Governing Anew

The Many Kinds of Growth

Wirtschaftsforscher wollen Reiche zur Kasse bitten
Is it time to count my money again? Source: dpa

The next German government will be able to begin its work in an unusually favorable economic environment. The economy’s growing strongly and even likely to shift up a gear in 2018. The government’s earning plenty of money. Much of what was promised before the election seems affordable. Governing ought to be more enjoyable than it has been in a long time.

But instead of trying to outdo each other in fulfilling election promises, the future governing parties should remember that a society’s growth and development opportunities depend not only on its real and human capital, but also on its social capital. Modern infrastructure, private investment and qualified workers are just as important to an industrial society as cooperation, integration and inclusion. But there’s not much of that at the moment, as illustrated by the Alternative for Germany’s 12.6 percent election result.

The AfD is a staunchly nationalist party. Its aim is to abolish our pluralist-liberal order, which is why it is justifiably avoided by the other parties. Staying away the AfD is one thing, but staying away from its millions of voters is another. The next government will have to face the understandable complaint that these voters have been forgotten by politicians, economically and socially. It’ll take more than just talking about economic growth, falling unemployment and how poverty among the elderly is far lower than is often reported.

What’s always forgotten is the decline in social mobility. For many, the opportunities for career advancement and higher income have worsened. According to the economics ministry, in 2015 “the real gross wages of the lower 40 percent were in some cases significantly lower than in 1995.” Ergo: only the incomes of the top 60 percent of workers have risen in real terms over the past 20 years. It’s no wonder fear and anger are the answer and that the AfD has become a magnet for the economically disenfranchised.

Suppenküche
The price of this lunch isn't paid in euros. Source: DPA

Granted, Germany’s tax and transfer system strongly redistributes income. Gross income is far more unevenly distributed than net income. But wealth concentration is a different story, with the richest 1 percent possessing one third of the wealth, while the lower half has almost nothing. There are also signs of growing solidarity among the elites. In politics, for example, no one is overly offended when celebrities relocate their domicile abroad in order to thumb their noses at German tax authorities, and yet the same personalities are still often and gladly portrayed as ambassadors of a new, modern Germany.

This is consistent with the fact that many politicians, civil servants, union leaders and other high earners take it for granted that their children are sent to private schools. Public schools aren’t considered good enough, not least because of the large number of pupils from migrant families. This trend is being also subsidized since some tuition is tax-deductible.

Those who send their children to private schools fall out of touch with the problems of public schools and the public’s concerns about the futures of their children. This is particularly a problem for politicians.

The future government will certainly not succeed in convincing the nationalist part of the AfD electorate of the benefits of a policy characterized by openness, tolerance, liberalism and respect for human dignity. However, it must try to reconcile those who are economically disappointed with our legal and economic order by creating new social capital.

The divisions within society will widen.

Above all, we must become more dedicated to fighting long-term unemployment. Eligibility for Hartz IV welfare benefits must no longer be hereditary. And rules on earning something on the side while collecting benefits must be adapted so that people are actually rewarded for working. In addition, education policy initiatives must not only ensure equal opportunities, but also account for unequal starting positions. Finally, revising last year’s inadequate inheritance tax compromise would send a strong signal.

Up to €360 billion ($423 billion) is inherited annually. With €6 billion in tax revenues, the effective tax burden is 1.7 percent. By way of comparison: 14 percent income tax is due on the first earned euro above the subsistence level. Without an inheritance tax that includes large business assets, the divisions within society will widen.

The three judges on the German Constitutional Court rightly wrote in their special vote on the 2014 judgment: “The creation of a balance between otherwise entrenched inequalities is the responsibility of lawmakers – but not at their discretion.”

To reach the author: ruerup@handelsblatt.com

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