social growth.pdf

8/22/2019 social growth.pdf

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INTERNATIONAL POLICY ANALYSIS

TheconceptofsocialgrowthpresentedhereistheFriedrich-Ebert-Stiftungs(FES)proposalforaprogressiveeconomicpolicymodel.Theaimistodevelopagrowthmodelthatcombinesprosperityforallwithsustainabilityandjustice.Itsprimarytar-getisGermany,butitisalsointendedtoapplytoEuropeandglobally.

Althoughtheprogressiveeconomicpolicyproposedhereisfocuseddirectlyonover-comingtheeconomicandsocialcrisisbymeansofsocialandthereforefairlystruc-turedgrowth,itsindirectaimistoalleviatetheenvironmentalandpoliticalcrisisinwhichGermany,Europeandtheworldfindthemselves.

Social growth, with its focuson education, health, care and climate protection,putslesspressureonnaturalresourcesthantheconventionalmarket-drivengrowthmodel.Italsodeliverstheresultsthatpeopleexpectfromdemocraticpolitics,namely

jobsandashareintheprosperitythesejobscreate.

Inthisway,socialgrowthconfersalegitimacyondemocracythatseemstohavebeenlost,notsomuchbecauseofmistrustinitsprocedures,butratherthepaucityofsociallyacceptableoutcomesinotherwords,statesinabilitytogovernmarketsintheinterestsofsociety.

Social GrowthModelofaProgressiveEconomicPolicy

January2012


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Content

Preliminary Remark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. The Problem: Unbalanced Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. The Entangled Debate between Market Liberals and Growth Sceptics . . . . . . . . . 5

3. The Concept of Social Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3.1 Work,Productivity,Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3.2 DemandandDistribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

3.3 StateandMarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3.4 EuropeanIntegrationandGlobalisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

4. Compass for the Future: A Progressive Economic Policy. . . . . . . . . . . . . . . . . . . . 12

4.1 OvercomingtheDebtCrisis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

4.2 ScenariosforaSocialGermany. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

4.3 SustainableGrowthfortheWorldEconomy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

4.4 DemocraticGovernanceofInterdependentEconomies . . . . . . . . . . . . . . . . . . . . . . 14

5. A 10-point Programme for a Progressive Economic Policy. . . . . . . . . . . . . . . . . . . .16

5.1 GuaranteeaStableSupplyofCreditwithEffectiveFinancialMarketRegulation. . . . 16

5.2 UseEducationPolicytoBoosttheForcesofGrowthand

ExpandOpportunitiesforAll. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5.3 OpenUpNewAreasofGrowthwithIndustrialPolicy . . . . . . . . . . . . . . . . . . . . . . . 18

5.4 StrengthenthePositionofEmployeesbymeansofMinimum

WagesandCodetermination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205.5 FundPublicTasksProperlyandFairlybyReformingTaxPolicy. . . . . . . . . . . . . . . . . . 20

5.6 StabilisetheEconomyandtheDebtSituationbymeansof

anAnti-cyclicalFiscalPolicy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

5.7 StrengthenForcesforGrowthinEuropebymeansofaRobustPublic

FinancialArchitecture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

5.8 ProvideforMoreStabilityintheEurozonebymeansof

Economic-policyCoordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

5.9 EnsureDecentWorkforAllbymeansofEuropeanandGlobalStandards. . . . . . . . 25

5.10ManageGlobalisationbymeansofaNewEconomicandMonetaryOrder. . . . . . . . 25

6. Epilogue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28


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PreliminaryRemark

The concept of social growth presented hereis the

Friedrich-Ebert-Stiftungs(FES)proposalforaprogressive

economicpolicymodel.Theaimistodevelopagrowth

modelthatcombinesprosperityforallwithsustainability

andjustice.ItsprimarytargetisGermany,butitisalso

intendedtoapplytoEuropeandglobally.

Althoughtheprogressiveeconomicpolicyproposedhere

isfocuseddirectlyonovercomingtheeconomicandso-

cialcrisisbymeansofsocialandthereforefairlystruc-

turedgrowth,itsindirectaimistoalleviatetheenviron-

mentalandpoliticalcrisisinwhichGermany,Europeand

theworldfindthemselves.Socialgrowth,withitsfocusoneducation,health,careandclimateprotection,puts

lesspressureonnaturalresourcesthantheconventional

market-drivengrowthmodel.Italsodeliverstheresults

thatpeopleexpectfromdemocraticpolitics,namelyjobs

andashareintheprosperitythesejobscreate.Inthis

way,socialgrowthconfersalegitimacyondemocracy

thatseemstohavebeenlost,notsomuchbecauseof

mistrustinitsprocedures,butratherthepaucityofso-

ciallyacceptableoutcomesinotherwords,statesin-

abilitytogovernmarketsintheinterestsofsociety.

Thistextisbasedonawealthofstudiesandreflections

thathaveemergedinrecentyearseitherwithintheFES

orcommissionedbyitpartlyinthecourseofthepro-

ject Germany 2020 (20072009), partly within the

frameworkofitssuccessorprojectSocialGrowth.The

longbibliographyincludesthesepublications,butalso

reflectsthediversecontributionsofprominentexperts.

Within theFES, Ren Bormann, Michael Dauderstdt,

PhilippFink, SarahGanter,SergioGrassi,BjrnHacker,

MareiJohn-Ohnesorg,GeroMaa,ChristophPohlmann,

MarkusSchreyer,HubertSchillingerandJochenSteinhil-

bercollaboratedwithintheframeworkofataskforce.

Summary

Theeconomicandfinancialcrisishaslaidbaretheweak-

nessesofthedominantgrowthmodelinnouncertain

terms.Manifestly,thisgrowth,whichwaslargelyaban-

donedtomarketforces,wasnotsustainable.Bolstered

byageneralrollingbackofthestateandaliberalisation

of labour markets, in Germanyand indeed worldwide

incomeinequalityincreased.Thiswascompoundedby

evermorelopsidedeconomicdevelopment,drivenbythe

globalisationoffinancialmarkets,leadingtoanexplosion

offinancialassetsandcorrespondingdebts.

Internationally,thisdevelopmenttooktheformoflarge

imbalancesininternationaltradeandcapitalmovements.

Tothisday,thehighcurrentaccountsurplusesofsome

countriesarematchedbythehighcurrentaccountdefi-

citsofothercountries.Overtheyears,thesesurpluses

anddeficitshavegeneratedahighlevelofexposureand

foreigndebtswhich,togetherwiththepublicdebtwhich

hasincreasedsharplysincethecrisis,havereachedalevel

thatisno longersustainable.Debtreductionstrategies

arenowthereforecalledforthatgenerallyentailarever-

salofcurrentcapitalflows.However,theburdenofad-justmentcannotbebornebythedeficitcountriesalone;

thesurpluscountriesandGermanyinparticularmust

alsoparticipate.

A simple return to pre-crisis businessas usual scarcely

seemsconvincing.Ifmorebalancedandsocialgrowth

istobeachievedwehavetobidfarewelltotheideaof

efficientfinancialmarkets.Thecrisishasshownthat

marketsarecharacterisedratherbyherdbehaviourand

regularlyprecipitatedchangesofsentiment.Handing

overcapitalallocationtothefinancialmarketsalonehas

ledtocolossalerrors.Inlightoftheseenormousmarket

failures,effectiveregulationofbanksandfinancialmar-

kets and a more emphatic social and industrial policy

commitmentbythestatearecalledfor.

Thegoalofthesocialgrowthmodelproposedhereisa

changeofcourseineconomicpolicyandthebolstering

ofdomesticdemand.FuturegrowthinGermanyislikely

tobenotprimarilyinindustrybutinservices.Thereisa

greatdealofcatchinguptodo,especiallyinsocialser-

vices,suchaseducation,healthandcare.Manyneeds,

inparticularthoseoflowandmiddleincomeearners,cannot be satisfied because of a lack of purchasing

power.Thatiswhyanewsocial,macroeconomicallyvi-

able,structurallycoherentandequitablegrowthmodel

isneededthatcanabsorbtheunemployedortheunder-

employedinagrowingservicesectorwithdecentwork;

increaseemploymentandproductivityoverall;andim-

proveincomedistribution.

In order toreduce the inequalitywhich is one ofthe

causesofthecrisistaxpolicymustbeusedmorevigor-

ously,forexample,byraisingthetoptaxrateandrein-


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troducingthewealthtax.Inordertoreduceimbalances

in the Eurozone,coordination of wagepoliciesmakes

sense,asdoesclosercoordinationofeconomicpolicy,

includingthesurveillance of currentaccountsurpluses

anddeficits.Jointeurobondscouldbethebeginningof

genuine,evenfiscalintegrationwithintheEurozone.

Socialgrowthmustguidethemarkets,notonlyinEu-

ropebutalsoglobally,directingtheireffectsalongso-

ciallydesirablepaths.Thisincludesminimumstandards

withregardtoworkingconditions,safeguardingthewel-

farestateandacoordinatedglobalmonetarypolicythat

controlsexchangerateupheavalsthatareharmfulforthe

realeconomy.Aprogressiveeconomicpolicyimplement-

ingthismodelshouldthereforebebasedonthefollow-ingten-pointprogramme:

1. Guarantee a Stable Supply ofCreditwithEffective

FinancialMarketRegulation.

2. UseEducationPolicytoBoosttheForcesofGrowth

andExpandOpportunitiesforAll.

3. OpenUpNewAreasofGrowthwithIndustrialPolicy

4. StrengthenthePositionofEmployees bymeansof

MinimumWagesandCodetermination.

5. FundPublic TasksProperly and Fairly byReforming

TaxPolicy.

6. Stabilise the Economy and the Debt Situation by

meansofanAnti-cyclicalFiscalPolicy.

7. StrengthenForcesforGrowthinEuropebymeansof

aRobustPublicFinancialArchitecture.

8. ProvideforMoreStabilityintheEurozonebymeansofEconomic-policyCoordination.

9. Ensure Decent WorkforAllbymeans ofEuropean

andGlobalStandards.

10.ManageGlobalisationbymeansofaNewEconomic

andMonetaryOrder

1.TheProblem:UnbalancedGrowth

Theglobaleconomicandfinancialcrisisthatbrokeout

in2007hadonlyjuststartedtoshowsignsofbeingat

leastpartlyovercomewhenitreturnedwithfullforce.

