Left of Eden: The Changing Politics of Economic Inequality in Contemporary Germany

Abstract

This article explores the changing politics of economic inequality in Germany and its relationship to the transformation of the German Left. During the post-war ‘Economic Miracle’, few saw economic inequality as cause for concern. Though inequalities existed, their economic impact and political significance were masked by the fact that workers' incomes were increasing and unemployment was rare. During the past two decades, by contrast, labour-market liberalisation and the increased political salience of rising economic inequality have changed the German political landscape in several ways, including the emergence of Die Linke, a far-Left party committed to economic redistribution. The article argues that this change represents more than a simple shift ‘to the Left’; instead, it reflects an important rethinking of the post-war ‘Social Market Economy’, its ability to reconcile equity and economic growth, and the politically acceptable range of public policies designed to alleviate economic inequality and exclusion.

Notes

In Germany between 1963 and 1972, annual rates of economic growth averaged 4.4 per cent, compared to 2.9 per cent in Britain, 5.5 per cent in France, and 3.9 per cent in the United States, while unemployment rates averaged 1.1 per cent, compared with 1.9 per cent in France, 2.0 per cent in the UK, and 4.7 per cent in the US. Fritz W. Scharpf, ‘Economic and Institutional Constraints of Full-Employment Strategies: Sweden, Austria, and Western Germany, 1973–1982’, in John H. Goldthorpe (ed.), Order and Conflict in Contemporary Capitalism (Oxford: Clarendon Press, 1984), p.258.

Barry Eichengreen, The European Economy since 1945: Coordinated Capitalism and Beyond (Princeton, NJ: Princeton University Press, 2007), p.88.

As late as 1970, social contribution rates remained at a modest 26.5 per cent of gross wages, despite two decades of social-policy expansion. Philip Manow, ‘Social Insurance and the German Political Economy’, Max-Planck-Institut für Gesellschaftsforschung Discussion Paper 97/2, Nov. 1997, p.40.

In 1972, the ratio between the incomes of the top and bottom quartiles was lower in Germany (1.46) than in France (1.65), Italy (1.61), Belgium (1.47), or Britain (1.79). Among major West European countries, only the Netherlands had a lower figure (1.43). Malcolm Sawyer, ‘Income Distribution and the Welfare State’, in Andrea Boltho (ed.), The European Economy: Growth and Crisis (Oxford: Oxford University Press, 1982), p.206.

Jonas Pontusson, Inequality and Prosperity: Social Europe vs. Liberal America (Ithaca, NY: Cornell University Press, 2005), p.40.

For income inequality data for the OECD, see OECD, Growing Unequal: Income Distribution and Poverty in OECD Countries (Paris: OECD, 2008), p.135 and passim.

Isabella Mares, Taxation, Wage Bargaining, and Unemployment (Cambridge: Cambridge University Press, 2006), p.171.

Pontusson, Inequality and Prosperity, p.45.

‘Troubled Times’, The Economist, 13–19 Oct. 2007, p.57.

For a more detailed discussion, see Mark I. Vail, ‘From “Welfare without Work” to “Buttressed Liberalization”: The Shifting Dynamics of Labor Market Adjustment in France and Germany’, European Journal of Political Research 47/3 (May 2008), pp.334–58.

Between 2002 and 2005, the SPD's share among working-class voters in western Germany shrank from 43 per cent to 41 per cent and, in eastern Germany, declined sharply from 41 per cent to 26 per cent. At the same time, the Linkspartei's share of the working-class vote in 2005 was eight per cent in the west (compared to two per cent for the PDS in 2002), and 28 per cent in the east (compared to 12 per cent for the PDS in 2002). Defections from the SPD to the Linkspartei were even more dramatic among the unemployed. Oliver Nachtwey and Tim Spier, ‘Günstige Gelegenheit? Die sozialen und politischen Entstehungshintergründe der Linkspartei’, in Tim Spier et al. (eds.), Die Linkspartei: Zeitgemäße Idee oder Bündnis ohne Zukunft? (Wiesbaden: Verlag für Sozialwissenschaften, 2007), pp.22 and 30.

For details, see ‘PDS und WASG künftig “Die Linke”: Fusion abgeschlossen’, Frankfurter Allgemeine Zeitung, 16 June 2007, p.1.

