Weekend Long Read: What China Can Learn From Germany’s Battle of Economic Ideas

By Wang Shiyu and Qing Na

The global economic and financial turmoil triggered by U.S. President Donald Trump’s trade war has intensified a worldwide debate over economic models and theories, the role of the state, and how governments should respond to crises.

While these questions have taken on new urgency, the contest over economic ideas has been unfolding for decades — including in China, where the guiding framework since the launch of reform and opening-up in the late 1970s has been “socialism with Chinese characteristics.”

This blend of state control and market reforms transformed China from a centrally planned system into a market-based economy under strong state guidance and regulation. With the rapid economic growth that followed, China became the world’s second-largest economy and biggest exporter.

But another model, far less discussed outside Europe, also shaped an economic miracle. Ordoliberalism is a school of thought that emerged in Germany in the 1930s and became the foundation of West Germany’s post-WWII economic model, known as the social market economy.

The theory argues for strict competition and anti-monopoly rules, price stability and sound money, a strong role for the state that sets the “rules of the game” but avoids meddling in markets, as well as the rule of law, predictable regulation and social stability.

Although the model brought rapid economic recovery and growth to West Germany and transformed it into a global economic powerhouse, it also had its detractors — including Keynesians, who supported the economic theories of John Maynard Keynes, which emphasize active government intervention, particularly in managing economic cycles.

While many argue that ordoliberal influence has contributed to austerity-style policies during economic downturns, Keynesianism calls for state intervention, mainly through spending and tax policies, to stabilize the economy and combat recession by boosting demand and stimulating economic activity.

A new Chinese book, The Future of Economics, launched in Beijing in March, explores ordoliberalism and the clash between its advocates and those who supported Keynesianism. It focuses on a debate in Germany’s academic community that began in 2009. Chinese scholars have discussed what lessons China can take from this debate and from the twists and turns of Germany’s economic development under ordoliberalism and, to a lesser extent, Keynesianism.

The preface to the book was written by Wu Jinglian, one of China’s most renowned and influential economists in the reform and opening-up era. A firm believer in market-oriented economics, he became a go-to man for top Chinese leaders, who frequently adopted his proposals and turned them into national policy.

Wu, now 95, wrote that the theoretical controversy in the German academic community that began in 2009 is worthy of serious study by Chinese economists.

“On the surface, this debate seems to be about economic methodology, but its core question is whether the future of German economics and society should rely on ordoliberalism — a distinctly German approach — or a blend of neoclassical economics and Keynesian economics that focuses on short-term analytical frameworks,” Wu wrote. Keynesian economics refers to policies that focus on addressing immediate economic crises through demand-side policies rather than long-term market equilibrium.

Neoclassical economics refers to one of the dominant theories in major economies, including the U.S., that focuses more on the long-run efficiency of markets. It shares some basic economic principles with Keynesian economics, such as the importance of supply and demand in determining the level of output and employment.

Although ordoliberalism dominated Germany’s economic policies after WWII and provided important guidance for European economic integration and EU competition policy, Keynesian policies still influenced the German government, especially in the late 1960s and early 1970s, and during the 2007-2009 global financial crisis.

After the financial crisis, a clash erupted between ordoliberalists and Keynesians when the University of Cologne, a major German economics school, decided to cancel an economic policy course that had been dominated by the ordoliberal school and replace it with a macroeconomics course dominated by Keynesianism. The change soon escalated into a broader discussion about the future of German economics and society.

A major difference between the two schools of thought is in the role of government. While ordoliberalism posits that the government should play an active role in creating a competitive market framework with limited direct intervention, Keynesianism holds the government can and should intervene through fiscal and monetary policy to stabilize the economy.

Speaking in a pre-recorded video played at the book’s launch at Peking University’s National School of Development, Wu said that economics should avoid extremes of either “government takes care of everything” or “the market is omnipotent,” and that reasonable boundaries should be defined between the government and the market.

“Unlike the extreme liberalization theories popular in many countries, ordoliberalism does not completely deny the role of the government, but inherits the tradition of Adam Smith, believing that the establishment and effective operation of the free market requires the existence of basic conditions, such as the implementation of the rule of law, the elimination of autocratic power, and the prevention of infringement of property rights as a prerequisite,” he said.

“These conditions need to be provided by a market-friendly government, but the role of the government is mainly to establish and maintain a market order of free competition, and it is definitely not to interfere with the microeconomic activities of enterprises,” said Wu.

The debate has important takeaways for Chinese economists and academics, Wu said, not least in the study of economic models and theories and the role of government.

“Academic debate should not become a battle between left and right or ‘us versus them,’” he said. “On the issue of government-market relations, we cannot get trapped by our positions — that advocating government dominance means the government should take care of everything, or that advocating market dominance ignores the shortcomings of the market. This kind of polarized thinking makes meaningful academic discussion impossible.”

He noted that no matter which school of thought economists belong to, all know that the core of the market mechanism is prices. “Only prices that can reflect the scarcity of resources can guide resources to make effective allocations; and only by opening up the market and letting competition determine prices can such a price system emerge. This is the basic principle of economics,” he said.

The Future of Economics was edited by Lars Feld, an economics professor at the University of Freiburg and former chair of the German Council of Economic Experts, an academic body that advises the government on economic policies; Hu Kun, a researcher at the Institute of Finance and Banking of the Chinese Academy of Social Sciences, a top state-backed think tank; and Daniel Nientiedt, a research group leader at the Walter Eucken Institute, a German ordoliberal economic think tank.

The book comprises a selection of academic literature on ordoliberalism in the German economic community and attempts to set out the historical background, evolutionary context and core issues of the dispute with Keynesian economics, aiming to provide Chinese readers with a reference framework for understanding the changes in German economic theory and institutional practice.

In recent decades, German economic policy has once again appeared to shift to a system that highly aligns with Keynesian policies. “Since the beginning of the 21st century, German leaders have proposed building a ‘new social market economy,’ essentially shifting toward Keynesianism,” Wu said. “The debates documented in The Future of Economics occurred just at the peak of this shift, from 2009 to 2019.”

In the wake of this change, the German economy stagnated, shrinking for two consecutive years in 2023 and 2024. Against this backdrop, more economists have been calling for another renaissance of ordoliberalism, according to Wu. “The discussions on ordoliberalism in this book are not just academic but deeply tied to the future of Germany and the world.”

Contact reporter Qing Na (qingna@caixin.com) and editor Nery Avery (nerysavery@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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