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The Strong State and the Free Economy: Review

by Paul Cammack on September 15, 2017
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Werner Bonefeld, The Strong State and the Free Economy, Rowman & Littlefield International: London and New York, 2017 (Hbk £85, Pbk £27.95, Ebook £27.99).

Werner Bonefeld has produced an indispensable guide to ordoliberal thought and its relevance to the politics of the European Union. The latter, he says, ‘is founded on and integrates the role of the federated member states as “market police”‘ (2). The term is from Alexander Rüstow (1885-1963), one of a number of ordoliberal thinkers discussed, the others being Walter Eucken (1891-1950), Franz Böhm (1895-1977), Wilhelm Röpke (1899-1966), and Alfred Müller-Armack (1901-1978), the last the only one to support the Nazi regime (38-9). ‘Right from the start’, said Rüstow, ‘we assign to the strong and independent state the foundational task of market-police to secure economic freedom and complete competition (1954: 221). So the Union Bonefeld depicts is not that of France and Germany putting aside their differences to ensure peace after two devastating wars in a generation, but of continental leaders putting in place the conditions for the hegemony of capital over their populations on the basis of lessons drawn from the fate of the Weimar Republic. On the basis of the principles of federalism and subsidiarity, it incorporates the role of the state ‘in sustaining “Europe” as a seemingly stateless market liberal framework’ (4). The approach is ordoliberal in that it reflects the idea that a liberal economy requires order provided by political authority in order to prosper, and it contrasts with a laissez-faire attitude that imagines the economy to be ‘self-regulating’, and any version of neoliberalism that takes a similar line. Ordoliberalism recognised the state as the political form of capitalist social relations, and conceived of it as the ‘concentrated power of bourgeois society’ (4). In doing so, says Bonefeld, it identifies as the political principle of capitalist society what Marx establishes in critique (ft. 5, p. 16). Hold on to this guiding thread as you read.

After an introduction to the leading ordoliberals themselves, four chapters (2-5) outline ordoliberal thought in detail, leading up to its crucial perspectives on the morality of competition, Vitalpolitik, and the creation of an enterprise society in which the free economy, secured ‘in the mentality of the governed’ (111), requires constant surveillance and the constant policing of the social order. The remaining three chapters analyse the European Union against this background, with a focus on the ordoliberal elements of monetary union. The overall argument is restated concisely in Chapter Six (121-6), so one option is to read the chapters on the EU first. But the detailed account of ordoliberal thought is rich and thoroughly compelling, and its key concepts illuminate not only the structure and purpose of the European Union, but also the logic of political development theory in the post-war period (Cammack, 1997), and the contemporary thinking of key international organisations (in particular, the OECD, the World Bank, and the UNDP) whose primary focus is precisely the shaping of mentalities and behaviour to the logic of the ‘free economy’ (Cammack, 2012, 2014, 2015, 2017). In short, it is essential reading. As an aside, there are rather more misprints than one would expect, but the only one that matters is on p. 144, where ‘tie’ should be ‘tide’, I think.

The ordoliberal critique of the Weimar Republic was just as much a critique in advance of the post-war welfare state, as it hinged on the folly of laying aside the ‘whip of competition’ (Eucken’s phrase) and allowing either the masses (in particular organised labour) to exercise undue influence over government or politicised business groups to impose their own selfish preferences upon it. Bonefeld systematically sets out its thinking on the free economy as political practice (Chapter Two), the (negative) relationship between democracy and freedom (Chapter Three), the ‘freedom of complete competition’ as developed by the ‘Freiburg School’ led by Eucken and Böhm (Chapter Four), and the connections between social policy and the enterprise society, as developed principally by Röpke, Rüstow and Müller-Armack (Chapter Five).

