Most European countries are trying to reform their welfare states in order to balance competitiveness and social cohesion. But German politics seems unable to respond, and scarcely anyone believes that long overdue reforms will be implemented either by this government or by the red-green opposition, if it wins the 1998 election. But unless you want to claim (with the federal president) that German voters and politicians are more obtuse than others, you have to consider structural causes of the malaise.
Economic globalisation and "Europeanisation" sharpen competition between companies and countries. In Germany, 36 per cent of the working population are employed in the internationally "exposed" part of the economy-compared with 32 per cent in the US or Sweden and only 27 per cent in the Netherlands.
So the good news for Germany is that the economy is more competitive in international trade than is often claimed. The bad news is that so many of its jobs are dependent on a sector which must continuously drive down costs and increase flexibility. This can be achieved through consensus bargaining between companies and unions; but it will not create new jobs. Employment in the exposed sector is not growing in any of the advanced industrial countries; the only growth is in local services such as retailing, education and health care. These local services only provide jobs for 28 per cent of Germans, which places the country almost at the bottom of the international scale: in the US and Sweden, 41 and 39 per cent respectively find employment in these services.
Germany's high unemployment has little to do with lack of competitiveness-and a lot to do with the structure of its welfare state. This is not a matter of cost. Sweden's and Denmark's welfare states are much more expensive than the German one; but they spend their money on social services, whereas Germany spends it on transfer payments-mainly pensions and unemployment benefit. This is why the Swedish and the Danish public welfare sectors provide jobs for 23 per cent of their population-Germany's employs less than 10 per cent, fewer even than the US.
But Germany's welfare system, besides not creating jobs itself, actively hinders job creation in private local services (which employ 18 per cent of the working population compared with 31 per cent in the US). The main reason is that welfare is financed by employers' and employees' contributions (more than 40 per cent of the gross wage). This high cost of employing someone means that too few low value-added jobs are created.
So if you want to prevent an ever larger group being excluded from earning a living, you have to change the welfare system. This does not necessarily mean creating US-style "bad" jobs. There are schemes-such as intelligent use of employment subsidy-which make hiring more attractive without driving wages down to unacceptably low levels. Politicians have ignored them all.
There are many other areas-education, health, immigration policy-where politics has been unable to tackle structural reform. We all know there is a problem, we all complain-but nothing is done. Why? Because, following the Nazi experience, the German political system is designed to prevent abuse of power. The federal structure gives the states a veto over important decisions; the electoral system produces, almost by necessity, a coalition government; the constitutional court's powers and the Bundesbank's independence mean that the elected government cannot influence some politically significant decisions. On the micro level (health insurance, trade union wage negotiations), there are similar problems: too many vetoes. No other country, except Switzerland, has vetoes at so many levels.
In such a system, change is necessarily very slow. It produces stability-but this turns into stifling inflexibility when radical change is needed. At this point, the German government appeals to its opponents to put public interest before party advantage-as the Swiss do. But the appeals do not work, because our political system combines the Swiss surfeit of vetoes with Westminster-style adversarial politics. In London, the majority governs, the opposition opposes everything. The German system demands that politicians fight like the British and work in harmony like the Swiss-of course it cannot work.
Should Germany change its constitution to reduce the veto power of the Bundesrat, the state-controlled upper house? Should we hope for a "grand coalition" of the two main parties after the coming election? Under the left-right grand coalition of 1966-69, many important reforms were passed. But the challenges were less complex then; and the German government had stores of good reform proposals. Today, we lack politically acceptable reform ideas. So the first step should be to organise a national debate on the main problem areas. Solutions might emerge, which politicians could not ignore with impunity. Who should organise such debates-the president, perhaps? He could call for the equivalent of a royal commission on the biggest issues. The problems of politics are too serious today to be left to political parties condemned to confrontation.
