Locusts, or Incongruency Revisited.

It seems we’re not the only ones who are beginning to see governance model incongruencies behind some of the German economic ills (see two of my last posts (1, 2), and, especially the comments to the last one).

Over at Crooked Timber, Henry Farrell (who knows Germany well, having beeen a research fellow at the The Max Planck Institute for Research on Collective Goods) gets a bit angry at the Economist for their usually biased coverage of Continental European social and economic models, before declaring his support for Franz M?ntefering.

“M?ntefering is quite right to identify international venture capital firms as Modell Deutschland?s enemies. If you?re trying to rebuild a model based on consensus-driven labour relations, on patient capital, and on political control over the marketplace, they are the enemy. The old model had a lot going for it. Perhaps M?ntefering should have used more temperate language, but probably not. He?s gotten a debate going, and it?s a debate that needs to take place. The advocates of free market reform in Continental Europe have been able to coat their project with an entirely spurious patina of inevitability. The way they?ve painted it, these economies have no choice but to deregulate. This simply isn?t true; the citizens of these countries do have choices, and should be allowed to make them. Far from being ?immensely damaging? to Germany and Europe, it?s the first real sign in several years of a proper political debate about the choices that are available, and the benefits and drawbacks attached to them.

I think he’s giving M?ntefering far too much credit. This doesn’t appear to be too planned. “M?nte” did not intend to stir an honest debate about governance modes, he just needed to vent. Besides, there is no real debate – and there probably won’t be, simply because these issues are too complex to be publicly debated without the help of terms like “locusts” and institutionalised myths of rationality – that’s – I think – what Henry refers with “patina of inevitabilty.”

But Henry is right to remind us (in a reply to a comment) that –

“I wouldn?t have used the term ?swarm of locusts? myself. But then, I wouldn?t have gotten much debate going by using more polite language. Academics like Wolfgang Streeck (or, in the broader European context, Colin Hay) have been making not dissimilar arguments for a long time, and not getting much political traction (although Streeck seems to be getting rather disillusioned). We?re now having the debate ? I don?t think that this would be happening if M?ntefering had been more indirect. And it?s the debate that?s the important thing (as the Economist recognizes ? it?s less worried with his intemperate language, than that he?s opened up Pandora?s box). There?s been a sense that the German government is sleepwalking into a watered down version of neo-liberalism for lack of any better ideas ? now there?s some real public discussion going.

Well, as I said, I don’t see *that* discussion yet. I see a lot of “Hysteria in Kindergarten“. But I wish Henry was right, and I wish more people would start to understand that there’s an obvious, and increasing, lack of compatibility between the German production mode and it’s governance. And for all interested in a real debate, I’d like to once again point to a recent paper by Wolfgang Streek, that Edward already linked to in the above mentioned comment thread : “Economic Reform and the Political Economy of the German Welfare State”.

15 thoughts on “Locusts, or Incongruency Revisited.

  1. “to see governance model incongruencies”

    Yes Tobias, but recognising incongruencies OTOH, and OTOH recognising the likely transitional turbulance associated with moving towards a ‘new congruence’, is quite different to saying that the reform agenda the Economist (amomg others) is pushing aren’t necessary. Farrell seems to belong to the ‘flat earth society’ in this regard.

    I mean in the first place I don’t accepted that the Economist provides ‘biased coverage’ about Germany (we are a long way here from say WSJ editorials): I think the Economist is able to consider conflicting points of view in a way that Henry F seems unable to.

    Obviously the ‘Nazi’ point is OTT.

    Streek, in the paper I linked in the last set of comments:

    http://www.mpi-fg-koeln.mpg.de/pu/workpap/wp05-2/wp05-2.html

    seems much more balanced. Incidentally Streek is also at Max-Planck.

    You need to divide the German economy into two sectors (along classic economic lines): Tradeables and Non-tradeables.

    The success of German companies in exporting despite the backdrop of a rapidly rising euro suggests that German companies in the tradeables sector are not especially uncompetitive.

    OTOH non-wage costs are an important impediment to growth. Nearly 5 million unemployed suggests that the labour market is not functioning terribly efficiently, and that in the non-tradeable sector changes are needed.

    There is also the question of the ‘start-up’ culture and the availability of finance for risky ventures. The equity culture may have advantages over traditional forms of finance here.

