Rhine Capitalism: the Economic Policies of the German Social Market Economy

History and Reasons for Implementation

Like many new ideas, Rhine Capitalism (The Social Market Economy) developed in a time of great economic, political, and social turmoil. Many events in Germany's modern history had contributed to the formation of this economic model. The roots of the social market economy were planted during the 19th century when German thinkers questioned the social inequality they had witnessed during the Industrial Revolution. This burgeoning dislike for the cut-throat nature of capitalism was made even more apparent following the Great Depression and subsequent global financial crisis. However, the collapse of Nazi Germany in the 1940s finally pushed German leaders to find a new path for their nation. As they had now not only disapproved of capitalism, but also held a tremendous distaste for totalitarianism and government overreach. These three events led to the eventual creation of the the Rhine Model of Capitalism as a feasible alternative between noninterventionist capitalism and command-style economics.  The Social Market Economy attempts to address failings in both systems by safe-guarding personal freedoms and providing social security. 

Analysis of Model

Rhine Capitalism is heavily influenced by two major ideas. Social Democratic ideals strongly contributed to the model as the underlying philosophy of social democracy is for the promotion of socioeconomic and political equality.  Additionally, the key tenants of the social market economy were also influenced by Christian Democracy. The idea of providing equal opportunities for all were borrowed thoroughly from catholic social doctrines.

While the social market economy contains components of a market economy (e.g., free trade of goods and protection of private property) and discourages supervising production, the model ensures that the government is not idle. Supporters of Rhine Capitalism encourage the government to guide the economy via the implementation of fiscal policy and regulative measures. These measures include the protection of pensions, establishment of a universal healthcare system, preservation of the rights of labor, enactment of anti-trust legislation, and expansion of unemployment insurance and protection. This social safety net, while not as extensive as one found in the Nordic Model, is quite comprehensive. Programs mentioned above are funded mainly by government payments and employer contributions. Given the Rhine Model's philosophical neutrality towards laissez-faire and economic statism, there is a constant battle of priorities. That is, does a nation prioritize unfettered economic growth or planned development. 

It is also interesting to note that the "social" part of the model deals with providing equal economic opportunity and not for the redistribution of wealth. Indeed, Rhine capitalism is often referred to as successful combination of the American model of Capitalism with European Democratic Socialism.


The social market economy draws criticism from both the left and the right. Many leftists view the social market economy as a temporary fix to problems inherent in capitalism. Many socialists believe that trying to "humanize" capitalism creates an entirely new system full of contradictions. In other words the social market economy does little, in the long run, to cure the excesses of capitalism (e.g., market fluctuations, worker exploitation, wage gaps, etc.). 

Many on the right criticize the social market economy for the complete opposite reason. Many conservatives believe that the regulative measures put forth by proponents of Rhine Capitalism strangle economic growth. They mainly target regulations that limit investment opportunities.