The social market economy seeks a middle path between socialism and laissez-faire economic liberalism (i.e. a mixed economy), combining private enterprise with government regulation to establish fair competition, maintaining a balance between a high rate of economic growth, low inflation, low levels of unemployment, good working conditions, social welfare, and public services, by using state intervention.^[1] The term "social" was chosen rather than "socialist" to distinguish the social market economy from a system in which the state directed economic activity and/or owned the means of production,^[2] which are usually privately-owned in the social market model.

In a social market economy, collective bargaining is often done on a national level not between one corporation and one union, but national employers' organizations and national trade unions.