    Clearly this does not mean you have to throw overboard a whole ‘social model’: Japan shows no signs of doing this, and it is unlikely China or India will adopt the US model as it stands. OTOH major reforms of welfare benefits are more or less inevitable for simple demographic reasons.

    At the end of the day we need something in-between the WSJ and Farrell/M?ntefering. Pragmatism is what it may be called, and at the end of the day the Economist isn’t that un-pragmatic.

  2. BTW for those who are interested, there is a version of the full Economist article up ‘behind the firewall’:

    http://www.economist.com/agenda/displayStory.cfm?story_id=3954817

    I saved this link thanks to the new Yahoo ‘My Web’, which I heartily recommend. (Incidentally: if M?ntefering had his way would there ever be anything like Yahoo in Germany?).

    I went over to ‘Crooked’ to post this link on comments, and noticed this bit from Henry: “the linkages between any form of capitalism and economic success are hard to draw.”

    OTOH the Economist suggests that:

    “The government is right to be concentrating on education and innovation to foster new business. But that is a long-term programme that cannot address today?s crisis. Germany?s misfortune is that its federal government cannot implement today what it thought of yesterday or even two years ago.”

    Who here is ‘pushing an agenda’ and who is well informed. I think the above quotes help put things in perspective. Go read the Economist and see for yourself.

  3. Edward,

    I agree with your main point – populist denials of economic facts are unhelpful yet happen all too often. As I said, I think Henry is giving M?ntefering too much credit in this respect. As someone who has been living in western Germany for most of his life, I even whole heartedly embrace the need to adjust the social model to some extent.

    Yet I also support Henry’s suggestion that there is no real debate and that the government is defensive, “sleepwalking”, not declaring that changes are GOOD not inevitable to avoid immediate doom. Again, this is partly due to the “consensus democratic” design of the German political institutions. But it is also partly a consequence of economic illiteracy as well as – as I indicated in Feb 2004 – the last remnants of “German culture.” The desire to have a theoretically derived optimum model that avoids continuous adjustments and fluctuations that necessarily accompany “markets” in the political sense of the term.

    As far as the economist is concerned, I think it is obvious that they are at least very confused with Continental Europe. I think it correct to say that they have a consistent editorial line and only rarely publish contradicting opinions. I was very surprised to read “a contrarian opinion on the German economy” in late February.

    Of course, the economist is not independent from persistent myths of rationality (it itself created), and its readership potential in non-Anglophone Europe is certainly still too small to require a more balanced reporting.

  4. I’m sure we aren’t very far apart really. My principal point was to protest the fact that Farrell has what appears to me to be a more biased view of the Economist, than the Economist has about what is happening in Germany.

    “I think it correct to say that they have a consistent editorial line and only rarely publish contradicting opinions.”

    This isn’t really the case. Articles are unsigned not so they can follow a tight editorial policy, but precisely to allow greater freedom of expression. Well known figures can obviously publish in the Economist ‘contrarian views’ without having the finger pointed at them.

    This point was brought home to me forcefully once when I complained in a mail to Buttonwood about opinions (probably over Germany and Japan) expressed in one article: ‘not mine’ was the gist of his response. The point being there isn’t a party line.

    Now, insofar as the Economist has an ‘agenda’ (as Farrell suggests) it is undoubtedly the Lisbon one, and this is an agenda which is after all common property of the Commission and member states, so pushing this is hardly radical or surprising.

    Now if Farrell doesn’t agree with this agenda, he is completely at liberty to say so, and push for his own ideas: no problem here.

    That the Economist is far from a ‘market solution’ fanatic is clear from the positive view it takes of those parts of the Lisbon agenda – like more government spending on research and education – which involve an important role for government.

    That all opionion in the UK is based on ‘imperfect knowledge’ of Continental Europe, and, for that matter, all sources of information on the continent have the same handicap when addressing UK related issues, I take as read.

  5. I apologise in advance for hogging your comments section, but I don’t want to add another post, and I would like to draw attention to an incredible post over at Brad DeLong’s blog.

    http://delong.typepad.com/sdj/2005/05/guenter_grass_m.html

    The source of controversy is an article by Gunter Grass in the NYT. I suspect that this is a translation of something you were referring to in your original post.

