Against the Illusion of Ethics Without Efficiency : A Case for a New Alliance

The European model has been a historic success. Based on the social market economy, it has made it possible to reconcile growth, reduced inequality, social protection, and democratic stability. Its principle was simple: the market creates wealth, while public authorities set the rules, correct market failures, and guarantee social cohesion.

This model rested on a balance between the market and the state, as well as on their complementarity. But this balance has gradually weakened in the name of an ethic that has increasingly detached itself from the pursuit of efficiency, and at times even opposed it. Public action has intervened more and more, regulating, setting standards, and redistributing ever greater amounts, with the clear risk of damaging the economic and social dynamic itself.

We have too often opposed ethics and efficiency, as though the former belonged to the public and social sphere, and the latter to the world of business and markets. Yet this opposition is misleading. A market economy deprived of rules can produce rents, unsustainable inequalities, and repeated crises. But public authorities that accumulate regulations, procedures, taxes, and interventions can also become too cumbersome, hinder economic dynamism, and ultimately harm the social sphere. The challenge, therefore, is to restore the balance and complementarity between ethics and efficiency.

It is time to say this clearly: believing that controlling and making public spending more efficient damages the social model is a misconception. Combating the entropic tendency toward unlimited growth in public spending—including social spending—is essential to the sustainability of our social model.

As the welfare state expanded, a first distortion of democracy emerged, ostensibly in the name of an ever more absolute ethic: a demand for ever greater protection, rights, guarantees, redistribution, and correction of inequalities. Every new right, regulation, expenditure, or public intervention was considered legitimate, without even establishing the economic conditions, duties, and responsibilities that made them possible. Alongside this, and in the same spirit, a second distortion developed: an increasingly expansive conception of equality, which tended to move from equality of rights and opportunities toward the pursuit of equality of circumstances, or even equality of outcomes. This gradually led to a rejection of inequalities arising from talent, risk-taking, or initiative.

Taken together, these two distortions have weakened the engines of economic dynamism, thereby endangering the social model itself, which depends on them. We cannot multiply rights and protections, any more than we can intensify the pursuit of equality in every dimension, without ensuring that we preserve incentives to work, start businesses, invest, innovate, and take risks. Nor can we fail to ensure that social protection is used appropriately. These are the engines that create and preserve the resources needed to finance the social model.

These two distortions of democracy, which I call hyperdemocracy, do not represent the fulfillment of democracy. On the contrary, they are the harmful expression of a democracy that fails to regulate itself. They contain the same paradox: by seeking to expand ethics without any other consideration, they ultimately weaken the economic conditions and the efficiency of the system that make it possible to respond to legitimate social demands. When collective promises become incompatible with available resources, the result is either ever higher taxes, ever-growing debt, the deterioration of public services, or, ultimately, cuts in benefits. Confidence in the system’s ability to keep its promises then begins to erode. When the gap between promises and perceived reality becomes too wide, it is trust in public authorities, institutions, social groups, and individuals themselves—and ultimately in democracy—that is damaged.

Efficiency is a value that cannot be set against ethics. On the contrary, an administration that is itself efficient and serves the efficiency of the system as a whole better serves the general interest in every respect. Making public spending more efficient cannot be reduced to “making savings” in the narrow accounting sense. It means serving the country’s economic and social model. An inefficient administration, both in its own operations and in its tendency to over-administer, over-regulate, over-standardize, and over-intervene, creates entropy and gradually renders the socioeconomic system incapable of reproducing itself.

Europe and France do not have to choose between the American model and Chinese state-managed capitalism. But to break with the gradual suffocation that is stifling them, they must rediscover and renew what gives their social market economy its strength: a sustainable and dynamic balance between ethics and efficiency. This means putting an end to the opposition between the market and the state, business and social justice, performance and social protection. A well-regulated market economy that ensures fairness while rewarding risk-taking and success is the best ally of an ambitious social model.

It is this balance that will enable our democracies to remain free, prosperous, and united, without allowing the imbalances they create themselves to fuel the populist and illiberal movements that threaten them.

Professeur d’économie à HEC