Germans bogged down in Red-Green quagmire

Australians, who are confused by the challenges of globalisation, innovation, ageing and the need to reform economic and political institutions, can learn a lot by looking at present-day Germany where many choices, which are now also being advocated here, have long been made.

For about a decade, a Red-Green coalition led by Chancellor Gerhard Schroder's Social Democratic Party has ruled from Berlin.

They implemented rising Oko taxes (environmental taxes), pushed recycling, banned gene-modified organisms, closed all nuclear power stations, extended socialised welfare, subsidised early retirement to reduce massive unemployment, and collectivised more and more services, for example in health.

They decreed education reforms, distributed industry handouts to stem stagnation and capital flight, protected agriculture for reasons of resource security, and indulged in blatant anti-Americanism.

All this went along with the vision of spassgesellschaft – that all ought to have unconstrained fun, or literally, the fun society. The vision was overshadowed only by fears of global climate change.

The Red-Green policy mix was pushed by a team whose values were far to the left of most of their voters. Many ministers and key advisers had been active in the radical, often violent Trotskyist movements of the Vietnam era.

Voters accepted it as an alternative to the philosophy of frugal work-and-save, self-responsibility and limited government which had underpinned post-war prosperity, and out of disgust with the machinations and corruption of the preceding conservative government led by Helmut Kohl.

By now it is apparent that both regimes, Kohl's and Schroder's, have failed to come to grips with Germany's economic sclerosis, its dysfunctional institutions and rigid, outdated attitudes.

The spassgesellschaft approach delivered little fun, but much insecurity and pessimism. While Green spin doctors praise economic stagnation as "sustainability", local governments have gone broke, roads remain unmended, public services deteriorate, hospital waiting lists lengthen, the task of rebuilding the devastated east is left unfinished despite continuing transfers of a massive 4 per cent of the national product, unemployment is stuck above 10 per cent, businesses and the young flee the Berlin republic, public deficits persist, and the anaemic economy drags down its EU neighbours.

German ministers now try to inflict the home-made handicaps on competitors, pushing for artificial labour costs in the new EU members and ill-conceived Kyoto burdens in the US, Russia and Australia.

Admittedly, most Germans still live in reasonable comfort, but among the 15 EU members before the recent expansion, Germans now have the fourth-lowest per-capita income.

In post-Thatcher Britain, real-estate values have risen 2 times since 1990. But in Germany, average house prices have not moved up at all, and shares have performed disappointingly for half a generation.

Pervasive regulation strangles productivity, while parliamentarians still keep adding to the world's highest on-costs for employment.

The dirigiste approach can be illustrated by garbage-processing subsidies, which have created a garbage shortage, pay for imports of foreign garbage and the "mining" of existing East German garbage dumps!

In response to the malaise the government came up with the so-called Agenda 2010. Many international observers initially greeted this as an overdue reform program in the Thatcher-Reagan mould. Yet Agenda 2010 met with stiff resistance not only from the hard left and the numerous communist-voting malcontents in the east. The general public soon also gave it the thumbs-down.

A closer look explains why. Whereas the liberal reforms in the Anglo-Saxon countries, including Australia, removed group privileges, such as tariffs, stabilised the macro economy and revived market forces and risk-taking, Agenda 2010 leaves Green interventionism and union and agricultural privileges largely untouched.

The messages are confused; lately, some socialist MPs even advocate higher business taxes and a Keynesian spending spree. Instead, numerous implicit contracts with private citizens are to be broken unilaterally.

Thus, until recently government offers of early pensions induced people in their late fifties to retire. Now, new means tests and new taxes withdraw part of these inducements. Pensioners are generally bitter, and their children resentful, about the plan to tax pension incomes, at a time when inflation and the jacked-up costs of public-sector services eat into nest eggs and pensions.

Agenda 2010 is predominantly aimed at redistributing income from private citizens to government; it does little to improve competitiveness and the productivity potential.

The conservative opposition seems equally averse to genuine pro-market reforms and self-reliance. And more and more political decisions now emanate from the remote, unelected Eurocracy and UN committees. Little wonder that sullen apathy prevails and civic morality declines. The prevalent cynicism and self-hatred often offend visiting observers.

Australians should take note of these consequences of rampant Greenery, proliferating welfare bribes, and illusions that a rich society holds a firm subscription on future prosperity.

More importantly, stagnation, even at a high level of affluence, inflicts much psychological pain on the weaker segments of the population. Pensioners who worry about next winter's heating bills have jobless sons and grandsons. Xenophobia is easily seeded and exploited.

The life opportunities of professionals and entrepreneurs, and their incentive to create jobs, are being taken away by progressive collectivisation and regulation.

But they get little sympathy from the "nouveau poor" and the left-leaning priviligentsia. So, they emigrate, retire early or move into the black market. The most frightening long-term fruit of Berlin's new-age political class is moral decay and spreading pessimism.

Australians should resist siren calls to follow the Berlin road.

Wolfgang Kasper is a senior fellow at Sydney's Centre for Independent Studies.