition. The question of how European economic policy should respond to this is the subject of ongoing debate. There is an urgent need to improve the information base for this debate through evidence-based policy advice.

Economic History of the Social Market Economy

Successful further development of the social market economy requires an examination of its history and the role of this concept in the economic development of the Federal Republic of Germany and other countries in which the social market economy has influenced politics and thinking about the economy and society. Although various works are now available on this topic, significant aspects of the economic history of the social market economy and its relations to the ordoliberal school of economics in particular are unknown or disputed in both research and public debate. In developing this research program, it is important to include international perspectives on the social market economy.

Dr. Lisa Windsteiger, Paris Lodron Universität Salzburg