Anheier reviews four recent books on Germany's current and past economic, political and social challenges.
Christoph Butterwegge, Die zerrissene Republik: Wirtschaftliche, soziale und politische Ungleichheit in Deutschland (The Torn Republic: Economic, Social, and Political Inequality in Germany), Weinhem, Basel: Beltz-Juventa, 2020.
Daniel Goffart, Das Ende der Mittelschicht – Abschied von einem deutschen Erfolgsmodell (The End of the Middle Class:Farewell to a German Success Story), Berlin: Berlin Verlag, 2019.
Ulrike Herrmann, Deutschland, Ein Wirtschaftsmärchen (Germany: An Economic Fairytale), Frankfurt: Westend, 2019.
Edgar Wolfrum, Der Aufsteiger: Eine Geschichte Deutschlands von 1990 bis heute (The Climber: A History of Germany from 1990 to Today), Stuttgart: Klett-Cotta, 2020.
BERLIN – This month, Germany will assume the rotating presidency of the European Council for the first time in 13 years. Its task will be to help lead the European Union through a period of deep uncertainty. Like the rest of the world, Europe is grappling with the ongoing COVID-19 pandemic and the worst economic slump since World War II. European businesses and institutions are undergoing stress tests far greater than those experienced during the global financial crisis a decade ago. Complicating matters further, the geopolitical situation is quickly deteriorating, owing to an erosion of the transatlantic alliance, changing relations with China, and renewed Russian belligerence.
Against this background, expectations for Germany’s performance are high, both at the European Council and more generally. Around the world, people have increasingly looked to Germany as a model for how to manage the pandemic, inspiring confidence through sound political leadership, a strong public-health system, and a degree of crisis preparedness unmatched by most other advanced economies.
German Chancellor Angela Merkel’s matter-of-fact speeches stand in stark contrast to US President Donald Trump’s narcissistic blathering and British Prime Minister Boris Johnson’s feckless leadership. While Germany rolled out widespread COVID-19 testing early on, the United Kingdom’s National Health Service and much of the health-care system in the United States have been overwhelmed by the virus’s all-too-predictable resurgence over the past few weeks.
Moreover, in early June, Germany’s governing coalition – comprising Merkel’s Christian Democratic Union, the CDU’s Bavarian sister party, the Christian Social Union (CSU), and the Social Democrats (SPD) – approved an ambitious €130 billion ($146 billion) stimulus package. In addition to allocating some €77 billion for immediate relief to small and medium-size enterprises, municipalities, and families with children, it also sets aside €50 billion for forward-looking investments in hydrogen energy, 5G infrastructure, e-mobility, artificial intelligence, quantum computing, and digitalization. And this national package comes on top of the Franco-German-led EU recovery fund to assist hard-hit member states.
These recent German actions are noteworthy, because they indicate that the country has finally abandoned its longstanding schwarze Null (“black zero”) policy of avoiding government debt. After years of running a budget surplus, the government has opened its coffers and even taken on significant debt. As German Federal Minister of Finance Olaf Scholz recently explained, because Germany has managed its public finances well, it can now afford to engage in deficit spending to manage the COVID-19 emergency. And, with political momentum building behind proposals to issue Eurobonds, the bright red line Germany’s leaders have long vowed never to cross – the introduction of an intra-EU “transfer union” – may be losing some of its vividness.
By all outward appearances, then, Germany looks like a country that is on the right track. The view from within, however, is not nearly as rosy. For all the country’s apparent resilience, the four books under review show that Germans harbor a gloomy outlook about the state of their economy, democracy, and institutions. In their view, all is not well, and much is at stake in the coming months and years.
“Prosperity for All!” was German finance minister Ludwig Erhard’s winning slogan throughout the 1950s, when the Federal Republic experienced its Wirtschaftswunder (“economic miracle”), rapidly rebuilding and recovering from the devastation of World War II. Erhard’s vision of a “social market economy,” consolidated when he served as West Germany’s second chancellor in the 1960s, laid the foundation for the country’s quick revival as a leading economic power. The Germans have never looked back.
That, at least, is the favored narrative. According to Ulrike Herrmann, a journalist with the left/green-leaning newspaper Tageszeitung, it’s a myth: there was no economic miracle, only “an economic fairytale.” In her view, Germany owes its postwar prosperity not to Erhard’s insistence on fiscal and monetary stability, central-bank independence, and export competitiveness, but rather to a fortuitous combination of American support, favorable demand conditions during reconstruction, and corporatism.
In making her case, Herrmann points out that the “social” in Germany’s market economy had nothing to do with Erhard, who openly disliked unions and public welfare provisions. It was, rather, the brainchild of the Federal Republic’s long-serving first chancellor, Konrad Adenauer, whose Roman Catholic faith impelled him to pursue social security for the masses. Adenauer saw that social stability was necessary to integrate West Germany into the US-led Western alliance, and to avoid vulnerability to Soviet influence.
