"A peaceful revolution of the citizens made the command economy and the state power centered in one party disappear..Free enterprise efficiency and the development of welfare state institutions are equally important and affect one another like two pillars of a bridge.."
Participatory Justice - The Ethical Seal of a Democratic Society
By Friedhelm Hengsbach, S.J.
[This October 2003 article is translated from the German on the World Wide Web, http://www.st-georgen.uni-frankfurt.de/nbi/nbi_aktuelles_texte.htm.] Friedhelm Hengsbach is director of the Neil Breuning Institute for Social Justice in Frankfurt.]
... The message of chief Seattle is that the earth and the land are not private goods. A kind of de-globalized, local bond is imperative.
The political architecture of German unification could also be a guideline. A peaceful revolution of the citizens made the command-economy and the state power centered around one party disappear. With the cry "We are the people" and "We are one people", a vision of a new world was sketched where a democratic life form and a capitalist market economy were defined through the focal points of personal freedom and western currency. On the building site of the political architecture of a united Germany, I would like to present several reflections on the recurring question of justice and democratic capitalism.
1. The Building Site: Social Market Economy
The economic- and social-political model that old Germany offered united Germany was the social market economy. This was "marketed" as a self-contained architectural concept. However the "social market economy" proved to be a consensus- or compromise formula that joined together different worldviews as soon as the dazzling packaging was removed. The incantation formula outshines the functional deficits of the concrete economic regime.
The Freiburg school of "law and order liberals" and its seminal thinker Walter Eucken understood the social market economy as a combination of two institutions, a functioning competition including autonomy with private rights of ownership and control and a state framework to close the open flanks of the market economy. Beyond supply and demand, the state has to assure competition and the value of the currency, cushion individual plights and provide public goods. Clear limits are set to the social equalization that the state has to accomplish and finance through taxes. The state must conform to the market and not impair the functioning of the market.
Alfred Mueller-Armack, the most prominent student of Walter Eucken and Ludwig Erhard's minister of state regarded a second phase of the social market economy, a "consciously socially guided market economy", as urgent in the 1960s. The social market economy should be supplemented by strengthening collective bargaining, expanding joint-determination beyond the rules in the coal, iron and steel industries, widely scattering newly created productive assets and including environmental consumption in corporate cost-calculation.
In the time of the great coalition after the end of Ludwig Erhard's chancellorship (1966-1969), Karl Schiller sought to reconcile the "Freiburg Imperative" with the "Keynesian message". He proposed the concept "enlightened social market economy". When the private economy is not stable in itself but tends to under-employment, the state has the task of firstly guaranteeing the efficient use of production factors, secondly justly distributing income and assets and thirdly balancing the economic fluctuations of the economy, namely the overshooting and/or absence of private consumer- and investment demand. Correspondingly, the 1967 Stability and Growth law formulates four general economic goals desired by the territorial authorities: economic growth, full employment, foreign trade balance and currency stability. In a concerted action, the territorial authorities, union and management and the German Central Bank should harmonize the use of instrument instruments.
Friedrich A. Hayek (1889-1992), a prominent Austrian-born British spokesperson of market-radical economists, regarded the adjective "social" added to the market economy as absurd and harmful. In the past, closely-knit societies had religious and moral convictions of solidarity regulating social conduct in a binding way. In modern societies, in contrast, only rules of conduct exist, for example free enterprise competition, legal protection of private property or mutual obligation of legal contracts. These rules are not constructed consciously or by mutual agreement. Rather they result from a blind evolutionary process. A "double spontaneous order" of social conditions steers the conduct of actors and harmonizes their different expectations. An incomparable prosperity is produced in which countless people participate. Thus a free market economy is already regarded as social when the suppliers compete for the purchasing power demand of consumers, when a functioning competition enforces the sovereignty of consumers and when monopoly suppliers are prohibited. Hayek appealed to Ludwig Erhard's remark that a market economy need not be first made social but is already social from its origin.
