Populist politics The German Model Response to Globalization

Political upheavals in the United States and Great Britain are in part a reaction to globalization. But the situation in Germany is very different.
Donald Trump drew support from low-qualified workers facing competition from China, Christoph Schmidt argues.

Two politically significant events from 2016 will remain deeply engraved in our memory: the Brexit vote and the election of Donald Trump as president of the United States.

These votes are due not least to dissatisfaction that has accumulated among the economic losers of recent decades. Many Brexit advocates and Trump supporters see globalization as responsible for their personal situations. In Germany too, this impression has sparked debate over whether a section of society has been left behind by globalization.

Now, nationalist movements throughout Europe are hoping for a boost through such narratives. This is particularly true in France, where a new president will be elected in the spring. But it also effects Germany, with its parliamentary elections in the fall. There are plenty of reasons for uncertainty: The unresolved euro zone crisis and a worldwide movement of migrants towards Europe, but also rising income inequality in several states.

So there is cause to examine more closely what common factors in the United States and Great Britain could cause political upheavals in Germany too. The fact is, discrepancies in income and regional living standards rose significantly in the United States and Great Britain over recent decades. In addition to technical progress, increasing competition thrust upon low-qualified workers – for example through imports from China – was a driving force in the United States.

Furthermore, growing inequality has a strong regional component, be it the wealth gap between the City of London and the former steel-producing regions in the north of England, or the disparity between the flourishing East and West Coasts and the vast expanse in between.

Gain in economic performance is relatively evenly distributed in Germany. In this way, much is already being done to help globalization’s losers.

In Germany, on the other hand, recent years have not brought such divergence of incomes as in Great Britain or the United States. And the consequences of economic decline are far less relevant to regional relationships. Admittedly, recent decades have brought significant differences in rates of employment growth between regions, favoring southern Germany in particular. But there is no comparable regional difference between concentration of people, cosmopolitan attitude and prosperity on one side, and low population density, isolation and poverty on the other.

The comparatively strong compensatory mechanism of Germany’s tax and transfer system works to align personal incomes. And differences in regional economic performance are almost completely leveled in the distribution of tax revenues among political subdivisions. Gain in economic performance is relatively evenly distributed in Germany. In this way, much is already being done to help globalization’s losers.

In the meantime, the compensatory mechanisms have become so comprehensive they threaten a sensible balance between equality and incentives to performance. The Ruhr area is the best example of how excessive adjustment can hold back a region’s drive for new achievement for years.

The dramatic disadvantages for prosperity and employment that would come from turning back the clock of globalization mean nationalist and protectionist impulses must not be allowed to monopolize the debate. The path of equilibrium between open markets and social compensation that Germany has followed thus far can serve as an exemplary model for successful response to globalization. Politics, academia and the media are obliged to relieve people of their unjustified fears.

In the debate over the advantages and disadvantages of globalization we should remain true to the principle of the social market economy. This brings the most long-term benefit, to economically weak individuals as well. Promises of greater prosperity for all by safeguarding against adaptation to globalization cannot be fulfilled in the long run.

This article first appeared in the business weekly, WirtschaftsWoche.