TCS Daily

'No Experiments'

By Nico Wirtz - April 25, 2003 12:00 AM

In 1957, 'no experiments' became the leitmotif of those opposing integrating free-market Western economics into the German 'Wirtschaftwunder'. Back then, economic improvements abounded. Exports and domestic consumption grew exponentially - with near full employment. Today, not much is left of this 'Wirtschaftswunder', and corporate Germany, along with the overall national economy, continues its steady decline. Even though political necessities have changed and 'experiments' - in the form of economic and political reforms - are well overdue, few real reforms have been made. Meanwhile, the current federal government clings to the traditional 'no experiments' or 'take no chances' mindset, disregarding the fact that current government-centered economic policy, unlike that of the 1950s and 1960s, does not lead to prosperity, but to social dependency and economic collapse. Despite acknowledging the failure of the current system, it is this reluctance to change, the clinging to archaic economic principles on behalf of those in power that fosters the current 'German Malaise'.

Just how has this prolonged downturn come about? The main culprit is the unchecked expansion of public services since the founding of the Federal Republic. For the young Republic, the recipe for success was branded 'soziale Marktwirtschaft' or 'social market-economy'. Nearly exclusively, however, the 'social' policies of the contemporary federal government dominate the system' while signs of a 'market-economy' are the exception rather than the norm. Under the slogan of 'social justice' and the desire to balance the unstable forces of the free-market with public services, the German government has leeched an increasing share of Germany's overall spending from the private sector over the decades since its founding. The official coalition platform of the current red-green federal government reflects this: it contains the word 'social' 99 times, while the term 'market-economy' appears only four times. Government's share of the overall expenditures in Germany underscores this 'social interventionism', with nearly 50% of all expenditures and investments in Germany done by the state. At the same time, the state has incapacitated the citizenry. The call for 'Vater Staat' became commonplace in any conceivable 'emergency'.

With the intrusion of government into both the social and economic spheres of life, a more closed society has emerged in Germany, stifling personal initiative and blocking almost all forms of innovation. The need for different approaches to economic and social problems is generally accepted throughout the country. However, what is also generally accepted is that these different approaches preserve one's personal entitlements, since those entitlements have been 'well earned' by those who collect them and are enshrined within the law. The outgrowth of the German entitlement mentality has been nurtured by the expansion of the welfare state over the years. The excesses of the German welfare and civil servant states have laid the groundwork for the atomization and fragmentation of society, as well as the debilitating development of this sense of personal entitlement. Opinion polls support these findings: the overwhelming majority of Germans regard the unrestrained free-market as too stressful, risky, as well as time and labor intensive. Four-fifths of the German labor force expect to be provided with reliable employment accompanied by a sufficient salary, and enough free time and ideal compatibility of job and family. The idea that these things should be provided rather than earned is regarded as self-evident in contemporary Germany. Few if any, however, question what the net effect of this on the overall German economy - and the prosperity of those who rely upon it - truly is.

The German malaise is driven by the fear of far-reaching reforms, which are desperately needed, but which only show their effects over the mid- or long-term and might well be painful in the short-term.

There are alternatives to this miserable state of affairs: reduction of all direct and indirect taxes, reducing the cost of labor, breaking the omnipotence of organized interests, drastic reduction of governmental services - particularly in the field of still-generous government subsidies, as well as in all facets of the decrepit welfare state. All layers of government combined (federal, state, local) absorb nearly 50% of all income and administer and over-regulate the rest. Instead of reducing this burden and keeping government in check, state interventionism is expanded at an alarming pace due to the mentality of dependency among most Germans.

Grounded in its fear of widespread reform, German society seems to have adapted to the general malaise. Instead of using its individual talents and desire to improve, Germans complain about the current state of affairs, and temporarily adjust to the country's problems in order to avoid the unknown. Even if it means that, as a people, Germans will feel a socio-economic decline compared to other peoples or even measured against their own history, the declining current system is preferred to the unknown. This perception is particularly true if the decline is slow and soft, so that the people have sufficient time to adjust to it. Still, if the social safety net functions, even if only superficially, why press for change? One simply adjusts - driving the car a year longer, wearing the coat one more winter, or postponing renovation of the house.

It does not come as a surprise that the red-green government, whose parties, according to their own political philosophy, have fostered the German entitlement mentality over the decades, is itself too afraid to implement change. The long awaited miracle cure of the Schroeder government, his 14 points dated February 2003, contain no genuine reforms, which could reverse the current systems' course. The proud 'Onward!' of the workers' movement has degraded into a mere 'no turning back!' of the defenders of the welfare state. This is all the more troubling, as the required steps necessary to overcome the systemic crisis in Germany has been known at least since Otto Graf Lambsdorff's 'Wendepapier' (paper for change) from 1982. Leaders from Helmut Kohl to Schroeder can all be faulted for failing to implement these reforms. Lambsdorff realized back in 1982 that social and economic problems of Germany could not be overcome through government programs, but only through unleashing personal initiative and the entrepreneurial spirit within the free market. Those rank and file members of the government coalition and the labor unions, who decry free-market reforms as 'recipes of the past', are merely trying to disguise the fact that they even failed to end the German malaise back then.

Nico Wirtz is Research Fellow, Friedrich Naumann Foundation.

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