Whileinsomestatestheenormousfinancialassetsand

gross domestic product (GDP) of the pre-crisis period

havemore or lessbeen restored, unfortunately others

continuetosufferfromtheconsequencesofthecrisis

intermsoflowgrowth,higherunemploymentandris-

ingpublicdebt.Thenowalarminglevelofpublicdebt,

however, is not least a result of the anti-crisis policies

that,bymeansofbankbailoutsandeconomicstimulus

packages,hadenabledtherapidovercomingofthecri-

sisinthefirstplace.Nowthefinancialmarketcrisishasbeentransformedintoapublicdebtcrisiswhichinturn

threatenstotriggeranewbankingcrisis.

Theeconomiccrisisshowsthattheprevailingmodelof

economicgrowthhasfundamentalweaknesses.Asimple

returntopre-crisisbusinessasusualscarcelyseemspossi-

ble.Inkeepingwiththis,abroaddebaterecentlygotun-

derwayonthebenefitsanddisadvantagesofeconomic

growth. This goes hand in hand with another debate

onstateandmarketfailurescausedbythefinancialand

economiccrisis. Weneed tounderstand the mistakes

thatresultedfromunguidedgrowthprocessesin order

tobeabletodevelopalternativestrategies.Themodel

ofsocialgrowthservesthisverypurpose.Agrowth

modelmustbeoutlinedthatissociallybalancedandthus

alsolesscrisis-prone.Thisentailsamoreactiverolefor

thestate,notonlydomesticallybutalsointernationally

withintheframeworkofcooperationandinthecoordi-

nationofeconomicandsocialpolicy.

Thecrisisdidnotemergeoutofnowhere.Itscauseslayin

alongperiodofunbalancedglobalgrowth,accompanied

byincreasinglyunequalincomedistributionthat,inturn,ledtoanexplosioninfinancialassets.Theseassetshad

theirdownsideinenormousdebtsarisingfromaccumu-

latedstatebudgetandcurrentaccountdeficits.Inmany

countries,this wascompounded by theoverindebted-

nessofprivatehouseholds,forexample,intheUnited

States,theUnitedKingdom,Greece,SpainandIreland.

Insomecountriesforexample,theUnitedStates,Japan

andGreecethepublicauthoritiesgotdeeplyintodebt

financingthedemandneededforgrowth.Therapidpar-

alleldevelopmentofdebtsandassetsuptotheoutbreak

ofthecrisiswasmadepossiblebythelackofregulation


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ofglobalfinancialmarketsandbecausethelatterdis-

tributedriskrecklesslyandwithoutpropertransparency

orcontrol.

In this way, large imbalances accumulated in interna-

tionaltradethatcouldnotbeequalisedviamarketor

pricemechanisms,butbecameentrenched.IntheEu-

rozone, despite robust growth, divergences between

thememberstatesinrecentyearshaveincreasedstead-

ily.The EuropeanCentral Banks(ECB)singlemonetary

policyencourageddebt-drivenasymmetricalgrowthin

theformerhigh-interestratecountriesofSouthernEu-

rope, withmarked currentaccount imbalances, which

collapsedinthefinancialmarketcrisis.

Thislopsidedgrowthwasmadepossiblebyensuinglong-

termtrendsthat,inturn,hadandcontinuetohave

repercussionsforglobalgrowth(Dauderstdt2011b):

Globalisation:Theinternationalisationofmarketsfor

information,capital,goodsandservicesandlabourhas

fosteredgrowthsincearound1990.Thetransformation

offormercommunisteconomiesespeciallyChinaand

theincreasing involvement of developingand emerg-

ingcountries in the global economy have enabled an

internationaldivisionoflabourandgainsfromspeciali-

sation,thusboostingproductivity.Inglobalterms,this

hasledtogreaterprosperity.Ontheotherhand,thisex-

clusivelymarket-andcompetition-orientedglobalisation

hasforcedallthecountriesconcernedtoundergomajor

upheavalsinordertoadapttothenewcircumstances.

Increasinginequality:Risingincomesbecameincreas-

inglyunequallydistributedsincethedistributivepower

ofstatesandtradeunionsoremployeeswasweakened

byglobalcompetitionfortaxrevenues,productionloca-

tions,investmentandjobsinfavourofcorporations,as-

setholdersandinvestors.Inpractice,arisingprofitshareandafallingwagesharecanbediscernedinallcountries,

aswellasawideninggapbetweenrichandpoorasa

consequenceoftheextremelyunequaldistributionofthe

fruitsofglobalisation.

Crisis-prone financial markets: The liberalisation of

global capital markets has also meant that thefinan-

cialsectortodayoperatestoalargeextentisolatedand

disconnectedfromtherealeconomy.Short-term,often

speculativecapitalmovementsthreatenthestabilityof

financialandeconomicsystems.Inrecentyearsanddec-

ades,therefore,theglobaleconomyhasincreasinglybe-

comemorecrisis-prone.

Atfirstsight,Germanyseconomyespeciallyitsexport

economyhasbenefitedfromthesedevelopments.It

offersarangeofproductscapitalandluxurygoods

forwhich,thankstotheinequalityofglobalgrowth,de-

mandabroadisstrong.Germanyhasinternationalised

itsproductionprocesses,theoutcomeofwhichisaby

internationalcomparisonstrongandrelativelylargein-

dustrialsectoralongsidearelativelysmallservicesector.

Oncloserexamination,however,anumberofproblem-

aticdevelopmentscanbediscernedinGermany.Forex-

ample,becauseofitsstrongdependencyonitsexportin-dustrytheGermaneconomyisextremelypronetocrises

abroad.Thisaffectsnotonlythebankingsector,which

inthe wake ofthe globalfinancial crisis was brought

tothebrinkofdisasterandhadtobebailedoutbythe

state,butalsotherealeconomy.Ataroundminus5per

cent the collapseof growth inGermanyin 2009 was

amongtheworst,byinternationalcomparison.Although

unemploymentincreasedonlymoderatelythisconcealed

amassivefallinhoursworkedduetoreductionsinwork-

ingtimeaccountsandshort-timeworking.

Inalongertermperspective,too,Germanysgrowthand

employmentdynamic is disappointing by international

comparison.Growthwasratherweakupto2005due

toitspredominantdependenceonexportsurplusesat

theexpenseofdomesticdemand.Alsoalarmingisthe,

byinternationalcomparison,lowandrapidlydeclining

aggregateproductivitygrowth(vanArketal.2009).The

unemploymentfiguresinGermanywerehighforacon-

siderableperiod,evenbeforethecrisis.Thankstothead-

vanceoffinancialmarketcapitalismandalabourmarket

policythatpromotesprecariousemploymentrealwages

stagnated. Inequality of income and wealth increasedmore rapidly than in almost any other OECD country

(Bontrup2010).Thelowqualifiedinparticularcontinue

tobeunabletoenterthelabourmarket.Accordingly,al-

readyduringtheyearsbeforethecrisisfewerandfewer

peoplebenefitedfromeconomicdevelopment;opportu-

nitiesforeconomicandsocialmobilityhavedeteriorated

andtheriskofpoverty(especiallyinoldage)hasrisen.

Theseserioussocialproblemsthreatennotonlyfurther

economicdevelopment,butalsosocialcohesion.


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ThestateinGermanyhasalsopulledbackfrommany

areasofeconomicandsociallifeinrecentyears.Thisis

reflected,ontheonehand,inthedevelopmentofgov-

ernmentexpenditurerelativetoGDPwhich,shortlybe-

forethecrisis,felltothelowestvaluesincereunification.

Asaconsequenceofthis,inthepublicsectorGermany

nowhasoneofthelowestinvestmentandexpenditure

ratiosforinitialandfurthertraining,aswellasforpublic

infrastructure.Thishasdampenedeconomicgrowthin

recentyearsandunderminesthebasisforfuturegrowth.

Thetaxratiohasalsofallensharplyinthewakeofexten-

sivetaxcuts,asaresultofwhichthestate,inthepast

tenyearsalone,hasforgonerevenuesofaround350bil-

lioneurosandnowstandsataverylowlevelbyinterna-tionalcomparison.Thegoalofusingtaxcutstostimulate

investmentactivity amongprivate companies was not

achieved,however.Instead,thesetaxcutshavereduced

the redistributive capacity of the German tax system.

Capitalandassetsarescarcelytaxedanymore,which

servesonlytoaccelerateincomeandwealthinequality

evenfurther.Incontrast,therecipientsofearnedincome,

especially medium incomes also asconsumers are

effectivelybearingmoreandmoreoftheaggregatetax

andcontributionburden.Asaresult,thestate,andpri-

marilytheLnderandthemunicipalities,whichcarrythe

bulkofpublicinvestment,lackthefinancialmusclethey

needtocopewithtasksastheyarise.Noteventhegoal

ofreducingthepublicdebtcouldbeachieved.German

publicdebtgrewduetothelongperiodofweakeco-

nomicgrowthandhighunemploymentevenbeforethe

crisisandincreasedsharplyinthewakeofthefiscalpolicy

bailoutsneededtoovercomethecurrentcrisis(Priewe/

Rietzler2010).

Becauseofitsstrongexportorientation,growthinGer-

manyslumpeddramatically(minus5percent).Onthe

otherhand,itwasabletorecovermuchmorequicklythanothercountriessinceitbenefiteddisproportionately

from the recent global upturn. The latter came about

becauseofthegovernmenteconomicstimuluspackages

andmassivelyexpansivecentralbankmonetarypolicies

appliedworldwide.Theeasingofthelabourmarketper-

mitted modest nominal wage rises. Nevertheless, the

German economy has returned to its export-oriented,

unbalancedgrowthmodel.Thecurrentlyverylowreal

interestratesowingtolownominalinterestratesand

slightly higher inflation alsostrengthen growth.The

post-crisis economic miracle, however, depends on

Europeanandglobaldemand,asitdidbeforethecrisis.

Thedevelopingandemergingcountrieswhichatpresent

aresupportingtheglobaleconomicupturnarehavingto

contendwiththeoverheatingoftheireconomies,specu-

lativecapitalinflowsandloomingassetpricebubbles.

Thereareconsiderablemacroeconomicrisksandpublic

policyshortcomings,bothinEuropeandglobally,which

makethebasisoftheupturnappearfragileandthedis-

tributionofitsbenefitsunfair.

