The German economy is booming. The country’s GDP increased by 2,2 percent in 2017, a figure that surpassed all, even the government’s growth forecasts. The Labour market is in exceptional condition, the inflation rate is low, companies are gaining profits, the DAX reached a new historical high. Public budgets have good revenue turnover. Despite last year’s emissions scandal the economy achieved worldwide export goals. This is Germany in 2018.
Currently, economic growth means profit for companies and surpluses for public budgets. The actual wage increase, though, is still modest. The housing shortage, educational problems and perpetual troubles in the welfare and health sector have wide-ranging consequences for people’s living conditions. Despite the growing GDP there are poverty traps, increasing casualization and child and youth poverty. This is also Germany in 2018.
The money is there, the economic situation shows that active welfare policy and redistribution could be financed
More is being produced than is needed. But economic management is not only about production, but also the distribution of wealth. In this regard, Germany in 2018 is still far behind what is possible. The money is there, the economic situation shows that active welfare policy and redistribution could be financed. These are important topics which need to be on the social agenda, especially in the current ‘Karl Marx Year’.
The times where economy was a private issue are over. Economy is social responsibility. In fact no-one knows why people did not understand this in the past. Economic regulation is always needed when the market fails. Even neoliberal economic science textbooks affirm that. Nevertheless it’s rarely recognised that the failing market is already a normality in our globalized world, and functioning markets without oligopolies are extremely rare.
Maybe try distribution
Against this background we might demand the good, old order. Today this is called institutional economics. The state has to pay nearly nothing, but when it is done well, it has good results. Rules set by the state need to gain importance. To bring them through, a strong state is needed. Years of reducing the public sector left devastation, which makes the state pay dearly. This status quo cannot be continued without risking future viability. The need for investment in crumbling public infrastructure cannot be ignored. No government will be able to get around strengthening the public sector.
The labour market meanwhile has been struggling for a long time. This means more than wage-setting. Why doesn’t economic growth lead to a better quality of life and freedom for everyone? Why does growth only lead to more and more stress? Why do we still have a remarkable gender pay gap? Why don’t we try another way?
For years people claimed a minimum wage would slow down the economy. This thesis was mostly repeated by those who would not be affected by the minimum wage anyway. This unproven hypothesis affected many independent workers seriously and encouraged social division. Nobody apologized after it became clear that the introduction of a minimum wage did not harm the economy, but even strengthened domestic demand. Big wage increases could help bringing economic growth to more levels of the population.
Another concern should be to prevent the flexibilisation of labour in favour of vested interests. Politics should not shrink back from shaping society. This extends to the distribution of wealth, which is becoming more and more uneven. Why not dream of a society where many people can live a good life?
Not only in Germany, but in the whole of the EU the economy is rebounding, but distributional problems are not solved yet. Companies know what they want to be optimized – their yield. Public budgets focus on lowering their deficit and citizens stand in between, not knowing how to frame their wishes. A strict budget plan has no room for social-democratic approaches and even less room for dreams. Politicians need to become advocates of distribution for the people, otherwise they will be fighting a losing battle EU-wide.
The times in which wealth could be generated by national competition are over
Signs from Berlin are important for rule-setting in the EU and Eurozone. The world has become even more complex in the last few years. The times in which wealth could be generated simply by national competition are definitely over. A Europe where every country tries to improve its competitive standing through precarity and low wages pushes many people into a social downward spiral with poor prospects for their future. Today we should talk about the sustainable shaping of the future through cooperation and solidarity. The EU faces the question: intensification or decline? Brexit shows how fragile this balance is. Germany is one of the EU’s main beneficiaries and a new government needs to focus on deepening EU-integration.
Germany’s current account surpluses are increasingly criticized not only within the EU and the Eurozone, but globally. And indeed, it’s impossible to regulate this away. A reinforcement of domestic demand through distribution could limit it. Active redistribution would have a positive outcome not only for the domestic economy, but is also something that is demanded internationally. This is an exceptional chance to increase justice. A social market economy can be an efficient economic system. Good politics would not only take care of itself, but shape change.
This article was first published in German on freitag.de. It was translated by Sofia Heuser.