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Memorandum 2005: Alternative Economic Policy
In Germany and the US, the corporation is often stylized as the suffering servant. the market is made sacrosanct; all problems are defined as interferences with the market. Profits soar and investments fall. Corporations pay increasingly less tax and receive subsidies. Alternative economic policy is needed to restore long-term sanity in taxation, investment and distribution.
MEMORANDUM 2005
WELFARE STATE INSTEAD OF CORPORATION SOCIETY
ALTERNATIVE ECONOMIC POLICY
By Alternative Economic Policy study group
[This memorandum from the study group at the University of Bremen is translated abridged from the German on the World Wide Web, http://www.memo.uni-bremen.de. Email: memorandum [at] t-online.de.]
CONTENTS
Consolidation of the Counter-Reform
1. The economy remains weak, the location strong and unemployment high – On the economic and social situation in Germany
Politics of the Counter-Reform
2. Demanding and oppressing –: Labor market reform as disciplining
3. Savings rage as a brake on growth – Fiscal policy in the homemade debt trap
4. Deregulation race and social dumping – New dangers to the domestic market
5. Student fees – Farewell to scholarship as a public good
Alternatives for Safeguarding the Welfare State
6. Strategy for more employment and better jobs
7. Unemployment insurance and work promotion – New ways of financing
8. Just financing of greater state spending – Alternatives of fiscal policy
9. Minimum standards and public goods – Alternatives to ruinous competition and privatization
Progress needs Countervailing Power
CONSOLIDATION OF THE COUNTER-REFORM
In the spring of 2005, the contours of a society where power starts from the big corporations assisted by an uninspired government are clear in Germany. Despite explosively higher profits and favorable profit expectations, mammoth corporations pressure their employees with great brutality. They use the high unemployment and the insecurity of employees as levers to lengthen working hours and lower wages. At the same time they destroy vast numbers of jobs. All this is counter-productive from a macro-economic perspective and contributes to new all-time records for mass unemployment. This policy simultaneously drives up the profits and market value of corporations. The strategy aims at changing the social power relations in the long-term in favor of assets and capital and to the disadvantage of labor and social solidarity. The counter-reforms of the past years should be reinforced by a far-reaching reorganization of society.
Given this development, the economic- and social policy in a democratic society is challenged to counteract the cancellation of social compromises and political standards in favor of the rule of capital. A corrected political framework is necessary offering people a perspective for stable employment, adequate income and social security. This framework in which the social obligation of property has a constitutional rank was created through social pressure in West Germany in the first decades after the Second World War. In the meantime this social obligation is increasingly evaded and openly attacked by big corporations with their trade associations. This leads to macro-economic weaknesses, lasting unemployment and social polarization. In the long run, the political stability of a democratic society is undermined.
The necessary correction is not occurring. On the contrary, the economic- and social policy of he German government complements the class policy of the big corporations instead of putting it in its place. Federal German policy reinforces the redistribution through tax- and deregulation policy. The shift in power is consolidated by expanding the general insecurity through reforms of the social security systems and by weakening resistance through a disciplining labor market policy. These reforms involve disciplining that brings profit to private businesses and public employees.
In this connection, the resistance of politics to theoretical criticism and empirical refutation is remarkable. The supply-oriented market economy theory that defined the government course for three decades has been empirically refuted more than any other theory. The criticism built on theoretical arguments – presented since the middle of the 1970s – has become louder in Germany in recent times in the “scientific community” and the board of experts. Massive social protests have occurred. However neither the criticism nor the protests impressed the representatives of private enterprise, politicians and the largest part of the media. They still incessantly spread the gossip of the pressures of globalization, the useful macro-economic function of higher profits and the lacks of any alternative to the precedence of markets over democratic politics.
In the following, the economic development and the crisis effects of German and European policy will be briefly outlined. Then alternatives to this policy will be presented.
1. The economy remains weak, the location strong and unemployment high
The upswing of the German economy was over before it even began. Jobs were not created. On the contrary, the rise of unemployment to historic record highs could not be prevented. Meanwhile the number of the officially registered unemployed is over five million. Nearly eight million regular jobs are missing in Germany when the hidden unemployed and the silent reserve are included. This number will increase further in the foreseeable phase of economic growth weakness.
He “upswing” of the past year was marked by two characteristics. Firstly, the upswing remained very weak. In 2004 the growth of the German economy was fourth to last among the 25 countries of the European Union (EU). At 1.6%, its growth was less than half the growth of the US (4.4%). In the last quarter of 2004, the total economic output even fell compared to 2003. Secondly, the upswing was exclusively supported by foreign contributions, that is the surplus of exports over imports of goods and services. All three great components of domestic demand even declined absolutely in the year of the upswing, private consumption around 3.6 billion euro, state consumption around 1.7 billion euro and invested capital around 1.1 billion euro…
The continuing weakness of the domestic German economy is the result of a development-inhibiting income distribution and a counter-productive economic- and social policy. Both complement and reinforce each other. The redistribution of national income to the disadvantage of earned income and to the benefit of profit income continuing for two-and-a-half decades and only interrupted in a few years strains private consumption that amounts to half of the macro-economic demand. As a result, economic growth decreased in the long-term and unemployment increased. This long-term development has weakened the position of unions and encouraged employers to ever-new rounds of redistribution to the disadvantage of employees and the unemployed.
This vicious circle of economic weakness, redistribution and unemployment has been strengthened, not broken by politics. The coercive austerity policy pursued against all economic reason is counter-productive for both economic policy and growth policy since it restricts total economic demand and undermines and ultimately destroys the infrastructure by reducing public investments. The tax reform has especially favored the top income groups whose relief is not usually reflected in increased demand. The trifling relief of the lower income groups did not stimulate the total economic demand because this relief was largely consumed by higher health care costs and other public services. People do not have money for additional spending. Finally, the all-embracing social cuts increasingly annul social spending aimed at strengthening purchasing power. Social spending has a stabilizing buffer function. A functioning social support system is vital for the economy altogether, not only for the concerned.
Thus the policy of the last years was socially unjust because it continued and partly strengthened the redistribution from bottom to the top that has occurred for a long time. This policy is also economically counter-productive because it impedes the domestic economy without exhausting the long-term production possibilities with which the quantity and quality of worker demand could be raised. When everyone who can work and wants to work receives a regular job at contract conditions, the social wealth measured by goods and services would be at least a fifth higher than today. Then there would be no revenue problems of the public budgets; social systems would be financed without special problems.
That the macro-economic development in Germany is not even more desolate is only due to its strong position in foreign trade. For years, Germany has exported more than any other country and also realizes the highest export surplus of the world. He German top position – either first or second place in the world – existed for a long time and was only interrupted in the years right after German unification. This position is in crass opposition to the constant attempts to ascribe an international competitive weakness to “location Germany” with ever-new argumentative ploys. Again and again labor costs are represented as too high, the labor markets as too rigid or the system of social benefits as too opulent and inhibiting production. These claims have been refuted in every point. German labor costs have lagged behind the costs of all rivals since the first half of the 1990s; the German labor market is not more rigid than other countries and the special benefit rate is in the European middle. This is also true for the current attempt to downgrade the German economy to a “bazaar economy” whose temporary export strength rests on the previous spending of foreign countries, not on its own wealth creation.