Economiccrises are likely toget worseif theircauses

arenotaddressedandtheirmanifestationsarenotad-

equately regulated and subdued. Unguided economic

growthwillaugmentfurtherriskydevelopmentsworld-

wide: for example, in the past,economicgrowth hasacceleratedgreenhousegas(CO2)emissionsandcaused

thepriceofmanyrawmaterialstorise.Climateprotec-

tionposesamajorchallengeforcollectiveactionatthe

globallevel since polluters households, corporations

andcountriescanfree-rideonthosewhomakeecono-

mies.Theloomingcompetitionforaccesstorawmate-

rialswillintheidealcaseleadtomorecompetition

among importers of raw materials for the markets of

theexportingcountries(sothattheyareabletopayfor

thoserawmaterials)andtoaracetoimproveresource

efficiency,butitcouldalsoturnintoconflictsforterrito-

rialandeconomiccontrolofnaturalresources.

Worldpopulationgrowthisalsoprogressivelybecoming

athreattogrowth,althoughinthepastithasdonemost

tobolstereconomicgrowth.Demographictransitionto

stableorshrinkingpopulationsalongsiderisinglifeex-

pectancyisdramaticallychangingtheagestructureof

societies.Laboursupplywilltendtodecrease,whilethe

needsandexpectationsoftheolderpopulationwillin-

crease.Thepainentailedbythisdemographictransition

willstarttobefeltinGermanyonlyfrom2020,although

itwillprobablyhavethepositivesideeffectofreducingunemployment.

2.TheEntangledDebatebetweenMarketLiberalsandGrowthSceptics

Currentinterpretationsofthedominantgrowthmodels

crisistendenciesvarywidely.Ontheonehand,thereare

thoseadvocating approaches aimedat legally codified

solutionsbasedonpoliticalconsensusanddemocratically

legitimisedasfaraspossible.Theseshouldbeglobalor


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SOCIAL GROT

atleastmultilateral,Europeanornational.Ontheother

hand,therearethosewhoareconfidentthatwithina

ratherminimalstate framework competition between

nation-states,enterprisesandindividualswillleadtoso-

lutionstothecurrentproblemsatnational,Europeanand

globallevel.Forcreditorstates,assetholdersandthema-

jorityofemployerstheappealofthisoptionisthatthese

solutionstendtoreflecttheiraptitudesandinterests.

Thislandscapeistraversedbyacleavagebetweenthose

whoadvocateglobalisation,Europeanisationandgrowth

andthosewhoabjurethem.Thelatterwanttorestrain

globalisationinfavourofnational,regionalandlocalcir-

culationofgoodsandfinanceandtorenouncegrowth;

theformer welcome such developments, even if they

maywishto organisethemdifferently. Thoseabjuring

growthencompassbothradicalright-andleft-wingpo-

sitions,theformerseekingsalvationinthedismantling

ofglobalisationinfavourofnational,regionalorlocal

circulationofgoodsandfinanceandareturntopopulist-

nationalistpolitics,whilethelatterdreamofconstructing

eco-socialisminonecountryreleasedfromthedictatesof

theworldmarketandofgrowth.Theyalsodemandthe

contractionofgrowth(degrowth)in ordertoenable

developingandemergingcountries,takingintoaccount

environmentallimitations,togrowfurther.

Box 1: Why growth at all?

Criticsofgrowthofaconservative(Miegel2010),green(Seidl/Zahrnt2010)andleft-wing(Passadakis/Schmelzer

2011)persuasionfundamentallycallintoquestionthewisdomoffurthergrowth.Itisnotenvironmentallysustain-

able,nolongerfulfilsgenuineneeds,doesnotmakepeoplehappyandisbasedontheexploitationofnature

andpeople,especiallyinpoorercountries.Thecompulsionformoregrowthissupposedbysometobetheresult

oftheneedtofinancesocialsecuritysystemsastheyarecurrentlysetupandbyotherstoresultfromtheneed

tosatisfythecommercialinterestsofcapital.

Thiscriticismdoesnotholdwater.Growthisimportantinordertomeetmajorsocialneedsthathavenotyet

beensatisfied.Growthalsomakessenseinbranchesandareaswhichremainunderdeveloped,suchaseducation,

careandclimateprotection.Economicgrowthneednotconsumemorerawmaterialsandenergy.Forexample,

itcanalsoresult fromthetransformationofhouseholdactivities intomarket-relatedemployment.Growth is

thereforenottoberejectedacrosstheboard.Itismuchratheraquestionofwhichotherrealgoodsandservices

shouldbeprovidedandwhoseincomesshouldgrow.Moreeducation,care,healthandrenewableenergiesare

sociallydesirable.TheincomesoftheworldspoorestandevenpoorpeopleinGermanyshouldalsoincreasein

theforeseeablefuture.

However,growthisbynomeansanautomaticpanacea.Forexample,althoughuncriticaladvocatesofgrowth

arekeentopointoutthatwithoutgrowthfullemploymentandfairerdistributioncouldnotbeachieved,thatis

onlyahalf-truth.First,fullemploymentcouldalsobeachievedthroughtheredistributionofnecessaryworkand

income,evenifthatwouldbemuchmoredifficultpoliticallywithoutgrowth.Second,growthisnoguaranteeoffullemploymentandmoreequitableincomedistribution,asthepasthasshown.Inordertoachieveormaintain

fullemployment,growthmustbeovertheemploymentthresholdprovidedbyaggregateproductivityincreases.

Buttheseproductivitygainscanaswasfrequentlythecaseinthepastalsobeconvertedintomorefreetime.

Thisshouldbedistributedinsuchawaythatlargegroupsofemployeesarenotunemployedlongterm,butrather

everyonehasshorterweeklyworkinghours,moreholidaysorlongerretirementinoldage.

Inthefinalanalysis,growthcontinuestomakesensewheretherearestillmajorunsatisfiedneeds,whether

amongpoorpeopleonlowincomesorinsectorswithlowpurchasingpowerbutsubstantialneed(Dauderstdt

2010a).Incontrast,thereshouldbenoincreaseinluxurygoodsthatscarcelyenhancesocialprosperity.


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InGermanyspartypoliticallandscaperadicalpositions

havesofarplayedarelativelyminorroleandmaybe

foundalmost exclusively outside parliament.Although

critiquesofgrowthandglobalisationandEuroscepticism

arefrequentlyencounteredinthepublicdebate,opting-

outsofaratleastisnotaseriouspoliticalstandpoint.

However,therearealsoconsiderabledifferencesamong

thosewhobasicallyadvocategrowthandbelieveittobe

necessary,forexample,withregardtotheextentoftheir

willingnesstoseeksupranationalsolutions,takeglobal

andEuropeanresponsibilityandexercisesolidarity.

Thesedifferencesmanifestthemselvesinparticularwith

regardto:

thedemocratic and social management/governance

ofglobalisation;

the relationship between supply-side and demand-

sideorientationsineconomicpolicy;

thesignificanceofcooperationandcompetitionbe-

tweenstates;

theissueofthecontainmentofglobalmarketses-

peciallythefinancialmarketsbyinternationallyagreed

standardsandregulations.

TheGerman economicpolicy debate isdominated by

thetraditionalcleavagebetweenthosewhoattachmore

importancetomarketforces,privateinitiativesandper-

sonal responsibility andthosewho wish to establish

moreegalitariansocialorevenmoreecologicalrelations

bywayofstateinterventioninandagainstthemarket.

Thegovernanceroleofthestateisnotindispute.Inthe

firstcamptherelianceisonsupply-sideforces,which

areobstructedbyexcessivegovernmentregulation,too

hightaxesandstrongtradeunions;intheothercampallthisisregardedasnecessarycorrectionformarketfailure.

Whiletheformerregardinequalityasanaturalconcomi-

tantofgrowthandtobeaccepted,thelatterconsiderit

tobearesultofmarketpowerwhich,alsointheinterest

oflong-termgrowth,mustbeevenedout.

3.TheConceptofSocialGrowth

Theconceptofsocialgrowthisintendedtodefinea

paradigmthatoffersanalternativetothedominantdis-

coursebasedonmarket-drivengrowth,butalsothecur-

rentlyfashionablescepticismaboutgrowth.Theideaisto

redefinesuchkeynotionsaswork,valuecreation,

productivity,investmentanddebtandtoinstitute

aneconomicpolicyrevamp.Themainpointhereisthe

recognitionthatmarketsingeneraland,inparticular,

financialmarketshaveprovenunsuitableforprovid-

ingrationalresourceallocationandincomedistribution.

Socialneeddiffersfundamentallyfromunequallydistrib-

utedpurchasingpower.Thisapproachwillbeexpressed

intermsofconcreteeconomicpolicyrecommendations,

whose embedding in the social growth paradigm

willtheideaisconferonthemstrongerjustification

andmoreconsistency.

Socialgrowthisintendedtoofferasmanypeopleas

possibleanopportunityfordecentworkandasharein

socialprosperity.Needlesstosay,onecandistributeonly

whathasbeenproducedbutpeopleshouldalsoreceive

theirpropershare.Thescopefordistributionopenedup

byrisingemploymentandproductivityincreasesshould

beusedformoreprivateandpublicconsumptionandin-

vestment,butalsomorefreetime.Thatincludesshorter

workingweeks,morevacationsandalongersafeguarded

retirement.Morejobsandproductivityincreasesrequire

investmentintangibleandintangiblecapitalstock,in-

cludinghumancapital.Thesesocialinvestmentsmustbe

promoted,channelledandliberatedfromthefinancial

marketcasino(Dauderstdt2010d).

3.1Work,Productivity,Investment

Onthesupplyside,economicgrowthresultsfrommore

workand/orhigherproductivity(seeFigure1).Botharise

primarilyfrommoreinvestment,whichcreatesnewjobs,

or,bymeansofamodernisedcapitalstock,makeslabour

moreproductive.However,thethreekeygrowthfactorsrequireamoreprecisedefinitioniftheyaretomeritthe

predicategoodorsocial.

Decentworkisworkthatisproperlypaidandthusen-

ablesworkingpeopletolookafterthemselvesandtheir

familiesadequately.Italsoallowsemployeestohavea

say in theirworkplaces.Theseconditions arebestful-

filledwithfullemploymentsincethatconferssubstan-

tialmarketpoweronwageearners.Itshouldbenoted,

however,thatadditionalemploymentthatreplacesun-

declared(black)work,workinthehomeorvoluntary


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workcreatesnewprosperityonlytotheextentthatitis

moreproductive.

