Germany faces the social question again

The high price of global economic disorder

by Werner Voss, Wiehl, Germany

 

cc. When the germans look at the Yellow Vest protests in France, a common reaction is:“Here, in Germany, that would be impossible. We have the social market economy. In Germany there is a welfare state. We have got social security and social justice. We have strong trade unions and good wage rates. There is no need to protest like in France.” All this is not completely wrong. After the Second World War, Germany, guided by concepts such as Rhenish capitalism or social market economy, actually built up something that had gained worldwide recognition and prestige. But also in Germany times have changed. As will be elaborated in the following analysis. The author is an engaged citizen who has collected neuralgic points of today’s social question in Germany. Not because everything is so bad, but because it is time to name the problems that actually exist and to tackle them resolutely. It becomes clear: The main problem is not the lack of expenditure on social services by the state or by social security funds. On the contrary, annual social expenditure has reached enormous heights. Almost a trillion euros flowed into this area in 2018, and millions of people are supported by the state. The main problem is an exuberant globalised economic disorder and an associated social mis-orientation in individual values and behaviour patterns, a lack of orientation towards the common good. This problemn disallows too many people to be able to work well anymore, to earn a decent livelihood from good work and also to make provision for a dignified life in old age.

Queue in front of a food distribution place of the Munich food bank. (picture keystone)

“Prosperity for all”, that is Ludwig Erhard‘s credo in the economic wonderland Germany, the old Federal Republic of the late fifties and early sixties of the last century. The philosophy of the social market economy was: “Live and let live”, which meant nothing more than letting broad sections of the population participate equally in the overall created economic wealth. Erhard did not touch the unequal distribution of wealth and income, but the growth of the economy was to be distributed equally between employers and employees. But what is it like today, 60 years later? While in Germany the gross domestic product (GDP) – that is the annual value of all goods and services produced in a country – rose by more than 40 % from 2.301 trillion euros in 2005 to 2017 to 3.277 trillion euros in real terms (price-adjusted) (https://de.statista.com/statistik/ daten/studie/1251/umfrage/entwicklung-des-bruttoinlandsprodukts-seit-dem-jahr-1991/), the share of those at risk of poverty has risen from 14.7% to just below 17 % in the same period (Graphic “Armutsquote und BIP im Zeitvergleich” im Armutsbericht des Paritätischen Wohlfahrtsverbandes 2018, S. 13) [diagram “Poverty rate and GDP over time” in the poverty report of the “Paritätischer Wohlfahrtsverband” 2018, p. 13]. This is a record high since German reunification. People whose monthly net income is less than 60% of the average income are considered of being at risk of poverty. According to the Socioeconomic Panel (SOEP) of the “Deutsches Institut für Wirtschaftsforschung” DIW (German Institute for Economic Research), that threshold is reached by a single person at 1086 Euros net per month.

The real situation of the  labor market

The official unemployment rate in Germany was 5.3% in February 2019. This are 2.37 million people (https://de.statista.com/statistik/daten/studie/1239/umfrage/ aktuelle-arbeitslosenquote-in-deutschland-monatsdurchschnittswerte/). This is already being celebrated as a success at the present time. In 1982 after unemployment in the then smaller Federal Republic exceeded the 1 million mark, there was still a huge outcry, and the old SPD/FDP government with Chancellor Helmut Schmidt was voted out of office. A new government with Helmut Kohl (CDU) as Chancellor was implemented.
The current calculation of unemployment figures does not include people over 58 who have not been offered a job for more than a year. This group of 162,600 people is subject to a special regulation and is automatically excluded from the statistics (Zeit online, 11.3.2017). However, the standard retirement age is 67 years, which is almost 10 years higher. Likewise, not being considered in any statistic are people who are in employment agency measures or unemployed people for whom unemployment benefit I (“Arbeitslosengeld I”) expires and who first have to consume their assets in order to receive unemployment benefit II (“Hartz IV”). Then the misery of unemployment continues, due to the large number of recipients of unemployment benefit II known as “Hartz IV”, which currently accounts for around 4 million people capable of work. In addition there are about 2 million other persons (for example children) who are dependent on this transfer payment (https://de.statista.com/statistik/daten/studie/1396/umfrage/leistungsempfaenger-von-arbeitslosengeld-II-jahresdurchschnittswerte/). According to a study by the “Allgemeine Ortskrankenkasse” AOK, (a local Health Insurance), the state of health of this group of people is also appallingly poor compared to that of people earning their living. 10.5 % of “Hartz IV” recipients who are capable of work suffer from a narrowing of the coronary arteries, whereas “only ” 6.8 % of the gainfully employed persons are affected (“Oberbergische Volkszeitung” of 9 March).
In spite of the empty words in the media, talking of the labour market boom or the job miracle, Germany remains even in a booming economy a country with mass unemployment of well over 6 million people, not even counting the number of unreported cases. On the other hand, many companies complain of a shortage of skilled workers, which is to be remedied by immigration of employees from abroad. Instead, would it not be more appropriate to bring education, which has been destroyed by decades of educational reforms, back to a serious and good level in order to enable German adolescents by learning basic skills such as reading, writing and arithmetic, to start training in sought-after occupations and to be successful in doing so?
In addition to the more than 6 million unemployed, 7.718 million people are in precarious or atypical employment (https://de.statista.com/statistik/daten/studie/161608/umfrage/atypisch-beschaeftigte-in-deutschland-nach-erwerbsformen-seit-1999/). This is 17% of a total of 44.79 million people in employment. Precarious employment occurs, among other things, when workers can only live poorly or not at all on their income (low-wage sector/working poor). This includes 1.09 million people as so-called “Aufstocker” who receive supplemental money from the administration (ZDF, WISO of 28 January) to cover their subsistence minimum (currently 424 euros after deduction of the amount for rent including heating).
Precarious employment also means work that is not permanent. This includes temporary work, involuntary part-time work, mini-jobs or subsidised work opportunities. The self-employed can also be in precarious employment if, for example, they are pseudo-self-employed and dependent on only one client (https://www.dgb.de/++co++82df733a-28ca-11e2-b661-00188b4dc422/@@glossary.html).

