Societies are probably the most distinctive human creation. They can manifest all that is positive and destructive about human behaviour. They can be vehicles for collaboration on a vast scale, bringing great wellbeing to their members. On the other hand, they can be tyrannical, concentrating power and wealth in the hands of a powerful few. Some societies have come to be dominated by powerful elites, bringing wealth and power to a few - and disadvantaging the majority.
All societies of any scale will contain a diversity of interests. This creates the risk of violent conflict, as is currently the case in many parts of the world. Some societies have evolved means of enabling conflicts to be resolved through collaboration involving governments and key stakeholders. In others dissent is suppressed by authoritarian governments.
Then again, others are based on democratic principles, but have allowed powerful elites to dominate the democratic processes. This trend seems to be leading to inequality, economic and social schisms and increasingly conflictual politics.
Societies of any scale have to be governed.
Governance can range from authoritarian forms, which can be theocratic or secular, through to long-established democratic systems, with universal voting rights.
Another spectrum of diversity is in the role of the state in governing the economic and social life of a society, and working with different stakeholders. The twentieth century has witnessed a titanic struggle between autocratic centrally controlled systems, characterised by the Soviet system (falsely dubbed “Communism”) and democratic capitalism, in which the Market is assumed to regulate production, consumption and distribution of wealth and power.
Outside of the “Western” models of society represented in Australasia, Northern Europe and North America, there is a remarkable spread of difference in the nature of societies. These range from a closed autocracy in North Korea, a relatively free market, but undemocratic state in the Republic of China, through a variety of Social Market societies with varying degrees of democratic government and through to plutocracies and family dominated government. In South America, the variety is equally interesting, ranging from Free Market democracies to Socialist regimes.
More recently, differences have grown between democratic capitalist systems that denote “freedom” as enabling individuals to pursue their own interests with the least state interference in the operation of markets; and those based on communitarian philosophies that enable collaboration between different stakeholders and harnessing the power of markets in the interests of society as a whole.
Governance and politics in free market and social market societies.
Free marketers believe that the state should play a minimal role in governance, its role should be limited to preserving law and order so that the market can work unhindered - and national security. Beyond that, the maximum benefit comes from allowing all to participate freely in the “market”, in the belief that markets are self-adjusting, and the benefits gained by strong players will be shared by all through such mechanisms as the “trickle-down” effect.
Reliance on the market also has profound effects on the nature of society. Many of the roles played by the state acting with other stakeholders in the governance of society are replaced by the functions of the market. So citizens tend to become producers and consumers, powerful players tend to strive for dominant positions, and the market can become dominated by a rich minority. Once finance and industry became dominated by huge global corporations, politicians were open to being “bought” and the functions of the democratic state weakened by rich and powerful interests.
Social market and free market societies – comparisons and contrasts
This article examines the differences between the United States as a classical Free Market society and a cluster of Northern European societies that include Germany, The Netherlands and the Nordic countries, Sweden, Denmark, Finland and Norway.
The position of the United Kingdom is interesting, as it currently seems to stand between Northern European Social Market forms and the free market United States.. Through the 1950’s and 1960’s and most of the 1970’s Britain swung from “Socialism” with state control of banking and big business, to moderate “One Nation” Conservatism. Then the arrival of the Thatcher government at the end of the 1970’s signaled a radical shift towards neo-liberal free market ideas. The primary shifts were privatisation of many corporations and public services and in particular the removal of many restrictions on the operation of the financial markets. Today, Britain is a hybrid, with private companies entering many spheres of public service from military and infrastructure maintenance, prisons, health provision, education and public infrastructure financing and construction. Yet vestiges of old communitarian ideas remain, in particular the provision of public health care funded by taxation and free at the point of use.
A particular irony has been the violent shift from state influence, backed by domineering trades unions to dominance by the finance sector and big corporations. One perspective on Britain is that it has shifted from one form of “bad” to another, without stopping in the middle!
