The Perils of Polarizing: Germany's Capitalism Debate
By Dr. Jackson Janes

In his new book "The World is Flat," Thomas Friedman suggests the fall of the Berlin wall not only unblocked our contacts between East and West, it also unblocked our vision of the world as a single market. And we have been coping with the consequences ever since.

With the end of the East-West confrontation, the same explosion of economic growth that western Europe and Japan experienced after 1945 was now going to occur in eastern Europe, Russia, India and China, bringing billions of new people into global competition with each other. The impact is causing a tsunami of political, economic, and social change around the world and leaving a lot of unanswered questions in its wake. What are the bridges and the boundaries in a global market? What needs to change in order to compete? What needs to be preserved in order to maintain social stability?

Every country faces these issues and each will choose to deal with them within the parameters of its political and cultural values, traditions and institutions. Yet it is the responsibility of the leadership to help their citizens understand and respond to these challenges with inspiration and encouragement. The current so-called capitalism debate in Germany is an example of how such discussions can be more discouraging than didactic, more polarizing than productive.

The fact that this debate has emerged in the run-up to an important state election this month in North Rhine Westphalia is not surprising. The SPD strategy to mobilize its strongest base in Germany in a state the party has controlled since 1965 is patently obvious. Yet the more interesting development is the response of the general public to the criticism leveled at capitalism, specific companies and even specific individuals. The criticism generated by SPD Chairman Franz Münterfering seemed to hit a popular nerve amidst not just a nervous public but also in the other political camps. Even a few corporate leaders, such as the CEO of Porsche, suggested that there was some merit to the critique of his corporate colleagues.

With increasing numbers of Germans unemployed and those still working increasingly fearful for their own jobs and social security, the criticism of unrestrained capitalist greed offers a handy way to explain the source of the problems. This is not peculiar to Germany. In the wake of the Enron scandal, among several corporate meltdowns, many Americans were enraged at the greed of corporate raiders, with legislation quickly following to enforce more transparency in the system through a better form of corporate governance and oversight. Other pundits attack those companies engaged in outsourcing their production to cheaper sites abroad.

Yet the argument in Germany is best understood as coming out of its own traditions. The key to Germany's economic success after 1945 - the so called Wirtschaftswunder - was a combination of the social market economic policies laid down by Ludwig Erhard and a lot of hard work. There was also a sense of collective sharing of risks and responsibilities, institutionalized in the relationship between employers and unions surrounded by government agencies, churches and professional associations, going back as far as the late 19th century. In Germany's Basic Law, there is a sentence that sums up part of that arrangement: Eigentum verpflichtet. The idea that property comes with responsibilities might be understood today as corporate citizenship. Yet the parameters of responsibilities for both the worker and the employer are different today than Erhard understood them. The social and the market side of this equation have evolved in different directions in the last forty years, with the burden on the social side becoming ever greater and more expensive. After unification in 1990, the burden was multiplied by the addition of millions of eastern Germans who had been excluded from that social market economy, and now expected their fare share.

To recalibrate this relationship in a globally competitive marketplace requires reassessing what the responsibilities of state and citizen should be. Germans will define their choices differently than Americans do, on the basis of different historical and cultural experiences. The inequities within the American society are approached with an expectation that there will always be a wide spectrum between rich and poor, and efforts to provide a form of social security will always depend on the individual's initiative as much as on the state?s resources. In Germany, a century-long tradition of the state offering different forms of insurance led to a different equation of what the state's responsibilities were versus those of the individual. Today's debates are about opening up the options for the individual and redefining the capacities of the state, particularly when the global environment is making it more difficult for governments to know when and how to intervene, regulate, and even protect its citizens.

It is not a question of whether one needs more market and less state. Both are required to deal with the challenges ahead. It is more a question of whether we can forge a consensus on what constitutes the content and measurements of the social and the market dimensions of our societies. It can be a healthy debate, so long as it is focused on policy choices and not polemics.

Along with the rest of the world, Germans need to sort these issues out. But they are not aided by those who would simplify their choices with slogans. Citizens know when the politicians themselves are spending more time fighting among themselves than forging policies. And the dangers of generating a backlash among uncertain voters make polemics a dangerous tool with a very uncertain outcome.

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This essay appeared in the May 5, 2005 AICGS Advisor.