For the ordoliberals, then, economic competition and the ‘invisible hand’ entailed the power of the state: ‘The assertion of state power is a condition of economic liberty’ (19). In this perspective, capitalist economy is a practice of government, and crises express a political failure brought about by illiberal interventionism (19-20). But the state must still intervene. Competition is fundamental, but as it tends to destroy social unity, breeding ‘disunity and strife, self-interest and greed, abuse and coercion’, its conduct needs to be civilised by firm rules and regulations. Laissez-faire liberalism is a contradiction in terms, quite distinct from the rule of law: ‘The fundamental condition of a civilised system of competition is the equality of all market participants before the law and equal exposure to the dynamic of market competition, regardless of the inequality in property and economic power’ (21; see also 78-80, 95-8). Competition must therefore be socially ordered, set in a robust and non-negotiable framework provided by political decision from outside the market itself. The role of government, ultimately, is to turn potentially rebellious proletarians into ‘self-responsible participants on competitive labour markets’ (25), a task to be achieved through social policy which ‘envisages a society of self-responsible and vitally satisfied entrepreneurs of labour power, which does not ask for collective provisions and protection from competitive pressures’ (36).

The ordoliberals argued that the capacity of the state as market police depends on its independence from society and its ability to neutralise mass democracy, an idea they shared with their contemporary, Karl Schmitt (51-4), and other proponents of authoritarian liberalism. Democracy must be circumscribed in order to achieve economic freedom under the rule of law, or in other words, to allow capital to rule: laissez-faire liberalism and universal suffrage in combination lead inexorably to pluralist demands on government, social democracy, the welfare state, and moral ruin. The argument is of course a compelling one, once you accept the legitimacy of a society in which a minority own the means of production and the majority have no means of survival except their ability to work for whatever wage, if any, they can get: history shows that wherever the rule of capital comes under threat, democracy is circumscribed or abandoned. And as Bonefeld reminds us, this situation arose again, in the guise of ‘ungovernability and democratic overload’ in the mid-1970s (59-61).

Chapters Four and Five, covering strands of ordoliberal thinking on ‘economic constitution’ and social policy respectively, form the core of the book. The idea of an ‘economic constitution’, a legal-institutional framework designed to enshrine the founding principles of a free labour economy by limiting the scope of parliamentary law making and intervention in the economy (Ordnungspolitik), was developed in the 1930s by Eucken and Böhm, leaders of the ‘Freiberg School’. In this conception, order is secured by intervention on behalf of but never against the ‘system of liberty’, through rule-based and law-governed economic policy (71-2). All discretionary intervention is ruled out, whether on behalf of capitalists or workers. Instead, there is ‘a legal obligation on the part of the market participants to compete, that is, to perform diligently and willingly as self-responsible agents of economic value’ (73, see also 76-8), and it must be enforced by political decision. The primary focus of the economic constitution is not to advance the interests of some over others, or even to promote growth and efficiency, but to ‘promote and enable the founding constitutional principles in the conduct of the economic actors’ (72, emphasis mine). Whoever they are, economic actors must take responsibility for their own actions, without expecting to be rescued from failure by government. This rules out support for failing enterprises, and also makes social policy a crucial instrument for shaping the behaviour of the wage-dependent majority of the population. It is ‘distinct only as a constituent of liberal political economy, and its conduct is defined by its contribution to the system of complete competition as whole’ (78). As the core idea of ‘complete competition’ is that no one individual or group should be able to influence the working of the market more than any other, the ordoliberals regarded monopoly, recognised as a powerful tendency in capitalism, as one that had to be checked by state action: Eucken wanted to ban not only ‘loyalty rebates, exclusive contracts, and aggressive low pricing against outsiders’, but also ‘modern patent law, trade mark laws and suggestive advertisements’ (79). The objective, as expressed by Böhm, was a ‘private law society’ of autonomous market individuals associating freely, treated equally under the law whether they were rich or poor, and embracing self-responsible entrepreneurialism as a moral duty (85).