For an overview of the birth of Die Linke, see Jonathan Olsen, ‘The Merger of the PDS and WASG: From Eastern German Regional Party to National Radical Left Party?’, German Politics 16/2 (June 2007), pp.205–21.

Olsen, ‘Merger of the PDS and WASG’, p.210.

See http://die-linke.de/politik/themen/positionen_a_z/armut (accessed 28 March 2009).

Dan Hough, The Fall and Rise of the PDS in Eastern Germany (Birmingham: The University of Birmingham Press, 2001), p.10.

Interview, Michael Guggemos, IG Metall, 23 July 2007.

Nachtwey and Spier, ‘Günstige Gelegenheit?’, p.65.

For a description of the diffusion of authority among economic interests and levels of government in post-war Germany, see Andrew Shonfield, Modern Capitalism: The Changing Balance of Public and Private Power (Oxford: Oxford University Press, 1965), chs.11 and 12; Kathleen Thelen, Union of Parts: Labor Politics in Postwar Germany (Ithaca, NY: Cornell University Press, 1991); and Peter J. Katzenstein, Policy and Politics in West Germany: The Growth of a Semisovereign State (Philadelphia, PA: Temple University Press, 1987), esp. chs.4–5.

Scharpf, ‘Economic and Institutional Constraints’.

One of the central tenets of this post-war Soziale Marktwirtschaft, or ‘Social Market Economy’, was the legally enshrined principle of Tarifautonomie. This principle reserved authority over wage bargaining to the social partners and prohibited the federal government from direct intervention in the wage relationship, limiting its role to facilitating compromise in the event of deadlock and setting the broad legal framework within which such negotiations were to take place. For a more extensive discussion, see Anton C. Hemerijck and Mark I. Vail, ‘The Forgotten Center: State Activism and Corporatist Adjustment in Holland and Germany’, in Jonah D. Levy (ed.), The State after Statism: New State Activities in the Age of Liberalization (Cambridge, MA: Harvard University Press, 2006), pp.57–92.

Erhard put it this way: ‘The restructuring of our economic order must thus create conditions such that the purchasing power associated with rapid economic growth can overcome obstacles and finally end the resentment between “poor” and “rich”’ (translation by Mark I. Vail). Ludwig Erhard, Wohlstand für Alle, ed. Wolfram Langer (Düsseldorf: Econ-Verlag, 1957), p.7.

Torben Iversen, Capitalism, Democracy, and Welfare (Cambridge: Cambridge University Press, 2005), p.65.

Scharpf, ‘Economic and Institutional Constraints’, p.258.

Fritz W. Scharpf and Vivien A. Schmidt (eds.), ‘Statistical Appendix’, in Fritz W. Scharpf and Vivien A. Schmidt (eds.), Welfare and Work in the Open Economy, Vol.I, From Vulnerability to Competitiveness (Oxford: Oxford University Press, 2000), pp.360, 363.

Ibid., p.341.

OECD, OECD Employment Outlook: Boosting Incomes and Jobs (Paris: OECD, 2006), pp.160–62.

Scharpf and Schmidt, ‘Statistical Appendix’, p.341.

The 80/20 inequality index measures the ratio of income at the 80th percentile to income at the 20th percentile. Data drawn from Luxembourg Income Study (LIS) Key Figures, available at http://www.lisproject.org/keyfigures.htm (accessed 17 Jan. 2008).

OECD, OECD Factbook (Paris: OECD, 2006), p.39.

OECD, Society at a Glance: OECD Social Indicators (Paris: OECD, 2005), p.53.

‘Class Concerns’, The Economist, 11–17 Nov. 2006, p.60.

Members of both major parties have recently made a number of similar statements, showing the perceived need to respond to Die Linke's claims that ‘Some have too much; others have too little’. See ‘SPD-Politiker wollen Reiche belasten’, Die Zeit online, 19 May 2008, available at www.zeit.de

See, for example, Elisabeth Niejahr, ‘Armutszeugnis’, Die Zeit, 21 May 2008, p.21.

Flora Wisdorff, ‘Kritik an Sozialer Marktwirtschaft; Studie: Deutsche haben Angst vor Globalisierung und rufen nach dem Staat’, Die Welt, 25 July 2008, p.11.

