Lament  

Deutschland Unter Alles

by Oliver Becker

Germany's economy made a spectacular recovery after World War II. Now it is slowly dying.

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When you think of Germany, you might think of the wirtschaftswunder, the economic miracle by which the nation regained its prosperity in just a few years after the devastation of World War II under the free-market policies of Ludwig Erhard.

Times have changed since then, and not for the better.

In nine out of the last ten years, the German economy's growth rate was among the lowest in Western Europe. It was a meager 0.7% last year, and this year it will be around 0.5%. The government's budget deficit is 3% of gross domestic product, barely below the maximum allowed by the Treaty of Maastricht, to which the countries adopting the euro as their common currency agreed in order to ensure fiscal stability.

The German state gobbles up 48% of its country's GDP, and uses the money to pay for such worthwhile expenses as counselors for homosexual couples, airports in the eastern German countryside that never see a traveler, and the subsidy of failing industries. The last use seems to be a favorite of Chancellor Schroeder's, who has wasted hundreds of millions of euros on a giant construction company that went bankrupt about a year after receiving taxpayer dough, and 350 million euros this year on a insolvent phone company, whose plight will certainly not improve soon, as Germany is Europe's most overcrowded telecommunications market. Quite luckily, this summer he was unable to save the industrial conglomerate Babcock because he could not find a bank to go along with his rescue plans. Quite a few German taxpayers celebrated this failure with champagne.

Today, the country has 4 million unemployed. In some areas of the former East Germany, as much as 23% of the work force cannot find a job. At the same time, Germans labor under one of the most complicated tax codes in the world. Seventy percent of all the tax literature in the world is produced in this country. While large corporations can use loopholes to reduce substantially their tax bills, especially after the half-hearted attempt at tax reform in 1999, Germany's once-vaunted mittelstand, its small and medium enterprises, chafe under an ever-increasing tax bill. Approximately 40,000 companies will declare bankruptcy this year.

With a population increasingly consisting of imbeciles it would be hard to repeat the long-forgotten economic boom, anyway. The so-called Pisa study, which compared the abilities and knowledge of schoolchildren in the major industrialized countries of the world, ranked German kids near the bottom of the heap, far behind the United States. But the education bureaucrats believe that it is cruel not to let a kid graduate from high school, to keep him from entering college, or, heaven forbid, to force him to actually learn something.

This was the situation when Germans went to the polls on Sept. 22. What did the people do?

Well, they chose to ignore it.

The Social Democrats, whom 38.5% of voters preferred, are so closely allied to the unions that it would be impossible for them to espouse any legislation that organized labor does not approve. For them, it is paramount to secure high wages and benefits and job security for their clientele, ignoring the unemployed or feeding them on empty promises. That a moribund economy will, in the long run, secure the livelihood of no one, seems to either not matter or be completely lost on them. Under socialists, Germany's already overregulated labor market has been deprived of its last vestiges of flexibility. A freelancer who works for only one company over an extended period of time can now sue to be employed permanently. Social benefits run at 40% of wages, which basically amounts to a complete ban on low-wage labor. Employing the same person on a temporary contract and renewing this contract after it expires is possible for only a limited amount of time, thus endangering businesses with strong seasonal demand. Chancellor Schroeder made much of his plan to restructure the government-run unemployment office and add incentives for long-time unemployed to work.

This plan mixed quite reasonable steps like redirecting more of the employees of the government employment office towards finding new jobs for jobless people (only 10% of them do that currently), denying unemployed people who reject certain job offers any more benefits to an unspecified extent and giving tax credits to jobless who start working as freelancers (so-called "me-corporations") with "not-so-brilliant" ideas like giving special rate credits to companies who create jobs or letting the government employment office set up a temp agency, thus competing with private companies in this industry (and thus most likely destroying this nascent service in Germany). Whatever the merits and shortcomings of the plan may be, it seems clear that though it may slightly improve the efficiency of the labor market, it will not change the significant shortage of economic growth and thus of jobs that the German economy suffers from.

Notwithstanding the official line that 2 million jobs could be thus created, the announcement by a think tank that these plans would at most help to bring some 200,000 people into work was ignored by all parties. Social Democrats toed the line that there was not much anyone could do about the county's paltry economic growth, since the United States, Germany's biggest trading partner, was doing so badly. In one of the few highlights of the campaign, a speaker for the Communist Party said that since we were unable to act by ourselves anyway, maybe we should ask to vote in the U.S. presidential election next time, instead of wasting time and money on a federal chancellor.

The Green Party, the Social Democrats' junior partner in government, scored its best result ever in a federal election, winning 8.6% of the vote. The Greens were mainly responsible for the sharp increase in the tax on gasoline, raising the price in Germany to about 4 euros (about $3.90) per gallon. The proceeds were meant to help subsidize social security and health benefits, thus cutting labor costs and unemployment, but it did not work out this way. The health care system, which offers full coverage for almost any treatment, offers no incentives to either patients or doctors to save money. Not surprisingly, its cost has almost tripled in the last 20 years. With an ever-aging population, and companies sending older employees into early retirement in droves in order to get them off the payroll, pension contributions also continue their inexorable way upward.

The Greens' other big reform project is to stop the use of nuclear energy within the next ten years. This basically ensures continuous use of heavily subsidized German coal, which is among the most expensive in the world. Generous government grants for the use of environmentally friendly energy, such as wind, has meanwhile led to the mushrooming of completely unproductive producers, more intent on living on subsidies than providing energy. Wind energy prices in Germany are among the highest in the world now.

