Prosperity for all: This was the essence of former West German economics minister, Ludwig Erhard’s invention, “the social market economy,” in which he tried to forge a path somewhere in between liberal capitalism and a planned economy.
That formula is a gold standard. It’s a German principle, part of an initiative for a new social market economy. And it’s argument goes something like this: prosperity arises from economic power – that is, from scientific curiosity and growth fueled by entrepreneurial thought and action.
Growth then comes from innovation and the corresponding investments. But entrepreneurship and investments can’t flourish without the freedom that comes from open markets and open borders and national, international and European competition.
But the “for all” part only happens if competition – which, after all, creates not only winners but also losers – is managed, with anti-trust laws, environmental concerns and social welfare in mind.
Mr. Schulz has not come up with one single, concrete solution to all that he considers so unjust.
So far, so good, one might think. But when it comes to electoral campaigns, such as those that are now starting, it becomes clear how much it is possible to misinterpret and misuse those fundamental principles. Especially when the social part of that equation becomes social justice and when that social justice is exalted beyond what is possible, using economics and the market. This is what the Social Democrats have been doing for decades – and it has only been interrupted when they’ve managed to get into office.
At the moment, Germany’s Social Democratic party seem to be embarking on another such trip. That, at least, is the impression given by the new leader of the Social Democrats, or SPD, Martin Schulz. Indeed he has already had some signals from leaders in the Left party that they would be interested in forming a coalition under Mr. Schulz’s leadership.
Mr. Schulz’s speech as the opposition candidate to the current German chancellor, Angela Merkel, was classic SPD. Of course, the “hard working individual” stands at the center of his argument, along with empathy for the “everyday worries” of ordinary people, equitable taxes, fighting against tax avoidance and tax havens as well as lower rents and better real wages.
All of this is familiar, of course, from former SPD leader Sigmar Gabriel. But Mr. Schulz differs on just one point. He has not come up with one single, concrete solution to all that he considers so unjust.
What he wants everyone to forget, is the fact that wages and salaries are not the stuff of politics. Rather, they are the prerogative of those negotiating them. Politics has nothing to with working out how much anyone gets paid.
The problem with using such populist mottoes to describe economic realities is that it makes the whole thing into a black and white argument, a kind of us-versus-them issue. It ignores the fact that market economies create winners and that they absolutely need to do this. And that market economies also result in inequalities, at all levels of society.
The benefits of globalization and digitization do not accrue solely to the owners of capital and to international companies, but also to qualified workers, whether in full-time jobs or freelance.
It is not the fault of capitalism that, as a rule, older workers and those in more manual jobs are worse off than others – this situation is worse in the U.S. than in Germany.
No, the main reason is that politicians in the U.S. and Europe have ignored the changes wrought by China’s entry into the World Trade Organization for too long. There are now a billion more workers in the world economy who want a share of the global economic product, many of whom are actually getting that share.
These global giants should be allowed to roam around the world economy, free of any political restraints.
This has resulted in a permanent worldwide reduction in poverty levels. Between 1980 and 2015, poverty levels fell by half, and they will be reduced by half again by 2030. There’s been a growth in numbers entering the middle class in almost all countries, with the exception of North Korea and some Middle Eastern nations.
Together the U.S. and Europe only amount to 12 percent of the world’s population. The other 88 percent lives outside the so-called west – there are 3 billion in China, India and Indonesia - and on average, they are doing better, year on year.
So it is clear: If so many more workers want a bigger slice of the global economic pie, there will be certain services and industries that suffer because they can’t compete any longer. The workers in those industries will get less of the pie than they had before, especially if they are not qualified enough to move into other industries. First to get less pie are the older workers or those with fewer qualifications in the West, of which the U.S. has significantly more.
Politicians have ignored this. They have not looked closely and carefully enough at those who have lost as a result of this massive and unstoppable change in the world economy. Reviving the industrial dream of the 1950s and ‘60s won’t help. Nor will left wing populism.
What is required is a new kind of politics, with emphasis on the following three aspects.
Firstly, education, qualification, science and research must become an all-important political topic, both in terms of content and financing. We can no longer allow tens of thousands of people to get lost each year at school, after which they become the losers of tomorrow. This is still a problem today because of the quite obviously inadequate and divided federal education policy in Germany – and the problem lies not so much at national level, but with the German states. Certainly, they are partially responsible for those left behind by our system. Changing this is about providing equal opportunities for all, and it is crucially important for social cohesion and the future proofing of our communities.
Secondly, we need a different set of regional politics. We cannot simply sit by and watch as a few prosperous metropolitan regions evolve while other cities and towns fall behind, unable to compete for business or research institutions, becoming less and less attractive and losing inhabitants. These cities and towns need help to strengthen their own decision making powers, both in terms of politics and funding. Their place within each German state should be strengthened too, so that they are able to mobilize and utilize their inherent talents and capabilities.
Then finally, the power of the digital giants of this world – the Amazons and Alibabas and Googles and Facebooks – must not be limitless. We need European and global rules that make it impossible for globally active companies to use tax havens to avoid tax obligations. Efforts have been made in this direction for a while now; they should be pursued more vigorously. Above all, however, we need a hard-hitting international antitrust law that defines the power of global oligopolies and, where necessary, limits and reduces that power. These global giants should be allowed to roam around the world economy, free of any political restraints.
This is one of the tasks of the G20 meeting in Hamburg in July, where Germany will chair the meeting. This topic belongs on the table there.
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