Abstract
Germany’s post war economic system is typically referred to as a Social Market Economy. Both the Social Market Economy and the so called “economic miracle”, that is the rapid economic recovery following the devastating World War II, are almost part of the charter myth of Germany’s post war society. Walter Eucken, the perhaps most prominent intellectual mentor of the Social Market Economy, postulated a broad range of interdependent effects of the various political and economic institutions on the degree of a country’s level of both prosperity and freedom (Eucken 1952). While he remained somewhat vague on the question as to how close this interdependence might be and as to what the causal relations were, most commentators argued that liberal economic and political institutions would be both stable and prosperity enhancing only when operating hand in hand, thereby reinforcing each other. Perhaps the most frequently considered interdependence between institutions is the one between the institutional setting of a market economy on the one hand and that of a democratic polity on the other.
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Notes
- 1.
- 2.
The Freedom House index is represented here as the average of the partial indicators “political rights” and “civil liberties” and rebased such that the lowest level of democracy is indicated by 1 and the highest level by 10.
- 3.
Namely Bahrein, Equatorial Guinea, Kuwait, Oman, Saudi Arabia, and Singapore.
- 4.
The t-value of the correlation between the log of per capita GDP and the Freedom House index is 34.33.
- 5.
Both indicators are again rebased such that the levels range from 1 to 10 with 1 indicating the lowest and 10 the highest respective level of democracy and economic liberalization.
- 6.
See Helfer (2015) for a detailed analysis of the prosperity-enhancing properties of the aforementioned institutions.
- 7.
Please note that the SMEI used in this paper differs from the SMEI version that is presented in Helfer (2015) since it ignores the political dimension.
- 8.
See Appendix 1 for a detailed description.
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Appendices
Appendix 1: Linear Transformation
Appendix 2: Summary Statistics
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Apolte, T., Helfer, H. (2017). The Role of Democracy in a Social Market Economy. In: Bitros, G., Kyriazis, N. (eds) Democracy and an Open-Economy World Order. Springer, Cham. https://doi.org/10.1007/978-3-319-52168-8_5
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