Is capitalism the best economic model

Does Germany need a new economic model?

When the Germans celebrated unity in 1990, capitalism seemed to have triumphed, as Francis Fukuyama had recently proclaimed in his essay on the “end of history”. Even more: The collapse of the counter-model seemed to give that paradigmatic trend even more impetus to shift the balance much more away from the state towards the market - in the deep belief that all major problems can best be solved through the free play of supply and regulate demand. At that time the wedding was for the privatization of state institutions. A decade of hyper-financial globalization began. And it was almost all about how more rules and limits can be broken down; how incomes are spread more widely again in order to give supposed high performers more incentives - whose fruits should then reach everyone in the end via trickle-down. And how the state is reducing aid. Motto: personal responsibility. 30 years later, this very capitalism seems to be in a crisis of credibility. According to a survey by the Edelman consulting agency, 56% of respondents worldwide say that capitalism in its current form is not suitable for solving the great problems of humanity. The criticism is getting louder. The Pope also railed against the power of the markets.

Just a fashion phenomenon, as some liberals say? Maybe. But today there is much to be said for a more fundamental crisis. And if that's true, the question should rather be what exactly is behind it - and how this crisis can be resolved. The aim of the Forum New Economy, which has been bringing together research and practice since October 2019, is to offer an open platform for this. And: in order to sound out the relevance of all these questions for Germany, shortly before the 30th anniversary of the unification we discussed the pros and cons of new economic answers for three days: in a conversation between Nobel Prize winner Joseph Stiglitz and Federal Minister of Finance Olaf Scholz; through keynotes by Thomas Piketty and Jens Spahn, who pleaded for a new understanding of the state as a lesson from the Corona crisis; and through the presentation of exclusive studies on the major issues of principle, for example by Mariana Mazzucato, Michael Hüther, Jens Südekum, Achim Truger and others. Some of the articles on the question of a “new German model” are documented in the talk of the times in this issue.

Surveys also suggest that there is also a need in Germany in these times to rebalance the state and market. According to a Forsa survey on behalf of the forum, at least 30% of the people in the country say that the economic system as it works today should be fundamentally renewed - more than 60% state that it is at least "improved in some areas" should be. And: only 5% see no need. Every second person says that the promise of social compensation no longer works. At first it doesn't matter whether the assessment is justified or not - all of this expresses a deeper crisis of confidence, which may then also have its reasons. Instead of private investment boosts, as the supporters of the liberal turnaround once promised, there is now a dramatic underfunding of public infrastructure. Instead of standing for efficiency, financial markets have shown again and again how much self-referential instability they can create - up to and including the greatest financial crisis since the 1930s. And globalization turned out to be something that also has serious side effects in the richer countries - as has been shown by the dramatic consequences of the decline of entire industrial regions in the USA and Great Britain, in which many then voted for Trump and Brexit. All of this may be even more dramatic than it is in the United States and Great Britain, where the belief in the holy markets was lived out far more excessively. Wealth and income have drifted dramatically apart in society - and the trickle-down just didn't work. As the evaluations by Charlotte Bartels show, there is increasing evidence for Germany, too, that wealth and income are much more different today than before 1990 - even if the finding has not worsened here and there for 15 years, depending on the indicator. The question is rather: Shouldn't the much-invoked trickle-down have led to a sharp fall in inequality in the long years of German economic growth? As far as wealth inequality is concerned, the rise in property prices since 2012 has meant that the gap between the middle class, which is rich in property owners, and the top wealthy has narrowed. The gap between the top wealthy and the bottom half of the population has widened dramatically. It is crucial to be able to better identify the drivers of such developments - in order to determine as efficiently as possible what could stop such trends.

There are a number of economic activities that the state should refrain from, of course. As in the USA and Great Britain, the dogma of the supposed superiority of the market has caused a lot of damage in Germany. This includes the fact that too little public investment has been made. This is also part of the crisis of confidence in the liberal market paradigm, as Michael Hüther and Jens Südekum explain in their article. A new model must include reforming the debt brake in such a way that important future investments are no longer sacrificed to short-term budgetary needs. What applies to the public infrastructure also applies to the industrial policy that was long considered taboo in Germany - at least in the regulatory Sunday speeches. As Mariana Mazzucato and Rainer Kattel point out, Germany is a model for how the state has primarily promoted the spread of new technologies - and it has done so actively. But when it comes to the major challenges of our time, such as climate change or digitization, we reach our limits. A transformation as large as the one that is currently affecting mobility systems cannot simply be achieved through open competition between technologies. A state is needed that sets the direction. Today Germany has the chance to combine its strengths in the diffusion of technologies with a new understanding of mission-oriented politics, said Mazzucato and Kattel. Which in turn leads seamlessly to another building site for model renewal - and the question of whether and how Germany can manage to break its own dependency on export business at a time when globalization is stalling and China is no longer the dynamic importer which it was especially for German exporters in the 2000s.

As Achim Truger and his co-authors point out, Germany's much-criticized foreign trade surpluses arose anyway because the growth in German import demand has declined sharply. Which suggests that the reduction in surpluses will not come from fewer exports, but more imports - and that Germans should spend more money. The question is whether this can be done without institutional changes such as strengthening the collective bargaining partners, which would ensure that wages and incomes rise more dynamically - without endangering the existence of the industry. All this does not mean that the state should do everything now and that capitalism should be abolished. And it does not mean that the ultimate wisdom has been found for each and every one of the challenges. In a time of climate change, social divisions and crises of democracy, it is only a matter of correcting a list in the economic system that arose out of sheer certainty of victory after the fall of the Berlin Wall three decades ago and led to an excessive belief in the market as a leitmotif for economic policy - and its damage contributes to today's crisis of confidence in liberal societies. A new balance has to be found.

Thomas Fricke
Forum New Economy
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