As ‘complete competition’ was a moral idea, and as much a social policy and a moral duty as an economic code, it shared common ground with the ‘sociological’ approach of Röpke, Rüstow and Müller-Armack, discussed in Chapter Five. There was a difference of emphasis, though, to the extent that the latter focused on the means by which ‘proletarianisation’ – in the sense of the development of class consciousness and rebellion against the ‘free economy’ – could be prevented. For Rüstow, the notion of Vitalpolitik (‘life politics’, rendered by Foucault as ‘biopolitics’) was that ‘vitally satisfied’ workers would ‘cope with wage pressures, adjusting to adverse market conditions and perilous working conditions in a robust and entirely responsible manner because they have the courage to get on with things’; for Röpke it was ‘tasked with penetrating the mental make-up of workers to embed the “psycho-moral forces” of enterprise into the mentality of the governed’, in order to make recalcitrant proletarians willing and self-responsible entrepreneurs of labour power (94). Again, this approach is entirely compelling, once you accept the legitimacy of a society in which a minority own the means of production and the majority must work for or depend upon a wage. It figured prominently in the earliest injunctions to the working poor to accept the station to which God had assigned them, as it does today in the attempts of the new secular priesthood of the World Bank to ‘programme the poor’ for self-responsible entrepreneurship (Cammack, 2014). Members of the ‘free’ society are not to be trusted to behave as they should freely choose to do, so must be under constant surveillance, and led to choose what the system of complete competition requires.

Marx identified and critiqued this perverse account of human freedom, writing in his notebook in February 1858 that: ‘It is not individuals who are set free by free competition, it is, rather, capital that is set free’, and going on to say of the view that ‘free competition is the ultimate development of human freedom’ that: ‘It is nothing more than free development on a limited basis – the basis of the rule of capital. This kind of individual freedom is therefore at the same time the most complete suspension of all individual freedom, and the most complete subjugation of individuality under social conditions which assume the form of objective powers, even of overpowering objects – of things independent of the relations among individuals themselves (Marx, 1973: 650, 652). So Bonefeld’s suggestion that ordoliberalism identifies as the political principle of capitalist society what Marx establishes in critique, cited above, is precise, crucial and entirely to the point. Rüstow’s dream of workers who would ‘cope with wage pressures, adjusting to adverse market conditions and perilous working conditions in a robust and entirely responsible manner because they have the courage to get on with things’ echoed directly Marx’s stunning insight that as large-scale industry, through its very catastrophes, ‘makes the recognition of variation of labour and hence of the fitness of the worker for the maximum number of different kinds of labour into a question of life and death’, the ‘possibility of varying labour must become a general law of social production, and the existing relations must be adapted to permit its realization in practice’: ‘That monstrosity, the disposable working population held in reserve, in misery, for the changing requirements of capitalist exploitation, must be replaced by people who are absolutely available for the different kinds of labour required of them [die absolute Disponibilität des Menschen für wechselnde Arbeitserfordernisse]; the partially developed individual, who is merely the bearer of one specialized social function, must be replaced by the totally developed individual, for whom the different social functions are different modes of activity taken up in turn [das totalentwickelte Individuum, für welches verschiedene gesellschaftliche Funktionen einander ablösende Betätigungsweisen sind]’ (Marx, 1976: 617-8, translation amended to accord with the original text).