The international interlocking of export-oriented economic branches has also increased in the course of general internationalization. As long as a foreign trade surplus exists, the wealth creation in Germany induced by exports will be greater than the wealth creation through imports. That this surplus increased for years in Germany and has reached an all-time high should discredit the nonsense of the thesis of the “bazaar economy.” This fact also relativizes the consequences of shifting jobs abroad. On balance, these shifts lad to the destruction of jobs at home and increase the demand for German export goods. The automobile branch often cited as the chief witness for job outsourcing abroad is one of the very few economic branches where the number of employees paying into social security is marginal but increasing.
Germany’s strong foreign trade position is problematic for other reasons. Three dangers are striking. Firstly, the development of the German economy is largely dependent on foreign countries since export demand is a function of the development in partner countries. As the enormous boom of the world economy especially in the US supported the weak German upswing in 2004, the foreseeable cooling of the world economy – regardless of the high quality of German export goods – represents a special danger for the German economy. In contrast, a country of Germany’s size can steer its economy from its own strength and simultaneously encourage a worldwide economic stabilization. Without this independent role, politics amid the setbacks of the world economy would take measures again and again that lower wages (including non-wage labor costs) and taxes for businesses and reduce spending on public investments. However the neglect of the domestic economy – infrastructure, education, training and contentment of employees – will in the long run undermine the ability to produce and export products of high quality. If realizing a high and increasing balance of payments surplus should succeed, this – thirdly – would only be shift of the problems, not a solution. A balance of payments deficit for other countries that must be financed by transferring assets (direct investments) or permanent indebtedness inevitably faces a German balance of payments surplus. Sellouts or permanent indebtedness create political problems and increasing international conflicts.
2. Demanding and oppressing – Labor market reform as disciplining
He last law reforming the German labor market that passed in December 2003 with a large majority in the Bundestag and Bundesrat took effect January 1, 2005 as the “fourth law for modern services in the labor market.” With the abolition of past unemployment assistance and the introduction of so-called unemployment benefits II, this law earmarks fast and radical reductions of public support for the unemployed as soon as their unemployment benefits end. At the same time, the law increases pressure on unemployed and employed persons through the recent intensification of the reasonability rules. The former must accept any offered job. The latter encounter a low-wage sector. By decreeing a work obligation, politics massively contributed to more social polarization and endangerment of democratic society.
Hartz IV stands in the tradition of labor market reforms that are irrelevant in economic and employment policy because they create no new jobs on balance but contribute to destroying jobs by cutting social benefits. These benefits would have made possible effective purchasing power. This deplorable state of affairs was blatant with he personal service agencies. The flight from Hartz IV into state-subsidized personal companies explains the increase of this new independence in 2004 and also justifies doubt in their survival capability. Recent analyses show that more than half of the personal companies were jobless after the promotion ended. The run on the so-called mini-jobs striking in the second half of 2004 may also refer back to the pressure of Hartz IV – celebrated as an early success of this reform – that will increasingly replace working conditions that pay into social security with precarious working conditions. Compared to 2001, the numbers of independent persons rose 168,000 in 2003 and the marginally employed 243,000 while the employees paying into social security fell 861,000.
The job creation ineffectiveness of its labor market reforms is not hidden to the German government. If it holds unswervingly to this course, other causes are responsible beside ideological stubbornness and conceptual helplessness. Three political tendencies characterizing earlier reforms are striking in Hartz IV.
Firstly, the reform seeks to repress a social responsibility for overcoming unemployment and ultimately abandon the orientation of the 1969 Work Promotion law. “Countering emergence and continuance of unemployment” and “preventing devalued employment” were explicitly defined as “political goals.” The 1997 Work Promotion law insisted that “employers and employees” were responsible for balance on the labor market. Concrete examples were lacking for the responsibility of employers and for sanctions when they refused this responsibility, e.g. through mass layoffs. This labor market reform aimed at reducing state bureaucracy and standardization and encouraging more responsibility on both sides of the labor market. Hartz IV ends the pseudo-symmetry and assigns responsibility for unemployment exclusively to the unemployed. Ending this condition burdening society as quickly as possible and at any price is imposed on the unemployed.
Secondly, Hartz IV intensifies the pressure on the unemployed. In this way, Hartz IV contradicts the fairytale of the retreat of the state and clearly demonstrates that the state is very much present in the neoliberal regulation of economic and social conditions. The state changes from a welfare state increasingly eroding in the course of the last two decades to an ever-stronger authoritarian state. The abolition of unemployment assistance produces massive pressure to underbid all secure labor standards. This pressure is strengthened by the threat of further cuts in unemployment benefits II upon refusing any offered work. In this connection, the so-called “one-euro-jobs” are important. The unemployed must accept these jobs without regard to their training when they are offered. This is very close to the introduction of a work duty that is a slap in the face of quality- and training standards and work relations based on partnership. The existential plight of the unemployed is openly exploited. Degrading jobs, an abuse to be combated in the work promotion law, becomes an accepted and regularly applied instrument in Hartz IV.
The third main thrust of the latest labor market reform extends far beyond the paradigm change of labor market policy. The social power- and distribution relations will shift in favor of the rich and the private economy. Through the pressure to accept underpaid and precarious working conditions, an additional low wage sector is envisioned to intensify the disciplining pressure on the economic and legal situation of all employed persons. With this pressure, more old-fashioned bastions of the welfare state should be put through the mill. After the perforation of the net of social security through pension-, health care- and labor market reforms, the employer associations launched trial balloons for identifying the next dislocations. Eliminating protection against unlawful termination as old-fashioned and the German joint-determination rules as unsuitable for Europe meet with a divided echo in the employer camp and rejection from the government. However after the experiences of the last years, this rejection may not last long. The further development is foreseeable. The political deprivation of rights should reinforce the economic redistribution and social polarization .
3. Savings rage as a brake on growth – Fiscal policy in the homemade debt trap
In 2004 German fiscal policy remained 0n its misguided course of alleged budget consolidation. On one side, more tax cuts should stimulate the investments of businesses and the consumption of private households and also increase the tax revenues through the heightened demand. On the other side, a strict savings course should lower state spending. Both – according to the promise – would lower the public budget deficit and advance the long-desired consolidation of state finances.
Of this program, only lowering tax revenues and state spending was realized. The last stage of the great tax reform resolved in 2001 lewd to revenue shortfalls in 2004 of around 6 billion euro and increased the total annual tax shortfalls from these reforms to 60 billion euro. The desired effects stimulating the economy failed to appear. The above-average relief for the top income groups in the course of income tax cuts hardly gave a push to additional consumer spending. In contrast, the below-average relief for lower incomes was largely neutralized by cuts in social benefits and higher state fees etc. Private consumption did not increase but fell. The fiscal relief of profits also did not revive private investments. From 1993 to 2003, the profits of corporations rose 81%; their profit taxes only rose 3%. However the investments did not increase but declined 11.3%. They fell again in 2004. Thus corporations have not used the tax gifts and their higher net profits to finance jobs.
Public revenues in Germany declined in 2004 by 0.3% or 3 billion euro and public spending 0.2% or 2 billion euro. The deficit of the public budget did not decline as planned at the end of 2002 to 1.5% of the GDP but rose to 2.9%. For the third time, the deficit surpassed the limit of 3% of the GDP set by the Stability- and Growth pact of the U. This will happen a fourth time in 2005. The number of years in which Germany violated the pact is greater than the number of years in which it observed the deficit limit. On one side, this triggers criticism and indignation among those who see an increased burdening of future generations with public indebtedness. On the other side, a discussion about the necessary reform of the Stability- and Growth pact began without questioning the foundations of this faulty design.