Social productivitydiffers from productivityas tradi-

tionallyunderstoodandmeasuredinthatittakesintoac-

count(negative)externaleffectsandexcludesincreases

inefficiencyachievedattheexpenseoftheemployees.

Thevalue ofa product good orservice expresses

a social need.Value creation can also result from im-

provements inqualityfromthe consumersstandpoint.

Apparentproductivityrisesachievedsolelybymeansof

higheroutputorlowerinputprices,workintensification

(in otherwords,more work inthesametime),a con-

cealedreductioninqualityoranorientationtowardsan

elitistdemandstructureresultingfromunequal incomedistributiondonotincreaseaggregatesocialwealth.

Social investments are expenditure that generate

growtheitherbycreatingjobsorincreasingproductiv-

ity.Restructuringofassetsbetweendifferentfinancialin-

vestmentvehiclesdoesnotcount.Besidesthetraditional

investments of private entrepreneurs in better capital

stockandthusinnewormoreproductivejobsgovern-

mentspendingnotonlyinbricksandmortar(inother

words,infrastructure)butalsoineducation,researchand

healthcounts.Thespendingofprivatehouseholdson

housing, educationandso on alsoincreaseprosperity

overthelongterm.

Investmentoccursintheprivateeconomyonlyifinves-

torscanexpectanincomestreamtojustifytheoutlay,

whichisoftenfinancedbyloans.Enterprisesexpectde-

mandfortheirproducts;thestateexpectshighertaxrev-

enues;privatehouseholdsexpectrisingincomeand/or

lowercosts(forexample,onrent).Theseincomesarise

onlyifotheractorsincurthecorrespondingexpenditure.

Forthatpurposetheyneedaccesstoincomeorcredit

(seeSection3.2).

Ontheonehand,notallprivateeconomicinvestmentis

usefulwithregardtosocialgrowthperse,whileonthe

otherhandtheprivateeconomysystematicallyneglects

sociallyvaluableinvestments.Thismarketfailurethrows

upthequestionofwhatshouldgrowinthefuture.Al-thoughtheindustrialsectorwillcontinuetooccupyan

importantpositionintheGermaneconomyitcannotbe

assumed that,on balance, its growth will in the long

termleadtomoreemployment.Infact,theGDPshare

oftheindustrialsectorandinemploymenthasbeende-

cliningforseveraldecadesinmostdevelopedcountries,

althoughinGermanythistrendhasbeenslower.Indirect

contrast,employmentinserviceshasrisen.Thereisstill

considerable employmentpotential in the latter, espe-

ciallyinsocialservices.

Socialgrowthwillalsotakeplacepredominantlythrough

the expansion of service provision, especially in areas

suchaseducation,careandhealth.Here,too,growth

Figure1:Thesupplysideofsocialgrowth

Social growth Value=socialneedFullemployment

Codetermination Socialproductivity SustainabilityDecentwork

Socialinvestments Quality

(forconsumers)

Socialwork:

Housework,

voluntarywork,

undeclaredwork


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willresult,ontheonehand,inadditionalemployment

and, on theother, from higherproductivity. The new

jobsarepartlyabsorbing,atpresent,theunemployedor

thoseinvoluntarilyworkingonlypart-time,andpartlyser-

viceswithinthefamilyarebeingtransformedintomarket

services.This increases GDP, although social prosperity

increasesonlytotheextentthatmarket-orientedworkis

moreprofessional,moreproductiveandofhigherquality.

Itwaslongfearedthatservicesproductivitycannotreally

increase(knownasBaumolscostdisease).However,

thisthesis bracketsoutimportantproductivity compo-

nents,suchasqualityandintangiblecapital.

3.2DemandandDistribution

Social growth requires likeevery stable and sustain-

ablegrowthprocessadequatedevelopmentofaggre-

gatedemand.Socialdemandisconstrainedbytheag-

gregateofincomes,statetransfersandadditionallend-

ing(seeFigure2).Incomeshaveanimpactondemand

onlyiftheyareeitherspentdirectlyoraredivertedvia

thestatetaxesandcontributionsorviathefinancial

sectortothosewhospendthem.Asarule,themoney

divertedviathestateisspentsinceboththerecipients

oftransferpaymentsandthestateasproviderofpublic

goodsbarelysave.Concerningthesavingsmadeavail-

abletothefinancialsectorthingsaremoreproblematic

sincetheycanflowintoinvestmentvehiclesthatscarcely

stimulatetherealeconomy,atleastdirectly.However,the

financialsectorespeciallywhenthecentralbanksmon-

etarypolicyisaccommodatingcanalsocreateloansbe-

yondthesavingsofotheractors(mainlyhouseholds,but

alsocompaniesand,rarely,thestate).Onlytheseloans,

whichexceedsavings,feedgrowth.

Growthindeedrequiresthatsectorsoractorsarewilling

toincur debtand thusto absorb the savingsof other

actorsorsectors.Withoutthiswillingnesstoincurdebt

growthwouldgrindtoahaltsinceotherwiseincreasing

supplywouldnotfindsufficientdemand,otherthanvia

falling prices. Thiswillingness depends on the interest

rate.Interestratesmustbelowerthanexpectedreturns.

Withregardtotheeconomyasawhole,however,thebankofissuemustselecttheinterestrateinsuchaway

thattheresultingtotallendingandthecorresponding

demanddonottoofarexceedrealsupplyopportunities

andonlyleadtoinflation.InthepasttheGermanBun-

desbankortheEuropeanCentralBank,fromtheGerman

pointofview,tendedtoacttoorestrictivelysothatde-

mandfellbelowpotentialsupplyandgeneratedunem-

ploymentandweakgrowth.

Fora while, therefore, borrowing cancompensatefor

a lack ofdemand owingto low wages, as happened

in the United States in the yearsbefore the outbreak

ofthefinancialcrisisin2007.TheUSexampleshows,

however,thatescalatingdebtcannotbeasustainable

Figure2:Circulationofincome

Householdincomefromwagesand

otherearnings,aswellassocialtransfers

Transfers

Taxesand

contributions

Lendingby

thefinancialsector

Consumerspending

Productionfor

themarket

Productionofpublic

goodsandservices

Savings

Householdincomefromwagesandotherearnings,aswellassocialtransfersplusnewnetdebt


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SOCIAL GROT

substitutefortoolowandunequallydistributedincomes.

Highincomesleadtoahighsavingsrate.InGermany

andmanyothercountriesincomedistributioninthepast

twentyyearshasbecomemarkedlymoreunequal.The

incomesofthericherpopulationstratahasrisenmuch

morequicklythanthoseofthepoorerstrata.Thishasnot

onlydampeneddemandbuthascausedtheemergence

ofademandstructureincreasinglyorientedtowardsthe

interestsofwealthierhouseholds(luxuryandpositional

goods).Thistrendwasreinforcedbythediminishingtax

burdenon wealthierhouseholds.Thesetax breaksalso

limitedthecapacityofthestatetosatisfysocialneedsfor

publicgoodsandservices.Infuture,therefore,itmustbe

ensuredthatadditionalvaluecreationisalsosharedby

employees.Onlyinthiswaycanweakdemandbepre-ventedfromhinderinggrowth.

3.3StateandMarket

Forastart,thecirculationofincomebetweensupplyand

demandoperatesregardlessofwhethersocialneedsare

metpubliclyandcollectivelyorprivatelyviathemarket.

Thefrequentlyexpressedassumptionthattaxesandcon-

tributionslowerdemandiswrong,asalreadyexplained.

Onthecontrary,demandandsupplywillbecreatedand

additionalemploymentandgrowthwillresult,whenthe

stateundertakesanyexpenditurenotundertakenbythe

private sector. What justification scepticismabout the

statedoeshaveconcernstheassumptionthatthestate

mightbealessefficientsupplierthanthemarketand

privateenterprise.Onlyinthiscasecouldmoregrowth

beexpectedfromprivatisation.

Onepossibleadvantageofthemarketisthebetterad-

justmentofsupplytodemandviathepricemechanism.

Ideally,priceswouldreflectsocialpreferencesandguide

the factorsof production towards those activitiesthatfurnishthesupplycorrespondingtothesepreferences.

Realityisratherdifferent,however:

Therearemarkeddifferencesofincomeandwealth

andthuspurchasingpowerisunequallydistributed.This

distortstherelationshipbetweenpricesandsocialprefer-

encesandneeds.

Thepricemechanismexcludesexternalcostssuchas

environmentalpollutionandbenefitsandmalfunctions

withregardtopublicgoods(forexample,publicsafety,

financialmarketstabilityandsoon).

Becauseofinformationasymmetriesthebenefitsfor

the consumer aresignificantly smaller. For example, a

consumerbuysagoodandthusincreasesGDP,butlater

realises thatthis producthas barely benefited him (or

notatall).

The capital markets on whichasset prices are sup-

posedtoreflectexpectedreturnsarecontrarytothe

longpopular hypothesis of efficient markets notre-

allyefficient,butratheroperateintermsoftheherdin-

stinct.Inthiswaytheyguideinvestmentstowardsseg-

mentsforexample,housebuildingintheUnitedStates,SpainandIrelandinwhichsocialneedmayultimately

belowerthanthemarketsexpect.

Forallthesereasons,whichreflectmarketfailure,gov-

ernmentregulationofthemarketsisnecessaryandcer-

tain social needs must bemet bythe state. However,

efficiencymightbeenhancedifsupplyismetbyprivate

firmsonbehalfofthestate.However,efficiencyandpro-

ductivitymustnotbeconfusedwithcostreductions.Cost

reductionscanbetheresultofdownwardpressureon

wagesorotherinputprices,whichmeansthatprosperity

ismerelyredistributed.

Oncloserexamination,thedemandoftenexpressedthat

the stateshould keep out ofstructuralchange in the

economyandallowmarketforcesfreeplaydoesnothold

water.Thestatehasalwaysimplementedanindustrial

policy,whetheropenlythroughdirectsupportforindivid-

ualsectorsorbranches,orcovertly,forexample,bypro-

motinginternationalcompetitivenessviathestateeduca-

tionandtrainingsystemorevenbymeansofeconomic

stimulusmeasures,suchascompensationforshort-time

workingwhichhasmadethingsaloteasierforthecon-structionindustryandmanufacturingtocopewiththe

financialandeconomiccrisis,therebypreventinglossof

productioncapacity,knowledgeandgrowthpotential.