Marx saw clearly that the development of such a working class would necessarily intensify its exploitation and alienation, to the benefit of capital. The ordoliberals were capable of being just as critical of the destructive social consequences of ‘proletarianisation’ (95-8), but they rejected social democracy just as firmly as they rejected socialist revolution, and made the critique of the welfare state the core of their political economy (98-100). Condemning the ‘cult of the standard of living’ and the goal of ‘freedom from want’, they preached that workers must relinquish their yearning for material security, and their desire for the state to guarantee it, and urged them to embrace risk as an essential aspect of being free (99). Again, the argument is compelling, given its premises: workers are only unconditionally available for work if they are in a state of permanent insecurity. So if they desire unconditional security, they must be made to think again. The ordoliberal ‘solution’ to this puzzle, consistent with the commitment to a ‘free labour economy’, was to propose that what workers really wanted was not to be materially secure, but to be empowered ‘as citizens, who conduct themselves in accordance with the laws of private property and achieve human distinction as entrepreneurs of labour power’ (100); in other words, they sought the subjective transformation of workers in accordance with the logic of capital, and ‘vitally satisfied’ workers were simply dreamed up as workers who were content with their lives as producers of surplus value. While for rhetorical purposes the ordoliberals presented the ‘social market economy’ as an alternative to capitalism, they continued to argue that welfare was morally corrosive, and that the public provision of poor relief and assistance should neither undermine willingness to work nor exacerbate the rigidity or instability of the economic system (101-2). Inevitably, they fell back on an anachronistic, contradictory and absurdly romantic utopian vision of sturdy communities of vigorous, hardy and self-reliant individuals, rooted in nature, and facing life’s challenges with courage and dignity. This entailed ‘small property ownership’, rented garden plots or houses with arable land, and, inevitably, the nuclear family (105-7). Vitalpolitik, Bonefeld sums up, is about the elimination of proletarian consciousness through the ‘fabrication of law-governed entrepreneurial personalities’ (111). Ordoliberal social policy, which by and large governs us today, still seeks to secure the free economy in the mentality of individuals, requiring the state to police our behaviour and the way we think. It is a short step from this, given the tendency for states to fall short in their duty, to come up with the idea of a voluntary  tying of their hands by passing key powers to a supranational authority.

Following from this, the chapters on the European Union explore its ordoliberal elements, particularly in relation to monetary union, which ‘was intended as an external market liberal anchor in support of government initiatives to improve economic performance through enhanced competitiveness’: ‘In monetary union, governments are no longer able to adjust their economies to world market conditions by currency devaluation and are no longer meant to support economic activity by deficit spending. Instead, monetary union supports the efforts of government to liberalise labour relations and deregulate labour markets’ (118). Monetary union, then, for those that chose it, was the culmination of a longer commitment to the imposition of competitiveness explicit from the outset (Bonefeld quotes De Gaulle on this point, ft. 33, p. 133), reflected in competition law, central bank independence, the Stability and Growth Pact, and the single market, and more recently reinforced by the Fiscal Compact, the ‘Six Pack’, the ‘Two Pack’, and the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. But as contemporary ordoliberals have regretted, this does not make the EU a fully ordoliberal institution. When it resorted to ’emergency politics’ in response to the global financial crisis, as at times before, deciding on the exception, so to speak, it did so not to enforce but to over-ride the technical and rule-based operation of monetary policy, intervening conspicuously against rather than on behalf of the ‘system of liberty’ to shore up failing enterprises. Properly speaking, the EU ‘is not an ordoliberal administrative apparatus. It is a political creation and amounts to a sustained political practice and decision making by executive agreement’ (119). As such, though, it is one in which ordoliberal elements loom very large, and have been accentuated as the world market has become more intensely competitive.

With the founding and development of the EU, then, states that sought independence from society in order to make the liberal economy work, but found it difficult to secure it in the context of representative democracy, could and did choose to place key areas of policy (clustered eventually around the single currency and its limiting and disciplinary effects) beyond their own control, thereby in principle tying their hands in relation to forms of intervention that pervert the operation of the free labour economy. The EU is of course ‘a rich totality of many determinations and relations’, reflecting a variety of aspirations not reducible to a purely ordoliberal agenda. Importantly, ‘Political union and fiscal union … are contrary to the ordoliberal idea of a European market order. European Ordnungspolitik rests on the principle of subsidiarity. it combines supranational  law, money and market with decentralised decision making by economic agents that compete with each other as individual price-takers each endowed with “Europeanised” abstract economic rights’ (120). Bonefeld sees it in this respect  as instantiating the ‘interstate federalism’ outlined by Hayek (1939), with its key principles of federalism and subsidiarity geared towards ‘encouraging competitiveness, against a national politics of economic protectionism’ and placing constraints on democratic excess (126). It equally reflects the programme of Müller-Armack, who after gravitating from Nazism to the Christian Democratic Union coined the term ‘social market economy’, served as secretary of state for European Affairs from 1958 to 1963, and led the German delegation in the negotiation and early implementation of the Treaty of Rome (10). His ‘community of economic stability’ (Stabilitä​tsgemeinschaft), realised in monetary union, was intended to establish ‘a system of complete completion facilitating labour market adjustment in member states based principally on enhanced labour productivity, labour mobility and wage flexibility’ (128).