In Articles 1 and 11 of the 1990 Unification agreement, this liberal-dyed concept of a market economy without adjective was accepted although the "social market economy" was the implicit theme. In Art.1, par.3, the social market economy is characterized only by "private property, performance-oriented competition, free price formation and freedom of movement of labor, capital, goods and services. Art. 11, par. 2 sees the principles of the social market economy realized in the "free decisions of businesses about products, quantities, production processes, investments, working conditions, prices and use of profits". The unification agreement is completely dominated by the property idea of civil statutes. The owner can do what he wants with his property and exclude others as long as the law and rights of a third party do not stand in the way. The law on the regulation of open questions of assets providing for transfer of assets, property rights in real estate and structures and operations by the former owners or their heirs is oriented exclusively in this idea of property.
In their 1997 Joint Declaration on the Economic and Social Situation in Germany, the churches contrasted the "consciously organized social market economy" with the liberal concept of a "pure market economy". A successful "productive compromise between economic freedom and social balance" with principles and institutions embodying these principles was proclaimed. Firstly, the "principles" of a private property obligated to the general interest are identified, a functioning competition and a social state assurance of the income of unemployed persons. Secondly, institutions are listed that emerged from the political engagement of the working class movement, "the industrial- and business order including joint determination of employees, the system of collective bargaining, labor protection legislation, a system of social security, free choice of calling and employment, the right to property and its social obligation, protection of competition and labor- and housing market policy. Thirdly, five components are enumerated that elucidate the adjective "social" in the German market economy. A just distribution and participation in social, cultural and economic life are economic goals. Employers and employees are jointly responsible for fair working conditions. Free enterprise efficiency and the development of welfare state institutions are equally important and affect each other like two pillars of a bridge or two sides of a coin.
The past distribution conflicts around the growth of the social product were resolved in the negotiated results of union and management. "Economic civil rights" are also embodied in the industrial-relations scheme and joint-determination in businesses. The churches emphasize the open flanks of the market and give the task of closing these flanks to the state. Competition does not secure itself. The monetary order is not a result of supply and demand. Public goods are not made available by the private economy. Social balance does not come about through the market. That private demand tends to a natural balance is unlikely. The churches are convinced that market economies can be made democratic through political mediation and expansion of the civil constitution to social democracy.
The churches admit that the model of the social market economy lost its persuasiveness in the 1980s and 1990s despite the rhetorical protests of politicians. The churches stress the threefold tear in German society between employed persons and the unemployed, between high-income groups and the poor and between West Germans and East Germans. At the same time the collapse of the foundations of the systems of social security was diagnosed, namely a continuous gainful biography or high degree of employment, a gender-specific division of labor that assigned paid work to men and private care of children to women as well as the normality of households with several children.
2. The Justice Question Returns in Society
Two-and-a-half years ago, Wolfgang Thierse claimed that the justice question returned in society in the first years of the new century. Is this true?
In the CDU (centrist party of Helmut Kohl) in 2001, the "New Social Market Economy" project answered the question about economic justice by disproportionately emphasizing the elements of freedom and competition and urging a "contract of the mutuality of politics and come-of-age citizens. According to the project, the social market economy in its core is an economic order of freedom and corresponds with democracy as a political order of freedom. Germany has not adequately adjusted to four epochal changes - the digital revolution, globalization, the aging of the population and the change in values, especially the change of women's life projects. Not enough competition exists in education and research. Achievements in mathematics and the natural sciences are meager. The tax- and fee system is unfair, overly complex and impenetrable. The labor- and wage law is inflexible. High unit-labor costs prevent additional employment. The solidarity systems are endangered that excessively strain the labor factor and inflict unrestrained costs. The international order is full of gaps.
