Can Germany Be Saved? The Malaise of the World's First Welfare State

Press echo, German Studies Review, May 2010, p. 437 - 438

There is hardly a day in which Hans-Werner Sinn is not in the media. He is Professor of Economics and Public Finance at the University of Munich, yet has the ability to get his ideas across and a disposition to provoke. As president of the Ifo Institute for Economic Research, once a month Sinn presents one of most widely observed indicators for economic activity in German, the Ifo Business Climate. As a staunch neoliberal economist, he always has a word or two against trade unions and welfare-state politicians. He also has had second thoughts on environmental measures, and for this he just recently was named "Dinosaur of the Year 2009" by the German Association for Nature Conservation.

Can Germany Be Saved? is a thoroughly revised version of the German 2003 original.The figures are updated, more background information is given, and some more remote discussion points have been cut short. Also, some charges have been toned down. For instance, the original chapter three title, "Trade-Unions strangling the labourmarket" ("Arbeitsmarkt im Würgegriff der Gewerkschaften"), now simply reads "Trade Union Capitalism."

The book's main argument is that the once economic powerhouse of Europe can no longer keep pace. The dream of the ever-expanding welfare state is over. Germany has lost its competitive edge because of excessive labour costs and cartel agreements instead of a free labour market (chapters two, three and four). Add to this a botched economic reunification (chapter five), swelling numbers of welfare recipients (chapter six), not the least exacerbated by the birth dearth (chapter seven) and the wrong, i. e., unskilled kinds of immigrants (chapter eight), and economic collapse is imminent. Unless Germany once again heeds the everlasting laws of economics, that is. These laws are spelled out in a reform agenda in chapter 9: NO Social Union in Europe and less social welfare and a leaner tax system at home. Less power to the trade unions and down with the collective bargaining system.

Sinn is one of the economic know-it-alls who are, were, and always will be right. If their advice does works: fine; if not, it's the politicians' fault. Well heeled in public service themselves,they advocate austerity for others. Sinn's explaining away of the German export successes through his "bazaar economy" thesis (36-50) as being a statistical chimera has met with the disapproval of most of his colleagues. Writing that Germany's economy "is in a state of despair" just one year before its economy grew much more than the U.S. and the E.U. at large seems bizarre. Sinn did not foresee the financial crisis starting in 2008, but in this he was in good company. He also failed to grasp the impact of the economic crisis, however. For this reason Sinn was a bit out of the public limelight for some time.

But now he is back in the public fray with a brand new condemnation of "casino capitalism." It would have been nice, though, to have read about the hazards of financial deregulation before tax payer's money had to bail out the banking industry. Nevertheless, Sinn raises important topics for economic and social policy. One is that despite far-reaching reforms, the German welfare state is still much better in granting wage-replacement benefits than putting the unemployed back to work. Another is Germany's cumbersome marginal tax burden of labor: it is not so much that labour costs are high because of excessive wages, but that labour has to shoulder most of the social security contributions. However, I doubt that any economic one-size-fits-all solution is the most promising way forward.

Stefan Immerfall
University of Education at Schwäbisch Gmünd