The euro is a ‘stateless currency’, but monetary union, in the absence of fiscal union, Chapter Seven argues, is still ‘dependent on the capacity of the member states to secure the economic constitution of Europe domestically and govern for the euro’ (135), and the chapter sets out the working principles of monetary union and the key role of wage-price flexibility with admirable clarity (136-43). The responsibilities falling on states are especially testing in times of economic downturn and opposition but at the same time the monetary authorities, as political decision makers, may be selective in their adherence to their stated principles. In the event, the resolution to the euro crisis ‘both reinforced the existing structures of subsidiarity of monetary union and violated key rules of monetary union’ (136). Advantage was taken of the crisis to attack obstacles to the free labour economy in Southern European member states, and to tighten both rules and surveillance, but at the same time political managers in the Council of European Finance Ministers of the Eurozone rather than law-governed technocrats took key decisions within the new regime of the European Stability Mechanism introduced in 2012 (145), while the ECB abandoned the principles of sound money and competitive adjustment in favour of risk sharing, providing emergency finance to stave off national bankruptcy in ways that over-rode supranational and national obligations under the regime of federalism and subsidiarity (145-9). In a brilliantly sustained analysis, Bonefeld sets out clearly the logic of ordoliberal dissent from these processes, but argues that ‘a closer look at the resolution of the euro crisis reveals that the bailout arrangements did not transform monetary union into a Keynesian union of demand-led central economic planning and interventionism. Rather they transformed especially the Greek state into an executive state of European Council decisions for austerity, privatisation, and market-led socio-economic restructuring’ (148-9). Necessity, it turns out, ‘knows no law. Rather, necessity calls for a government of order’ 149. And in this Schmittian world, ‘A parliamentary vote against Council decisions … does not amount to a vote of no-confidence in the collective wisdom of a “conclave” of European executives. Rather, it casts in doubt the capacity of the member state to act as a reliable European partner’ (150).

The final chapter then explores the meaning of the executive state in the contemporary European Union, drawing on Schmitt’s ‘political theology’ (157-61, extending the discussion 51-4), and Müller-Armack’s concept of Ordnungsgefüge (objective order constellation, or concrete order). On deciding that there exists a ‘state of exception’ in which the freedom and security of private property is threatened, the state acts with unbounded authority, doing ‘whatever it takes’ to set things right: ‘Decisionism, in which an unregulated act of power is taken, suspends the “legislative state” of mass democracy and casts aside the formalism of law as the basis of government’ (160). It then rebuilds a ‘concrete order’ in which socio-economic relations are depoliticised, in an institutional framework that ‘succeeds in creating the people’s adherence to the way things are’, or in the words of Müller-Armack, determines ‘the living space for individual life’ (161). This leads to a clear composite statement of the overall import of ordoliberal thinking and its Schmittian roots:

‘The ‘friend and enemy’ constellation is central to ordoliberal concrete order thinking, from the more economic leaning idea of an Ordnungspolitik that is about the constitutionalisation of the free economy and the achievement of complete competition as a legal obligation and public duty, via the ideological formation of self-responsible entrepreneurship as a character trait and fabrication of society as an enterprise society to the creation of depoliticised regulatory institutions that, once removed from democratic influence and accountability, oversee the conduct of liberal economy on a rule-based and law-governed basis, supervised and enforced by public authority’ (162).