Five possibilities are suggested to politics for organizing the "we-society". Foundations of a knowledge society persist in a competitive, performance-oriented education- and university system and in the promotion of gifts. In a transparent system of taxes and fees, taxes could be lowered and simplified, the eco-tax abolished, citizen accounts established and taxes for the country, federal states and communities separated unequivocally. Work for everyone could be attained with modernization of the industrial relations scheme, relaxation of protection from unlawful termination and multiplication of flexible working conditions. Reliable solidarity systems require more competition in the public health system, duality of core- and compensation benefits, more private capital-covered provisions, wide wealth formation and family advancement. An international framework should advance liberalization of world trade, assure a free and fair competition and offer binding rules for the international financial system.
In the SPD (Social-Democratic party of Gerhard Schroeder), Wolfgang Clement as prime minister of North Rhine-Westphalia in 2000 initiated a debate on the theme of justice. He urged that the ingrained paths toward the goal justice should be scrutinized as well as the conventional idea of justice. Goals and ways must be adjusted to the reality of the new world economy. Not everything that lessens the inequality of income- and assets distribution is just. Limited inequalities should be allowed to mobilize individual and social resources so more prosperity and more justice are realized at the end. Clement illustrated this thesis in four examples. A progressive taxation could restrict inequalities while paralyzing the economic dynamic. On the labor market, industry-wide contracts could exclude talents and squander possibilities of individual development. Refusing to promote the top gifts in the school worsens the position of the German economy in global competition. A new responsibility culture arises where the social state withdraws to its core tasks.
More Civil Society
Like Wolfgang Clement, German chancellor Schroeder attempts to redefine the relationship of the state and the civil society. A state like an imperial power that assumes responsibility for a just society with the help of laws, force and money belongs to the past. The state is overstrained in organizing social solidarity through redistribution of income and assets alone. The civil society needs a better state, an activating state. The activating state guarantees the law and rules of competition. Space would be given to society to organize itself and regulate its own interests. Social groups would be empowered to develop their talents. Negotiating skill and persuasiveness in motivating the engagement of the economically powerful should be emphasized more than prescriptions and funds for the socially weak. Civil society as a place of social sharing proves indispensable since normal working conditions and the social market economy with industry-wide agreements and job-financed security systems have become shaky.
Two Justice Principles
The "theory of justice as fairness" outlined by the US social philosopher John Rawls in the context of a liberal social democracy is often heard in the political debate that recognizes those economic and social differences arising through different gifts and works. What principles would free persons choose in an original situation of equality? The original situation is marked by two framing conditions. The game defining the rules of conflict resolution is itself settled beyond social conflicts. Therefore only unanimous resolutions are allowed. The players know there are different abilities, rankings and priorities in society but don't know their own position. Two principles of justice are formulated as a result of the game. The first justice principle is: Everyone has the same right to the most extensive total system of equal basic freedoms possible for everyone." The second justice principle is: (a) the least favored must be given the greatest possible advantage, and (b) the offices and positions must be open to everyone according to fair equal opportunities. The first justice principle excludes legal discriminations and postulates basic rights and human rights equal for everyone. The second justice principle allows the results of the national and social lottery, individual gifts and social positions without permitting them to be claimed exclusively since they are public goods. The least favored have a veto right against the extent of economic and social differentiation.
Objections are made against the strong weighting of the equality principle that fair limits are set to economic and social differentiations. Why should the disadvantaged be compensated as long as they are not offensive? Social discriminations may be hurtful and unnatural. Separating natural and socially conditioned discriminations is often impossible. Why should all social discriminations be removed? Those urging equality prove blind to the differences arising on account of particular merits. They view society as the owner of a reservoir from which all individual competences are drawn. They reduce the production of equality to an economic dimension and imagine that a costly bureaucracy could produce this equality. They fall into a hopeless catch-up race around balancing economic and social positions.