Between 1981 and 2000, Germany experienced an average annual increase in its Gini coefficient of 0.11, compared to 0.38 in Britain, 0.03 in Denmark, and 0.19 in Italy. By contrast, in France, which has undergone three decades of expansion of anti-poverty benefits, the average ratio declined by 0.03 annually. Data drawn from Pontusson, Inequality and Prosperity, p.36.

Steen Mangen, ‘German Welfare and Social Citizenship’, in Gordon Smith, William E. Paterson, and Stephen Padgett (eds.), Developments in German Politics 2 (Durham, NC: Duke University Press, 1996), p.265; and Katzenstein, Policy and Politics, p.178.

Wilhelm Breuer and Dietrich Engels, ‘Basic Information and Data on Social Assistance in Germany’, paper for the Federal Ministry of Health (Cologne: ISG Sozialforschung und Gesellschaftspolitik, 1999), pp.2–3.

In 1963, two years after the system's inception, total expenditures were a mere DM 1.86 billion. By 1973, this figure had more than tripled to DM 5.66 billion, and, by 1983, total outlays had risen to DM 17.6 billion, a more than threefold increase over the 1973 figure. By 1998, total Sozialhilfe expenditures, including those in the new eastern Länder, were DM 45 billion (DM 39.4 billion in former West Germany), after peaking at DM 52 billion in 1995. Breuer and Engels, ‘Basic Information and Data on Social Assistance in Germany’, p.18.

In 1999, the basic standard rate ranged from a low of DM 522 (€266.89) per month in Thüringia and Mecklenburg-West Pomerania to a high of DM 548 (€280.19) per month in Hesse and Baden-Württemberg. If we define 1995 price levels as 100, the index of the real value of the standard rate shrank from 102.9 in 1992 to 102.7 in 1997, after increasing by nearly 3 per cent in the period 1991–92. Breuer and Engels, ‘Basic Information and Data on Social Assistance in Germany’, pp.4, 22.

Stephen Padgett, ‘Political Economy: The German Model under Stress’, in Stephen Padgett, William E. Paterson and Gordon Smith (eds.), Developments in German Politics 3 (Durham, NC: Duke University Press, 2003), p.130.

Christopher Flockton, ‘Economic Management and the Challenge of Reunification’, in, Smith et al. (eds.), Developments in German Politics 2 (London: Macmillan, 1996), pp.222–3. See also Wolfgang Streeck, ‘No Longer the Century of Corporatism: Das Ende des “Bündnisses für Arbeit”’ (Max-Planck-Institut für Gesellschaftsforschung, Working Paper 03/04, May 2003), p.5.

This account is provided by an expert who participated in the negotiations. Interview, 29 July 2007.

The arrangement had probably been doomed from the start, since neither employers (who wished to increase labour flexibility and limit tax burdens) nor unions (who were more concerned with protecting the wages of their older industrial membership than in promoting jobs in emerging, non-unionised sectors) had much of an interest in making sacrifices in order to reduce unemployment in the medium term. For a sceptical analysis of the Bündnis, see Wolfgang Streeck, ‘Industrial Relations: From State Weakness as Strength to State Weakness as Weakness: Welfare Corporatism and the Private Use of the Public Interest’, in Simon Green and William E. Paterson (eds.), Governance in Contemporary Germany: The Semisovereign State Revisited (Cambridge: Cambridge University Press, 2005), pp.138–64.

Nachtwey and Spier, ‘Günstige Gelegenheit?’, p.65.

SPD und Bündnis 90/Die Grünen Budestagsfraktionen, ‘Zur Reform der Arbeitsförderung: Eckpunkte der Fraktionen SPD und Bündnis 90/Die Grünen vom 3. Juli 2001 für ein Job-Aktivierien, Qualifizieren, Trainieren, Investieren, Vermitteln-Gesetz’, July 2001. See also Bundesanstalt für Arbeit, 2002 Annual Report (Nürnberg: BA, 2003).

In 2002, the highest German administrative regulatory agency found that the BA had falsified as many as 70 per cent of job placement cases. See ‘Bundesanstalt gerät immer stärker ins Kreuzfeuer der Kritik’, Frankfurter Allgemeine Zeitung, 6 Feb. 2002, p.13.

See Hartz Commission, ‘Moderne Dienstleistungen am Arbeitsmarkt: Vorschläge der Kommission zum Abbau der Arbeitslosigkeit und zur Umstrukturierung der Bundesanstalt für Arbeit’, August 2002.