    What is astonishing is the conclusion which Brad reaches: following a title which suggests that Grass minimises the holocaust, he ends up referring to him as ‘crypto nazi scum’.

    Now Grass may be many things, but this is clearly way OTT. In Brad’s defence it should be said that he has the courage to endure 100 plus comments almost universally condemning the original post.

    Now taking it as read that Grass is not a ‘crypto nazi’, there are some revealing passages in the article. In particular:

    “Now, I believe that our freely elected members of Parliament are no longer free to decide. The customary party pressures are not particularly present in Germany; it is, rather, the ring of lobbyists with their multifarious interests that constricts and influences the Federal Parliament and its democratically elected members, placing them under pressure and forcing them into disharmony, even when framing and deciding the content of laws. Consequently, Parliament is no longer sovereign in its decisions. It is steered by the banks and multinational corporations – which are not subject to any democratic control”.

    and

    “But are our parliamentarians still sufficiently free to make a decision that would bring radical democratic constraint? Or is our freedom now no more than a stock market profit?

    We all are witnesses to the fact that production is being demolished worldwide, that so-called hostile and friendly takeovers are destroying thousands of jobs, that the mere announcement of measures like the dismissal of workers and employees makes share prices rise, and this is regarded unthinkingly as the price to be paid for “living in freedom.”

    The consequences of this development disguised as globalization are clearly coming to light and can be read from the statistics. With the consistently high number of jobless, which in Germany has now reached five million, and the equally constant refusal of industry to create jobs, despite demonstrably higher earnings, especially from exports, the hope of full employment has evaporated.”

    Coming from an intelligent person this is highly disturbing. It would perhaps be more disturbing if this ambivalence about Germany’s democratic institutions hadn’t been an ongoing theme among some left intellectuals since the days of RAF terrorism.

    The views Grass expresses don’t merit Brad’s outburst, but it would be worrying if this way of looking at things began to seriously take hold in Germany. Especially if your wishes are not granted and German unemployment doesn’t begin to fall significantly and Germany doesn’t win the world cup.

  6. What has not really been addressed in the comments is the purely political issues around M?nteferings statements and the debate.

    State elections in Germany are scheduled independently by the states, with the consequence that we have a more-or-less important election coming up every few months. Thus, German politicians are always campaigning.

    Elections in Nordrhein-Westfalen (NRW) are coming up. Not only is this a very large and important state, it also has an imcumbent SPD-Green government that is slipping in the polls, it also is the SPD’s heartland, containing the Ruhr industrial area. Losing it would be a very nasty blow to the SPD, which has had some nasty election reversals in recent times.

    The recent reforms have been grudgingly accepted by the people, but there is a lot of grumbling and subdued anger if you speak to people, though it does not yet show up in the German media. People see the costs of health care etc. going up but the expected economic benefits have not yet shown up. On the other hand, they see company profits and CEO salaries going up.

    I am sure that the purpose of M?nteferings statements is (at least partly) to tap into these feelings and to shore up the SPDs votes.

    What’s interesting is that the opposition CDU/CSU has not really reacted to this in any strong fashion. Presumably they also feel the popular mood. Also they are internally divided. Some have argued for economic liberalism, but others, basically, agree with M?ntefering.

    I think teh SPD has done quite well from this debate politically.

  7. What has not really been addressed in the comments is the purely political issues around M?nteferings statements and the debate.

    State elections in Germany are scheduled independently by the states, with the consequence that we have a more-or-less important election coming up every few months. Thus, German politicians are always campaigning.

    Elections in Nordrhein-Westfalen (NRW) are coming up. Not only is this a very large and important state, it also has an imcumbent SPD-Green government that is slipping in the polls, it also is the SPD’s heartland, containing the Ruhr industrial area. Losing it would be a very nasty blow to the SPD, which has had some nasty election reversals in recent times.

    The recent reforms have been grudgingly accepted by the people, but there is a lot of grumbling and subdued anger if you speak to people, though it does not yet show up in the German media. People see the costs of health care etc. going up but the expected economic benefits have not yet shown up. On the other hand, they see company profits and CEO salaries going up.

    I am sure that the purpose of M?nteferings statements is (at least partly) to tap into these feelings and to shore up the SPDs votes.