Priority of Equality
Social justice defined as equality allows the right to a socio-cultural subsistence level for members of democratic societies. This minimum contains a basic provision in food, clothing and housing to satisfy the needs of everyday life. This is translated in money-units with the rules of income support, namely general assistance for livelihood. Income support is a legal claim of the needy or indigent, the right to free and individual development of personality, the right to lead a self-determined life in social and political space corresponding to one's unmistakable gifts and interests. To make this possible, the claim to education and meaningful paid work should be acknowledged. The claim to political participation includes the right to participate in public opinion formation and decision-making and to defend oneself. Certain material and cultural foundations are guaranteed in this legal claim. Only balancing all the disadvantages can produce really equal opportunities. Natural disadvantages like mental and bodily disabilities (beauty-deficits) and social discrimination like the humble social position of the parents or origin from a disparaged part of town should be balanced insofar as they block access to necessary health remedies, education and maintenance of work capacity.
3. Democracy-Friendly Capitalism
When Victor Agartz, a prominent unionist of the 1950s, was asked about his attitude to the social market economy, he replied: "Why should I be against the social market economy? It doesn't exist."
Socially Tempered Capitalism
Oswald von Neil-Breuning concretized the term social market economy from the world of ideal working models in a concrete economic regime delivering socially satisfactory results. He described the original concept of law and order liberals as "socially tempered capitalism". In the meantime, the functional economic elements of a capitalist market economy like the decision-making monopoly of the owners of the means of production have grown into conditions of social superiority and dependence in factories, businesses and on the labor-, commodity- and financial markets.
Instead of the free game of market forces, no other game is allowed that is human in execution and social in outcome, perhaps another distribution of income and assets or another participation in economic decision-making processes if social-political and socialóreformist initiatives are subject to the sole standard of market conformity.
The Hierarchies of Power
"Capitalism" can appear as a purely functional economic platform consisting of free enterprise competition, high use of technology from previously performed work, an elastic money supply and private autonomous rights of disposal. However a fourfold relation of social superiority and dependence is embodied in this functional economic framework. Firstly, the enterprise is defined as a property asset assigned to the owners of the means of production. The right of disposition over the goods and means of production in the course of the production process and the authority to issue directives to the "employees", the workers made available to the "employers", arise from this private property. Secondly, the power differential in the factory and enterprise extends into a structural gradient on the labor market. The individual employee dependent on offering his labor power to earn a living with his work income doesn't face the employer in an equal negotiating position. Thirdly, businesses as suppliers of goods normally achieve a higher degree of organization than the atomized consumers can engineer on the demand side. "Superiority in exchange" can occur. This kind of asymmetry is reinforced when the sovereignty of consumers is annulled with the help of advertising. This asymmetry is irreversible when market-oriented suppliers unite and dominate partial markets. The history of capitalist market economies is a history of mergers restricting rather than intensifying competition. Fourthly, the banking system with its credit- and money-creating power is at the juncture of concrete economic and monetary circulation as the first link of a continuing spiral. Commercial banks grant credits to businesses that can show the plausibility of their profit expectations. These credits make possible purchasing means of production and paying workers... The profits are gained from the realized surplus and the credits are paid back. The superiority of the banks intensifies since as creditors they can control the management of the managers, voting rights and business participation.
Capitalism and democracy as theoretical concepts seem as incompatible as fire and water. Nevertheless they have coexisted in the course of history and restrain one another. Capitalist market economies are embedded in democratic life forms insofar as human rights are acknowledged. Whoever sues for the respect of human rights thinks firstly of all the civil rights of freedom anchored in most western constitutions as basic values deserving protection. The right to bodily intactness, the free development of personality, freedom of faith and confession, freedom of expression and the right to property are individual and institutional defensive rights against possible interferences and incursions of state decision-makers. These rights are founded in the personal dignity inherent in all people. Basic economic and social rights are defined from these defensive rights. These rights formulate entitlements to benefits for basic equipment of goods and services necessary for a dignified life. The rights to an adequate livelihood, a healthy life, proper housing, work and education are included here. These are the material or cultural presuppositions enabling people to claim their freedom rights. The subjective claims are either articulated explicitly as state goals or included in social state provisos. A third form of human rights includes the right to autonomous development of public processes and institutions affecting individuals directly or indirectly. These rights are grounded in the right of self-determination. Citizens should participate in public affairs and in the process of political opinion formation.