Effects of Schröder’s Agenda 2010

The development is the result of a market-radical policy in Germany that is driving globalization forward; at the beginning of the 21st century, social standards (Hartz IV reforms) were significantly reduced. Contrary to the official statements, these reforms had and have no positive effect on employment. The number of recipients of Unemployment Benefit I was only pushed down by changes in statistical methods. In addition, this resulted in a large number of precarious employment relationships.

Real wages fell by 1.6% between 1992 and 2012. In 2016, real wages rose by 2.6% for the first time since 1992. It was only after 24 years that working people had a little higher net income (Hofbauer, Hannes. “Kritik der Migration”, p. 189). It should be noted that out of ten income groups, especially in the two lowest in this period, real wages in 2016 were lower than 25 years (1991) before (poverty report of the “Paritätischen Wohlfahrtsverband” 2018, p.13). The gross domestic product, on the other hand, almost doubled in real (price-adjusted) terms during this period (1991–2016) from 1.7 trillion euros to 3.3 trillion euros (https://www.statistik-bw.de/VGRdL/tbls/tab.jsp ).

Labour market and free movement of EU workers

In the wake of the free movement of workers as a result of the eastward enlargement of the EU in 2004, the labour market came under considerable pressure, initially due to the accession of Poland, Hungary and other countries and later in 2007 due to the accession of Bulgaria and Romania. The wage levels in these countries are many times lower than ours. Bulgaria’s wages, for example, are eight times lower than in Germany (Hofbauer, p. 185). Logically, this triggers a strong pull towards the German labour market and other countries in Central Europe. The extremely large supply of virtually cheap and understandably willing workers creates wage pressure and also reduces workers’ rights and their social standards. At the end of 2015 there were an estimated 2 million workers, most of them from Eastern Europe, sent to the West (Hofbauer, p. 200). An estimated 15–20% of the Romanian working population earn their living abroad (Hofbauer, p. 201).
The unregulated clash of completely different economies not only leads to distortions in Germany, but also to the bloodletting of workers in their countries of origin, where it hampers the economic progress that these countries desperately need. As a countermeasure, the IMF called on Romanian state agencies to liberalise the Romanian labour market and to attract even cheaper labourers from East Asia or Ukraine. Many companies followed the advice of the international financial organization. After Romania’s accession to the European Union in 2007, the Romanian sewing factory “Mondostar” in Sibiu had only 350 employees of initially 1200. They contacted a Philippine agency and promptly Philippine women worked there for a monthly wage of 235 US dollars on a 60-hour week (Hofbauer, p. 203).
The situation described above is aggravated by the enormous increase in immigration to Central Europe, especially to Germany, from Muslim countries since 2015. According to economist Conrad Schuler’s calculations, this migration has cost us 47 billion euros (direct and structural costs) annually since 2015, in addition to wage dumping and the weakening of social standards. This corresponds to 15% of the current federal budget (Hofbauer, p. 171).