In earlier memoranda, we referred theoretically and empirically to the untenable nature of these foundations. Under the current economic conditions in Germany – general demand weakness and unutilized capacities -, public deficits neither deter private investors from the capital market nor produce inflation pressures. These deficits also do not burden future generations. With the debts, they also inherit the claims to interests and repayment – and a foundation of economic development strengthened by state investments. The argument that a growing number of creditors of German debts are in foreign countries is unconvincing because Germany’s creditor position is much more important than its debtor position toward foreign countries. This debtor position can be a problem for balanced international relations.
The new state indebtedness was caused in large part by the massive reduction of corporate taxes. Since these tax gifts contrary to the official government justification have not led to more growth and additional tax revenues, public borrowing has increased so much that savings in state spending are impossible.
Thus new state indebtedness can be problematicized from another perspective. An expensive correction of inadequate wage- and salary-incomes is necessary, that is, of the aberration of distribution and lower tax revenues. Greater tax reductions are crucial. In the first case, private consumer demand falls; in the second case, state demand falls. The investments of corporations declined on account of poor sales prospects. This demand gap can only be closed through foreign trade surpluses or public deficits. When neither occurs, the economy skids into recession in which the original abnormal trends are usually not corrected but repeated and strengthened. In this situation, state deficits are sensible and necessary measures to stabilize the economy. If one wants to avoid increasing long-term public debts that must be served, the correction of the income distribution – on account of the problematic of continuing balance of payment surpluses – in favor of consumer-intensive wages and salaries and the increased tax rate toward a constantly increasing foreign contribution is a more reasonable alternative.
The current discussion is very far removed from these reflections that limit state budget deficits by strengthening the domestic economy. Politics praises reduction of the new indebtedness and takes measures that drive public budgets again and again into the debt trap.
4. The deregulation race and social dumping – New dangers for the domestic European market
In the last months, the EU has taken a number of initiatives annulling the political regulations of markets and heightening the competitive pressure in Europe. Completely liberalizing the domestic market for services without agreeing to common minimum standards observed in all the member countries of the EU is uppermost. Every service enterprise allowed in a member country of the EU will automatically have a “European passport” in the future according to the EU commission on “services in the domestic market.” This authorizes settling in any other member country (principle of freedom of establishment). The legal regulations of the member country where the offering business has its headquarters should be in force. Only the authorities of the country of origin can supervise and examine compliance with these legal regulations (principle of homeland control).
If these conceptions are realized, major negative consequences for people in the EU will result:
Firstly, inscrutability about the quality and price of services in the EU would increase enormously. Consumers and users would be exposed to an inscrutable wave of marketing- and propaganda strategies of mammoth corporations without being able to ground their decisions on recognized standards and judgment criteria.
Secondly, a regulatory race downwards would occur in which countries with higher standards can demand and enforce the removal or loosening of standards affecting endangered competitiveness. The result would be a general decline of quality standards at least for the mass-produced products intended for the majority of people.
Thirdly, the competitive pressure would also have an effect on the social standards in the establishment or restoration of services and lead to a massive social dumping that would change working conditions toward increasing rationalization and intensification of labor, falling wages and salaries and increasing insecurity and precarization of jobs. Thus the social hierarchies of power would be shifted again in favor of the upper classes.
Fourthly, the consequences would be very disastrous for those services currently still provided by the state as public goods without regard to the income or purchasing power of the users. According to the rules of the EU, these public services when supplied by independent entities must compete in the future with domestic and foreign providers. The result is often the privatization of these institutions – e.g. hospitals – that must increasingly be converted to private enterprise to maintain themselves in the competition. In the long run, this is not consistent with maintaining a public service provided independent of the income of users. The service guideline represents a frontal attack on the public sector in the member countries of the EU by establishing the precedence of rules of competition for this area. The guideline will thereby create facts before the increasing public criticism of its neoliberal radicalism point the way ahead for a greater role of the public sector.
In the meantime, criticism of the draft of the service guideline has become so strong that governments can no longer evade it. Both the German and the French governments recognize they cannot accept the commission draft. The European Commission has withdrawn this draft for revision. This should encourage intensive involvement in this process.
4. Student fees – Farewell to scholarship as a public good
The judgment of the German constitutional court on January 26, 2005 refuses competence for a nationwide prohibition of student fees. The status of university education as a public good in all German states provided independent of the financial situation of students is thereby denied. The introduction of student fees will promote the commercialization of university education to the disadvantage of broad scholarly training, creativity and innovation. This way began years ago with different university reforms and continued with the declaration of Bologna. The division into vocational bachelor- and masters courses with restricted access blocks intensive academic training for most students. With the foreseeable rapid introduction of student fees, the social selection of students will intensify again making access to universities strongly dependent on the parents’ social status. This also fits in the general picture of the tectonic shift of power relations in society.
The three most important economic justifications for introducing student fees altogether are untenable… A fragile alibi is concocted to end academic education as a public good…
In a situation where the mastery of economic, ecological and social problems requires the full use and development of academic potential and the “knowledge society” is urged incessantly and loudly as a perspective for the future, the exact opposite happens. Those responsible for university policy destroy the foundations for this future with an absurd market orientation of studies and a counter-productive social selection.
II. ALTERNATIVES TO SECURE THE WELFARE STATE
The neoliberal orientation of economic- and social policy is the main trend of the times but is neither fateful nor unalterable. Feasible alternatives exist. The class-bound interest-character of this policy and its dismantling of the welfare state have been clearly revealed in the last years and months. This has promoted the criticism, opposition and discussion of possibilities and alternatives to this policy. In this discussion, we bring our ideas of an alternative type of economic development in which the dynamic of markets and private pursuit of profit occur in a social and political framework. Full employment, social security, justice, ecological compatibility and international solidarity are the cornerstones of this new framework. Earlier memoranda discussed these points in detail.
Germany is far removed from this new framework. Politics has even moved in the opposite direction in the last years. Ending and reversing this trend require great political efforts and social mobilization so the social power relations may change in favor of the employment and work income of dependent persons. One essential step in this direction is a clear and permanent reduction of unemployment. This is the decisive lever for weakening the majority’s powers of resistance and realizing minority interests. Therefore reducing unemployment is central in alternatives.
6. Strategies for more employment and better jobs
In times of continuing growth weakness, the democratic state must assume responsibility for more and better jobs. Several instruments are available: public investment programs, increased public employment, a supplementary labor market policy, reduction of individual working hours in the public sector, promotion of reduced working hours in private enterprise and so forth. Detailed conceptions and concretizations on job creation were presented in earlier memoranda. The core points should be emphasized…
The ways to more and better jobs involve measures with which state policy either creates jobs directly or moves the private economy to create jobs directly. An active wage policy plays an important role for employment. The weakness of domestic demand, the basic cause of continually high unemployment, is above all a weakness of private consumption, the most important element of total economic demand. This consumer weakness goes back to the disparity of income distribution resulting from wage negotiations. For many years, wages and salaries mainly spent on private consumption have fallen behind the development of total wealth creation… This wage reserve is a central element of the vicious circle of increasing inequality of distribution, growth weakness and higher unemployment in which the German economy has long persisted. The implementation of wage increases would immediately improve the economic and social situation of employees and would also be economically reasonable and important because it would revive the total demand with private consumption and thereby encourage more employment. A consistent wage policy that does not allow redistribution from bottom to the top but corrects the abnormal trend inhibiting development – contrary to the propaganda from corporations and the majority of the media – is a policy benefiting employed persons and the unemployed, not a policy burdening the unemployed. Unions are also responsible for more jobs. To satisfy this responsibility requires a clear perspective of the macro-economic connections and the readiness and strength to develop power necessary for more reason in the economy.
