Commentary
The pitfalls of the German model
Public investments in 1970 equaled 5% of GDP, while they have recently been fluctuating around 2% or a little more, and the infrastructural decay of the country is visible. All this in pursuit of a balanced budget.
The issues of the economy remained almost in the background during the German election campaign, and in any case had less prominence than in the Norwegian elections. Nonetheless, people say that there is only one minister in Berlin, the Minister of Finance. Europe was not mentioned at all.
The SPD candidate, Olaf Scholz, ran on raising the minimum wage to €12 per hour and the construction of 400,000 housing units per year—important issues, but ones which touch only partially on the country’s major problems. Meanwhile, the Greens promoted a plan for the environment, proposing striking an agreement with industry.
Now aggravated by the pandemic, climate change and the China-US struggle, the difficulties of the economy have been present for some time, but the ruling groups have so far managed to keep them at bay. The Merkel years, as Joe Kaeser of Siemens pointed out in Le Monde on September 4, corresponded to a period of prosperity for the country (but not for everyone: poverty and inequality have increased), but now it is necessary to look at the great problems left by the Chancellor and invest in the future.
The floods that have recently affected Germany, with their severe toll, have led to an awareness of the need to accelerate the drive toward decarbonization, while a few months ago, the Constitutional Court had judged the government’s efforts in this regard to be totally insufficient. It is estimated that €2.3 trillion of investment are needed over the next 30 years.
But regarding investments, it is necessary to recall, as an article in Il Sole 24 Ore did on August 23, that public investments in 1970 in Germany were equal to 5% of GDP, while they have recently been fluctuating for some time around 2% or a little more (even less than in Italy in recent times), and the infrastructural decay of the country is visible. And all this in pursuit of a balanced budget (Schauble’s “Schwarze null”). On the other hand, Covid has forced the government to give up on this dogma, at least for the moment, and in 2020 the budget showed a deficit never seen before, of more than €158 billion—Schauble must have had nightmares. But will it return to the “discipline” of before?
How to finance investments in ecology and infrastructure? Among the proposals, there is talk of increasing taxes for the wealthiest (something opposed by industrialists, but also by the CDU with its candidate for Chancellor, Armin Laschet), of finding that money in the yields of future growth, and finally of increasing debt. This is a ground for clear confrontation.
Another problem concerns relations with China. The country is Germany’s largest trading partner: chipmaker Infineon makes 42% of its sales there, and Volkswagen 41.4%. “China is the present and the future of the German car,” says one expert. “If you’re not at the table with the Chinese, you’re on the menu,” adds another, speaking more generally.
But in the meantime, companies in the Asian country, which, much like those in Germany and South Korea, are very focused on the industrial sector, are increasingly competing with the Germans in machinery as well as in new car technologies, and with the Koreans in shipbuilding as well as in consumer electronics. Recently, we heard the surprising news that Chinese exports of machine tools have surpassed those of Germany to become the world leader.
On the other hand, Germany is driven by its economic interests on the one hand and its political ties with the U.S. on the other; the latter is pressing for a hardening of its position toward China.
However, the industrial sector has been slow to adapt to digitization processes as well as environmental changes, and is now trying to make up for lost ground; this is evident in the automotive sector, which, directly or indirectly, employs around 15 million people, an enormous figure, while producing 55% of the added value in the sector in Europe, for a country with 19% of the EU’s population. The investments now being made are very high.
Then there is the thorny problem of developing the internal market, which has been sacrificed until now on the altar of exports. The introduction of a minimum wage in 2015 marked a first break with that model. But there are many millions of workers who are receiving very low wages, and there is a wide presence of part-time work (more than one in four workers).
And we haven’t even mentioned the issue of the great difficulties in the social advancement of the most disadvantaged, with many millions of children below the poverty line. In passing, we can also recall the woes of the financial system, which in a recent report was characterized as inefficient and prone to scandals, with non-existent controls and with large banks in difficulty.
So many problems waiting for answers, while the partners in the Union (with Macron and the countries of the South first and foremost) and Brussels as a whole are looking on intently, impatient to know what will be done about them, perhaps more than even the Germans themselves.
Originally published at https://ilmanifesto.it/le-insidie-del-modello-tedesco/ on 2021-09-26