Old-age poverty, need of care, housing shortage and food banks

The number of pensioners receiving basic pension has doubled since 2003 to 500,000. This corresponds to 3% of pensioners. In 2036 it will be 20% and thus affect 4.8 million pensioners (https://www.ndr.de/themenwoche/gerechtigkeit/Ueber-500000-Rentner-beziehen-Grundsicherungsleistungen, altersarmut268.html). Already today, 48% of pensioners receive a pension of less than 800 euros a month. That are 8.6 million with a total number of 18 million pensioners (https://www.tagesschau.de/inland/altersrente-103.html).
According to an AOK study, pensioners who have less than 800 euros per month require nursing care already at the average of 74 years, 800 to 1600 euros only at the age of 77. Those who receive a monthly pension of more than 1600 euros will become a nursing patient only at the age of 81 („Oberbergische Volkszeitung“ from 9 March).
It should be noted that according to the Federal Employment Agency the proportion of mini-jobbing pensioners almost doubled from 587,046 to 1,074,689 between 2003 and 2017. Persons over 65 make up the largest part of the marginal workforce.
It is also not fair when selected experts of an independent pension commission want to further raise the retirement age because of of increasing age. A data analysis commissioned by MP Sabine Zimmermann (Die Linke) states that one in five pensioners does not even reach the age of 70 in the first place. In Germany, 135,000 people die every year before the age of 66. More than 185,000 per year did not reach the age of 71 (22%). An answer given by the Federal Government to MP Zimmermann‘s question shows that between 2005 and 2014 around 1.4 million people (16%) died before the age of 65.
Nonetheless, it should be noted that in the next few years the baby boom generation, i.e. the generation born in the late 1950s and early 1960s, will retire and the total number of pensioners is expected to rise to 24 million by 2040.
Since 2000, the need for care for the elderly has increased from 1.9 million to 3.3 million today and will be 5 million by 2045. Costs will rise from 38.5 billion euros today to 145 billion euros in 2045 (https://wize.life/themen/gesundheit/92875/aktuelle-studie-5-millionen-pflegebeduerftige-bis-2045---altenpflege-drohen-enorme-kosten).
Half of the 592,000 recipients of housing benefit are over 65 now („Oberbergische Volkszeitung“ from 15 January). In 1987 there were still 3.9 million social housing units in the old Federal Republic. In 2015, after reunification, there were only 1.4 million (Hofbauer, p. 171). As the latest development shows, this leads to above-average rent increases, especially in the metropolitan areas. This is likely to become a problem for the baby boomers, who will soon be retiring, because an entire generation with significantly lower pensions will face rising housing costs. A further aspect is the age-appropriate conversion of apartments. This will hardly be affordable for a growing number of pensioners. According to Matthias Günther (Pestel Institut Hannover), 3 million additional flats would have to be built or converted by 2030. This would cost 50 billion euros, but could only be realised with state subsidies of 6 billion euros, according to Günther (“Oberbergische Volkszeitung” from 15 January).
The scarcity of living space with ever more immigrants means this basic human need is becoming a luxury good. The rising number of homeless in North Rhine-Westphalia alone, where since 2015 the number has risen by 15-30% annually and stands at 32,000 now, illustrates this misery („Oberbergische Volkszeitung“ from 7 February). Nationwide, the number of homeless people rose by about 25 % between 2014 and 2016. In absolute figures this means from 335,000 to 420,000. Another 440,000 refugees living in shelters (Zeit online, 11/14/2017) are not included.
“The more than 940 food banks (non-profit, charitable organisation ) in Germany paint a gloomy picture of the welfare state,” said Jochen Brühl, chairman of the association, on the occasion of the World Day of Social Justice on 20 February. The number of people in need at the food banks has doubled in the past 10 years. In 2005, 500,000 people were regularly supported by the food banks. In 2007 there were 700,000. Since 2014 the number has been 1.5 million people per year. And the demand was still much higher, according to Brühl (“Oberbergische Volkszeitung” from 21 February).