Furthermore, there are many historical examples that

confirmthatthe market isnotalwaysbetter than the

stateat opening upnew areasof growth successfully

and sustainably (microprocessors, the internet, renew-

able energies). The financial and economic crisis, too,

hasshownthatallowingmarketforcesfreeplaytoguide

investmentsdoesnotalwaysbenefitsociety.Thestate


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SOCIAL GROT

shouldthereforetry,withintheframeworkofasustain-

ableindustrialandstructuralpolicy,toguideinvestments

andcapitalflowstowardsforward-lookingandprogres-

siveusesthatbenefitsocietythemost.Atthesametime,

itshouldnotattempttoholdbackunavoidablestructural

change, butprovidesocial policy support forthenec-

essary environmental,economic and social adjustment

processes.Thereisnoalternativetoorganisingproduc-

tionandconsumptioninfutureinwaysthatconserve

resources,theclimateandtheenvironment.

3.4EuropeanIntegrationandGlobalisation

Intransnationalmarketsthecirculationofincomes(seeFigure2)takesplaceacrossnationalbordersandcanno

longerberegulatedandbalancedoutbyasupranational

stateifprivateactorsorindividualstatesgenerateimbal-

ances.Onthebasisofverydifferentnationalincomelev-

elsglobalorEuropeancompetitionbetweenlabour

forcesdampenswagedevelopmentinmanycountries,

increasinglydetachingitfromproductivitydevelopment.

Incomeinequalityisrisinginmostcountries.However,

thecatching-upofsomecountries,suchasChina,isre-

ducingglobalinequalitybetweencountriesa little.The

resultinggrowthinsavings,however,stimulatesspecula-

tiononassetmarkets.

SocialgrowthattheglobalandEuropeanlevelscallsfor

fullemploymentheretoo, besides further productivity

growth via investment in the real economy. Demand

mustbeensuredthroughbetterdistribution,inparticu-

larbymeansofproductivity-orientedwages.

Globally,thismeansthatespeciallyinpoorcountries

unemploymentmustbereduced,workingconditionsim-

provedandwagesincreased.Catch-upstrategiesbased

onexportsurplusesandlowwagesshouldbebalancedby strategies directed towards domestic demand and

fighting poverty. Financing the necessary investments

shouldnotbelefttopoorlyregulatedglobalcapitalmar-

ketssubjecttotheherdinstincts,maniasandpanicsof

theactorsoperatinginthem.

ThereisalsoahighlevelofinequalityinEuropethat

primarilytakestheformofmajorregionalincomedif-

ferentialsbetweencountries,althoughinequalitywithin

mostmemberstateshasincreasedinrecentyears.Re-

cent regional catch-up, which had reduced between-

countryinequalityandwhichthedebtcrisishasabruptly

terminated,mustberevivedwithintheframeworkofa

Europeangrowthstrategy.In theEU,too,therequisite

investmentsmaynotbelefttothefreemarket.Toomuch

wasinvestedandtoorashlyinSpanishandIrishreal

estate,abadinvestmentthathashaddireconsequences.

Decentworkinthesinglemarketmustbeprotectedby

meansofhighminimumstandardswithregardtowork-

ingtime,workingconditionsandremuneration.Supply

anddemandinEuropemustbemanagedbymeansofa

coordinatedeconomicpolicythatpromotesenvironmen-

tallyandsociallysustainabledevelopment,achieveshigh

growthandemploymentandlimitsimbalances.

Onekeyproblemwiththecurrentinternationalmonetarysystemresultsfromthefactthatonenationalcurrency

atpresent,theUSdollarisusedastheglobalcurrency

andasthemainreservecurrency.Inordertomakeavail-

ablesufficientliquidityfortheglobaleconomythecoun-

tryissuingtheglobalreservecurrencyhastorunadeficit.

Thestabilityoftheworldeconomyandtheworldmon-

etary system, however, depends on the confidence of

internationalcapitalmarketsinthestabilityofthemain

reserve currency. Deficitsshake thisconfidence, which

timeandagainhasbeenreflectedinsharpfluctuations

intherealvalueoftheUSdollar.Thankstothedominant

economicandpoliticalpositionoftheUnitedStatesand

intheabsenceofalternativesthisconfidenceatleast

hithertohasneverbeenlostentirely.

Sinceinternationalcurrencyreserveshavehithertobeen

heldmainlyinUSdollarstheUnitedStateshasbeenable

topursueanexpansivedomesticpolicy,whichfavoured

anunsustainableassetpriceandconsumptionboom.In

thecurrent world monetarysystem, Chinasaccumula-

tionofreservescombinedwithexpansivemonetaryand

fiscalpolicyintheUnitedStateshasresultedinasym-

metricalmaladjustment:aslongasthesurpluscountriesarewillingtokeeptheirreservesinUSdollarsneitherside

willcomeunderanyadjustmentpressure.Themonetary

andfiscalpolicyofthedominantreserve-currencycoun-

try(theUnitedStates)isorientedprimarilytowardsdo-

mesticeconomicgoalsandthusmoreorlessacceptsthe

negativeeffects(intheformofoversupplyorshortages)

ongloballiquidity.Inthecontextofderegulatedfinancial

markets the world monetary system structured in this

wayleadstocyclesofboomandbust,inotherwords,

toassetpricebubblesthatthenperiodicallyburst.Until

stepsaretakentoreduceglobalimbalancesandtore-


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SOCIAL GROT

storetheworldeconomytosomesortofequilibriumnew

financialandeconomiccriseswilloccur,harmingglobal

growthandthusalsotheprosperityofallcountries.

4.CompassfortheFuture:AProgressiveEconomicPolicy

Whatwouldanewsocialgrowthmodellooklikeand

whateconomicpolicyinstrumentscouldbeusedtoim-

plementit?Intheshortterm,weneedtosurmountthe

debtcrisis,whichmustbeaccompaniedbystructuralre-

regulationofthefinancialmarkets.Inthemediumand

longtermsweneedagrowthmodelthatbothenables

andguaranteesmoresocialbalanceandenvironmentalsustainability.Sincethiscanscarcelybeexpectedfrom

marketforcesevenifthoseforcesweredeployedon

thebasis of an ingenious economic policy to achieve

thesegoalssuccessdependsmorethaneverongov-

ernment policy. In a globally interdependent economy

effectivesupranationaleconomicpolicyrequirestheclose

cooperationofnationalgovernmentsandtheestablish-

mentofregulatoryandgovernancestructures.

4.1OvercomingtheDebtCrisis

Thedebtcrisishasitsrootsintherealeconomyandthe

financialsystem.Intherealeconomyincomeinequality

withincountriesandpartlycausedbythatmacro-

economicimbalancesbetweencountrieshaveincreased

(Busch2009).Withoutthegrowingindebtednessofthe

sectorsand(deficit)countrieswhich,intheexpectation

oflong-termgrowthwerewillingtoconsumeandinvest

beyond their income, thegrowthfrom which thesur-

pluscountrieshavebenefitedwouldhavecollapsedlong

beforethefinancialcrisis.Thefinancialsystem,onthe

onehand,createdtheconditionsenablingdebt-drivengrowthtokeepgoingforsolongand,ontheotherhand,

extendedunsustainablegrowthpathsbyshiftinganddis-

guisingrisk.Evenworse:theperceptionofriskfluctuated

sochaoticallybetweenfalseoptimismandsheerpanic

thatadeepcrisiswastriggeredwithgraveconsequences

fortherealeconomy.

Onlymassivemonetaryandfiscalpolicyinterventionby

centralbanksandgovernmentswasabletolimitandmit-

igatetheeffectsofthisfinancialmarketcrisisonthereal

economy.Asaresult,assetvalueshaverecoveredwell,

butattheexpenseofarestructuringontheliabilitiesside

onwhichstateshavenowtakenupamuchlargerpro-

portionofdebtsandrisk(Dullien/vonHardenberg2011;

Dullien2010a;McKinsey2011).Inordertocleartheway

fornewandsustainablegrowthsubstantialdebtreduc-

tionisunavoidable.Thiscanbeachievedinthreeways

(whichmaybecombined)(Dauderstdt2009b):

1. A debt (and wealth) haircut, which has already

takenplacewithregardtoprivatedebts(forexample,

USmortgages).Debtforgivenesswithregardtostates

makeslesssense,notleastbecauseinmanycasesitaf-

fectsbanksthatwouldthenhavetoberecapitalisedor

bailedout.Inthatwaytherewouldbenohaircutbutonly

achangeofdebtor:thestatewouldremainsittingonthedebt(asakindofdebtoroflastresort).

2. Expendituresurplusesonthepartofcreditorsleading

torevenuesurplusesonthepartofdebtors.Tothatend,

surpluscountrieswouldhavetobewillingtoacceptcur-

rentaccountdeficits;assetholderswouldhavetoinvest

and/orconsumeheavilyorbetaxedmore(wealthtaxes,

wealthlevy,inheritancetaxes).

3. Muchhigherbutstillcontrolledinflationabout4to

6percentayearforseveralyearsthatwoulddevalue

thedebtinrealterms.Centralbankswouldhavetoput

upwiththesepricerisesandnotrespondwithinterest

raterises.Inparticular,poorerrecipientsofregularin-

comespensions,socialbenefits,lowwageswould

havetobeprotectedagainstafallintheirlivingstandards

andadiminutionoftheirpurchasingpowerbysomesort

ofinflationaryadjustmentintheformofrisesinincome

and/orfinancialrelief.

Theway out ofthecrisiswill involveall threecompo-

nents.Fromthestandpointofprogressiveeconomicpol-

icy, however, the second component willdominate. Itharbourslessdistributionriskforthepoorandreduces

growthimbalances.Atthesametime,thefinancialmar-

ketsmustberegulatedinsuchawaythatnomoreas-

setbubblesemerge.Thisdoesnotmeananunreason-

able restriction ofloansfor the real economy but the

curtailmentofspeculation,moretransparencyandclear

assignmentofrisksandliability.Tothisendallshadow

banksmustbedoneawaywith,thejungleofexoticfi-

nancialproducts must be cleared, a financial transac-

tiontaxhastobeintroducedandthefinancialindustry

mustbetrimmedbackonthebasisofasolid,boring


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SOCIAL GROT

business model (financing the real economy, maturity

andrisktransformation)withappropriateremuneration

structures(Kamppeter2011;Kapoor2010;Dullien/Herr/

Kellermann2009,2011).

