TCS Daily

Reform Sham

By Joseph Tom Goeller - April 16, 2003 12:00 AM

Seventy-three percent of Germans endorse the anti-war course of their chancellor because they are convinced that the invasion of Iraq by British and American forces was a violation of international law.

Gerhard Schröder rides high these days, more than any other German chancellor before him. This is why he has finally dared to come forward with the reforms that he promised to undertake in 1998 when he took over from conservative Helmut Kohl.

But immediately after he had presented his somewhat inconvenient ideas at the end of March - actually plans that have been postulated for years by renowned economists - the ultra liberals of his own party, his coalition partners the Greens and all-powerful labor unions rang the alarm bells.

What are Schröder's reforms about?

All in all he aims to relieve some of the heavy social burdens imposed on German industry. German employers should be able to compete more effectively on international markets. Contributions of employers to the many social securities of workers and employees should be reduced, and it should be made easier to fire people. Dismissals are extremely complicated in Germany because regulations and laws favor the employee. In addition trade unions are by law part of the dismissal process, which makes it in many cases almost impossible for employers to get rid of personnel.

So far Schröder's plans sound good. But look closer, and the details reveal a very complicated, bureaucratic patchwork - certainly not the necessary breakthrough. One drastic example of many is the rearrangement of paid sick leave. In the near future it shall be the employee's responsibility to care for his sick benefit completely on his own. Until now, employers have paid a significant contribution to the sick benefit fund of their employees.

Also, contributions to health insurance, based on parity between employer and employee, shall be changed in such a way that the employer will have to pay 0.4 percent (!) less than now. With the end of financing health insurance "on a footing of equality, many will find it hard to accept", lamented Gudrun Schaich-Walch, vice majority whip of the German Parliament. She expresses what probably the majority of the German population thinks.

This is why one really has to doubt seriously that these hair-splitting reform attempts can lead the German economy out of the bottom of its lasting crisis.

And even worse: what Schröder wants to contribute with one hand to the benefit of the German economy he is going to take away from enterprises with the other: The red-green coalition in Berlin is planning to cut subsidies and remissions of taxes. By this step, the government expects to increase the taxes paid by companies of €15.6 billion a year.


However, many leaders of trade-unions are outraged. Klaus Wieshügel, the head of construction workers union IG-Bau, called the "zeal of reformation" of the federal government an "unsocial cruelty". What a crab! Cruelties happen in wars, in terrorist attacks, in dictatorships. Does Wieshügel seriously want to put Schröder on the same level as Saddam?

Klaus Zwickel, the head of the biggest and most important German trade-union, IG-Metall, threatened the Chancellor with mass protests of several hundreds of thousands of workers of the metal industry. He wants to send a "clear" message to the Chancellor. He said: "Yes to reforms, but No to a decreasing social system."

These and other slogans reveal the real thoughts of the functionaries. They don't seem to recognize that it is they who have significantly contributed to the development of four to five million unemployed in the past decade. They have made it almost impossible to boost competition for German companies on the world market. Round tables like the so called "Alliance for Labor", with a lot of pomp initiated by Schröder, turned out to be nothing else but babble.

This is typical for the generation of anti-Vietnam protesters, in Germany called the sixty-eighters, to which most of Schröder's cabinet members belong. No deeds but bombast.

Well - this lack of flexibility, this stubbornness of the traditional German liberals is nothing new to Schröder. Didn't he act the same way at the UN Security Council - stonewalling for no other reason but obstinacy?

Hannover Messe

At the annual Hannover Messe, the Hannover Fair, German industry has the chance to compare its competitiveness with other exhibitors from countries around the world. This year, 6,200 exhibitors from 62 countries showed their new products and inventions. This fair is one of the most important indicators of the prosperity of German industry.

But because of the inflexible labor market with all its many restrictions for hiring and firing and the high contributions for employee benefits, most of the German companies concluded that the conditions for innovations in Germany look very negative. As a poll of the Association for German Industry (BDI) shows, more than half of German enterprises are convinced that Germany is "bruised and far behind" in comparison to many other countries around the globe. Two-thirds are convinced that this trend will continue.

Even though Schröder knows exactly what to do to support the German economy, he also knows that his compatriots turn a blind eye to the problems and like to avoid being confronted with uncomfortable realities at home and abroad. This is why he already has an exit strategy, in case his reform plans are spurned by the public:
In his opening address at the Hannover Messe he had nothing encouraging to say but warned that the "risks of the Iraq war might backlash on the [German] economy". He had his scapegoat already at hand.

Future in China

Even though German industry is highly dependent on exports, Schröder did not hesitate to damage transatlantic business with his stubborn anti-Americanism. It is because of his policies that German industry will have no chance to participate in the rebuilding of the new Iraq. At least not in the near future. Schröder speculates of course that German industry might be able to enter Iraq thru the back door of a United Nations Relief Fund. But even for Schröder, this vague hope might look more like a fata morgana.

For some German companies however there is a gleam of hope in the Far East. The People's Republic of China is not only the second biggest exhibitor at the Hannover fair. It also courts German firms and politicians. The governor of Bavaria, Edmund Stoiber, was welcomed on his recent visit to China with all the honors of a real head of state. He was able to meet with the countries top leaders.

The small southern German state of Bavaria alone has become more important to Chinese business and industry than Japan. Bavaria's China business amounted to €5.9 billion last year. In Shanghai more than 100 Bavarian companies are doing business already. No wonder that representatives of the renowned Bavarian Motor Company (BMW) were in Stoiber's entourage and signed a contract to start a BMW branch in China. The communists will soon be able to drive luxurious limousines.

Finally, many years behind the US, German companies have discovered the booming Asian market. A deeper engagement in Asia can certainly push the German export industry but does not necessarily create the amount of jobs at home that would be necessary for a dramatic change on the job market.

And even if German companies invest their profits abroad rather than at home, why should foreign investors create jobs in Germany? Schröder needs either an iron fist to realize a deep structural reform - or Germany needs another chancellor.

For German translation, click here.

TCS Daily Archives