Financing

Who‘s financing all this? The entire tax revenue (federal, state and community) is generated primarily from wage and income tax (45%) as well as from turnover tax (30.8%). In addition to tax, the production factor labour also generates social security contributions for the unemployed, pensioners (on a pay-as-you-go basis), people in need of long-term care and the sick.
In addition to the wage pressure described above, which leads to lower income from taxes and social security contributions, it should not be forgotten that increasing automation and digitisation will generate more and more added value with ever fewer workers in future. This raises the question of the extent to which this job-destroying process, which is even intended to increase productivity, can still be used for the common good. One proposal is taxation that starts directly with the creation of value, i.e. at vending machines and digital systems. An investment tax on the commissioning of job-destroying technologies such as artificial intelligence/automation (robots), digitisation, industry 4.0 would also be a possibility.
The statutory tax rate for large corporations is 30 %, but in fact only 20 % is paid („Oberbergische Volkszeitung“ from 23 January). Internationally active companies have more opportunities to evade tax liability (income tax on profits) via intra-group accounting and profit transfers abroad (low-tax countries) – in contrast to medium-sized companies or the dependent employee. A new instrument, Country-by-Country Reporting, which is based on information collected from the Orbis database and discloses the figures (turnover, profit, taxes) of multinational companies broken down by country, would make it easy to determine the statutory taxes to be levied. The corporations, however, resist and, incomprehensibly, have found an ally in the person of the Federal Minister of Finance, Olaf Scholz (SPD). Also his predecessor Wolfgang Schäuble (CDU) did not want to know anything about this instrument („Oberbergische Volkszeitung“ from 23 January).
Last year, the German billionaires were able to increase their assets by 20%. The richest percentage of Germans has as much as 87% of the total population (“Oberbergische Volkszeitung” from 21 January).

Conclusion

On the basis of the facts described above, despite the SPD‘s recent push for a „renewal of the welfare state“, politics has so far failed to identify any possible solutions.
It is a disgrace to have to watch how, despite the enormous increase in the national product in recent decades and despite the bubbling tax sources in Germany, broad sections of the population have become downright impoverished. According to Ursula von der Leyen, the Bundeswehr budget is to be increased from 38.5 billion euros at present to 1.5% of GDP by 2025, and to more than 60 billion euros in absolute figures. This will contribute to even more wars, kill people or drive them to flee to us. The refugees will be robbed of their homeland, exploited in the destination countries of the northern hemisphere, and their countries of origin will become desolate and the „playground“ of the great power fantasies of some.
Taxpayers‘ money flowed into the rescue of the banks. ESM (European Stability Mechanism) means liability for foreign national budgets with our taxpayers‘ money. Target 2 balances result in irrecoverable claims against other states where we citizens are likely to remain stuck with. Additional money goes into the EU corruption in Brussels and Strasbourg.
The constitution (basic law of Germany), article 20 paragraph 1, specifies: „ The Federal Republic of Germany is a democratic and social federal state.“ [official translation of the German Bundestag, emphasis by author]. Article 28, paragraph 1, sentence 1 of the constitution states: “The constitutional order in the Länder must conform to the principles of a republican, democratic and social state governed by the rule of law within the meaning of this Basic Law.” [official translation of the German Bundestag, emphasis by the author].
A welfare state is understood to be a democratic constitutional state having as goal the social justice and security of its citizens according to the constitution and realising the goal through appropriate legislative measures and material support services.
These constitutional principles are to be demanded on behalf of all citizens.    •

wv. Unemployment benefit I (“Arbeitslosengeld I”) is paid because all workers and employees pay into a compulsory insurance scheme on a monthly basis, with a contribution rate of currently 2.5% on the wage or salary. This 2.5% is paid half by the employee and half by the employer. If you become unemployed and have been employed for 12 months within 2 years, you are entitled to benefits. It is usually valid for a maximum of 1 year. The maximum duration of 2 years is reached for persons over 58 years of age. The benefit amount is 60% of the last net income for childless beneficiaries and 66% for beneficiaries with at least 1 child.
Unemployment benefit II or Hartz IV is not a social benefit, but a benefit which serves the integration into the labour market. It is paid when the unemployment benefit I expires and all the assets of the person concerned, with the exception of a small amount of protective assets (150 Euros per year of life/7,500 Euros at the age of 50), are used up and the needs of the person are thus fulfilled as a legal requirement. The amount is at present 424 Euros per month for a single person after rent including heating, but excluding electricity, telephone. It is financed from tax revenues.
Basic security is a social benefit in the old age, if the pension is unsufficient or non-existent, in order to cover the subsistence minimum. (Minimum subsistence level currently means 424 Euros per month for a single person after warm rent excluding electricity, telephone). It is financed from tax revenues.
The legal pension is financed as a right in the course of the working life of the workers and employees by a statutory compulsory insurance with a contribution rate of currently 18.6% on the wage or salary - of which half is paid by the employee and half by the employer - and paid out directly to the current pensioners according to the pay-as-you-go system. The standard age limit was gradually raised from 65 to 67.