Populism

The AfD: Bad for Business

  • Why it matters

    Why it matters

    Most AfD-heavy states in Germany are in dire need of foreign investment, but without more qualified workers foreign companies will be reluctant to invest.

  • Facts

    Facts

    • Soon after the AfD’s success in Saxony-Anhalt and the western states of Baden-Württemberg and Rhineland-Palatinate, representatives from German industry warned that the election results could scare investors away from such states.
    • In the former East Germany, residents are leaving ex-industrial cities, often because there are not enough jobs.
    • Without assurances that there will be a steady supply of workers, investors are wary of committing resources.
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    Audio

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Frauke Petry
AfD party leader Frauke Petry. Source: Michael Kappeler / DPA

When the right-wing Alternative for Germany, or AfD, won a quarter of the votes in Saxony-Anhalt’s parliamentary elections this March, becoming the state’s second-largest party, Olaf Meister was alarmed. It wasn’t just that his own party, the Greens, had lost more than a quarter of their support, or that the Greens’ allies, the Social Democrats, had lost half of its votes. What Mr. Meister was mostly concerned about was the effect the election would have on potential investors in his troubled state. “No investor has told us yet that they’re pulling out because of right-wing populists,” Mr. Meister told me. “But I’m concerned that it’s a creeping process. People are thinking, ‘Should I really move to Saxony-Anhalt’, especially people who have a different skin color. Although people aren’t moving away at the rate they did 20 years ago, our population is ageing and the industry needs workers.”

Germany’s large cities are growing. But in former East Germany in particular, residents are leaving ex-industrial cities, often because there are not enough jobs. Take Mr. Meister’s Saxony-Anhalt, in the western part of the former east. According to a 2015 report by the Bertelsmann Foundation, it’s set to lose almost 14 percent of its residents in the next 14 years. Mecklenburg-Vorpommern, where the AfD won nearly 21 percent of the votes in state elections last month [September], will lose 10 percent of its population during the same period. In some cities, the situation is desperate: according to the Bertelsmann Foundation report, Bitterfeld-Wolfen, once East Germany’s leading chemical manufacturing city, is predicted to have 26 percent of its 2012 population by 2030.

To entice its residents to stay, regions like Saxony-Anhalt and Mecklenburg-Vorpommern need investment. But to lure investment, they need to maintain their working-age populations. Given current trends, the primary way to grow the labor force is through immigration (and by encouraging locally-born residents to stay). Far from imposing a burden immigrants could, in other words, help save a languishing region or two, or at least help it thrive economically. And Saxony-Anhalt has had some success: According to a report by the consultancy EY, foreign investors last year opened 18 new facilities in the state, creating 920 jobs. They included eBay as well as companies from Turkey, China and Israel.

But just as Germans are voting with their feet, so are many migrants in Europe. Most migrants go where there’s work and where they feel they will have a social network. Of 40,000 refugees housed in refugee housing in Saxony-Anhalt last year, half left after being granted asylum, most seemingly preferring other German states. And of the 23 asylum seekers received by Latvia this year, every single one has left. Though no planned investments in Saxony-Anhalt have so far been withdrawn, Mr. Meister’s concern is understandable.

Hungary, too, is seeing its population shrink as birth rates decline and natives leave for other countries. Like Saxony-Anhalt, Hungary needs immigrants, but its Fidesz-led government has made a point of disinviting them, going so far as to reject EU refugee quotas. Projections show the country on track towards a population of less than eight million in 2060, down from nearly 10 million today.

It’s not that investors dislike Fidesz, the AfD or any other slightly populist party. Companies, for the most part, are not rattled by election results. In fact, when it comes to party politics companies are generally agnostic. What they want from domestic politics is simply a measure of stability and predictability that allows them to make medium- and long-term plans. But without assurances that there will steady supply of workers, investors are wary of committing resources. “Right now there’s a huge lack of workers, so major companies don’t want to invest here,” Peter Kreko of the Budapest-based political consulting firm Political Capital told me. “In Central and Eastern Europe we have a catastrophic demographic development but instead of trying to attract migrants our governments chase them away.” Though other factors, of course, played a role as well, between 2010 and 2015 foreign direct investment (FDI) in Hungary dropped by two thirds, to $2.5 billion.

In the United States, Donald Trump uses similar anti-immigrant rhetoric in the Rust Belt, Mr. Kreko noted, even though the Rust Belt needs a larger work force in order to attract new investments. Soon after the AfD’s success in Saxony-Anhalt and the western states of Baden-Württemberg and Rhineland-Palatinate, the President of the German Federation of Industries, or BDI, Ulrich Grillo, warned that the election result could scare investors away from such states.

Right-wing populist parties like the AfD see the matter differently. At a recent debate in Saxony-Anhalt’s state parliament, the AfD’s parliamentary leader André Poggenburg asked Interior Minister Holger Stahlknecht whether he considered the state’s foreign-born population rate – currently 4 percent – to be a reason not to act on immigration. “As in other parts of Germany, we’re having parallel societies where law and order have been suspended,” Mr. Poggenburg said.

By contrast, some suffering towns and regions and even countries are turning the refugee crisis to their advantage. In Lithuania, which has seen its population drop from by 12.2 percent in the past decade, employers now recruit migrants for unfilled positions. “Half of my fellow university graduates have left the country; it’s very sad and a bit demoralising,” Vilnus Leveris, the owner of a new upscale barbershop in Vilnius recently told the Sunday Times. But after Mr. Leveris found out that some refugees have trained as barbers at home, he started recruiting barbers from a local refugee hostel.

Back in Saxony-Anhalt, the coalition government of Christian Democrats, Social Democrats and Greens elected in the March elections is trying hard to woo investors. It points out that the state’s GDP has nearly tripled since 1991, albeit from a very low base, and that 99 percent of its companies are solid Mittelstand firms. And last month [October] the industrial park in Bitterfeld-Wolfen, where 360 domestic and foreign chemical companies currently operate, announced that it will invest an additional €4-5 million in its infrastructure in the hope of attracting more occupants. The government is also hoping that convincing its foreign students to stay will make the state more attractive to investors.

Mr. Meister, now the Greens’ economic policy spokesman, acknowledges that it’s hard for the government to change popular sentiments regarding immigrants and by extension to entice more migrants to move to his state. But one of the state’s technical colleges, in the town of Köthen, has 30 percent foreign students, he points out. And he tells investors, “the reality here is different from what you hear in the news. I don’t want to minimize far-right populism, but we have well-educated workers, a blossoming cultural scene. And we have Luther and the Bauhaus.” Pro-immigration politicians like him might also do well to tell local voters about the economic benefits of globalization.

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