7. Unemployment insurance and work promotion – New ways of financing
The systems of unemployment benefits and work promotion have long suffered in financial emaciation. As unemployment increases, more funds are claimed for legal insurance benefits… The development of wages and salaries lags behind the development of the GDP and wealth creation. The federal subsidy is under massive pressure on account of the misguided fiscal policy of the German government… In this situation, active work promotion is hardly possible…
- The macro-social importance of unemployment insurance and work promotion requires financing from all sources of income, that is profits, rents and all kinds of capital – and property income beside wages and salaries.
- For dependent employees, the financing of contributions is charged to employers and employers. We propose raising the financing share of the employer side over the present 50% level. This is the case in most countries and reflects the fact that employers are far more responsible for unemployment than employees.
- For employer contributions, an individual differentiation of he average contribution should be introduced according to the American model. Those businesses make a greater contribution when the development of employment lags behind the development of wealth creation…
- The contribution limits should gradually be doubled…
8. Just financing of higher state spending
Tax policy in our alternative economic concept has two goals. Firstly, it must ensure that state spending necessary for an efficient, socially balanced and ecologically friendly development can be financed. Secondly, it must guarantee that the burdens of this financing are divided justly among the members of society. Both principles were gravely violated in the past. Considerable corrections are necessary.
The reduction of the tax rate from 24.5% to 22.0% of the GDP within the last four years announced by the German government in the most recent Stability- and Growth program is not an achievement but an expression of clear limitations in perceiving public functions. This has led to massive tax shortfalls and financing problems. The answers were economically and socially counter-productive cuts in public spending and expansion of public borrowing. If the 2004 tax rate had been has high as in 2000, the public budget would have had 60 billion more euro. Therefore it is sensible and feasible to improve the financing base of state policy altogether through higher tax revenues. Countries with higher tax rates (France 27.5%, Austria 28.4%, United Kingdom 28.9% in 2003) prove that higher tax rates are possible without harming the total economy.
For the structure of the tax burden, the principle of just distribution of the tax burden necessitates the one-sided favoring of the top income groups and businesses by the different tax reforms of the last decade. To this end, the Alternative Economic Policy study group urges in particular:
- For the income tax: the top tax rate should be raised from 42% to 46% on taxable incomes of 60,000 euro and above… (We follow the proposals for a simple solidarity tax presented in 2004 by the IG Metal union and Attac tax allowance 8,000 euro, initial tax rate of 15%, abolition of independent taxation of husbands and wives)
- For business taxation: the corporation tax rate should be raised to 33%. Together with the trade tax, a taxation of profits of corporations of around 48% results. This corresponds with the top tax rate in income tax…
- We reject the proposed abolition of the reduced 7% tax rate as the general sales tax – for foods – and abolishing taxes on rents and medical services…
- A community economic tax for businesses and freelancers should be introduced…
- For the inheritance tax: the conditions of the German constitutional court should be finally fulfilled to assure an equal taxation of all kinds of assets in the cases of inheritance and gifts. The market value of real estate should be considered…
- The property tax must be finally reactivated and organized in a way that conforms to the constitution. Through adequate tax allowances, homes of middle- and lower income groups should not be encumbered. 14 billion euro in revenue could be realized with a 1% tax rate on private household assts accepting a tax allowance of 500,000 euro per family with two children.
- The introduction of a stock exchange tax and a currency transaction tax (Tobin tax) is on the agenda of an alternative tax policy. We made differentiated proposals on tax policy in earlier memoranda. He revenue from the stock exchange tax could finance national projects while the revenue from the currency transaction tax could be used as financing assistance for the poorest countries of the world.
- A petrol tax should b introduced – Europe-wide if possible – to support the ecological conversion of society.
9. Minimum standards and public goods – Alternatives to ruinous competition and privatization
The new wave of deregulation and privatization planned by the EU has already encountered criticism. This criticism started from the social movements, reached a broad public and must be taken seriously by the governments of EU member countries… The deregulation policy aiming at ruinous competition, downgrading of social standards and privatization of public services is weakened. We propose as an alternative to this pseudo-correction:
- EU-wide minimum standards: Before a further opening of the service markets in the EU, EU member countries should agree on common minimum standards valid in all countries and enforced by the authorities toward all domestic and foreign providers. These minimum standards should refer to
- Working conditions (above all wages and salaries, industrial safety, employee rights, social security),
- Consumer protection (transparency and clarity of offers, labeling, health protection and security) and
- Ecological compatibility.
The harmonization of standards should be on the highest level. As long as this harmonization is no attained, the rules of the country in which the services are offered should be in effect for foreign suppliers. They should be verified and enforced by the local authorities.
Closer cooperation in regulating universal services is vital. Control should be provided and European cooperation deepened for the services in which European liberalization regulations are already effective (e.g. telecommunications, electricity, gas, railroads). These services were previously provided as public services by state authorities or public enterprises. In the course of liberalization, they were largely privatized. Independent or state regulatory authorities should ensure that the public function is fulfilled. The services should still be offered universally and continuously, accessible for all income groups at affordable prices, satisfy high quality- and security standards and modernized according to the progress of technology. The conversion of this oversight has proven difficult and often has not led to the desired results. An improved design, more aggressive authorities, better cooperation of national governments, the development of common Europe-wide standards and the long-term establishment of a European oversight authority must strengthen this oversight. Private businesses should be brought into social ownership and led according to the principles of non-profit orientation where they are unable to fulfill public functions.
Given the inevitable conflict between private profit maximization and the provision of central public goods, heir privatization should be excluded on principle. This is true for public institutions of the health system (hospitals), education, training, water supply, the public protection of living creatures and living organisms (prohibition of genetic engineering manipulations, knowledge gained in scientific or educational institutions, central areas of culture (e.g. museums and theater) and the exercise of state sovereignty rights (e.g. police and the army). In this context, EU member states and the European commission should redefine and upgrade the importance of the public sector. He public sector should no longer be considered as a narrowly defined exception always under suspicion to the absolute rules of competition. Instead a democratically composed public sector should have an independent rating as an alternative to the private market and competition sector. The public sector is able to provide indispensable goods and services as public goods for the public welfare, economic efficiency, social cohesion and political stability of a community. This redefinition was moved to the agenda of the EU by the public criticism of the market radicalism and deregulation rage of the EU commission. The commission tries to trivialize the discussion and create facts by fast approval of the service guideline that would severely limit the possibilities for a democratic public sector.
PROGRESS NEEDS CONTERVAILING POWER
The alternatives to the dominant economic- and social policy are economically sensible. Their realization would strengthen the economic development and improve the situation of the majority of the people in Germany. This realization would also contribute to overcoming a very widespread lack of perspectives created by the climate of insecurity and a politics of intimidation. Instead it would open up a perspective of economic and social progress in which the cornerstones of an alternative type of development of the economy and society can become increasingly more concrete.