    What’s interesting is that the opposition CDU/CSU has not really reacted to this in any strong fashion. Presumably they also feel the popular mood. Also they are internally divided. Some have argued for economic liberalism, but others, basically, agree with M?ntefering.

    I think teh SPD has done quite well from this debate politically.

  8. “the opposition CDU/CSU has not really reacted to this in any strong fashion.”

    This is a good point, and one the Economist certainly doesn’t address.

    It will be truly fascinating to see what the CDU/CSU actually do if and when they are elected.

    Indeed I don’t imagine Seifert and Breuer were exactly staunch SPD voters. Which leads me to speculate that M?ntefering’s outburst might be as much directed at exploiting divisions in the opposition as at his own voters.

  9. M?ntefering’s outburst might be as much directed at exploiting divisions in the opposition as at his own voters

    It exists within the government camp as well. One way to look at the German party system would be to state that there are two large conservative parties, two progressive parties and some loony fringe parties.

  10. One way to look at the German party system would be to state that there are two large conservative parties, two progressive parties and some loony fringe parties.

    I am slightly puzzled by your description. Maybe it is that nowadays labels like ‘conservative’ and ‘progressive’ are often used in a quite vague fashion.

    Do you mean:
    two large conservative parties: CDU and SPD
    two progressive parties: FDP and Greens

    or some other combination ?

  11. “One way to look at the German party system….”

    Oh boy, I like the way this is moving.

    “Do you mean:…….”

    I’ve long had a problem with conventional ‘left’ ‘right’ distinctions, because it seems that the parties on either side were artificial agglomerations of people, some of whom wanted to keep things as the were, and some of whom wanted to change them.

    Looked at along the ‘conservative’…’progressive’ axis, it isn’t quite clear how you would categorise the ‘greens’.

    There is no disrespect meant here at all, but Jos? Bono, the current Spanish defence minister, and architect of the Spanish troop withdrawal from Iraq, is said to ‘get on like a house on fire’ with Rumsfeld when they actually meet. He is also a fervent Catholic and admirer of the present Pope.

    It is not at all clear whether he would be prepared to officiate at gay weddings, something that the ‘right wing’ mayor of Madrid (PP member Ruiz Galardon) has no problem at all with.

    Now Butiglioni, who has similar views to Bono on many topics, was apparently ‘unacceptable’ to the European parliament when proposed as a commissioner.

    As I stress, this is meant to cause offence to no-one. I am not judging any of these views, just trying to report on them.

    Personally speaking I find myself to be an odd mixture of romanticism and post modernity.

    These contradictions exist in all of us, and the political party system is only a reflection of this.

    BTW with reference to Oliver’s loonies, I think this was what I was trying to get at with the quotes from Grass. For all his merits and prestige as a writer, the views I quote are getting dangerously close to the ‘loonies’.

  12. two large conservative parties: CDU and SPD
    two progressive parties: FDP and Greens

    Yes, using conservative in the old meaning of preserving what is. That isn’t the only difference there of course, but it exists. Nor is the Green’s and the Liberal’s view of ‘forward’ compatible. You might argue that there is Merkel’s faction in the CDU that is progressive, but that’s comparing a party in government to a party in opposition.

  13. A brief observation:
    As a sometime practioner of the dark arts of private equity: Private equity is patient capital. It is also demanding. That appears to be his issue.

  14. “Private equity is patient capital. It is also demanding. That appears to be his issue.”

    Actually with so many different things going off here in so many different directions, I’m not quite sure who the ‘he’ would be here: Henry Farrell, Tobias, M?ntefering’s or Gunter Grass even.

    That being said, it is one of the important issues. Surely the whole point is one of balance in a modern economy, to achieve change and growth you need both: you need patient capital and you need risk capital, you need private equity, and you sometimes (eg airbus and the like) need government funding via one channnel or another). ‘Deregulation’ after all doesn’t mean ‘no’ regulation. The great ‘debate’, at the end of the day, is all about getting the mix right.

  15. You might note that both, Grass and M?ntefering, are quite old. M., the younger, 65. In their formative years shares were something for the richest 5% or so. And capital was scarce. The ratio between investment abroad and from abroad was not like today.
    If this discussion will continue past the next elections, it will not center around foreign investment.

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