4.2ScenariosforaSocialGermany

InGermany,thegrowthmodelbasedonwagerestraint

androllingbackthestatemustbecorrected.Thishas

causedsocialdivisionandfragilegrowththatislopsid-

edly dependent on exports (Bontrup 2010). Domestic

demand, in particular in areas with substantial social

needssuchasrenewableenergies,education,careand

healthmustbereinforcedbymeansofmoreequitableincomedistributionandsolidlyfinancedpublicconsump-

tion.Intheseareas,additionalemploymentandincome

canalsobegenerated.

The Friedrich-Ebert-Stiftung (FES) in threemajor stud-

ieshasworked outscenariossimulating social growth

inGermany:

1. Thefirststudy,withintheframeworkoftheFuture

2020project,wascarriedoutbyBartschEconometricsin

2008/2009(Bartschetal.2009a;Bartschetal.2009b).

Itassumedanincreaseinpublicinvestment,especially

intrainingandeducation,aswellasaproductivity-ori-

entedwagepolicy.Theresult,comparedtoabaseline

scenario with economic policyunchanged, was much

highergrowthwithlowerunemployment,betterdistri-

butionand lower public debt (Bormann etal. 2009a;

Bormannetal.2009b).

2. A second studyon growth through the expansion

of social services, by Prognos (2010/2011), calculated

thatthecreationofaround1millionjobs,especiallyin

care,wouldincreaseGDPbyaround22billioneuros(inotherwords,about1percentofcurrentGDP),about

two-thirdsofwhichwouldgothroughthestate(about

half and half taxesand socialcontributions) and one-

thirdthroughthe market.Households wouldtherefore

financeaboutone-thirdoftheirownadditional(wage)

incomeviaincreasedspendingonindividualconsump-

tion,withtwo-thirdscomingfromspendingonpublic

services(Prognos2011b).

3. Inathirdstudy(2011),ontheInterdependence be-

tween Development of the Health Market and Develop-

ment of the Economy and Employment,theRheinisch-

WestflischeInstitutfrWirtschaftsforschung(RWI)ex-

aminedtheconsequencesforgrowthandemployment

ofastrongexpansion2percentayearofthehealth

sector.Itassumesaveragerealproductivitygrowthof1

per cent a year, with productivity inthe healthsector

growingonlyhalfasquickly,inotherwords,at0.5per

centperyear.By2030,inthatcase,thehealthsectors

shareofvalueaddedwillincreasefrom10percentto

13percentanditsemploymentsharefrom12percent

to 16per cent ofthe German economy. Correspond-

ingly, health spending will increaseas a proportion of

householdspending,albeittoafargreaterextentamong

poorerhouseholds(from16percentto24percent)than

amongbetteroffones(from6percentto10percent).Contributionrateswillalsorisesharply.However,spend-

inginotherareaswillnotthereforeshrinkinabsolute

termsandwelfarewillalsoincrease(RWI2011).

Germanycanthereforepursueadifferentgrowthpath,

complete withenergy transitionand theexpansion of

social serviceswithout increasing indebtedness among

privatehouseholdsandthestatebudget.Itshighexport

surpluses demonstrateuntapped consumption and in-

vestment potential. But even without them Germany

neednotfearafallinprosperity.Althoughconsumption

andproductionstructuresneedtochange,thetransfor-

mationcantakeplaceinacontextofgrowthbymeansof

moreemploymentandhigherproductivitywithoutinvol-

untaryreductionsintraditionalconsumption.Tothisend

stablepurchasingpowermustbeensuredtomeetthe

newneeds,optimallybymeansofmoreequalincome

distributionandthelimitationofassetgrowth(Dauder-

stdt2011a;Pfaller2010b).

4.3SustainableGrowthforthe

WorldEconomy

Germanys export-oriented growth path has contrib-

utedtotheemergenceofimbalancesintheEuropean

andglobaleconomies,whichhaveproventobeunsus-

tainableoverthelongterm(Artus2010;Dauderstdt/

Hillebrand2009;Dullien2010b;Mnchau2010).Social

growthasdescribedabovewillhelptoeasetheeco-

nomicsituation.BesidesGermany,however,therearea

numberofcountriesespeciallyChina,Japanandsome

oilexporterswithconsiderableexportsurpluses.The

downsideofthisaremassivecapitalexportswhichinthe


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SOCIAL GROT

recipientcountriesinturntriggerexuberantbubble-

likegrowth(Priewe2011).Asarule,theseimbalances

areaccompanied by various wagetrends,namely real

wagestagnationcombinedwithlowunitwagecostsin

manysurpluscountries(especiallyGermanyand Japan)

andsharplyrisingunitwagecostsinmanydeficitcoun-

tries(forexample,ontheEuropeanperiphery)(Dauder-

stdt2009a;Busch2009).

Pre-crisisgrowthtosomeextentreducedthestillenor-

mousincomedifferentialsbetweencountrieswithinEu-

ropeandalsoglobally(Dauderstdt2010c;2011c),al-

thoughaccompaniedby,onthefaceofit,perversecapi-

talflowsfrompoorcountries(China)torichones(United

States).Thismakesitallthemoreimportanttoestablishtheeconomiccatch-upofpoorercountriesonasustain-

ablebasisandtoliberatethemfromtheirsubordination

tosharplyfluctuatingcapitalmarketmovements.Fund-

ingtheexpansionoftheircapitalstockintheform

ofcorporatecapital,infrastructureandhumancapital,

suchashealthandeducationmustbelongtermand

speculation-proof. The resulting productivity increases

willbenefitsocietyasawholebothinagivencountry

andworldwide,evenifparticularsectorsandlocalities

havetosufferpainfuladjustmentprocesses(Dauderstdt

2010b).

Thesustainabilityofgrowthisnotonlythreatenedbyits

dependenceonthefinancialmarkets,however,butalso

bytheimmensestrainitimposesonglobalresources.Ris-

ingrawmaterialpricesindicatethatdesiredconsumption

exceedscurrentandinthecaseofmanyresourcestheir

long-termsupply.Thepricemechanismwillensureover

thelongtermthatsupplywillincreaseanddemand,due

toeconomisationandsubstitution,will relativelydimin-

ish.Butrisingpricesburdenpoorerpeopledisproportion-

atelyandmoreintensiveexploitationofmineralresources

isoftenaccompaniedbymassivesocialcostsandenvi-ronmentalpollution,whichevenrisingpricesoftendo

notadequatelyreflect.

Although,duetotraditionalgrowth,environmentalpol-

lutionweighsheavilyonthenaturalbasisoflife,espe-

ciallytheclimate(Netzer2011),thewayoutcannotbe

simply to renouncegrowthor degrowth. Too many

peoplestilllacknourishment,clothing,housing,health

care and education. Social growth should therefore

beappliedselectivelyinmanyrespects:theincomeof

poorerpeopleshouldgrowmorerapidly;investmentthat

savesresourcesinthemediumtermshouldincrease;so-

cialservicesshouldgrowsincetheymeetsocialneeds

andaregenerallylessresourceintensive(Spangenberg/

Lorek2003).

4.4DemocraticGovernanceofInterdependentEconomies

Giventheenormousimpactoftheglobalriskswehave

described the success of national development paths

shouldbeensuredbyacooperativeglobaleconomicand

structuralpolicy.Incontrasttoglobalisationdiscourseat

thebeginningofthe1990sinwhichtheeconomywas

depoliticised,thestatediscreditedandglobalprocessesrangedagainsttheMolochstate,inthecomingyears

politicsmustreplacetheprimacyoftheeconomy.The

searchfornewpolicyspacewithinthisframeworkmust

be characterised by pragmaticsolutions,however, be-

yondstatism,butalsobeyondhostilitytothestate.This

opensupthepossibilitytoconductapoliticaldebateon

amodernconceptionofthestatealsoandespeciallyat

regionalandgloballevel(Steinhilber2008).

Evenifitsexportfixationdiminishes,Germanywillalso

inthe future bedependent ona properly functioning

globaleconomy. Itsprosperity willdepend on,among

otherthings,whetherinternationalgoodsandfinancial

marketsremainstableandtheelementsofglobaleco-

nomicregulationcanbeadaptedtothenewconditions.

Creatingaviableexternaleconomicpolicyaimedatco-

operationand integrationwill therefore be a keytask

forthefuture.GiventherelativeweaknessofGermanys

voiceintheconcertofeconomicpowersthiscanbecar-

riedouteffectivelyonlywithintheframeworkofastrong

EuropeanUnion.

ThefactisthatinEurope,asdemonstratedbythecrisisand effortsto overcome it, but also against the back-

groundofthecommonchallengesthatlieaheadfor

example,withregardtothefurtherglobalisationofmar-

kets,climatechange,increasingresourcescarcityandde-

mographicchange economicpolicycannolongerbe

confinedwithinnationalborders.Thesinglemarketand

monetaryunionlongagocreatedasituationofshared

responsibilityandcompetencebetweenthenationaland

supranationallevels in the EU. However, the financial

and economiccrisis revealednumerousdefects,short-

comingsandimbalancesinEuropeslopsidedintegration


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process(Busch/Hirschel2011;Hacker2011a).Itscentral

projectstheformationofthesinglemarketandofeco-

nomicandmonetaryunion(EMU)haveindeedbrought

aboutprosperitygainsinthememberstates,butatthe

sametimethenegativeeffectsofglobalisationinEurope

havebeensharpened.Integrationhastakenplacepri-

marilyasamarketcreatingprocessbetweencompa-

nies,butalsobetweenstates:bydismantlingtradebar-

riersandbyintensifyingcompetitionbyloweringwages,

socialsecuritycontributionsandthetaxburdenandby

improvinglocationconditionsinamarketfriendlyway.

Incontrast,themarketshapingandmarketcorrect-

ingprocess,characterisedforexamplebysuchthings

ascommonemploymentprotectionstandardsandsocial

standardsorbytheinstitutionalorganisationandfurtherdevelopmentoftheEUspolicycompetences,hascontin-

uedtocling(Hpner/Schfer2010)toaconstitutional

minimalism(Platzer2009).