However this perspective meets rejection and uncompromising resistance from the side of the powers that profit from the dominant policy. Again and again they attack the economic and social reform advances in Germany during the last two decades and repressed them considerably. Their offensive is directed at making these backward steps into the normal social conditions through a constant change of the social power relations and thus undermining the democratic quality of society. Engagement for the perspective of an alternative type of development necessitates a clear prevention of this strategy. Good economic arguments must be considered more strongly in the general public. The readiness and ability to implement these arguments in the conflict against the forces of counter-reform are also vital. The sooner this orientation for democracy is accepted in the economy and the more resolutely the struggle is waged, the greater are the chances of winning,
WELFARE STATE INSTEAD OF CORPORATION SOCIETY
ALTERNATIVE ECONOMIC POLICY
By Alternative Economic Policy study group
[This memorandum from the study group at the University of Bremen is translated abridged from the German on the World Wide Web, http://www.memo.uni-bremen.de. Email: memorandum [at] t-online.de.]
CONTENTS
Consolidation of the Counter-Reform
1. The economy remains weak, the location strong and unemployment high – On the economic and social situation in Germany
Politics of the Counter-Reform
2. Demanding and oppressing –: Labor market reform as disciplining
3. Savings rage as a brake on growth – Fiscal policy in the homemade debt trap
4. Deregulation race and social dumping – New dangers to the domestic market
5. Student fees – Farewell to scholarship as a public good
Alternatives for Safeguarding the Welfare State
6. Strategy for more employment and better jobs
7. Unemployment insurance and work promotion – New ways of financing
8. Just financing of greater state spending – Alternatives of fiscal policy
9. Minimum standards and public goods – Alternatives to ruinous competition and privatization
Progress needs Countervailing Power
CONSOLIDATION OF THE COUNTER-REFORM
In the spring of 2005, the contours of a society where power starts from the big corporations assisted by an uninspired government are clear in Germany. Despite explosively higher profits and favorable profit expectations, mammoth corporations pressure their employees with great brutality. They use the high unemployment and the insecurity of employees as levers to lengthen working hours and lower wages. At the same time they destroy vast numbers of jobs. All this is counter-productive from a macro-economic perspective and contributes to new all-time records for mass unemployment. This policy simultaneously drives up the profits and market value of corporations. The strategy aims at changing the social power relations in the long-term in favor of assets and capital and to the disadvantage of labor and social solidarity. The counter-reforms of the past years should be reinforced by a far-reaching reorganization of society.
Given this development, the economic- and social policy in a democratic society is challenged to counteract the cancellation of social compromises and political standards in favor of the rule of capital. A corrected political framework is necessary offering people a perspective for stable employment, adequate income and social security. This framework in which the social obligation of property has a constitutional rank was created through social pressure in West Germany in the first decades after the Second World War. In the meantime this social obligation is increasingly evaded and openly attacked by big corporations with their trade associations. This leads to macro-economic weaknesses, lasting unemployment and social polarization. In the long run, the political stability of a democratic society is undermined.
The necessary correction is not occurring. On the contrary, the economic- and social policy of he German government complements the class policy of the big corporations instead of putting it in its place. Federal German policy reinforces the redistribution through tax- and deregulation policy. The shift in power is consolidated by expanding the general insecurity through reforms of the social security systems and by weakening resistance through a disciplining labor market policy. These reforms involve disciplining that brings profit to private businesses and public employees.
In this connection, the resistance of politics to theoretical criticism and empirical refutation is remarkable. The supply-oriented market economy theory that defined the government course for three decades has been empirically refuted more than any other theory. The criticism built on theoretical arguments – presented since the middle of the 1970s – has become louder in Germany in recent times in the “scientific community” and the board of experts. Massive social protests have occurred. However neither the criticism nor the protests impressed the representatives of private enterprise, politicians and the largest part of the media. They still incessantly spread the gossip of the pressures of globalization, the useful macro-economic function of higher profits and the lacks of any alternative to the precedence of markets over democratic politics.
In the following, the economic development and the crisis effects of German and European policy will be briefly outlined. Then alternatives to this policy will be presented.
1. The economy remains weak, the location strong and unemployment high
The upswing of the German economy was over before it even began. Jobs were not created. On the contrary, the rise of unemployment to historic record highs could not be prevented. Meanwhile the number of the officially registered unemployed is over five million. Nearly eight million regular jobs are missing in Germany when the hidden unemployed and the silent reserve are included. This number will increase further in the foreseeable phase of economic growth weakness.
He “upswing” of the past year was marked by two characteristics. Firstly, the upswing remained very weak. In 2004 the growth of the German economy was fourth to last among the 25 countries of the European Union (EU). At 1.6%, its growth was less than half the growth of the US (4.4%). In the last quarter of 2004, the total economic output even fell compared to 2003. Secondly, the upswing was exclusively supported by foreign contributions, that is the surplus of exports over imports of goods and services. All three great components of domestic demand even declined absolutely in the year of the upswing, private consumption around 3.6 billion euro, state consumption around 1.7 billion euro and invested capital around 1.1 billion euro…
The continuing weakness of the domestic German economy is the result of a development-inhibiting income distribution and a counter-productive economic- and social policy. Both complement and reinforce each other. The redistribution of national income to the disadvantage of earned income and to the benefit of profit income continuing for two-and-a-half decades and only interrupted in a few years strains private consumption that amounts to half of the macro-economic demand. As a result, economic growth decreased in the long-term and unemployment increased. This long-term development has weakened the position of unions and encouraged employers to ever-new rounds of redistribution to the disadvantage of employees and the unemployed.
This vicious circle of economic weakness, redistribution and unemployment has been strengthened, not broken by politics. The coercive austerity policy pursued against all economic reason is counter-productive for both economic policy and growth policy since it restricts total economic demand and undermines and ultimately destroys the infrastructure by reducing public investments. The tax reform has especially favored the top income groups whose relief is not usually reflected in increased demand. The trifling relief of the lower income groups did not stimulate the total economic demand because this relief was largely consumed by higher health care costs and other public services. People do not have money for additional spending. Finally, the all-embracing social cuts increasingly annul social spending aimed at strengthening purchasing power. Social spending has a stabilizing buffer function. A functioning social support system is vital for the economy altogether, not only for the concerned.
Thus the policy of the last years was socially unjust because it continued and partly strengthened the redistribution from bottom to the top that has occurred for a long time. This policy is also economically counter-productive because it impedes the domestic economy without exhausting the long-term production possibilities with which the quantity and quality of worker demand could be raised. When everyone who can work and wants to work receives a regular job at contract conditions, the social wealth measured by goods and services would be at least a fifth higher than today. Then there would be no revenue problems of the public budgets; social systems would be financed without special problems.
That the macro-economic development in Germany is not even more desolate is only due to its strong position in foreign trade. For years, Germany has exported more than any other country and also realizes the highest export surplus of the world. He German top position – either first or second place in the world – existed for a long time and was only interrupted in the years right after German unification. This position is in crass opposition to the constant attempts to ascribe an international competitive weakness to “location Germany” with ever-new argumentative ploys. Again and again labor costs are represented as too high, the labor markets as too rigid or the system of social benefits as too opulent and inhibiting production. These claims have been refuted in every point. German labor costs have lagged behind the costs of all rivals since the first half of the 1990s; the German labor market is not more rigid than other countries and the special benefit rate is in the European middle. This is also true for the current attempt to downgrade the German economy to a “bazaar economy” whose temporary export strength rests on the previous spending of foreign countries, not on its own wealth creation.
The international interlocking of export-oriented economic branches has also increased in the course of general internationalization. As long as a foreign trade surplus exists, the wealth creation in Germany induced by exports will be greater than the wealth creation through imports. That this surplus increased for years in Germany and has reached an all-time high should discredit the nonsense of the thesis of the “bazaar economy.” This fact also relativizes the consequences of shifting jobs abroad. On balance, these shifts lad to the destruction of jobs at home and increase the demand for German export goods. The automobile branch often cited as the chief witness for job outsourcing abroad is one of the very few economic branches where the number of employees paying into social security is marginal but increasing.