The ranking of civil freedom rights, basic economic-social rights and rights of political participation results from the historical sequence in which they were formulated and proclaimed. The political rights of participation are in first place according to the construction logic of democratic societies. Therefore the justice term can be defined from the basic right of participation. The 1986 US economic pastoral letter proposes "participation" as a new name for justice. At the beginning of the first chapter, the third criterion of a just economy is participation in the economy. The basic demand of justice requires a minimum participation of every person in social life. Social institutions must guarantee that all persons can actively participate in the economic, political and cultural life of society. Participatory justice is a future-oriented movement for those denied involvement in political decisions, a partiality in favor of the poor and powerless at the edge of society. Structures revealing deficits in political participation and joint economic determination should be dismantled or reformed. Conversely just participatory structures guarantee that every person will be able to represent him- or herself and his or her interests.
Justice Calls us to the Other: Solidarity
Justice calling us to the other is called solidarity. Personal attitudes and behavioral patterns are mostly emphasized in everyday worldly usage. The virtues of mercy, care and effective advocacy for the poor, weak and disadvantaged are defined as solidarity conduct. With reference to the virtue of mercy, the parable of the Good Samaritan is promoted as the model of the help that the stronger grants to the weak, the healthy to the sick and the wealthy to the poor. Powerful persons should feel "responsible for the weaker and be ready to share their possessions". Since the traditional system of charity and care of the poor was announced in the French revolution, the right to support for all needy citizens can be proclaimed. Voluntary and privately organized support chests were changed over time into public-legal contracts, claims to basic rights and constitutional norms. These support structures armed with welfare state pressure could cushion the collective life-risks of unemployment, old age and sickness in a legally effective way.
Solidarity is a form of control that alongside love harmonizes under5standing, money, power and human conduct. Unlike free enterprise exchange that rests on strict transparent mutuality of contribution and benefit according to the equivalence principle, solidarity as a form of control implies that those in solidarity regard one another as equal. While equal, they have unequal chances of survival. Thus solidarity rests on mutuality that is only latent because the objective risk situation and its subjective assessment deviate from one another. Performance and return favors do not correspond but are connected through an expectation and a mutuality that is only assumed. The solidarity of control differs from market control in that contribution payments are measured according to the financial ability while the monetary or practical claim is measured according to actual neediness.
For a long time, the solidarity structures of the West German industrial society were based on three pillars, namely an uninterrupted work biography under the conditions of full employment, the lifelong partnership of the non-employed woman to an employed man and the normality of a household with children. These three pillars have become shaky. Therefore the foundations of solidarity should not be narrowed but brought into a democratic range bey0ond customary paid work. Every person should be able to participate in political processes of opinion formation and decision-making and represent him or herself. A material provision should assure this right to political participation. In addition, everyone should share in socially useful work irrespective of whether this work is paid or not and whether it is organized as paid work or not. This share in national income or national assets allows maintaining a proper living standard.
Financing this democratic solidarity must involve all employed persons including independent persons and officials and not only charged to dependent employees. All income and assets arising in society should be liable to contributions according to the performance of income- and assets subjects, not only working income. Incomes from speculative financial businesses and the tangibles according to their saleable value would then be included. Public claims in risk cases need not be strictly contribution-oriented. Claimants could insure themselves privately for higher living standards in old age or during unemployment. Thus a combination of public and private care would be achieved. Economic net value creation serves as a basis for assessment. Lasting deficits could be balanced by the public budgets. Direct progressive taxation is doubtlessly more solidarian than the sales tax or other indirect taxes that mostly burden households with children.
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