New pragmatism and social markets

New pragmatism and social markets

New pragmatism and social markets

Due to neoliberal policy and the spread of the crisis, the share of the people considered in the USA as middle class fell from 54 percent to 51.

In the contemporary world economy, the expansion of social market economy is not on the agenda, because more urgent challenges must be addressed. However, in the longer run a kind of global social market system seems to be the only sensible option for the future of mankind. Social market economy implies the core of economic activity is based on private ownership, motivated by the desire to maximize profits, yet at the same time, it takes care of social cohesion. Therefore, social market economy is incompatible with and contradictory to neoliberalism, which works on the behalf of a few at the cost of many.

The failure of neoliberalism

It can be seen clearly from the case of the United States that neoliberalism doesn’t work, not even in the most advanced countries. If in 1980, when Ronald Reagan, a conservative republican, had won the presidential election, the richest 1 percent of Americans where taking over just 9 percent of the U.S. GDP, in 2007, on the eve of the financial crisis, it was already 23 percent of the GDP, and currently hovers around 25 percent. Such a shift – at the benefit of few rich and by the pauperization of many – was possible because of wrong regulations of the financial markets and the ill-advised fiscal policy of the governments, including the democratic administration under President Bill Clinton.


Grzegorz W. Kolodko.
Intellectual and politician, a key
architect of Polish reforms, deputy
prime minister and minister
of finance 1994-97 and 2002-03.
He writes a blog at www.volatileworld.

No wonder, that recently – due to neoliberal policy and the spread of the economic crisis – the share of the people considered in the USA as middle class fell from 54 percent in 2001 to 51 percent in 2011. No wonder that people are losing a trust in a better future. While in 2008, 54 percent of American people did believe their children will have a better standard of living than that of their parents, now only 43 percent are so optimistic. This is a qualitative change. For worse, of course – the more so, because it will be more difficult to manage the economic expansion and development policy in the future. And this takes place at the time of continuing fast growth of important emancipating countries, more often called the emerging markets, including Turkey.

Toward a new pragmatism

Learning from the experience of the others is a multi-direction process. First, one must take the given country’s specific factors into consideration: geopolitical position, local culture, legacy from the past, resources, existing structures and institutions. One size absolutely doesn’t fit all, what is quite understandable as much in Turkey as in Poland.

Second, the policy for a better future implies heterodoxy. The orthodox mainstream economics is passé. The New Pragmatism points to the necessity of exercising various approaches, be it a bit of neo-keynesism or monetarism, neo-institutional and behavioral economics, development economics and ordo-liberalism.

Third, I am talking about the “new” pragmatism since development strategy and economic policy must take into account not only traditional micro- and macro-economics, but also a new mega-economics of an interconnected global economy. Therefore, there is a need for pragmatic co-ordination of the policies on the worldwide scale. A growing number of challenges cannot be addresses properly just on the national level, even if it is as mighty country as the USA, China or, nor at the regional level, say the European Union or ASEAN.

Fourth, it’s a new approach, because it must deal with the new position of transnational capital vis-à-vis national states. Traditional regulation and government interventionism is categorically not adequate.

Hence, more countries like Poland or Turkey must attempt to make a positive impact on international economic co-operation, including the institutional coordination of the policies’ instruments.