Germany’s Agenda 2010

WSJ.com – We Will Not Vote For Schroeder’s Reform Bill
I agree with Mr. Schaeuble, the author of the article and chairman of the Christian Democrats in Germany, but would probably still vote for the bill. It seems to represent real progress for Germany, even if only modest progress. If there’s a way to achieve greater reform of the German labor market, by all means do it. However, the author doesn’t offer a realistic chance of additional reforms, only the means to block existing reforms.

Perhaps if the current round of liberalization succeeds the German people will see cause and effect and be willing to pursue additional reforms at a later time.

Having faced total destruction in World War II, Germany’s new democracy adopted in the late 1940s a social market economy that would ensure that basic living conditions were met while taking on the colossal task of building a new state. This system was built upon a set of preconditions. They do not take into consideration our nation’s currently changing demographics. Our model is in great need of repair. Today Chancellor Gerhard Schroeder presents parliament with a bill that will attempt to save our system, but his plan doesn’t go far enough and will not solve our fundamental problem of lagging behind in Europe when it comes to economic growth.

The social market model relied on a rather unusual mix of free-market principles and government intervention in the health and pension system, education and the labor market. It worked for Germany for 50 years because it combined the components of a free-market economy — private property, competition, individual freedoms — with an amount of regulation that helped to overcome poverty and disability while promoting solidarity. High wage levels were maintained through a high degree of productivity growth. The promotion of the Mittelstand — small and medium-size, privately owned businesses — achieved a solid middle class and equitable income distribution, the backbone of Germany’s economy and democratic system.

The problem with this social model is that it has several important preconditions: It can only function with a skilled, highly educated workforce. It also needs a national consensus on certain values, such as the need for solidarity paired with competitiveness. Intergenerational solidarity, which has been the basis of the German pension system since the days of Otto von Bismarck, can only function if there are enough young people who will work and contribute to the German social system.

These preconditions are today disappearing, while the costs for the social, health and pension systems are exploding. Only 40% of Germans are regularly and fully employed, and productivity growth hasn’t kept up with wages.

The need for change has become so overwhelming that the government has had to address it by launching its so-called “Agenda 2010” reform program, which proposes a reorganization of the labor market and the social-welfare system. Legislation developed as a result of these proposals comes to a vote in the Bundestag today.

This bill as it stands does not reach far enough. Chancellor Schroeder’s already razor-thin parliamentary majority, fighting for its political survival, has been forced to water the bill down, bowing to objections from labor unions and a six-member coalition of parliamentarians who are members of the chancellor’s own Social Democratic Party.

Maybe I’m wrong and the failure of this legislation will lead to the collapse of Schroeder’s government and an opportunity for the Christian Democrats to govern and propose even bolder reforms. I certainly hope so.

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