The measure was called ‘Hartz IV’ because it was the fourth ‘Hartz Reform’ to be proposed. The first three involved other labour market initiatives, including creating personal job-placement agencies, providing assistance for individuals wishing to start small-scale enterprises (so-called ‘Ich-AGs’), reorienting job creation programmes, and loosening restrictions on part-time jobs and social security contributions. For a summary, see Wolfgang Streeck and Christine Trampusch, ‘Economic Reform and the Political Economy of the German Welfare State’, German Politics 14/2 (2005), pp.174–95.

For a discussion, see ‘Allemagne: l'opposition impose à Schröder de sérieuses concessions sur le marché du travail’, Les Echos, 16 Dec. 2003, p.5; ‘Die Ich-AGs entwickeln sich zum Renner’, Frankfurter Allgemeine Zeitung, 6 June 2003, p.5; and ‘Von der Agenda 2010 bis zur Einigung im Vermittlungsausschuß’, Frankfurter Allgemeine Zeitung, 16 Dec. 2003, p.3.

Such indications include an increase in labour-force participation rates among older workers and women, an increase in the incidence of part-time work, and reductions in the overall unemployment rate. OECD, OECD Economic Surveys, Germany (Paris: OECD, 2006), pp.14–15 and ch.4. See also OECD, OECD Employment Outlook: Boosting Jobs and Incomes, p.250; and Pontusson, Inequality and Prosperity, pp.50, 77.

Interview, Michael Guggemos, IG Metall, 23 July 2007.

Between 2001 and 2006, average wages in manufacturing increased by just over 9 per cent, an average annual increase of less than 2 per cent. Given inflation rates of between one and two per cent during the same period, real wages barely increased, despite the gradual reduction in unemployment and accelerating economic growth. Wage data from author's calculations and ILO data from http://laborsta.ilo.org (accessed 29 Jan. 2008). Inflation data from OECD, OECD Factbook 2006 (Paris: OECD, 2006), p.47.

Borrowing the formulation used by US President Bill Clinton (‘Welfare is a second chance, not a way of life’), Koch entitled his manifesto ‘Sozialhilfe ist kein Lebenstil’. Frankfurter Allgemeine Zeitung, 15 Aug. 2001, p.8.

During this period, the relative poverty rate grew from 12.1 per cent to 13.5 per cent. By 2003, the post-transfer poverty rate had grown to 15 per cent. Ute Klammer, ‘Armut und Verteilung in Deutschland und Europa’, WSI Mitteilungen 3/2008, Hans-Böckler Stiftung, pp.119–24.

‘Proud to be Bourgeois, as Poverty Spreads’, The Economist, 11–17 Nov. 2006, p.60.

‘Rennen gegen die Zeit’, Frankfurter Allgemeine Zeitung, 19 Aug. 2004, p.3.

‘Kanzler in Wittenberge mit Eiern beworfen’, Frankfurter Allgemeine Zeitung, 25 Aug. 2004, p.1.

See ‘Gewerkschaft IG BCE verlangt Zuschüsse zu Niedriglöhnen’, Frankfurter Allgemeine Zeitung, 15 Feb. 2005, p.13.

Even the head of the normally more conservative IG BCE chemical workers’ union demanded subsidies for low-wage workers. ‘DGB: Inhaltliche Annäherung fehlt’, Frankfurter Allgemeine Zeitung, 31 March 2004, p.4.

See, for example, ‘Rutsche in die Armut’, Die Zeit online, 16 Oct. 2006, available at www.zeit.de. The Süddeutsche Zeitung described a widespread ‘slide into poverty’: ‘There has been a slide into poverty, which we know as Hartz IV, and people are very afraid that they could suddenly find themselves on it’. Quoted in ‘Rutsche in die Armut’.

‘Troubled Times’, The Economist, 13–19 Oct. 2007, p.57.

Jan Goebel, Peter Krause, and Jürgen Schupp, ‘Growth in Unemployment Raises Poverty Rates’, Deutsche Institut für Wirtschaftsforschung (DIW), Weekly Report 10/2005, pp.115–25.

Karl de Meyer, ‘L'Allemagne se découvre 22% de travailleurs pauvres’, Les Echos, 21 April 2008, p.7.

