Promising Elections

The Guardian today has a short profile on Angela Merkel, while the FT looks at some of the proposals which may well form part of the SPD campaign manifesto. Far be it from me to worry about ‘sting the rich’ tax proposals, but as far as I can see the main isssue is getting Germany back to work, and Schr?der’s time might be better spent adressing this issue.

Talking of which, this could be a good moment to mention the whacky world of Hans Werner Sinn.

I say ‘whacky’ because even though he talks sound sense on a lot of issues, I still can’t help feeling that there is something a little ‘un-nerving’ about the quasi religious way the President of the Munich based Ifo research institute presents his ideas, and the sort of ‘cult of the personality’ which seems to surround him on the
Institute’s Web Site.

Perhaps the best quick summary of his views in English can be found here. Obviously there are some similarities with what I am saying:

“Added to all of this are the demographic problems. Germans have only few children. One hundred women give birth to only 135 children. One hundred French women bear 190 children. About forty percent of German female academics have no children at all. For this reason, German society is ageing age faster than most others. Only some of the southern European countries do worse. In thirty years? time, we will have twice as many elderly relative to young people than today. We are becoming a country of the aged. The power to innovate is waning, entrepreneurs are dying out, and the social insurance system is in crisis. If we keep the contribution rate and the percentage of federal subsidy to the pension system constant, then by 2035 the level of pensions will have to decline to about half of today?s value. Most of the pensions will be below the level of social assistance. An increase in the retirement age will not help much either. Old-age poverty and destitution are almost inevitable…..

Even today, France has more newborns than Germany although it is still much smaller. In thirty years? time, there will be more thirty-year-old French than Germans. It is no secret how growth forces in Europe are shifting.”

But he also has some views I wouldn’t especially want to endorse:

He clearly, for example, favours the delays in full freedom of movement for citizens of the 10 new members:

“In order to prevent excessive immigration from Eastern Europe following Eastern enlargement of the EU, immigrants should only be integrated into the welfare system gradually over a certain period of time. Unfortunately, the new EU constitution with its proposed social union for Europe goes exactly in the opposite direction by strengthening immigrants? rights to receive welfare benefits.”

I think that with the demographic problems that exist in Germany, these migrants should have been made welcome in the way they have been in the UK.

He is also clearly in favour of discrimination between parents and non-parents in pension schemes:

“The Riester pension savings scheme recently introduced by the government is the correct way in principle. What Germans no longer invest in human capital for the lack of children they must invest in real capital. Nothing comes from nothing, to be sure. A society that neither invests in human capital nor in real capital must go hungry in old age. This is a fact, despite social insurance. The only problem is that the Riester scheme put families in an impossible position because the sum of burdens is too high. With their current social security contributions families today finance the pensions of their parents. With their expenditures for the education of their children they safeguard future pensions for everyone. And with their expenditures for the Riester scheme they are to safeguard their own pensions, too. One of these three burdens is too much.
That is why I propose introducing, as a supplement to the shrinking old-age pension, a new child-based pension for parents that increases in the course of time in such a way that it permanently secures today?s pension level for parents despite the shrinking statutory pensions. It must be financed by all wage and salary earners, for everyone has parents. In contrast, the Riester scheme should be a compulsory pension for the childless. Everyone must make sure that he supplements his statutory pension. Families do so by raising children and thus forming human capital. This entitles them to a child-based pension in the future. And the childless do so by forming real capital via the Riester scheme, which they are certainly able to do. Especially those who have no child-raising costs because they don?t want or can?t have children have funds to invest in a Riester scheme.”

However in the context of the coming elections one of his proposals does seem to me to lead somewhere, his proposed Hartz V:

“the current Hartz IV programme must be supplemented by a ?Hartz V?. Firstly, this new programme would allow beneficiaries to earn up to ?400 without penalties (Hartz IV only allows ?50). Secondly, the first ?200 of earnings would be supplemented by 20%. Thirdly, the withdrawal of benefits beyond ?400 of earnings would be limited such that in combination with taxes no one would lose more that 70 cents for each additional euro earned. (Under Hartz IV 80 to 90 cents is lost.) Fourthly, if the beneficiary does not work, unemployment compensation would be reduced by about a third in order to reduce the financial burden of the state. Fifthly, all beneficiaries capable of working would be offered municipal jobs where they could have an income that would match the current level of social aid (or, equivalently, unemployment compensation II according to the new Hartz IV law). Sixthly, the municipalities would contract out the workers in their charge to the highest bidders.”

The details of this proposal are, of course, open to discussion, but what he is getting at is sound enough: making it economically interesting for people to work without massively slashing benefits. The UK seems to have a much better system of income support for those *in work*, and maybe there is a lesson for others here somewhere.

Postscript: Incidentally Mckinsey Global Institute in their study of the impact of ‘off-shoring’ on Germany seem to back up much of what Sinn says:

“A similar analysis shows that German companies save less than their American counterparts because language and cultural issues add extra management costs to offshoring projects. In addition, they frequently offshore to Eastern Europe, where wages and infrastructure costs are higher than in other low-wage offshoring destinations such as India. Germany misses out on many of the high tech exports that offshoring can spark because American firms now dominate that industry, and it misses out entirely on the repatriated earnings of offshoring providers abroad.

The key difference, however, lies in the limited ability of German workers to find new jobs. If the rate of re-employment matched that in the U.S. ? nearly 70 percent ? offshoring would create ?1.05 of value for the German economy for every euro of corporate spending offshored. MGI estimates, however, that re-employment rates could be as low as 40 percent, meaning that Germany recaptures only E0.80 for every euro offshored.”

5 thoughts on “Promising Elections

  1. He is also clearly in favour of discrimination between parents and non-parents in pension schemes:

    Given the large fraction of GDP pensions are bound to be, how if not by discriminating against the childless is the money needed to further childbirths to be raised?

    German companies save less than their American counterparts because language and cultural issues add extra management costs to offshoring projects

    Oh the irony. Here comes the revenge of the colonised.

  2. I have to say that sometimes H.W Sinn unnerves me with quasi religious “doom&gloom” tracts but his ideas and proposals are economically sound. You can debate about the exact measures but Germany needs extra motivation to get back to work and also invest in human capital.

  3. One argument I would like to make here is against Sinn’s claim about that general pension systems are the main cause for lower birthrates. That claim is much heard and makes sense from a rational economic standpoint in theory but it hasn’t been proven as such in practice (higher education seems far more significant).

    So, on that front one of Sinn’s claims fall flat (I do think the child pension system is a idea worth thinking about). However, the motivation for a couple to have children is as much (or more) socially motivated as economic.

  4. However, the motivation for a couple to have children is as much (or more) socially motivated as economic.

    Absolutely. But what better way to express a society’s social values than in public money? It is not everything and more is needed, but deeply down, money talks and will send the message that you really mean it.

  5. “He clearly, for example, favours the delays in full freedom of movement for citizens of the 10 new members:”

    Except, that in the example quoted by you he does not talk about limiting their freedom of movement, but about something slightly different.

Comments are closed.