For the next four years, the Green Party wants to cut labor costs by increasing taxes on wealth and estates and giving the money to the state-run health insurers and pension board, thus making it almost impossible and pointless to save and invest money. They have no idea of the effect of their policies on labor productivity in a country with capital-intensive industries.

Far from offering an alternative, the opposition Christian Democrats promised nothing but more of the same — though a bit more efficiently run. Having been overwhelmingly rejected by the voters four years ago after instituting some minor reforms to the labor market, the party was keen on appearing just as socialistic as the ruling coalition. Edmund Stoiber, the allegedly conservative Christian Democrat's candidate for chancellor, used "social security" more than any other words during his speeches, and the slightest hint at possible reforms was accompanied by the emphasis that, of course, he did not want to see any "U.S.-American conditions" in German cities. He attempted to convince people that nothing would change but everything would be better if he were only chancellor. When the government postponed a tax reform planned for next year because of the need to have funds for disaster relief after catastrophic floods in the country's eastern part, Stoiber hastened to say that corporate taxes had to be raised to maintain the so-called social "balance." The ruling socialists were only too happy to comply. Challenged to expound his views on health-care reform, all his shadow health minister could come up with was the shifting of some expenses from one government program to another, and the introduction of some regulations apparently no socialist had yet thought of. Not surprisingly, the Christian Democrats got only 38.5% of the vote.

But Germany has a party of classical liberals, doesn't it? Aren't the Free Democrats the party of individual rights, the free market, and lean government? So how did they fare? Their result of 7.4% was slight improvement compared to their dismal result of 6.2% four years ago. But even they made no serious effort to develop an alternative plan for solving current problems. The party dished out plans for a wide-ranging tax reform, but when asked where he wanted to cut government expenses, Free Democrat boss Guido Westerwelle could not name one item or program to cut. Apparently in despair, some weeks before the election, one of the Free Democrats top people began to publicly insult the Israeli prime minister and a German talk-show host of Jewish descent, obviously attempting to fish in the sea of far-right voters. For the rest of the campaign, the party busied itself with internal bickering, not wasting time on convincing voters of the merits of freedom. With friends like these, freedom really does not need opponents.

To find out how Germany got itself in this sorry situation, one needs to go back to the country's past. After the horrors of World War II, achieving a maximum social consensus became the paramount objective, ostracizing everyone who held views outside the mainstream. The early thinkers of the Republic, trying to combine socialism with capitalism, thus creating the so-called "social market economy" tried to eliminate the extremes on the left and right. When, with increasing prosperity, the '60s and '70s saw a steep growth of government expenses, the country seemed to be easily able to afford this. After all, even the Social Democrats of the 1970s were not as far left as Lyndon B. Johnson, Jimmy Carter, or Harold Wilson.

But having not fully participated in the West's swing to the left, the conservative government of the 1980s and 1990s saw no need to reform on the scale done at the same time in the United Kingdom and the United States. All that can be said for Helmut Kohl, the chancellor of 16 years, is that during his regime socialism advanced less quickly than under his predecessors.

With reunification, the nation added 16 million people brought up under communist influence and in no way familiar with the capitalist system. Problems in bringing its socialist economy into West Germany's market economy were answered with clamor for the state to step in, and Kohl, always eyeing the next election, was all too ready to comply. Instead of having to learn how to survive in a free market, East Germans rapidly came to appreciate the new Santa Claus with deep pockets from the West. One hundred billion Deutschemarks flowed from West to East each year, money that was wasted on public baths with no visitors, roads with no destination, and hospitals with no patients.

When the conservatives were finally removed from power in 1998, leaving a decrepit economy and an empty treasury, the Social Democrats found a nation all too receptive for their basic tenet that as long as there is someone left to fleece, the state has the right and goddamn duty to pour down money on everyone who seemed to be doing worse than he thought he deserved. It was not hard work and flourishing capitalism that was to bring Germany back from the brink, but "social cohesion," government-sponsored innovations, and an industrial policy which conserves existing industries at the expense of newcomers. Four years, a couple of hundred billion Deutschemarks in public debt, a couple of hundred thousand bankruptcies, and a stock market crash later, Germany has turned from the wunderkind to the "sick man of Europe," as British papers enjoy pointing out.

Germans seem to have come to enjoy life in a country of splendid decline. Since most still have jobs and enjoy high wages and the world's most lavish social safety net, it is easy to ignore the problems the nation faces. And since people have been brought up on the notion that one man's need is the right to another man's fortune, they will go on to clamor for redistribution and the fruit of their betters' labor. The welfare state, no doubt, will procure it for them, for whatever the cost, thus ensuring an occupation for the huge workforce in government pay. People will be bereft of their last vestiges of independence, diligence, and creativity, turning to their masters and licking the hands that feed them, until one day — and since this is a rich nation, this day is far-off — nothing will be left to plunder. Maybe, just maybe, Germans will learn that it does not pay to trade one's economic or any other freedom for the comely, warm, and limpid security the state has to offer.

But for this generation, it will be too late. The current discourse in the country — or the sheer lack of it — proves only one thing: for the foreseeable future, Germany is lost without redemption.

© Copyright 2010, Liberty Foundation

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