Germany’s strong foreign trade position is problematic for other reasons. Three dangers are striking. Firstly, the development of the German economy is largely dependent on foreign countries since export demand is a function of the development in partner countries. As the enormous boom of the world economy especially in the US supported the weak German upswing in 2004, the foreseeable cooling of the world economy – regardless of the high quality of German export goods – represents a special danger for the German economy. In contrast, a country of Germany’s size can steer its economy from its own strength and simultaneously encourage a worldwide economic stabilization. Without this independent role, politics amid the setbacks of the world economy would take measures again and again that lower wages (including non-wage labor costs) and taxes for businesses and reduce spending on public investments. However the neglect of the domestic economy – infrastructure, education, training and contentment of employees – will in the long run undermine the ability to produce and export products of high quality. If realizing a high and increasing balance of payments surplus should succeed, this – thirdly – would only be shift of the problems, not a solution. A balance of payments deficit for other countries that must be financed by transferring assets (direct investments) or permanent indebtedness inevitably faces a German balance of payments surplus. Sellouts or permanent indebtedness create political problems and increasing international conflicts.
2. Demanding and oppressing – Labor market reform as disciplining
He last law reforming the German labor market that passed in December 2003 with a large majority in the Bundestag and Bundesrat took effect January 1, 2005 as the “fourth law for modern services in the labor market.” With the abolition of past unemployment assistance and the introduction of so-called unemployment benefits II, this law earmarks fast and radical reductions of public support for the unemployed as soon as their unemployment benefits end. At the same time, the law increases pressure on unemployed and employed persons through the recent intensification of the reasonability rules. The former must accept any offered job. The latter encounter a low-wage sector. By decreeing a work obligation, politics massively contributed to more social polarization and endangerment of democratic society.
Hartz IV stands in the tradition of labor market reforms that are irrelevant in economic and employment policy because they create no new jobs on balance but contribute to destroying jobs by cutting social benefits. These benefits would have made possible effective purchasing power. This deplorable state of affairs was blatant with he personal service agencies. The flight from Hartz IV into state-subsidized personal companies explains the increase of this new independence in 2004 and also justifies doubt in their survival capability. Recent analyses show that more than half of the personal companies were jobless after the promotion ended. The run on the so-called mini-jobs striking in the second half of 2004 may also refer back to the pressure of Hartz IV – celebrated as an early success of this reform – that will increasingly replace working conditions that pay into social security with precarious working conditions. Compared to 2001, the numbers of independent persons rose 168,000 in 2003 and the marginally employed 243,000 while the employees paying into social security fell 861,000.
The job creation ineffectiveness of its labor market reforms is not hidden to the German government. If it holds unswervingly to this course, other causes are responsible beside ideological stubbornness and conceptual helplessness. Three political tendencies characterizing earlier reforms are striking in Hartz IV.
Firstly, the reform seeks to repress a social responsibility for overcoming unemployment and ultimately abandon the orientation of the 1969 Work Promotion law. “Countering emergence and continuance of unemployment” and “preventing devalued employment” were explicitly defined as “political goals.” The 1997 Work Promotion law insisted that “employers and employees” were responsible for balance on the labor market. Concrete examples were lacking for the responsibility of employers and for sanctions when they refused this responsibility, e.g. through mass layoffs. This labor market reform aimed at reducing state bureaucracy and standardization and encouraging more responsibility on both sides of the labor market. Hartz IV ends the pseudo-symmetry and assigns responsibility for unemployment exclusively to the unemployed. Ending this condition burdening society as quickly as possible and at any price is imposed on the unemployed.
Secondly, Hartz IV intensifies the pressure on the unemployed. In this way, Hartz IV contradicts the fairytale of the retreat of the state and clearly demonstrates that the state is very much present in the neoliberal regulation of economic and social conditions. The state changes from a welfare state increasingly eroding in the course of the last two decades to an ever-stronger authoritarian state. The abolition of unemployment assistance produces massive pressure to underbid all secure labor standards. This pressure is strengthened by the threat of further cuts in unemployment benefits II upon refusing any offered work. In this connection, the so-called “one-euro-jobs” are important. The unemployed must accept these jobs without regard to their training when they are offered. This is very close to the introduction of a work duty that is a slap in the face of quality- and training standards and work relations based on partnership. The existential plight of the unemployed is openly exploited. Degrading jobs, an abuse to be combated in the work promotion law, becomes an accepted and regularly applied instrument in Hartz IV.
The third main thrust of the latest labor market reform extends far beyond the paradigm change of labor market policy. The social power- and distribution relations will shift in favor of the rich and the private economy. Through the pressure to accept underpaid and precarious working conditions, an additional low wage sector is envisioned to intensify the disciplining pressure on the economic and legal situation of all employed persons. With this pressure, more old-fashioned bastions of the welfare state should be put through the mill. After the perforation of the net of social security through pension-, health care- and labor market reforms, the employer associations launched trial balloons for identifying the next dislocations. Eliminating protection against unlawful termination as old-fashioned and the German joint-determination rules as unsuitable for Europe meet with a divided echo in the employer camp and rejection from the government. However after the experiences of the last years, this rejection may not last long. The further development is foreseeable. The political deprivation of rights should reinforce the economic redistribution and social polarization .
3. Savings rage as a brake on growth – Fiscal policy in the homemade debt trap
In 2004 German fiscal policy remained 0n its misguided course of alleged budget consolidation. On one side, more tax cuts should stimulate the investments of businesses and the consumption of private households and also increase the tax revenues through the heightened demand. On the other side, a strict savings course should lower state spending. Both – according to the promise – would lower the public budget deficit and advance the long-desired consolidation of state finances.
Of this program, only lowering tax revenues and state spending was realized. The last stage of the great tax reform resolved in 2001 lewd to revenue shortfalls in 2004 of around 6 billion euro and increased the total annual tax shortfalls from these reforms to 60 billion euro. The desired effects stimulating the economy failed to appear. The above-average relief for the top income groups in the course of income tax cuts hardly gave a push to additional consumer spending. In contrast, the below-average relief for lower incomes was largely neutralized by cuts in social benefits and higher state fees etc. Private consumption did not increase but fell. The fiscal relief of profits also did not revive private investments. From 1993 to 2003, the profits of corporations rose 81%; their profit taxes only rose 3%. However the investments did not increase but declined 11.3%. They fell again in 2004. Thus corporations have not used the tax gifts and their higher net profits to finance jobs.
Public revenues in Germany declined in 2004 by 0.3% or 3 billion euro and public spending 0.2% or 2 billion euro. The deficit of the public budget did not decline as planned at the end of 2002 to 1.5% of the GDP but rose to 2.9%. For the third time, the deficit surpassed the limit of 3% of the GDP set by the Stability- and Growth pact of the U. This will happen a fourth time in 2005. The number of years in which Germany violated the pact is greater than the number of years in which it observed the deficit limit. On one side, this triggers criticism and indignation among those who see an increased burdening of future generations with public indebtedness. On the other side, a discussion about the necessary reform of the Stability- and Growth pact began without questioning the foundations of this faulty design.
