Germany Reborn
The Wallstreet Jounal Europe
By Hans Tietmeyer, INSM
While Germany’s social-market economic model can look back on a long history of success, it is now beginning to show its age. Unreformed, it has become a burden that is having a negative influence on Germany’s ability to compete and innovate. One example of this can be seen in the country’s excessive level of social contributions, in turn hampering job creation. Despite the recent tax reforms, social contributions are still too high, while the labor market can only be described as derelict, with millions of people still out of work (a third of those unemployed now for more than one year). This cannot be allowed to continue.
The new social-market economy initiative spans all the main political parties, and is a forum for discussion in the quest to find answers that will return Germany to the forefront in all economic areas.
Nor can government alone be expected to put everything right. Rather people must start asking:“What can I do to ease the load on the state, instead of burdening it?“ It is time to recall the three principles that were the touchstone of Ludwig Erhard’s social-market economy: self initiative, entrepreneurial spirit and the readiness to take risk.
In calling for a revival of the social-market economy, Erhard’s system must be adapted to 21st century conditions - in other words, it must fit in with global competition and demographic change. This is not about creating „another“ social-market economy - rather we want to free up Erhard’s original system from the shackles placed on it down the years.
Erhard believed in „prosperity for all.“ Although such words may be evocative of state interventionism, that was certainly not what Erhard meant. Rather, Erhard believed that greater prosperity would be achieved as a matter of course if everyone made full use of the opportunities at their disposal.
Opportunities for all - that is the social-market economy creed of the 21st century, the „new social-market economy“. What this says ist that everyone from dot-com companies, to bakers, to the owner of a paper shop, whatever, all must have a chance to continue to educate themselves and move forward, while those with sound concepts should be able to form companies. „Opportunities vor all“ - that means overcoming the structural deficits in our social-security system and providing proper incentives for this. Self-responsibility is the key concept here. Recipients must move away from seeing social-welfare payments as a longterm replacement for earned income. People are unlikely to want to move from social welfare to a low-wage group if there is no incentive to do so.
At the same time, policy makers must concentrate on the state’s core task: the provision of freedom - for example, the shopkeeper’s freedom to stay open after 8 p.m. Or householders‘ freedom, not just to choose the telephone provider from a free market, but to decide who will provide electricity, gas or water services. Modern government must mean „management of freedom.“ Freedom always means self-responsibility, and clearly there can be no opportunity without risk. But the new social-market economy must create that freedom. If it succeeds, it will create growth and jobs – exemples of which can be found in Sweden, where lowering the corporate income tax to 28% from 52% helped the Swedish economy to grow strongly in recent years, or the U.S., where a budget deficit of $360 billion was wiped out over the last three years, and elsewhere.
Such a revival will allow us Germans to reach back by moving forwards, thereby regaining a concept that helped this country to a brillant upturn once before. While the conditions may have been different then, the principles behind the solution remain the same today.
Mr. Tietmeyer, the former head of German's Bundesbank, is the head of the cross-party "Initiative New Social Market Economy" (Initiative Neue Soziale Marktwirtschaft, INSM), which is sponsored by leading German business federations and which aims to strengthen public awareness for the necessity to renew German's social-market model.
The Wall Street Journal Europe,
Thursday, April 12, 2001