Dan Hough, Michael Koß and Jonathan Olsen, The Left Party in Contemporary German Politics (Houndmills, Basingstoke: Palgrave Macmillan, 2007), introduction and ch.9.

Nachtwey and Spier, ‘Günstige Gelegenheit?’, pp.65 and 69.

Hough et al., The Left Party in Contemporary German Politics, p.141.

Soon after the party's official founding in June 2007, co-leader Oskar Lafontaine published a widely read (and criticised) manifesto in the conservative Frankfurter Allgemeine Zeitung, entitled ‘Freiheit durch Sozialismus’, or ‘Freedom through Socialism’. Though the essay paid obeisance to old Left chestnuts such as strategic nationalisation, it also placed heavy emphasis on the importance of expanding the social safety net and of creating a welfare state capable of combating poverty as ‘a condition of freedom’, which also involves helping people ‘who, at the end of the month, do not know where their rent or electricity payment is going to come from’. Though rambling and incoherent in places, the piece also reflected the broader shift in political discourse in the wake of Hartz IV. It also represented a shot across the bow for the SPD, which had to address such concerns or risk haemorrhaging even more voters. Frankfurter Allgemeine Zeitung, 9 July 2007, p.7.

A national poll in November 2008 returned 10 per cent support for Die Linke. This level represented a slight decline from the result of a poll taken in June, which gave the party 12.8 per cent. ‘SPD und Linke holen auf’, Spiegel Online, 25 June 2008; and ‘Politbarometer: Union verliert in politischer Stimmung an Zuspruch’, Agence France Presse (German), 21 Nov. 2008.

Constanze Stelzenmuller, ‘German Voters Peek through the Looking Glass’, Financial Times, 28 Jan. 2008, p.11.

Such concerns have become even more acute in response to reforms in other areas of social policy, such as the March 2007 increase in the standard retirement age in the public pension system from 65 to 67.

Christoph Seils, ‘Mehr Armut, mehr Ungleichheit’, Die Zeit online, 21 Oct. 2008.

In the recent Land elections in Hesse and Lower Saxony, the SPD fared poorly, winning a mere 30.3 per cent in Lower Saxony and 36.7 per cent in Hesse, its worst and second worst performances, respectively, since World War II. Though the CDU fared slightly better than the SPD in Hesse (36.8 per cent), both the CDU and the SPD saw their totals eroded by pressure on the Left. The real victor seems to have been Die Linke, which gained representation in the Landtag for the first time by surpassing the 5 per cent threshold required for proportional seats in both Länder. The character of the parties’ appeals seems to confirm the new dynamic. The CDU, which emphasised security in the campaign, saw its vote share decline by almost 12 per cent, while the SPD's appeals to ‘social justice’ seemed to resonate somewhat better. See ‘Hessen Lesson’, The Economist, 2–8 Feb. 2008, p.58.

Interviews, Johannes Jakob, Deutscher Gewerkschaftsbund, 9 July 2007; and Michael Guggemos, IG Metall, 23 July 2007.

According to officials in the Labour Ministry, unions’ declining numbers and the challenging economic climate have weakened their negotiating position and provided them with incentives to accept the minimum wage law as a boost to their members’ incomes, despite the erosion of Tarifautonomie that the law represents. Interview, Dr Günther Horzetzky, Bundesministerium für Arbeit und Soziales, 23 July 2007.

For details on the law, see ‘Kein gesetzlicher Mindestlohn: Tarifliche und gesetzliche Untergrenzen in allen Branchen’, Frankfurter Allgemeine Zeitung, 20 June 2007, 2.

In November 2007, the SPD and CDU agreed to extend the duration of eligibility for unemployment insurance for workers over age 50. Partially reversing the Hartz IV reforms’ limitation of eligibility for unemployment insurance to a year, the new measure extended eligibility to 15 months for workers aged 50 to 55, 18 months for those aged 50 to 58, and two full years for those over age 58. Patrice Drouin, ‘Baisse des cotisations chômage et accord sur l'indemnisation des plus de 50 ans’, Les Echos, 14 Nov. 2007, p.9.

For a discussion, see Mark I. Vail, Recasting Welfare Capitalism: Economic Adjustment in Contemporary France and Germany (Philadelphia, PA: Temple University Press, 2009), ch.5.