In earlier memoranda, we referred theoretically and empirically to the untenable nature of these foundations. Under the current economic conditions in Germany – general demand weakness and unutilized capacities -, public deficits neither deter private investors from the capital market nor produce inflation pressures. These deficits also do not burden future generations. With the debts, they also inherit the claims to interests and repayment – and a foundation of economic development strengthened by state investments. The argument that a growing number of creditors of German debts are in foreign countries is unconvincing because Germany’s creditor position is much more important than its debtor position toward foreign countries. This debtor position can be a problem for balanced international relations.
The new state indebtedness was caused in large part by the massive reduction of corporate taxes. Since these tax gifts contrary to the official government justification have not led to more growth and additional tax revenues, public borrowing has increased so much that savings in state spending are impossible.
Thus new state indebtedness can be problematicized from another perspective. An expensive correction of inadequate wage- and salary-incomes is necessary, that is, of the aberration of distribution and lower tax revenues. Greater tax reductions are crucial. In the first case, private consumer demand falls; in the second case, state demand falls. The investments of corporations declined on account of poor sales prospects. This demand gap can only be closed through foreign trade surpluses or public deficits. When neither occurs, the economy skids into recession in which the original abnormal trends are usually not corrected but repeated and strengthened. In this situation, state deficits are sensible and necessary measures to stabilize the economy. If one wants to avoid increasing long-term public debts that must be served, the correction of the income distribution – on account of the problematic of continuing balance of payment surpluses – in favor of consumer-intensive wages and salaries and the increased tax rate toward a constantly increasing foreign contribution is a more reasonable alternative.
The current discussion is very far removed from these reflections that limit state budget deficits by strengthening the domestic economy. Politics praises reduction of the new indebtedness and takes measures that drive public budgets again and again into the debt trap.
4. The deregulation race and social dumping – New dangers for the domestic European market
In the last months, the EU has taken a number of initiatives annulling the political regulations of markets and heightening the competitive pressure in Europe. Completely liberalizing the domestic market for services without agreeing to common minimum standards observed in all the member countries of the EU is uppermost. Every service enterprise allowed in a member country of the EU will automatically have a “European passport” in the future according to the EU commission on “services in the domestic market.” This authorizes settling in any other member country (principle of freedom of establishment). The legal regulations of the member country where the offering business has its headquarters should be in force. Only the authorities of the country of origin can supervise and examine compliance with these legal regulations (principle of homeland control).
If these conceptions are realized, major negative consequences for people in the EU will result:
Firstly, inscrutability about the quality and price of services in the EU would increase enormously. Consumers and users would be exposed to an inscrutable wave of marketing- and propaganda strategies of mammoth corporations without being able to ground their decisions on recognized standards and judgment criteria.
Secondly, a regulatory race downwards would occur in which countries with higher standards can demand and enforce the removal or loosening of standards affecting endangered competitiveness. The result would be a general decline of quality standards at least for the mass-produced products intended for the majority of people.
Thirdly, the competitive pressure would also have an effect on the social standards in the establishment or restoration of services and lead to a massive social dumping that would change working conditions toward increasing rationalization and intensification of labor, falling wages and salaries and increasing insecurity and precarization of jobs. Thus the social hierarchies of power would be shifted again in favor of the upper classes.
Fourthly, the consequences would be very disastrous for those services currently still provided by the state as public goods without regard to the income or purchasing power of the users. According to the rules of the EU, these public services when supplied by independent entities must compete in the future with domestic and foreign providers. The result is often the privatization of these institutions – e.g. hospitals – that must increasingly be converted to private enterprise to maintain themselves in the competition. In the long run, this is not consistent with maintaining a public service provided independent of the income of users. The service guideline represents a frontal attack on the public sector in the member countries of the EU by establishing the precedence of rules of competition for this area. The guideline will thereby create facts before the increasing public criticism of its neoliberal radicalism point the way ahead for a greater role of the public sector.
In the meantime, criticism of the draft of the service guideline has become so strong that governments can no longer evade it. Both the German and the French governments recognize they cannot accept the commission draft. The European Commission has withdrawn this draft for revision. This should encourage intensive involvement in this process.
4. Student fees – Farewell to scholarship as a public good
The judgment of the German constitutional court on January 26, 2005 refuses competence for a nationwide prohibition of student fees. The status of university education as a public good in all German states provided independent of the financial situation of students is thereby denied. The introduction of student fees will promote the commercialization of university education to the disadvantage of broad scholarly training, creativity and innovation. This way began years ago with different university reforms and continued with the declaration of Bologna. The division into vocational bachelor- and masters courses with restricted access blocks intensive academic training for most students. With the foreseeable rapid introduction of student fees, the social selection of students will intensify again making access to universities strongly dependent on the parents’ social status. This also fits in the general picture of the tectonic shift of power relations in society.
The three most important economic justifications for introducing student fees altogether are untenable… A fragile alibi is concocted to end academic education as a public good…
In a situation where the mastery of economic, ecological and social problems requires the full use and development of academic potential and the “knowledge society” is urged incessantly and loudly as a perspective for the future, the exact opposite happens. Those responsible for university policy destroy the foundations for this future with an absurd market orientation of studies and a counter-productive social selection.
II. ALTERNATIVES TO SECURE THE WELFARE STATE
The neoliberal orientation of economic- and social policy is the main trend of the times but is neither fateful nor unalterable. Feasible alternatives exist. The class-bound interest-character of this policy and its dismantling of the welfare state have been clearly revealed in the last years and months. This has promoted the criticism, opposition and discussion of possibilities and alternatives to this policy. In this discussion, we bring our ideas of an alternative type of economic development in which the dynamic of markets and private pursuit of profit occur in a social and political framework. Full employment, social security, justice, ecological compatibility and international solidarity are the cornerstones of this new framework. Earlier memoranda discussed these points in detail.
Germany is far removed from this new framework. Politics has even moved in the opposite direction in the last years. Ending and reversing this trend require great political efforts and social mobilization so the social power relations may change in favor of the employment and work income of dependent persons. One essential step in this direction is a clear and permanent reduction of unemployment. This is the decisive lever for weakening the majority’s powers of resistance and realizing minority interests. Therefore reducing unemployment is central in alternatives.
6. Strategies for more employment and better jobs
In times of continuing growth weakness, the democratic state must assume responsibility for more and better jobs. Several instruments are available: public investment programs, increased public employment, a supplementary labor market policy, reduction of individual working hours in the public sector, promotion of reduced working hours in private enterprise and so forth. Detailed conceptions and concretizations on job creation were presented in earlier memoranda. The core points should be emphasized…
The ways to more and better jobs involve measures with which state policy either creates jobs directly or moves the private economy to create jobs directly. An active wage policy plays an important role for employment. The weakness of domestic demand, the basic cause of continually high unemployment, is above all a weakness of private consumption, the most important element of total economic demand. This consumer weakness goes back to the disparity of income distribution resulting from wage negotiations. For many years, wages and salaries mainly spent on private consumption have fallen behind the development of total wealth creation… This wage reserve is a central element of the vicious circle of increasing inequality of distribution, growth weakness and higher unemployment in which the German economy has long persisted. The implementation of wage increases would immediately improve the economic and social situation of employees and would also be economically reasonable and important because it would revive the total demand with private consumption and thereby encourage more employment. A consistent wage policy that does not allow redistribution from bottom to the top but corrects the abnormal trend inhibiting development – contrary to the propaganda from corporations and the majority of the media – is a policy benefiting employed persons and the unemployed, not a policy burdening the unemployed. Unions are also responsible for more jobs. To satisfy this responsibility requires a clear perspective of the macro-economic connections and the readiness and strength to develop power necessary for more reason in the economy.
