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The Meltdown of the German Welfare State

Mises Daily: Friday, July 22, 2005 by

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For a few years now I have been awaiting the "German Winter of Discontent," akin to the situation in the UK prior to the 'Thatcher Revolution' when household waste piled up in the streets of London because the garbage men were on strike and people finally got fed up with the Labour Government (incidentally, back then the Tories came up with the memorable slogan of "Labour isn't working!").

Without the intention of being melodramatic, I believe that such a decisive moment now at last may be near.

On Friday, July 1st 2005, Chancellor Schroeder of the ruling red-green coalition called a vote of confidence in the German lower house, the Bundestag, which he lost. The confusing thing is, though, that he fully intended to lose that vote of confidence and that it even took some convincing of the members of his own party to vote against him. The reason is that in Germany neither parliament can dissolve itself, nor does the President have that right. But Schroeder wants an early election for a variety of reasons and a lost vote of confidence, in accordance with Article 68 of the Constitution, does allow for such a venue.

Without trying to shed further light on the difficult discussion whether the path chosen by Schroeder is in fact in line with the constitution (as it stands, either the President or the Constitutional Court can still spoil the party), the point I want to make is the following: whether or not there will be early elections in September of this year, as in fact most pundits predict, the next time Germans go to the polls it will be a defining moment for the country. This next one will be an election determining the basic direction public policy will take, maybe more so than any election since WWII.

The past year has brought to light what so long was concealed under the veil of the German consensus model. For decades, politics in Germany has been comparatively dull, dominated by the two big political parties, the Social and the Christian Democrats (SPD and CDU, respectively). In a way, politicians of both parties all were social democrats. Maintaining the "social peace" was of primary concern (see my article "The S Words") while Germany turned into a welfare state of unforeseen dimensions. The working week (now in many industries at 35 hours), the working year (usually six weeks of paid vacation guaranteed by law) and working life (only a fraction of Germans over 60 still work) became shorter and shorter. At the same time, the ranks of the unemployed grew steadily and the demographics of an ageing society did its bit to make the system of social security creak.

Of course, all this has been a train wreck waiting to happen for quite some time now. But until let's say the mid 1990s very few people noticed. In any event, nobody complained since everybody had some stake in the welfare state the way it was. Life by and large was comfy and fun. But the glory days are over.

What has now happened in the last couple of years is that by an ironic twist of history it was the governing SPD—traditionally the most vocal defender of the welfare state—that saw itself being forced by circumstances to start dismantling the system. All of a sudden, catchwords like "more freedom," "less regulation," "more self-reliance," "less government intervention" could be heard from the SPD, a party originally firmly rooted in the workers and union movements of last century.

What happened next was decisive: the old left of the party reared its ugly head. The left wingers were, and remain still, up in arms over the trimming of the welfare state (by no means its undoing, mind you) the Chancellor proposed. If one chooses to think in the old and somewhat worn categories of the political left and right, the constellation that now has emerged is the following: Franz Josef Strauss, former state premier of Bavaria and an infamous right winger who died in 1988 once said about his own party: "The only thing to the right of the CSU is the wall." While the same thing used to apply to the SPD on the left, the party has with the political reforms initiated in the past few years moved so far to the right that all of a sudden a gaping hole opened up on its left flank.

This hole is now beginning to fill with the usual suspects on the extreme ends of the political spectrum: an assortment of welfare-state functionaries defending their turf, a good number of surviving communist dinosaurs, disgruntled socialists, and, unsurprisingly for the initiated, some neo-nazis all come crawling out from under their stones.

It is instructive to see how obvious similarities surface in the political ideas of the far left and the far right and how especially the far left is at pains to deny this. This convergence of neo-nazis and communists is, of course, only logical. But it is fascinating to witness how most people are simply not able to see this. Let's ask Hayek for help on this one, always a good idea. In his Road to Serfdom, originally published in 1944, Hayek considers in Chapter 12 "The Socialist Roots of Naziism". He writes:

"It was the union of the anticapitalist forces of the Right and on the Left, the fusion of radical and conservative socialism, which drove from Germany everything that was liberal."

In any event, this whole cocktail made up of the enemies of the "Open Society" has found an, albeit unstable, structure in the form of a political party now tentatively called "PDS-Linke Liste." It is made up of the Party of Democratic Socialism, PDS, which succeeded the former SED, the only party allowed in the communist German Democratic Republic, and the WASG (Alternative for Social Justice), a new group mainly led by renegade former members of the SPD.

Naturally, the PDS is largely made up of communists, most of them just do not admit it for tactical reasons. And the WASG, interestingly enough, is now spear-headed by nobody other than Oskar Lafontaine, who is not just any old lefty but someone who was actually the Chairman of the SPD until only a few years ago and the first federal Minister of Finance in Schroeder's first cabinet (although, amidst much secrecy and rumors, he took his hat in a surprise move only a few months into the job). He returned his membership of the SPD and signed up with the WASG only a few weeks ago.


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Under those circumstances, who can deny that Schroeder really must have a problem of confidence with his troops? The direct implication of these developments may be that some sort of culture war probably has reached Germany's shores. The moment to decide between good and evil draws nearer, it seems. In a country where ideological debate has been largely absent for decades, the mud slinging has started. The current Chairman of the SPD, Franz Müntefering, infamously called foreign investment funds "locust," descending onto German pastures like the biblical plague; Mr. Lafontaine has warned of the dangers of "foreign workers" stealing German jobs, Union leaders paint the bleak picture of the "socially cold" Germany of the future; and representatives of all kinds of interest groups speak gravely of the advance of "neo-liberalism" and the all-encompassing "commercialization" of life, devouring everything good and pure in its way.

To name just one of the populist tools that are being deployed in the hope of securing reelection for the SPD, there is an income tax surcharge of a few percentage points for people who earn more than 250 thousand Euros a year, aptly named the "millionaire's tax."

And still, I cannot shake the feeling that the chances for a freer country, for a society that feels comfortable relying more on the powers of the individual than the powers of a collective of some sort, are better now than they have been for a long time. It may be a blessing in disguise when the culture war actually breaks out. The inertia of the post war era may give way to the expression of a desire which, I believe, is fairly widespread among Germans: that government get out of their way and leave them alone. The question, of course, is just how widespread this sentiment will prove to be. If early elections are being called, we may know as early as this coming September.

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Frank Vogelgesang holds a degree in economics from the University of Freiburg and an MBA from Thunderbird. After working in The Americas for almost 10 years he now works as a self-employed international business consultant and freelance author in Germany. Send him MAILComment on the blog.