Socio-economic ideas can have large effects on the character of apparently similar societies
The prevailing beliefs are that markets should be harnessed to serve the interests of society as a whole – and elected governments have a crucial role in preventing any one interest group from dominance and facilitating the collaboration of key societal stakeholders to make sure this happens. Society underpins welfare, education and health, which is freely and equally available to all. The state has a duty to raise the educational standards and skills of the less fortunate so that they can participate fully in the economy. Social market cultures are rooted in the idea of collaboration between different stakeholders. In some social markets these cultures are rooted deep in history – in others traumatic events have caused changes in old beliefs.
The predominant ethos in social market societies can be described as communitarian with state facilitation to ensure equable distribution of wealth and opportunity.
The social market philosophy seeks to marry markets and social justice. It neither sees the market as a necessary evil nor as an end in itself but as a means to improve people’s lives.
The state must therefore protect the competitive environment from the dangers of both free-market and statist approaches: public or private monopoly, and government and market failure.
The state also has an essential role to play in promoting social justice, so that the market can work for everyone in society. A lack of social justice can lead to a sense of unfairness that erodes the legitimacy of the market economy and threatens its existence.
The essence of the social market economy is that private markets are the most effective allocation mechanism, but that output is maximized through sound state macroeconomic management of the economy. Social market economies posit that a strong social support network for the less affluent enhances capital output. By decreasing poverty and broadening prosperity to a large middle class, capital market participation is enlarged. Social market economies also posit that government regulation, and even sponsorship of markets, can lead to superior economic outcomes, as evidenced in government sponsorship of the internet or basic securities regulation.
A Nordic banker’s view on society
Here are extracts from an article by Swedish banker and businessman Daniel Sachs. His views tally with comprehensive research about the Nordic Model.
“Openness to change is a core aspect of the competitiveness of the Nordic economies. In fact, adaptability is even more important in small, open, export-oriented economies such as Sweden.
... What the Nordic experience shows is that individual incentives can be soundly balanced by solidarity on a societal level. Solidarity makes good economic sense. Solidarity - that is risk-sharing - is a key ingredient in being open to change.
I realise that this insight flies in the face of what many Americans believe. But they no longer “own” the openness to change idea. In fact, one of the more puzzling developments of our current era, the ability of US society to absorb change, has slowed tremendously. In the US debate, the key charge raised against the Nordic model is the level of taxation- here the state share of GDP is very high. But, befuddling Americans, economic growth in Scandinavia is robust, and unemployment is about the same as in America and lower than in most other European countries.
Why are we ready to put up with a higher level of taxes? Is it because I like living in a society that puts a strong emphasis on equality of opportunity? Is it because I like living in a society that has strong social cohesion and fairness, an open society where everybody has the right to free healthcare and schooling? Is it because I enjoy the fact that, despite a certain prosperity, I cannot buy better schooling for my kids or better healthcare than someone with less means? Or is it because it benefits my business?
The answer is “all of the above”
And this flows from how the relationship between openness and risk-sharing works. The “haves” share their personal gains with the “have-nots” through taxes that finance comprehensive benefits.
Our ambition is not only to provide a safety net if a citizen stumbles because of a job loss, but also to invest in human capital so that the citizen is less likely to fail -to invest in making individuals successful actors in a modern, globalised society.
Our “individual investment society”, as it is sometimes called, together with a clear sense that if people fail they will be taken care of, leads to a greater willingness to undertake risk and therefore greater openness to structural change on a society-wide basis.
Nordic countries have remained open to because free trade policies have gone hand in hand with collective mechanisms for risk-sharing.
I would argue that adaptation to globalisation has been made less painful than in many other Western countries, for the reason that the gains from globalisation have been reasonably widely distributed. Because of our tax policies, we don't end up with a small universe of winners and a large group of losers.
The importance of trust
Sweden's wide distribution of economic benefits also helps create social cohesion. There is a clear sense that we are in this together, that we share the benefits, also the burdens. In turbulent times, this has very clear value.
These aspects of the Nordic Model - the relationship between state and individual, generous social protection, freedom of the individual and high levels of trust - all help to foster risk-taking and openness to change. But the other reason why, as a businessman, I like the Nordic model is that high levels of trust, fairness and transparency also mean that transaction costs are low. Corruption is low.
