Learning from Germany

Chancellor Konrad Adenauer and Ludwig Erhardt deserved to celebrate Germany's Wirtschaftswunder

Das Wirtschaftswunder, or economic miracle, is what Germans called the quick recovery of their economy after WWII.  After a horrible winter in 1946, Germans went to work to rebuild their country, getting off rationing even before the victorious French and British.    In the 1950’s Erhardt as Economics Minister  presided over the regeneration of the German economy as he pushed for rapid free market reforms, even surpassing the pace suggested by the allies.   Erhardt was Chancellor from 1963 to 1966 (replacing Adenauer, the first West German Chancellor who came to office in 1949), promoting both market economics and European economic unity.

Central was the concept of the Soziale Marktwirtschaft or social market economy.   In terms of economic theory this relates to the Freiburg school or Ordoliberalism.   Essentially the role of the state is to try to assure that the free market economy produces as close to possible the maximum amount it is capable of producing.   Ordoliberalism rejects the idea that markets can function ‘magically’ or efficiently without the state – the state has a key role to play.    This includes social welfare protections, collective bargaining, and state support of some industries.   However, it is a liberal theory, rejecting socialist planning and socialist goals.   The desired end result is not based on a theory of social justice or exploitation, but on having the market economy work as well as it possibly can.

(To American readers who haven’t studied political philosophy:  liberalism here means a belief in limited government and a capitalist market economy — Ronald Reagan and George W. Bush were ideological liberals.  The jargony use of liberal to mean leftist in the US is idiosyncratic to US politics!)

Even when the Social Democrats were in power from 1969 – 1983 and 1998 – 2005 they did not veer from the main components of Erhardt’s vision.   The Christian Democrats never embraced a more radical form of liberalism like what Thatcher brought Great Britain or Reagan brought the US, also remaining true to the social market economy.

Social Democrat Helmut Schmidt's economic policies were pragmatic rather than ideological and earned Germany the label "Modell Deutschland," the Social Democratic slogan for the 1976 election.

Right now Germany is out performing almost every major industrialized economy, except perhaps some of the Scandinavian states.

Think about what that means.   Here in the US pundits want to tell us that higher taxes, social welfare spending, and more regulation are all “job killers” that would destroy our economic recovery.   Yet the best performing states during this recession (and Germany’s record is solid for the entire post-war history) have far higher tax rates, more social welfare spending and more regulation than ours.   Indeed, thanks to the power of Germany’s Green party the environmental regulations in Germany are among the most extensive in the world.   Germany has met and gone beyond the Kyoto protocol goals.   The first lesson from Germany is not to believe the ideological punditry!

That doesn’t mean we should emulate Germany; US culture is different, as are our strengths and weaknesses.   Germany has also done some things Republicans would admire.   The two major parties – Christian Democrats and Social Democrats – agreed on a balanced budget amendment designed to assure that German debt doesn’t increase.   That sent a clear signal to bond markets and currency traders that the Euro’s anchor is secure.   Regardless of what happens on the periphery, the underlying value of the Euro will remain strong because the German economy is stable.

A second thing we should learn from Germany is the strength of pragmatism.    Pragmatism means avoiding ideological thinking in order to figure out the best way to solve a problem.   Moreover, pragmatism for Germans is rooted in principle – the idea that the social market economy reflects support for a free market economy that operates as best as possible, with the public interest protected.   That means all citizens should have a chance to succeed, and basics such as health care, education, pensions, job training and a decent standard of living are guaranteed.   It’s not an effort to equalize out comes — there are many extremely wealthy Germans — but to assure equal opportunity and a minimum standard of living.

This pragmatism means that the two parties share a deep set of principles that unite them.   As much as they disagree on various policies and programs, they know that its most important that Germany deal with problems through compromise and avoiding either an ideological lurch to the left (massive debt, redistribution and spending) or to the liberal right (deregulation, massive tax cuts, leaving the poor to their own devices).    Moreover, the social market economy is based in part on understanding the power of incentives — all policies from the tax code to social welfare programs should be structured in a way that does not create incentives to cheat the system or avoid work.   Germany’s balanced all this better than most advanced industrialized states.

It works.   It’s not perfect.  The budget contains inefficiencies, there have been recessions and economic problems, but looking at Germany’s economy today one can’t help but be impressed.   If it weren’t for Germany, the situation in Europe would be far bleaker.

Those reading this blog over the past couple years recall that I’ve started rather bold research programs involving the media, consumerism, and the construction of values.    These questions have intrigued me and helped guide my teaching.   But ultimately I found myself unable to push the research along, it was too daunting to really shift my focus.

Will my 2003 book finally get a sibling?

So I’m back to what I’ve published on, wrote my dissertation about, and remain keenly interested in: German politics, and by extension, the European Union.    My focus is going to be to write a book that gives an accessible history of German economic policy and the keys to on going success, and then investigate what we can learn from Germany’s experience.    Does Germany’s success mean we have to rethink the theoretical and ideological arguments so common from both the right and the left in the US?    Does Germany have the capacity to help guide the EU into a much brighter future?   Moreover, might this be a complete metamorphosis of Germany from a state that wanted to dominate Europe to one that embodies the best European values, building a European Union based on cooperation, markets, and values?  I’ll keep you informed of my progress!

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  1. #1 by sekanblogger on January 29, 2012 - 18:13

    If you have a minute, check out the editorial I posted about Sam Brownback’s tax proposal.
    Amazing that he claims to be so big on social values.

  2. #2 by Titfortat on January 30, 2012 - 00:48

    I think one of the lesson’s is, lose the war, become an economic power. It seems Japan and Germany made out like bandits after WWll.

  3. #3 by Kristine Hunt on February 16, 2012 - 04:30

    I get the impression that we are so very not pragmatic in the US!

    While I’m sorry your other research interests didn’t pan out, I think there is much scope for interesting work on German economic policy, particularly with what’s been happening over the last few years. I’ve edited a few books over the last couple of years on postwar Germany, although mostly on culture, politics, and education, not so much economics.

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