The tragedy, Herrmann argues, is that the myth of Germany’s postwar “miracle” has trumped reality. Though Erhard departed from the political scene more than a half-century ago, she believes that his legacy should be scrutinized, and ultimately debunked. Otherwise, Germany will continue to repeat economic-policy mistakes that should have been corrected long ago.
For example, Herrmann shows that Germany’s mode of responding to economic crises since the 1960s has consistently featured the same core components: a Bundesbank focused squarely on fighting inflation; a government stressing fiscal prudence when it comes to social programs, even when it is engaged in stimulus spending; and an economy geared toward exports at the expense of domestic demand.
For Hermann, these are ultimately crypto-nationalist positions that deny a basic truth: the German economy is successful because it is embedded in the EU and the eurozone. What Germany needs, Hermann concludes, is a demystification of its economic past and present. Though European integration has made Germany’s current prosperity possible, its own homegrown myths have continued to frustrate shared progress at the regional level. That message would certainly find a welcome reception in most other EU member states, particularly Greece and Italy.
In the institutional context of the EU and the eurozone, Germany’s export orientation has allowed it to export some of its problems to other member states, finding at least temporary relief for domestic economic and social pressures. This was the case with the so-called Hartz-IV labor-market reforms of 2005, which are at the center of Christoph Butterwegge’s The Torn Republic. Now a professor emeritus at the University of Cologne, Butterwegge left the SPD the year the Hartz-IV reforms were adopted, and ran as Die Linke’s (The Left) candidate for the federal presidency in 2017, finishing second to former Vice-Chancellor Frank-Walter Steinmeier.
According to Butterwegge, Hartz-IV’s effect on the country was more profound and far-reaching than that of any other domestic policy decision since the 1950s. While the policy’s supporters claim credit for the subsequent economic upturn and reduction in unemployment after 2005, Butterwegge believes these apparent gains came at the expense of equality. By establishing a vast low-wage sector to reduce labor costs and boost exports, Hartz-IV Americanized the German economy, making the country less social and more unequal than it was and otherwise would have been.
After all, by attaching stricter regulations and sanctions to social-insurance programs, Hartz-IV impelled job seekers to accept lower wages and worse working conditions. The reforms not only put enormous pressure on the long-term unemployed, but also resulted in real (inflation-adjusted) income losses, especially among lower-earning households.
Hartz-IV thus became a tool of class discipline. By driving down wages, it increased the competitiveness of German industry – especially in export markets – but it also created a new precariat of insecure, underpaid workers. As a result, Butterwegge contends, Germany has become increasingly polarized along economic and social lines (albeit not yet to the same extent as the United States or Britain).
The Torn Republic derives its title from its analysis and interpretation of Germany’s transformation since WWII. Though Germany is no longer divided mainly by ideology – as it was from 1949 to 1989, when West and East Germany each defined themselves in opposition to the other – it is being torn apart internally by inequality. Butterwegge’s recommendations for addressing the problem are highly ambitious, but not particularly surprising. He proposes a “living” minimum wage; a tax-funded universal insurance system covering health, unemployment, old-age and disability pensions, and long-term care; and effective income and wealth redistribution through reform of the tax system. He is confident that, taken together, these measures would go a long way toward making German society more equitable and cohesive.
The Hollow Middle
Inequality also features prominently in Daniel Goffart’s The End of the Middle Class. But, as the title suggests, his book is less about the new precariat at the bottom of the income ladder, and more about the demise of the broad middle that once defined the German “success story.”
A reporter for FOCUS magazine (and previously for the business newspaper Handelsblatt), Goffart describes the earlier postwar German class structure as onion-shaped, with small tips representing the upper and lower ends of the income distribution, and a thick middle comprising the vast bulk of households. The problem, as he puts it, is that the onion has become a pear, with a narrow top and bulging bottom.
Goffart offers a now-familiar account of self-serving elites dealing an increasingly bad hand to the middle class. While senior corporate executives earn ten times more today than they did 30 years ago, the median income has moved little. Where once the average family could live well on a single salary, it now takes two just to afford a two-bedroom apartment in any of Germany’s major cities.
What explains these trends? Goffart identifies two primary forces: demography and digitalization, the negative effects of which have been exacerbated by misguided policies. Starting in the 1980s, Germany’s baby boomers (who arrived during the 1950s growth era, a decade or so later than their nominal counterparts in other countries) entered the labor market in massive numbers just when deindustrialization was gaining momentum. Skilled blue-collar jobs were being replaced by service-sector jobs that offered less pay and security. Vast swaths of the middle class were demoted financially and deskilled.