So, fairness, equality of opportunity and openness to change are fostered by collaborative societies in which all make a full contribution to economic health and the rich support improvement in the prospects of the poor.
Intelligent economies depend on economic and social policies that foster support, education and flexibility. And societies that demonstrate these characteristics support strong governments working in collaboration with other stakeholders to forge and enact economic and social policy. That way, the common interest is forged.
Market fundamentalists, stuck as they are on notions of “freedom” competition and winners/losers should get wise to better ways. But alas, bigots are immune to evidence.
A “Good” Society is one which fosters the wellbeing of all by harnessing the market for the common good, and fostering collaboration between all key stakeholders, including the state.
Societies based on Free Market Principles
The other discernable model of “Western” society is based on a belief system that raises markets to a dominant position. This belief system has it that only free markets and competition are efficient and capable of generating sufficient wealth and enterprise to make a healthy society. Individuals should be allowed to participate equally in the market without state interference and keep the fruits of their enterprise. The belief is backed by the assertion that creative and entrepreneurial individuals working in competitive markets will generate sufficient wealth to “float all boats”, that is, enrich the whole society.
The prevailing dogmas in free market countries assert that government is inefficient and should limit its interference in the economy. Its roles should be limited to national defence and maintaining law and order so that the market can operate freely and citizens be secure. There is a complex of interlocking theories behind free market ideology that draw from psychology, genetics and social sciences.
“Government has three primary functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens from crimes against themselves or their property. When government-- in pursuit of good intentions tries to rearrange the economy, legislate morality, or help special interests, the costs come in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player.” ― Milton Friedman
“A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.” ― Milton Friedman
The market steers the capitalistic economy. It directs each individuals activities into those channels in which he best serves the wants of his fellow-men. The market alone puts the whole social system of private ownership of the means of production and free enterprise in order and provides it with sense and meaning. ― Ludwig von Mises
A Free Society – Von Mises Institute
Liberty and freedom are the conditions of man within a contractual society. Social cooperation under a system of private ownership of the means of production means that within the range of the market the individual is not bound to obey and to serve an overlord. As far as he gives and serves other people, he does so of his own accord in order to be rewarded and served by the receivers. He exchanges goods and services, he does not do compulsory labor and does not pay tribute. He is certainly not independent. He depends on the other members of society. But this dependence is mutual. The buyer depends on the seller and the seller on the buyer.
The main concern of many writers of the 19th and 20th centuries was to misrepresent and to distort this obvious state of affairs. The workers, they said, are at the mercy of their employers. Now, it is true that the employer has the right to fire the employee. But if he makes use of this right in order to indulge in his whims, he hurts his own interests. It is to his own disadvantage if he discharges a better man in order to hire a less efficient one. The market does not directly prevent anybody from arbitrarily inflicting harm on his fellow citizens; it only puts a penalty upon such conduct. The shopkeeper is free to be rude to his customers provided he is ready to bear the consequences. The consumers are free to boycott a purveyor provided they are ready to pay the costs. What impels every man to the utmost exertion in the service of his fellow men and curbs innate tendencies toward arbitrariness and malice is, in the market, not compulsion and coercion on the part of gardees, hangmen, and penal courts; it is self-interest. The member of a contractual society is free because he serves others only in serving himself. What restrains him is only the inevitable natural phenomenon of scarcity. For the rest he is free in the range of the market.
In the market economy the individual is free to act within the orbit of private property and the market. His choices are final. For his fellow men his actions are data which they must take into account in their own acting. The coordination of the autonomous actions of all individuals is accomplished by the operation of the market. Society does not tell a man what to do and what not to do. There is no need to enforce cooperation by special orders or prohibitions. Non-cooperation penalizes itself. Adjustment to the requirements of society's productive effort and the pursuit of the individual's own concerns are not in conflict. Consequently no agency is required to settle such conflicts. The system can work and accomplish its tasks without the interference of an authority issuing special orders and prohibitions and punishing those who do not comply.
A Good Society is one which provides individuals with maximum opportunity to pursue their interests within the rule of law, in the belief that this will benefit all.