Done with dogma

Time to shake up Germany's economic institutes

FELBER Christian
The new man on the dogmatic block. Source: DPA

“The time for dogmas is over,” says Gabriel Felbermayr, who will soon join the ranks of leading economic thinkers in Germany. “We can’t just say no all the time.”

That will sound like singing angels to some Anglo-Saxon economists who have battled for the past decade with proponents of Germany’s conservative, rules-based “ordoliberal” version of economic thought.

Next March, Mr. Felbermayr is expected to become head of the Kiel Institute for the World Economy in northern Germany. The 41-year-old Austrian has until now headed the foreign economics department of the Ifo Institute, arguably Germany’s most influential economic think tank. His goal will be to restore the glorious reputation of the Kiel Institute, once the country’s premier institute for research on foreign trade and economic policy.

Unlike some German thinkers, his prescription involves listening to what the other side has to say. And in the current age of populism, where the establishment and “experts” have come under heavy fire across the western world, Mr. Felbermayr is making a habit of challenging the status quo.

“We have always overpromised too much, which means we share the blame for the lack of trust in elites.”

Gabriel Felbermayr

Germany is full of earnest-sounding institutes, each with a slightly different ideological focus. Aside from independent ones like Kiel or Ifo, there are foundations openly affiliated with political parties or causes: The Adenauer Foundation is tied to Chancellor Angela Merkel’s Christian Democrats, for example, and the Friedrich-Ebert Foundation to the Social Democrats.

In fact, having their own foundation is seen as a right for all political parties in parliament — one that is subsidized to the tune of tens of millions of euro by the German taxpayer. The luxury was most recently given to the populist Alternative for Germany, which became Germany’s third-largest party in September. After an internal party struggle, the relative moderates won out, and the AfD threw its support (and government funding) behind the Desiderius-Erasmus Foundation. Its mission is to push for more direct democracy and less EU meddling.

German think tanks and economic foundations are almost entirely male-dominated, at least when it comes to the heads of these institutes and their advisory bodies. The only exception, some will be surprised to hear, is the AfD-backed institute headed by the CDU-turned-independent Erika Steinbach. The government’s top economic advisory board, the German Council of Economic Experts, led by Christoph Schmidt, includes one woman, Isabel Schnabel.

Deutsch-französisches Reformkonzept für die Eurozone
Clemens Fuest (Ifo) and Marcel Fratzscher (DIW) have dominated the media landscape over the past few years. Source: DPA

For about three decades, Kiel dominated the German economic landscape under the leadership of Herbert Giersch (1969 to 1989) and Horst Siebert (1989 to 2003). But over the past decade, the conservative Munich-based Ifo Institute, together with the more left-leaning Berlin-based DIW, have quietly eclipsed Mr. Felbermayr’s future Kiel home. Published research has kept Kiel high in global rankings (see graphic), but Ifo and DIW have arguably been more adept at getting media coverage and influencing policy. Hans-Werner Sinn, the long-time Ifo president who stepped down last year, dominated German headlines for his outspoken conservative economic prescriptions, particularly during the euro-zone debt crisis.

11 Ranking Europes leading economic think-tanks-01

It was Mr. Giersch and Mr. Siebert, both rigorous proponents of supply-side economics, to whom Mr. Felbermayr was referring when he said the time for dogma is over. In that he follows the line of Kiel’s current head Dennis Snower, an American economist who also liked to challenge the orthodoxy of German economic think tanks, particularly in the aftermath of the financial crisis. The trouble was that Mr. Snower lacked media savvy.

Mr. Felbermayr has a better chance of shaking things up. Though he is strongly pro-European and pro-free trade, he has become something of a media presence for giving the other side its fair shake. For example, he published research highlighting that Donald Trump has a point when he criticizes the European Union’s own trade policies. And during the Brexit referendum, Mr. Felbermayr noted that Britain profited less from free trade in the bloc than other EU members.

Mr. Felbermayr also raised his profile pushing hard for the US-EU free trade deal known as TTIP, a project that was even more unpopular in Germany than it was in the United States. He published study after study showing its potential economic benefits for growth and employment, winning regular citations by supporters including former EU commissioner Karel De Gucht.

But while there were clear positives from the deal, politicians have a tendency to take things too far. Supporters of TTIP exaggerated the benefits thereby undermining their argument, Mr. Felbermayr complained at the time. In these days of populist movements, he’s a little more self-critical about the whole episode. “We have always over-promised too much, which means we share the blame for the lack of trust in elites.” Strong words from the newest member of that elite club.

Norbert Häring is an economist working for Handelsblatt in Frankfurt. Christopher Cermak is an editor with Handelsblatt Global based in Berlin. To contact the authors: haering@handelsblatt.com and Cermak@handelsblatt.com

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