The recent German elections may illustrate that many Germans want to cut themselves off from the world by seeking reorientation in nostalgia and the socialist past. The free market economy is held responsible for the discontents of globalization. The world is dumbfounded - watching a paralyzed and de-globalizing Germany.
At the same time, the half-hearted economic reforms triggered by the current German government tell us that those in power want to shut themselves off as well. The economic reform programme is an attempt to save the achievements of the social market economy in the age of globalization. This attempt, however, is failing miserably as the country’s elite is not willing to address the root causes of the German malaise – lack of entrepreneurship, and lack of autonomy at a time of increasingly competitive world markets. Far too many people within Germany believe that Germany might be able survive as an island of tranquillity and fairy-story telling, where people can enjoy live by lying on the comfortable hammock of social justice whilst the outside ocean has very rough waters.
Germany’s ranking in the Globalization Index compiled by the Foreign Policy Magazine worsened dramatically during the last few years. Germany now occupies rank 17 whereas supposedly backward places like Slovenia and Portugal show better results. The bad ranking symbolizes the increasing self-focus on national interests and the de-globalization of this formerly so mighty country. It is easier to position fountains in the front gardens to evoke the peaceful times of the Rococo than dealing with the pressing issues now preoccupying the world.
Global challenges are ante portas: the rising economies of Asia, in particular China and India, are increasingly undermining the traditional strength of European competitiveness – high-end processing based on superior engineering solutions. China and India do not only profit from low-cost advantages but also from economies of scale as well as being supported by a highly productive working class. In a few years time, China and India’s population together will constitute more than half of world population. The main advantage of both countries, however, is the willingness of its citizens to deploy self-initiative and take on economic risk – characteristics which can be hardly found in Germany any longer.
Germany is ill prepared to tackle major challenges. Its labour laws are restrictive, wage policies are inflexible, the tax system is highly inefficient, and most state subsidies are without sense. A risk averse mentality is still widely prevailing. The current reform agenda is only a drop in the ocean. The developments in Germany are symptomatic of other EU-nations as well, especially mid-Continental and Southern European nations like France, Belgium and Italy. Parties on the political right have been gaining momentum during recent years, wherein unemployment and de-industrialization become the overarching issues of concern. Italy’s Fiat, once the country’s industrial pearl, is now in a permanent crisis. As in Germany, the Italian government is unable to drive through economic reforms: the Berlusconi cabinet tries to face-off Italy’s crisis by adopting an increasingly nationalistic and chauvinistic rhetoric. Over the border in France, the ‘Front National’ under Jean-Marie Le Pen has been able to successfully articulate his anti-European and anti-world hatred. On the other hand, the leftist anti-globalizers around ATTAC want to isolate Europe from free trade and world capitalism. Europe seems to face another dark period of “Final Solutions”.
One could imagine two different scenarios for Germany as well as for most of its similarly paralyzed neighbours: in the worst case scenario the decline of Germany will continue. Up to the year 2020, Germany’s big companies and, at a later stage, the mittelstand – Germany’s highly efficient small and medium sized companies will outsource their manufacturing facilities and R&D labs to Asia. In a final stage, due to the antiquated corporate tax system, their corporate headquarters will also be re-located to Asia. Germany de-industrializes and impoverishes. As an immediate reaction, parties on the extreme left and right will make further inroads leading to conditions similar to that of the late Weimar Republic – economic instability, class struggle and implosion of the political system.
This development can take another direction, too – in this case courageous politicians take control of the country's destiny. The social system has to be radically and reformed for sustainability. Such a ‘downsizing’ is a necessary condition for the renaissance of the country. The future, however, will be decided upon the consequent development of new growth potentials and the reintegration of Germany in the arena of global thinking and acting. By doing so the country might eventually be able to defend its economic wealth and social stability.
The social market economy as it was invented by Ludwig Erhard, Germany’s economic Minister in the 1960s can no longer be the right medicine in times of free trade and globalization. The sub-optimizing of economic processes with the goal of balancing out of social inequalities will lead to the final collapse of the economy. Nowadays, economic policies cannot be defined and applied within the narrow boundaries of a single and isolated state. Economic policies must encompass and embrace the world at large. The focus on a European-wide coordination of economic processes as practised by the European Union is only the beginning – policies aligned to a global market economy shall reflect on the international flow of goods and services, global manufacturing and investments, and transnational employment schemes. Ideally, all economies – in the developed and the developing nations - shall benefit from this new approach towards economic policy. The global market economy shall be a positive sum-game, as the pie of economic activity will grow in a very balanced and sustainable fashion. Germany and Europe have to redefine their economic policies by developing and deploying a global approach towards economic engagement. Part of this endeavour shall be a new class of politicians that lives and acts on the new global model towards benign globalization. Other stakeholders such as representatives from business, academia, media and civil society should join the political class to transform Europe’s economic heartland once again into an engine of growth. It is time to remove the squirts from the garden.
Frank-Jürgen Richter is President of Horasis, a Geneva-based advisory firm.
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