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The S Words

August 18, 2004

In Germany these days, "s-words" are held in high currency. Any public or private action has to be "sozialverträglich" (roughly translatable as socially compatible), everything from labor relations to health care to the pension system to the special tax levied for the reconstruction of the former East Germany—ironically wrecked by decades of central economic planning in the first place—marches under the almighty banner of solidarity and social justice.

One of the big–isms of the last century, socialism, of course also is an s-word, although nowadays hardly anybody uses it anymore. Now it comes in various disguises: the social question, social cohesion, social fairness, social justice, social security, social policy, etc.

When societies increasingly define themselves through the empty word-shell ‘social justice’ and misguided concepts of equality start to slowly corrode from the inside. Much of contemporaneous German society serves as a showcase. Where the mentality of the people and the actions of the political class are ruled by considerations of arbitrarily defined social fairness and equality, the ill effects of leveling playing field and player alike eventually pervade all corners of society: in the business world the type of creative destruction Schumpeter had in mind becomes ever more rare; educational systems ever less demanding, elites do not develop, the best and brightest go elsewhere; perversely, public morality and social cohesion eventually decline as a direct consequence of the coercive redistribution schemes that occur in the name of social justice. In short, a situation emerges where a receding tide lowers all boats.

In his Constitution of Liberty[i] Hayek writes:

"If, instead of administering limited resources put under its control for a specific service, government uses its coercive powers to insure that men are given what some expert thinks they need; . . . it will no longer be competitive experimentation but solely the decisions of authority that will determine what men shall get."

And, some chapters earlier[ii]:

"Justice, like liberty and coercion, is a concept which, for the sake of clarity, ought to be confined to the deliberate treatment of men by other men."

While the first quote depicts a significant chunk of reality not only in Germany and the larger part of the infamous "Old Europe," but also in most of the advanced western economies, the second quote points to one of the main reasons for this sad state of affairs.

Hayek has consistently shown that the term "social justice" is not only devoid of meaning, but also brings with it dire consequences (see his "The Mirage of Social Justice"). While the word "social" was originally used to describe men acting as social beings within a group, it was later transformed to acquire an ethical value judgement (up to the point where ‘social behavior’ now is tantamount to ‘good’ or ‘just’ behavior). Similarly, the concept of ‘justice’ is applied to circumstances like the outcome of the impersonal market process, placing it far away from what it once meant. After this far-reaching redefinition the term ‘social justice’ can be given practically any desired meaning.

I last touched on the German reforms here in January ("What the Change in Germany Means"). In what follows I want to illustrate further what decades of thinking in categories of social justice have brought upon us: ever less "competitive examination," and ever more "decisions of authority." This becomes painfully clear through no more than a cursory look at public discussion in Germany over the past few weeks. Here we go:

Health care reform: currently, two different ideas of how to tackle the urgent reform of the ailing health system are beaten around: first, the euphemistically labeled "Bürgerversicherung" or citizen’s insurance, the other is the Kopfpauschale, or "head-fee" (its proponents should probably have consulted with the marketing people before choosing that name), a flat-rate scheme where all those insured pay the same premium. The Bürgerversicheung is simply more of the old in that it intends to force more contributors into the public health scheme, and, consequently, indeed would practically abolish private insurance firms. The health premium concept at least de-links premium payments from income. This should be one of the main goals of reform since it would lower labor cost because in Germany’s solidarity system employers pick up half the premium.

Unsurprisingly, though, the country is up in arms over the issue of how socially unjust it would be to require the cleaning lady to pay the same health insurance premium as the CEO who’s office she sweeps. Try to offer the notion that this would be "fairer" than having someone healthy, but wealthy, pay far more for health insurance than the low income chain-smoker and you quickly realize how explosive the issue is. But still, with the same logic, why not charge people for the bread they buy according to a progressive price system linked to their wealth and income?

Next example, social security, or welfare: it remains impressive how clearly the focus has shifted from providing a safety net for the few that have been hit hard by life to redistributive justice, giving a "fair share" to all those considered victims of social injustice. One of the latest set of reforms, known as Hartz IV to insiders, effectively means that unemployment and social security benefits will be curtailed by a certain margin. The country’s left promptly waves the banner: "Poverty by law!".

And in a recent prime-time talk show on national TV, one of the invited guests (alongside a State Premier, a State Minister, the President of something called "Parity Welfare Association," and one lonely young entrepreneur), a male in his 50s who has been unemployed for more than five years decried the injustice of having to move to a smaller flat because of the reforms. Asked the reason for his long spell of unemployment he said: "Because the federal labor office does not find me a job."

In that same show, however, it also became apparent that not only government and the politicians are to blame: the State Premier denounced as scandalous the fact that after his State switched from analogous to digital TV the social courts had decided that social security recipients get the necessary set-top decoder boxes for free, while everybody else, including low income earners, naturally have to shell out the 120 Euros themselves.

Some justice!

Likewise, the economics minister of another State recently threw out the entitlement for free children’s daycare (in effect only restricting it from all-day to four hours daily, mind you) for families where both parents are unemployed under the presumption that they would have enough time to care for their kids. The court's opinion was that this would constitute an intolerable hardship on those having to look for work and reinstated it.

One more: last week the trial over alleged misuse of corporate funds for bonus payments in connection with the Vodafone-Mannesmann merger—by many accounts the most spectacular corporate case since WWII—ended with the acquittal of all defendants. While it is reassuring that the judge pointed out that the question of whether the size of a bonus package is ethically wrong is not for criminal courts or the public prosecutor to decide, an uneasy feeling remains because it was never plainly clear what this case was about and how it was brought before a court of law.

But much more importantly, the federal Minister of Justice in all seriousness came up with the proposal for caps on manager’s salaries (decreed by law!). She dared to venture into this territory in a week when major cost cutting measures at DaimlerChrysler ended with thousands of workers on strike. Much of the discussion centered on the issue of whether workers will have to work two more hours per week by 2007 or so;  management had to give up ten per cent of their pay to show solidarity. Who contrives a plan to limit salaries by law? You guessed it: everything else would be socially unjust.

It is also revealing that while in light of the above legislative initiatives the current German government can hardly be accused of being a staunch defender of liberty, even those timid reforms have prompted a good number of leftist activists (most of them still members of the old social democratic party - SPD) to form the "Initiative for Labor and Social Justice," apparently with the intention to present themselves as a new party of the old left at the next elections. Among other gems this group exclaims on its website that the fact that the latest labor market reforms require those who want to claim unemployment benefits to accept any legal job offered to them comes "perilously close to forced labor." This conclusion may leave some observers speechless, I should hope. It once again shows, however, the entrenched entitlement mentality the welfare state has wrought.

It is to me a constant source of bewilderment that when I suggest to people that the kinds of developments described indeed are bricks on the Road to Serfdom, however small at the moment still, most consider that an exaggeration of a nutty zealot, at best.

Here’s hoping that the words of warning given by Mises[iii] will over time be heard by more people:

"If righteousness [i.e. ‘social justice’ in this context, FV] is to be elevated to the position of the ultimate standard of economic action, one must unambiguously tell every actor what he should do, what prices he should ask, and what prices he should pay in each concrete case, and one must force—by recourse to an apparatus of violent compulsion and coercion—all those venturing disobedience to comply with these orders. One must establish a supreme authority issuing norms and regulating conduct in every respect, . . ."



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 MAIL.

[i]Universtity of Chicago Press, 1960, paperback edition 1978, p. 261.

[ii]Ibid., p. 99.

[iii]Human Action, 14th revised edition, Fox & Wilkes, San Franciso, p. 728.


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