However,problemsanddifficultiesincludingthecol-

lapseoftheeuroandthusultimatelyofEuropeandthe

EuropeanIdeacanbeavoidedonlybystrengthening

market-correcting and market-shaping policy instru-

mentsandthusultimatelyonlybymeansofmoreEu-

ropeinthesenseofpoliticalunion(ArbeitskreisEuropa

2010b).TheultimategoalmustbetoconverttheEU

intoapoliticalunioninwhichdemocraticparticipation

rightssimilartothoseinitsmemberstatesareguaran-

teed.However,theremustbenosimplecentralisationof

intergovernmentaleconomic policy decision-making in

Brussels.Thiswouldbejustifiedonlyifitwascontrolled

democratically(forexample,withintheframeworkofthe

Communitymethod)(Collignon2010).Untilthiscanbe

ensured there remains onlythe reinforcementof joint

coordinationandagreementoneconomicpolicybythe

memberstates.Thisalsomeans,however,thattheEU

orallEUmemberstatesjointlywillinstitutionallyhave

the rightto a say inpolicy areas hithertoreserved forthe individual memberstates (Heise/Heise 2010).This

meansinparticularputtingontheagendaamoveto-

wardsdeeperintegrationmeasures:moreEuropein

thesenseoffurtherstrengtheningthecompetitionprin-

cipleandrestrictingthescopeofpolicyformationwould

causetheEuropeanprojecttoimplode.Whatisdecisive

here,therefore,is a new paradigmfor Europeaneco-

nomicgovernancethatunderstandstheequalisationof

economicimbalancesandsocialprogressintheEUas

centraltasks(Hacker/vanTreeck2010).

Althoughinrecentyearssecuritypolicyhasincreasingly

eclipsedtheglobaldevelopmentdilemma,nowtheques-

tion ofsocial growth isforcing its way back onto the

agenda,alsoatthegloballevel.Thisargumentwillsub-

stantiallydeterminethefutureconstitutionoftheworld.

Ithasbecomeapparentthatdevelopmentproblemsare

no longer only the problem of the globalSouth. The

impoverishmentalsoofmoreandmoreregionsinthe

North, not just the South,led tocrises whichendan-

gerthestillprosperingcentres.Thelattersdevelopment

modelisbeingdepletedbytheenvironmentalcrisesthat

willbeheightenedbythecatch-updevelopmentofsome

countries.Socialgrowthatthegloballevelandthusul-

timatelyglobaldevelopmentisthereforenotanoption

withoutanewdevelopmentmodel,whichineverycoun-trycombinesenvironmentalrestructuring of theecon-

omywithfairerdistribution(Netzer2011).Withregardto

thegloballevelthismeansthatlessdevelopedcountries

mustbehelpedtoopenupnewgrowthpathsthatmust

takeaccountoffourfactors:

1. environmentalgrowthwiththeemphasisonCO2re-

duction;

2. sociallysustainablegrowththatcreatesjobs;

3. sustainedgrowththatisnolongersubjecttocapital

marketvolatility;

4. regionalgrowthviaregionalintegrationandintensi-

fiedregionalinfrastructure.

To that end, the regulatory crisis (with regard to the

banks) and the crisis of global economic governance

(withregardtoglobalimbalances)mustberesolved.

However, decision-making structures at global level

inparticularinthecaseofinternationalorganisations,suchastheInternationalMonetaryFund(IMF)andthe

WorldBankcontinuetofaceseriousproblemsconcern-

inglegitimacyandacceptance.Theseorganisationsare

stilldominatedbythetraditionalindustrialisedcountries

andthusprimarilyrepresenttheirinterests.Theyreflect

theeconomicbalanceof importanceandpowerofthe

periodof theirfoundingafterthe end ofthe Second

WorldWar,andnottheglobalbalanceofpowerasit

stands today. Theyaretherefore regarded as unrepre-

sentativeandundemocraticbyemerginganddeveloping

countries.However, informalbut powerfulgovernance


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forums,suchasformerlytheG7/G8andtodaytheG20,

expandedto includesomeleadingemergingcountries,

alsohaveseriouslegitimacyproblemswhichmakestates

thatarenotrepresentedtherereluctanttogetbehind

them.

Thesolutionofkeychallengesforthefuturethatarenow

arisingatthegloballevelcanbeachievedonlytogether

withtheemerginganddevelopingcountries,whichin

recentyearshavebeenmorecloselyintegratedininter-

national financial and tradestructures (Joerien/Stein-

hilber2008).Thepost-WarmultilateralismoftheBret-

tonWoodsinstitutionsthatarenowsinkingunderthe

deadweightoftheirobsoletestructuresmusttherefore

bereformedandthedevelopingandemergingcountriesmustbeintegratedinnewinstitutionsonequalterms.

AlthoughtheG20representsastartwithregardtoes-

tablishing a forumin which todays leading economic

powerscangettogetheronanequalfooting(Pohlmann/

Reichert/Schillinger2010),thislikethetimidreforms

oftheIMFandtheWorldBankisnotenoughtobring

aboutpositiveintegration.Theinternationalcommunity

hasasyetbarelybeguntoaddresstheissueofefficient

andsustainableglobalgovernancestructuresthatwould

helptoreduceuncertaintyandcomplexityonthebasisof

trustandtoopenupnewscopefordevelopment.

5.A10-pointProgrammeforaProgressiveEconomicPolicy

Thefollowing10-pointprogrammeoutlinesthemostim-

portantreformsthatarenecessaryorconducivetoimple-

mentingtheconceptofsocialgrowth.

5.1GuaranteeaStableSupplyofCredit

withEffectiveFinancialMarketRegulation

Socialgrowth,likeanyformofgrowth,dependsonan

adequatesupplyofcredit.Itmustthereforebeguaran-

teedthatthefinancialmarketswiththeirshort-termism,

periodicexcessiveappetiteforriskandunrestrainedlend-

ing,nottomentiontheirtendencytoherdbehaviour

donotrepeatedlyplungethefinancialsystemandthus

ultimatelyalsotheeconomyasawholeintocatastrophic

crises. In transnationally integrated financial markets

bankshavebothforeigncreditorsontheliabilitiesside

(deposits)andforeigndebtorsontheassetsside(invest-

ments).Depositorprotection,liquiditysupport(lenderof

lastresort)andassetvaluation(withconsequencesfor

minimumreservesandsoon)purelyatthenationallevel

arelessandlessfeasible.Insmallcountrieswithover-

sizedbankingsystemsIceland,Ireland,Switzerland

thestatecanrapidlybeoverwhelmed.

Ifthismarketfailureis tobeovercomeand,ultimately,

thetaxpayeristobeprotected,stronger,morecompre-

hensive and moreeffectiveregulationof the financial

marketsisneeded,whichreducesthedominanceofthe

financialsectorandputsitmoreintheserviceofthe

realeconomy(supplyofcredittoprivatehouseholdsand

enterprises) (Kamppeter2011;Dullien/Herr/Kellermann

2009,2011).Thecoreelementsofnewfinancialmarketregulationthat,ideally,shouldbeimplementeduniformly

atgloballevelbutifnot,atleastatEuropeanlevel,areas

follows (Noack/Schackmann-Fallis 2010; Kapoor 2010;

Dullien/Herr2010;ArbeitskreisEuropa2009;Steinbach/

Steinberg2010):

More transparency and the closing of supervisory

loopholes by meansof central financial market super-

visionthatis,asfaraspossible,uniform,powerfuland

transnational.Itmusthaveauthoritytoissuedirectives

andtoimposeconditions,likenationalsupervisoryau-

thorities.

Jointmonitoringofthefinancialsystemssystemicsta-

bility.

Higherand anti-cyclicalcapitalreservesandliquidity

requirementsforall banksandfinancialintermediaries;

abanonoff-balancesheetentitieswithoutcapitalcover-

ageandlimitsonbanksandfinancialmarketactorsop-

portunitiestoaccruenewdebt(leverageratio)inorder

toreduceincentivesforspeculative,debt-driveninvestor

behaviourandtoenhancethestabilityofthefinancialsystemincrisissituations.

Highercapitalrequirementsforsystemicallyimportant

banksandlivingwills(settlementrules)inaccordance

withwhich(transnational)institutionscanbewoundup

inthecaseofinsolvencywithoutharmingeveryoneelse

toincreasethecostforprivateactorsoffailurearising

fromspeculation.

Reductionofproprietarytradingbycommercialbanks,

perhapsalsoastricterseparationofthetraditionalloan


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businessfrominvestmentbanking;stricterregulationof

privateratingagenciesandtheestablishmentofaEu-

ropeanratingagencytobefinancedfromCommunity

funds(ArbeitskreisEuropa2010b).

Reductionoftheroleofprivateratingagenciesand

banksinternalriskmodelswhenitcomestocapitalad-

equacy.

Reductionofnear-marketfairvalueaccounting.

Limitsontheresaleofloans(securitisations)bycom-

mercialbanks.

Stricterregulationofderivativestradingandmakingitsothattheyaresettledexclusivelyviacentralclearing

houses(reductionofover-the-countertrading).

AEuropeanbankruptcylawforbanksthatensuresthe

problem-freeandorderlywindingupofinsolventbanks.

Establishment of a financial MOT thataccurately

assessesthesocialvalueandtherisksofnewfinancial

instruments,bothforthebanksandforinvestors,before

theirintroduction.Suchinstrumentsshouldbepermitted

onlyiftheyprovidebenefitstosociety(Dullien/Herr/Kel-

lermann2009,2011).

Introductionofafinancialtransactiontax(Paul/Neu-

mann2011),aswellasstricter,morelongterm-oriented

regulationsonbonusesfor(bank)managersthatinpar-

ticularmaketheshort-term,destabilisingpursuitofprofit

and speculation on the international financial markets

unattractive and thusreduce financial market fluctua-

tions.

Germanystraditionaltripartitebankingsystemisto be

retainedandfosteredbecauseithasproveditsworthinparticular thanks tothe savings bank and coopera-

tivesectorinthecrisisasastabilityanchor.Neverthe-

less,Landbanks(Landesbanken)shouldbeconsolidated

andnew,long-termsustainablebusinessmodelsshould

be developed (Noack/Schrooten2009). Effectiveregu-

lation ofthe financial markets isalso a key condition

foragrowth-orientedmonetarypolicy.Withouteffective

regulationthiswouldbehopelesslyswampedinitsef-

fortstoensurebothpricestabilityandfinancialmarket

stabilitysolelybymeansofinterestratepolicy.Withef-

fectivefinancialmarketregulationin place,however,it

shouldavailitselfoftheroomtomanoeuvrethisprovides

andpursueagrowth-orientedmonetarypolicy(Winkler

2008;Illing2011).

