The essence of a social market economy is to guarantee prosperity and security in society. Also, it needs to protect the freedom of the economy and individuals. The welfare state is dependent on the market economy. The financial basis of the welfare state in the form of tax revenue and social security contributions arises with economic value creation. The market economy depends on individuals’ willingness to take risks. This increases a society’s ability to innovate. The welfare state, in turn, has the task of cushioning certain risks in life. Thus, it promotes the free-market behaviour of society.
The interactions between the state, business and society are manifold
Firstly, there are legal regulations to control the behaviour of market players through rules and prohibitions.
Second, the interaction includes material benefits such as unemployment benefits for people who cannot earn a sufficient income in certain situations.
Thirdly, it includes the provision of social infrastructure in the form of goods and services, such as the construction and operation of kindergartens, hospitals and schools.