7. Unemployment insurance and work promotion – New ways of financing
The systems of unemployment benefits and work promotion have long suffered in financial emaciation. As unemployment increases, more funds are claimed for legal insurance benefits… The development of wages and salaries lags behind the development of the GDP and wealth creation. The federal subsidy is under massive pressure on account of the misguided fiscal policy of the German government… In this situation, active work promotion is hardly possible…
- The macro-social importance of unemployment insurance and work promotion requires financing from all sources of income, that is profits, rents and all kinds of capital – and property income beside wages and salaries.
- For dependent employees, the financing of contributions is charged to employers and employers. We propose raising the financing share of the employer side over the present 50% level. This is the case in most countries and reflects the fact that employers are far more responsible for unemployment than employees.
- For employer contributions, an individual differentiation of he average contribution should be introduced according to the American model. Those businesses make a greater contribution when the development of employment lags behind the development of wealth creation…
- The contribution limits should gradually be doubled…
8. Just financing of higher state spending
Tax policy in our alternative economic concept has two goals. Firstly, it must ensure that state spending necessary for an efficient, socially balanced and ecologically friendly development can be financed. Secondly, it must guarantee that the burdens of this financing are divided justly among the members of society. Both principles were gravely violated in the past. Considerable corrections are necessary.
The reduction of the tax rate from 24.5% to 22.0% of the GDP within the last four years announced by the German government in the most recent Stability- and Growth program is not an achievement but an expression of clear limitations in perceiving public functions. This has led to massive tax shortfalls and financing problems. The answers were economically and socially counter-productive cuts in public spending and expansion of public borrowing. If the 2004 tax rate had been has high as in 2000, the public budget would have had 60 billion more euro. Therefore it is sensible and feasible to improve the financing base of state policy altogether through higher tax revenues. Countries with higher tax rates (France 27.5%, Austria 28.4%, United Kingdom 28.9% in 2003) prove that higher tax rates are possible without harming the total economy.
For the structure of the tax burden, the principle of just distribution of the tax burden necessitates the one-sided favoring of the top income groups and businesses by the different tax reforms of the last decade. To this end, the Alternative Economic Policy study group urges in particular:
- For the income tax: the top tax rate should be raised from 42% to 46% on taxable incomes of 60,000 euro and above… (We follow the proposals for a simple solidarity tax presented in 2004 by the IG Metal union and Attac tax allowance 8,000 euro, initial tax rate of 15%, abolition of independent taxation of husbands and wives)
- For business taxation: the corporation tax rate should be raised to 33%. Together with the trade tax, a taxation of profits of corporations of around 48% results. This corresponds with the top tax rate in income tax…
- We reject the proposed abolition of the reduced 7% tax rate as the general sales tax – for foods – and abolishing taxes on rents and medical services…
- A community economic tax for businesses and freelancers should be introduced…
- For the inheritance tax: the conditions of the German constitutional court should be finally fulfilled to assure an equal taxation of all kinds of assets in the cases of inheritance and gifts. The market value of real estate should be considered…
- The property tax must be finally reactivated and organized in a way that conforms to the constitution. Through adequate tax allowances, homes of middle- and lower income groups should not be encumbered. 14 billion euro in revenue could be realized with a 1% tax rate on private household assts accepting a tax allowance of 500,000 euro per family with two children.
- The introduction of a stock exchange tax and a currency transaction tax (Tobin tax) is on the agenda of an alternative tax policy. We made differentiated proposals on tax policy in earlier memoranda. He revenue from the stock exchange tax could finance national projects while the revenue from the currency transaction tax could be used as financing assistance for the poorest countries of the world.
- A petrol tax should b introduced – Europe-wide if possible – to support the ecological conversion of society.
9. Minimum standards and public goods – Alternatives to ruinous competition and privatization
The new wave of deregulation and privatization planned by the EU has already encountered criticism. This criticism started from the social movements, reached a broad public and must be taken seriously by the governments of EU member countries… The deregulation policy aiming at ruinous competition, downgrading of social standards and privatization of public services is weakened. We propose as an alternative to this pseudo-correction:
- EU-wide minimum standards: Before a further opening of the service markets in the EU, EU member countries should agree on common minimum standards valid in all countries and enforced by the authorities toward all domestic and foreign providers. These minimum standards should refer to
- Working conditions (above all wages and salaries, industrial safety, employee rights, social security),
- Consumer protection (transparency and clarity of offers, labeling, health protection and security) and
- Ecological compatibility.
The harmonization of standards should be on the highest level. As long as this harmonization is no attained, the rules of the country in which the services are offered should be in effect for foreign suppliers. They should be verified and enforced by the local authorities.
Closer cooperation in regulating universal services is vital. Control should be provided and European cooperation deepened for the services in which European liberalization regulations are already effective (e.g. telecommunications, electricity, gas, railroads). These services were previously provided as public services by state authorities or public enterprises. In the course of liberalization, they were largely privatized. Independent or state regulatory authorities should ensure that the public function is fulfilled. The services should still be offered universally and continuously, accessible for all income groups at affordable prices, satisfy high quality- and security standards and modernized according to the progress of technology. The conversion of this oversight has proven difficult and often has not led to the desired results. An improved design, more aggressive authorities, better cooperation of national governments, the development of common Europe-wide standards and the long-term establishment of a European oversight authority must strengthen this oversight. Private businesses should be brought into social ownership and led according to the principles of non-profit orientation where they are unable to fulfill public functions.
Given the inevitable conflict between private profit maximization and the provision of central public goods, heir privatization should be excluded on principle. This is true for public institutions of the health system (hospitals), education, training, water supply, the public protection of living creatures and living organisms (prohibition of genetic engineering manipulations, knowledge gained in scientific or educational institutions, central areas of culture (e.g. museums and theater) and the exercise of state sovereignty rights (e.g. police and the army). In this context, EU member states and the European commission should redefine and upgrade the importance of the public sector. He public sector should no longer be considered as a narrowly defined exception always under suspicion to the absolute rules of competition. Instead a democratically composed public sector should have an independent rating as an alternative to the private market and competition sector. The public sector is able to provide indispensable goods and services as public goods for the public welfare, economic efficiency, social cohesion and political stability of a community. This redefinition was moved to the agenda of the EU by the public criticism of the market radicalism and deregulation rage of the EU commission. The commission tries to trivialize the discussion and create facts by fast approval of the service guideline that would severely limit the possibilities for a democratic public sector.
PROGRESS NEEDS CONTERVAILING POWER
The alternatives to the dominant economic- and social policy are economically sensible. Their realization would strengthen the economic development and improve the situation of the majority of the people in Germany. This realization would also contribute to overcoming a very widespread lack of perspectives created by the climate of insecurity and a politics of intimidation. Instead it would open up a perspective of economic and social progress in which the cornerstones of an alternative type of development of the economy and society can become increasingly more concrete.
However this perspective meets rejection and uncompromising resistance from the side of the powers that profit from the dominant policy. Again and again they attack the economic and social reform advances in Germany during the last two decades and repressed them considerably. Their offensive is directed at making these backward steps into the normal social conditions through a constant change of the social power relations and thus undermining the democratic quality of society. Engagement for the perspective of an alternative type of development necessitates a clear prevention of this strategy. Good economic arguments must be considered more strongly in the general public. The readiness and ability to implement these arguments in the conflict against the forces of counter-reform are also vital. The sooner this orientation for democracy is accepted in the economy and the more resolutely the struggle is waged, the greater are the chances of winning,
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