Making matters worse, tax policies began to favor the rich, while doing little for the middle class. What was once a progressive tax system became regressive for most households. Today, an individual reaches the top tax bracket when she earns just 1.3 times the average income, compared to 20 times the average in the 1950s. Moreover, since the 1990s, adverse labor-market developments have overlapped with the second force, digitalization, which is Goffart’s main focus.
Goffart quotes at length from a 2016 speech by Siemens CEO Joe Kaeser, who fears that digitalization will destroy the middle class globally, forcing all societies – not least Germany – to confront the problem of growing social, economic, and political polarization. A relatively small group of software engineers, digital entrepreneurs, and others will benefit, but most of society will lose, because many occupational skills will no longer be needed. Unless policymakers do something about the growing potential for conflict, widespread social strife of the kind already on display in the US and other countries will become inevitable.
Goffart’s harrowing description of our present and the near future is a hard pill to swallow. But he offers a chaser by devoting some 40 pages to ambitious potential solutions. These are presented individually as “ten commandments,” yet they amount to a vision of an entirely new social contract.
Ultimately, Goffart’s reform agenda rests on two pillars. The first is regulation. All countries need stronger, more comprehensive regulation to rein in global tech giants and multinational corporations in general. For years, multinationals have taken advantage of all possible loopholes and accounting tricks to escape taxes and avoid public accountability. Only by being forced to abide by the same rules as everyone else, including paying their fair share in taxes, can they become part of the solution.
Second, Goffart points to the need for new public revenue sources. Governments need more resources in order to manage twenty-first-century risks successfully, but they remain dependent on indirect taxation and individual income taxes. In Goffart’s view, tax reform should be a European-level project, with close coordination between EU governing institutions and all member states. No country acting on its own can rein in corporate power or eliminate free riding.
All’s Well That Reforms Well
In contrast to the previous three books, historian Edgar Wolfrum of the University of Heidelberg paints a much more positive portrait of Germany since reunification. The title of his book, Der Aufsteiger, is difficult to translate, but it is meant to convey a sense of ascendance and ambition – like a mountain climber, undeterred by obstacles or elements. It follows his 2006 book, The Successful Democracy, and further solidifies his position as one of postwar Germany’s consummate academic boosters.
Still, while Wolfrum can gush with optimism, Der Aufsteiger also offers a welcome dose of critical reflection. Sounding a familiar note, Wolfrum worries that Germany remains too hesitant and uncertain about its role in Europe and the world, even though its geopolitical and international stature has grown since 1990.
Compared to the other books considered here, Wolfrum is more concerned with domestic politics and internal cohesion than he is with the German economy. Like Herrmann, he views reunification as a success, and arrives at a cautious but positive assessment of how East and West Germans relate to one another today. But, of course, Wolfrum is deeply concerned about the rise of right-wing parties like Alternative for Germany. While the country did manage the sudden influx of one million migrants and refugees in 2015, the longer-term consequences of that shock remain uncertain.
As for Hartz-IV, Wolfrum views former Chancellor Gerhard Schröder’s red-green (SPD-Greens) coalition from that period as the most proactive and reform-minded German government since the Willy Brandt era of the 1970s. Butterwegge, of course, would argue that it was precisely those reforms that alienated the SPD base and accelerated the party’s decline.
The Federal Republic’s New Clothes
All four of these recent German histories are well written and competently executed, but also controversial, and thus have met with much criticism. Reading them together, however, one cannot help but notice a glaring paradox. While Europe and the world have fundamentally changed in many ways, Germany seems much the same. Throughout Merkel’s long chancellorship, no major reforms have been instituted except as reactions to some sudden shock – such as Japan’s Fukushima nuclear disaster in 2011, which triggered a radical change in Germany’s energy policy. German policymaking has been ad hoc, lacking a broader proactive vision.
Whether any these authors’ arguments will make a difference remains to be seen. Herrmann offers a compelling case for why Germany needs to grow out of its postwar storytelling and confront economic reality. Butterwegge sheds needed light on the problem of rising inequality. Goffart sounds the alarm about the country’s futile attempt to maintain a status quo that no longer exists. And Wolfrum reminds us that Germany is still capable of remaking itself, when it wants to be.
All told, Germany today is clearly more vulnerable than many observers assume. Unless it can engage in serious, forward-looking reform – something that has not happened in years – the remaining dividends from past prosperity will soon evaporate. That would be bad news for Germany, Europe, and the world. To put it another way, without major change, Germany may not be able to provide the leadership that many hope it will. Should it succumb to inertia and inaction, it will squander its chance to assume a more assertive, agenda-setting role in Europe.
The COVID-19 crisis has created an opportunity for such change. Already, Merkel and Scholz have taken steps that would have seemed impossible just a few months ago. So far, their reformist ventures have been limited to economic and fiscal policy. But it is not too late to start thinking bigger and confront the challenges of lost social cohesion, digitalization, and security policy, both at home and at the EU level. Germany now has six months at the helm of the European Council to show whether it can rise to the occasion.