When Soros debunks capitalism, you know a sea-change is on the way

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A grand ceremony took place in Bonn last week. Chancellor Helmut Kohl paid his respects to the memory of Ludwig Erhard, born 100 years ago. Erhard was briefly Chancellor in the 1960s. But he is revered for the years before that, when he served as Minister of Economics and was worshipped as the father of the West German "Economic Miracle" - the Wirtschaftswunder.

Erhard is almost literally the national icon. A photograph of him, his cigar in its cardboard holder sticking out of his mouth, loomed above Helmut Kohl as he recited the familiar litanies of praise. Every German student, from Rhine to Oder, learns about the scene in 1948 when Erhard confronted the Allied economic advisers and rebuked them for relying on rationing, nationalisation and controls. He had faith in the market. Brushing aside their remonstrations, he announced that he would make a bonfire of controls and fling open the gate to German prosperity.

Or did he? Even to question the details of that scene is a sort of blasphemy to many Germans. It is like saying that Churchill never promised that he would fight on the beaches. Every ten years or so, I mildly suggest that the tableau of Erhard confounding the Occupation Powers is a myth. But the myth lives on.

What happened was exactly the opposite. The two economic officials for "Bizonia" (the combined American and British occupation zones) were Karl Bode, an American, and E F Schumacher, a British citizen who was later to become famous as the author of Small is Beautiful. The decision to take the risk of scrapping controls was theirs, as Schumacher revealed to me years later. Bode, an economist from California who like Schumacher had escaped from Nazi Germany, came to him one day in early 1948 "with the splendid idea that these controls ought to be scrapped because so much was going on [in the economy] and nobody really knew what was to be done with it, so 'let's take the handle off the controls like Lenin did in Russia'."

Schumacher agreed enthusiastically. "We called in Erhard [the new German director of Bizonian economics] and his assistant, Dr Gunther Kaiser. When the scheme was put to them, E. and K. were appalled by this and opposed it violently. How- ever, they had no power whatever at the time and therefore had to comply with [Allied] Control Commission orders, and so, at the initiative of Karl Bode, the decontrol was enforced. E. had to do it against his will."

It worked. Backed by the new hard deutschmark introduced in June 1948, the West German economy roared back to life. The following year, Erhard bcame Minister of Economics in the new West German state; Bode and Schumacher kept tactfully silent as he claimed all the credit for the "miracle" and invented his own self-promoting myth about its origins. Bode's allusion to Lenin referred to Lenin's 1921 switch from the strict "War Communism" controls to the "New Economic Policy" which let free enterprise flourish. What an enchanting irony - that the most successful market economy of the "Free World" was inspired by an example from Bolshevik Russia!

The West German take-off, which reached its full speed in the 1960s, would not have worked without unrestricted free enterprise. But it also required three unrepeatable conditions. These were the almost total destruction of German industry by war, which allowed complete modernisation; an enormous reservoir of unemployed skilled labour, constantly topped up by refugees arriving from the East; and billions of dollars pumped in by the United States.

And there was one more condition. This was Erhard's real and tremendous contribution: the "social market economy". It meant a partnership between labour and capital umpired by the state. It meant a treaty between the many and the few: wealth creation was free, but only while it served the interests of the whole community. The social market philosophy was adopted by Christian Democrats and Social Democrats, and guides the Eurocracy in Brussels. But in the late 1980s, as slump followed boom and the market went global, it fell out of fashion.

As I write, the world's billionaires and politicians are gathering at Davos in Switzerland for the annual meeting of the World Economic Forum. Behind closed doors, business-men who can afford the $20,000 conference fee and whose turnover exceeds $700m a year will network with state presidents and cabinet ministers. Our own Malcolm Rifkind will be there, rubbing shoulders with Bill Gates, Kofi Annan, Benjamin Netanyahu, the great Russian capitalist Boris Berezovsky and all the rest. Davos is a Field of the Cloth of Gold for the lords of the market. It is also a boast: we have the world sewn up! But look a little closer at Davos 1997, and you will see that the seams are just beginning to split.

In Tirana and Sofia and Seoul, the people are raging on the streets because uncontrolled capitalism has robbed them of their savings and their rights. In Poland and Hungary, the voters have returned neo-Communist governments to power because the the new inequality, which demands not the slightest commitment to social responsibility from the new rich, violates their sense of justice. The cuts in public spending enforced to meet the criteria for European monetary union have provoked huge demonstrations on the streets of France, Greece and Germany. Post-Soviet Eurasia, from the Caucasus to the Chinese frontier, sinks into a black trance of apathy as foreign carpetbaggers and native mafiosi plunder the resources which were once supposed to belong to "the people". In Africa and Asia, governments tremble in the narrowing ground between the "disciplines" enforced by the IMF and the wrath of disappointed millions.

We are coming to a turn in the road. Everywhere, there is a new feeling that something - the free-market, globalising orthodoxy of the last decade - has run its course and that there is going to be change. The American columnist William Pfaff, who lives in Paris and has an unerring instinct for the turning of tides, wrote last week in the Herald Tribune: "The idea that self-interested behaviour in the market-place would automatically advance the common interest is now recognised as naive ideology, or a self-interested self-deception." In an article reprinted round the world, the great speculator and benefactor George Soros trumpeted his discovery that uncontrolled capitalism destroys human values, social culture, political order and - eventually - the very environment which it needs to survive.

Anybody could have told him that. Anybody, that is, who remembers the distant times when the "social market economy" was designed. Back then, when tired women queued among the ruins for a turnip and hungry children fell asleep in unheated schoolrooms, it was rather obvious that life is a twisting path between contradictions and that undiluted ideologies kill. So do undiluted self-interests.

I have been rude about Ludwig Erhard, but the thinking of his times is coming back to the surface now - and it is welcome. It has something to do with fraternity. The other day I went to the funeral of the socialist Raphael Samuel. A friend read Louis MacNeice's Autumn Journal over the grave, the poem where he asks what we want:

If it is something feasible, obtainable, Let us dream it now

And pray for a possible land ...

Where the altars of sheer power and mere profit

Have fallen to disuse,

Where nobody sees the use

Of buying money and blood at the cost of blood and money,

Where the individual, no longer squandered

In self-assertion, works with the rest ..."

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