What is Ordnungspolitik?
Ordnungspolitik is something uniquely German, without an English translation. Literally translated, it would be something like order policy, describing the organization of the markets and the state. It describes a constitutional framework and policy for the state to shape the economic environment, and economic interaction among people and between people and the state. Following the definition of the Initiative Neue Soziale Marktwirtschaft (Initiative for a New Social Market Economy), Ordnungspolitik covers all institutions, laws, rules, and policies that enable the economy to organize according to the principles of markets and competition. Predominantly, it is a policy that strives to guarantee competition and the freedom of the individual for his economic activities.
For a sound Ordnungspolitik what matters most is to draw a reasonably clear line between the sphere of the state and the sphere for the activities of business. Apart from setting a general framework, the state has only limited objectives within a market economy. It should only interfere through regulation or by its own economic activities into markets if these do not function properly (i.e., providing public goods, external effects, natural monopolies, cartels). However, in a social market economy the state may interfere to change market results, mostly via its social policy and redistribution. By doing so the state is in conflict with the goals for efficiency and growth. Too much redistribution and too much regulation weaken the economy and the effectiveness of markets. It is up to the Ordnungspolitik to balance the various government policies, in order to assure that neither the state nor other market participants unduly weaken the market mechanism.