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Ludwig Erhard, We Need You

Mises Daily: Wednesday, April 24, 2002 by

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What do the German soccer league, unemployment, and the price for ice cream have in common? They, among assorted other topics, have been causes of grave concern in Germany over the past few weeks. And the solution suggested for all three usually is: let government take care of it!

In the case of soccer, the league’s travails are caused by the insolvency of the media empire of Leo Kirch, who had provided a steady flow of revenue to the clubs in exchange for TV rights. That Kirch Media went broke following a number of bad management decisions prompted Chancellor Schröder--not that surprisingly--to suggest that state loan guarantees should save the day. After all, this is the number one national pastime we are talking about, and general elections are only a few months off.

Regarding unemployment, which by now stands at an intimidating 4.3 million jobless (and probably around another 1.7 million in hidden unemployment), the sad tale goes like this: In a well-publicized scandal in February, the Federal Labor Agency, or Bundesanstalt für Arbeit--a bureaucracy with no less than some 90,000 employees in charge of finding jobs for the unemployed and at the same time paying out unemployment benefits--had to admit that it had been using creative statistics for years.

As it turns out, the institute had long been overstating the number of people it brought back into jobs by a whopping 70 percent! I assume that its success rate in spending the available budget for unemployment benefits and other transfer payments, however, is closer to 100 percent.

Finally, in the ice cream incident, the media detected a significant hike in the price for a cone as compared to last year. The instinctive reaction of the journalist reporting the news was to ask which state minister was responsible for ice cream prices.

As inconsequential as the last example may appear, like the others, it illustrates mainly one disconcerting fact: how entrenched the mentality of reliance on the state still is, and how woefully absent principles of classical liberalism usually remain in the actions of government as well as in the mind of the public at large.

Germany today is a country marked by often-suffocating regulation, a social security system that lies like a wet blanket over the private sector, and a labor market in desperate need of breathing room. Trying to run a business can easily be rendered a nightmarish experience. Companies cannot adjust to downswings because often it is virtually impossible to reduce the number of people working for you. There are still incredibly powerful unions that mandate the wage level for entire industries nationwide.

A whole class of professionals--doctors, lawyers, tax consultants, and also pharmacists--are shackled on one hand by all-encompassing legal provisions, right down to how much they can charge for their services (and, until recently, where they can set up shop); on the other hand, they are still shielded by privileges reminiscent of medieval guilds and are benefiting handsomely from the siphoning-off of economic rents.

On top of that, several de facto public monopolies persist in an only de jure privatized environment, like Deutsche Telekom AG’s exclusive rights over the "last mile," or the exclusivity granted to the former public postal service, now Deutsche Post AG, to carry all letters under 200 grams. Add to that a tax code which is widely known to be the most complicated in the world and which admittedly nobody fully understands anymore. Besides administrative reform and revamping the income tax, scrapping fiscal beauties like the "ecology tax" or the "solidarity surcharge" altogether, and reducing the heavy tax burden, is urgently needed.

It would not be just to lay the blame for this state of affairs squarely at the door of the current Social Democratic/Green coalition government. The Christian Democrats previously in power for many years hardly did much better. (The only party in Germany fighting coherently for a society based on competition and markets is the Free Democrats, or FDP.) To be fair, there have been improvements in the past. But the task lying ahead is daunting. And it is hardly encouraging that quite a bit of the legislation introduced over the past three years has made matters actually worse.

The list of overdue reforms is so widely known that I will not repeat it here. The finer point of all this is that the way things are today to an alarming degree go against the kind of market economy envisioned by Ludwig Erhard after World War II, based largely on ideas of the Freiburg School with its intellectual roots in the Austrian Eugen von Böhm-Bawerk, in Wilhelm Röpke, in Walter Eucken, and in others.

Today, many still have not understood that the days of the European cradle-to-grave welfare state are numbered. And sometimes it is hard to see how Germany can turn back to what was the good and solid foundation of the economic success it achieved in the postwar years.

What I mean to suggest is that in contemporaneous German society the mores, to use de Tocqueville’s term, are such that the values of individualism as an organizing principle of society, of free competition where economic activity is steered by prices and a wariness to keep the size and power of the state in close check, are given little currency. This is not to say that it is too late to turn back. In fact, lately there have been some encouraging signs. But it is crucial to raise awareness of the marks decades of the welfare state have left.

With that in mind it is worthwhile to remember F.A. Hayek’s remarks (Individualism and Economic Order, University of Chicago Press, 1980, p. 22) on the theory of individualism, where the emphasis,

"(…) of course, is on the fact that the part of our social order which can or ought to be made a conscious product of human reason is only a small part of all the forces of society. In other words, that the state, the embodiment of deliberately organized and consciously directed power, ought to be only a small part of the much richer organism which we call ‘society,’ and that the former ought to provide merely a framework within which free (and therefore not ‘consciously directed’) collaboration of men has the maximum of scope."

2002 is an election year in Germany. Given the catastrophic state of the labor market and the outrageous displays of waste of billions of Euros of public money--like that of the Labor Agency--you would expect people to be fed up with statist conceptions. At the moment, however, the trend--as astounding as it is depressing--seems to be that the Party of Democratic Socialism (PDS), the successor of the ruling SED of GDR days, is gaining in popularity.

Meanwhile, as I write, Italy is grinding to a halt due to a general strike orchestrated by the unions to arm-wrestle the Berlusconi government supposedly over laws that make it all but impossible to fire anyone in companies with over 15 employees. In this light, the comparative position of the United States versus most of contemporary Europe (France!) does not seem all that bad, does it?


 
Frank Vogelgesang studied economics at the University of Freiburg, worked in Chile for seven years, and returned to his native Germany last year. Send him MAIL.