Concrete order thinking, developed by the ordoliberals in the 1930s, included arguments for an economic constitution of complete competition, depoliticised forms of market supervision and enforcement, an independent anti-monopoly office and central bank, and a market-facilitating conduct of social policy; and Bonefeld argues that ‘the incorporation of parliamentary democracy into a European framework of law, money and market offered a supranational Ordnungsgefüge for the pursuit of liberty within mass democracy’. This framework in turn is ‘developed, administered and enforced by European institutions that operate removed from fundamental democratic principles of parliamentary law making, oversight, and accountability’, in accordance with an economic constitution based upon free movement of goods, capital, services and labour, and competition law (165). In this system, the European Parliament is a merely deliberative assembly, and the core decision-maker, the European Council, is a federal body made up of national executives: such executive law-making is ‘unique in contemporary historical perspective’. In short, ‘the member states act as executive states of a European economic constitution’, along ordoliberal lines (166); and when the Greeks elected an executive that challenged the economic constitution, the Council majority and the ECB ‘compelled the Greek government to recognise the limits of liberal democracy and accept its responsibilities as a member of the European executive council’ (167). Alternatively, of course, Greece could have left the EU. Bonefeld does not comment on this option, but in a single final paragraph, denounces ‘Brexit’ as articulating ‘the idea of national self-determination as a perverted alternative to the European system of liberty by federated executive government’ (168). I see this as a lapse of judgement, as all that it articulated in fact was a democratic decision to leave this ‘system of liberty’. But as the UK was never fully incorporated in the European monetary regime, the implications of the analysis of the whole for this specific case are indeterminate, except that it strongly suggests that it was because of the character and effects of the system of liberty itself that opposition was expressed, in large part though not in whole, in the national-populist form that it was. In so far as the EU enshrines the ordoliberal argument that ‘there is individual freedom precisely to the extent that there is complete competition’ (75), there are other much better reasons for leaving it.

Leaving that aside, the principal message to take from this very valuable text is that the ‘social market economy’ does not socialise the market economy or place social controls on the market, but on the contrary, it ensures the ‘free economy’ through political intervention in society: ‘Economic freedom presupposes not only a law-governed and rule-based social order. It also requires the incorporation of an entrepreneurial culture in the mentality of the governed, formatting the will for freedom’ (7). As noted above, that is a thought that applies to the contemporary orientation and action of international organisations well beyond the European Union itself, making the account of ordoliberal thought all the more timely and valuable.

References

Cammack (1997). Capitalism and Democracy in the Third World, Leicester University Press.
Cammack, Paul (2012). ‘Risk, Social Protection and the World Market’,  Journal of Contemporary Asia, 42, 3, 359-377.
Cammack, Paul (2014). ‘The World Development Report 2015: Programming the Poor’. The Multilateral Development Banks and the Global Financial Crisis Working Paper 7, at https://www.academia.edu/9868547/The_World_Development_Report_2015_Programming_the_Poor
Cammack, Paul (2015). ‘What International Organizations Do, and Why They Do It’, Spectrum, 7, 1, 62-77.
Cammack, Paul (2017). ‘The UNDP, the World Bank, and Human Development through the World Market’, Development Policy Review, 35, 1, 3-21.
Hayek, Friedrich (1939). ‘The Economic Conditions of Interstate Federalism’, New Commonwealth Quarterly, 5, 2, 130-149.
Marx, Karl (1973). Grundrisse, Penguin/New Left Review.
Marx, Karl (1976). Capital​, Vol. I, Penguin/New Left Review.
Rüstow, Alexander (1954). ‘Vom Sinn der Wirtschaftsfreiheit’, Blätter der Freiheit, 6, 6, 217-222.

Originally published at What’s Worth Reading
Paul Cammack

Paul Cammack graduated in English Literature in 1971, went to Chile (1971-3), got into studying and teaching Latin American and Third World Politics and shifted into global political economy, most recently at the University of Manchester, Manchester Metropolitan University and City University Hong Kong. He is currently Honorary Professorial Research Fellow in the Global Development Institute, University of Manchester. Recent publications are available at https://manchester.academia.edu/PaulCammack, and recent book reviews at http://whatsworthreading.weebly.com.

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