5.2UseEducationPolicytoBoosttheForcesofGrowthandExpandOpportunitiesforAll

Onthesupplyside,socialgrowthisdependentongood

initialandfurthertraining.Educationandknowledgein-

creaselabourproductivityandthuscontributetogrowth

and prosperity (Prognos2011a; Blossfeldet al. 2011).

Education is a public goodandenhances peoples life

chances.Marketfailuremeansthattherewillbeinsuf-

ficient provision of educationvia the marketand theprivate sector. Only government education policy can

adequatelyprovidetheinvestmentineducationneeded

for growth and employment,withoutwhich social in-

equalitywillincreaseandsocialcohesionwillbejeop-

ardised.Internationalcomparativestudiesoneducational

standardsshow thatGermanys educationexpenditure

isonlyaroundtheOECDaverageandthatitisincreas-

inglyfalling behind thatof thefrontrunners.The pro-

visionof lifelonglearningissimilarlyunfavourable: this

mustbeexpandedifthereistobesufficientprovisionof

productiveemploymentuntilahigh/increasedretirement

age.Infuture,therefore,Germanymustinvestmorein

initialand furthertraining,butalsocarryout structural

adjustmentin education(Borgwardt 2011;Wernstedt/

John-Ohnesorg2010;AutorengruppeBildungsberichter-

stattung2010).

Theaimofeducationpolicymustbeasociallyjustand

highperformingeducationsystem,rangingfromearly

childhoodeducationtolifelonglearning.Itisnotenough

forthispurposetohaveindividualgoodschoolsoruni-

versities:thereneedstobenationwideprovision,includ-

ingbothurbanandruralareas.Onlybroadpublicprovi-sionwillreachallchildren,youngpeople,traineesand

students,regardlessofparentalincome.Onlyinthisway

canwe reduce thestrong correlation between educa-

tional success and socialorigin,the number ofyoung

people without qualifications and the high dropout

rate.Thefollowingmeasuresarenecessarytothatend

(Baumert2010;John-Ohnesorg2009;Wernstedt2010):

Thedivisionoftasksbetweenthefederalgovernment,

the Lnder and municipalities (with regard to schools,

highereducationandresearch)needstoberedefinedin


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ordertoensureanadequatefinancialbasisforthetasks

ahead.

Education mustbe more individualisedat all levels:

so-calledat-riskstudentsarenotahomogeneousgroup.

Morelanguagetrainingisparticularlyimportant.

Educationmustbeginearliersinceearlylearningand

supportleavetheirmarkoneverysubsequentlearning

stage.Earlysupport,especiallyfortheunder-threes,must

therefore be expanded:there musttherefore be more

childcare places in so-called Kitas (childcarecentres

forchildrenwhoseparentsareinfull-timeemployment)

andkindergartens,openingandchildcareperiodsmust

beadapted(alsoto improvereconciliationofworkandfamilylife)and pedagogicalapproachesandstaffmust

beimproved,withbetterqualifiedpeople.

Theschoolsystemmustbeorientedtowardsalonger

periodbeforeanykindofselectionoccursandinclusive

education,aswellastowardsmorehorizontalandver-

ticalpermeability.Thetendencynationallymustbeto-

wardsatwo-tierschoolsystem.

Thenumberofall-dayschoolsthatnotonlyprovide

childcare,butalsoinclusiveeducationandafternoonles-

sonsfromqualifiedstaffmustbeincreasedandtheirin-

frastructurepremises,heating,newmedia,canteens

andsoonmustbemodernised.Theyshouldbeinte-

gratedinlocaleducationnetworksinordertoprovide

individualsupport.

Training places and full-time occupational training

schoolsshouldbeexpandedinordertomeettheneed

fortraineesinthedualandvocationaltrainingsystem.In

ordertoreducethenumberofthosewhodonotmeet

theminimumconditionsfortrainingforanoccupation

thatwillcontinuetobeviableinthefuture,sustainablemeasuresmustbetakenasearlyaspossible,forexam-

ple,intensificationofsupportforyoungpeoplewithan

immigrantbackground.

Spendingoneducation,researchandscienceforthis

reasonmustbefurtherincreased(target:10percentof

GDP).

Technologicalchangemeansthatmorequalifiedperson-

nelareneeded inall areas. Closely connected tothat

forindividualworkersisthepossibilityofimprovingtheir

earnings.For this reason both thosein work and the

unemployed with low, intermediate and high qualifi-

cations must receivefurtherand higher trainingat all

stagesofemploymentandlife,notonlyinordertoad-

dresstheloomingshortageofqualifiedworkersbutalso

thehigherretirementage.Activelabourmarketpolicy

shouldalsofocusonthegoaloffurtherandhighertrain-

ing.Unemploymentinsuranceshouldbedevelopedinto

employmentinsurance(Schmid2008).Rightsrelatedto

holidays,leaveofabsenceandreturntoworkforem-

ployeesintrainingshouldbeimprovedandindustry-wide

training funds laid down in collective agreements for

smallandmedium-sizedenterprisesmustbesupported

(Bosch2010).Finally,everyoneshouldhavetherightto

trainingandindividualsupport.

5.3OpenUpNewAreasofGrowthwithIndustrialPolicy

Likeanygrowthprocess,socialgrowthisnotstructure-

preservingbutcharacterisedbystructuralchange.Inor-

dertobeabletomeetthechallengesofenvironmental

restructuringandenvironmentalrenewaloftheeconomy

andsocietyclimatechange,destructionoftheenvi-

ronment,finitenaturalresourcesinfutureanenviron-

mentalindustrialpolicywillbeneededtoidentifyand

promotegrowthareasearlyon,butalsotoensurethat

socialandenvironmentalsustainabilityisnotlostsightof

(Schepelmann2010).Germanysenvironmentalindustry

isagoodexampleofsuccessfulindustrialpolicy(BMU

2009).However,withoutpoliticalinterventionsetting

demandingenvironmentaltargetsandtranslatingthem

intoparametersandceilingsforresourceconsumption

andtheirconstantextrapolationintodifferentareasof

productionandprivateconsumptionthisimportantin-

dustrialsectorwouldnothaveemerged(Fischedick/Be-

chberger2009).Thestate,bymeansoflegalregulation,itspurchasingandmarketpoweranditsenvironmental,

research,infrastructure,taxandeconomicpolicy,canand

shouldplayanactiveroleandthusfunctionasanimpor-

tanttechnologydriverandmotorofinnovation.Within

thisframeworkitshouldpromotethedevelopmentand

introductionontothemarketofinnovativeandsustain-

ableproductsbymeansof significanteconomicinvest-

mentincentives(Meyer-Stamer2009).

Infuture,intheareaofclimateandenvironmentalpro-

tection, instead of expensive direct statesupport pro-


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grammeswhoseresultsareoftenuncertain,environmen-

talconsumptionshould,forexample,befullyincorpo-

ratedinpricesthroughtradeinCO2emissionrightsthat

isasglobalaspossible(Lschel2009;Knopfetal.2011).

Anationwideclimateprotectionlawwouldalsobeworth

considering,whichlaysdownspecificguidelinesforall

localauthoritiesandeconomicsectorsinanimplementa-

tionplan.Theaimwouldbetofundamentallychangethe

behaviourofalleconomicactorsandtoecologiseallpro-

ductionstructuresandvaluecreationchains.Withclear

energyefficiencyguidelinesandCO2reductiontargets

furtherimpetuscouldbegiveninrespectofsupplyand

demandwithintheframeworkofpublicprocurementdi-

rectivesandcontractallocation(Pfaller/Fink2011).

The local level shouldenjoy particular priority in this.

Withintheframeworkofsocialdialogueneedsshould

bedetermined,andsolutionsworkedoutandtried.This

willmakeitpossibletocloselyintegrateandlink-upnet-

workconsumers, enterprises, scientists, politicians and

administrators.Overall,inthiswaygovernmentguide-

linesonclimateprotectionandonresourceandenergy

consumptioncouldhelptoreachnationalclimatetargets

andtoimprovecompaniesinternationalcompetitiveness

onemerginggreenmarkets.Furthermore,thisdialogue

processcancontributetothemutualreconciliationofthe

winnersandthe losersof modernisation.Radicalstruc-

turalchangecanleadtosocialhardshipaffectingsociety

asawhole,whichmustbedealtwithasquicklyaspos-

sible(Pfaller/Fink2011;Bretal.2011).

Futuregrowthwilldependtoaconsiderableextenton

thedevelopmentoftheservicesector.Amodernindus-

trialpolicy musttherefore end thesupport policy and

financialdiscriminationagainstnon-physicalgoods.Be-

sides the development of more value added-intensive

industry-relatedservicessocialgrowthdependsprimarily

onthegrowthofhighqualitysocialservices.Germany,byinternationalcomparison,hasasignificantemployment

gapinthisrespect.Ofallservices,itishighqualitysocial

andsociety-orientedservicesbesidesbusinessservices

thatareshowingthemostemploymentgrowthinthe

EU15.Notleastagainstthebackgroundofdemographic

changeconsiderableneedsarearisinginthisregardfor

example,intheareaofcaringforthesickandoldpeople,

andinthesocialandeducationsystemsandthusthere

issubstantialgrowthandemploymentpotential.

Demandforsocialservicesisoftenweakonfreemar-

ketsasaresultoftheso-calledBaumoleffect(Baumol

1967)alsoknownasBaumolscostdisease.Private

companiesthereforeoftenfailtomeetthisdemandad-

equately.Thismarketfailurecanbeovercomebyasmart

servicespolicy,however(Bienzeisleretal.2011;Schett-

kat2010).Thisshouldnotbetakentoimplyalow-road

strategyofservicesdevelopment,whichseekstoincrease

potentialdemandandenablefurtherexpansionofser-

vicesbywayofcostreductionsinthecourseofboosting

thelowwagesectorandsharpeningwagedifferentia-

tion.Thisstrategyultimatelyleadsonlytolowpaidand

precariousjobsandthusalsotopoorqualityservicesand

lowvaluecreation.Expansionofhighqualitysocialser-

vices,astheScandinaviancountriesdemonstrate,isalsopossibletogetherwithmoremoderatewagedifferentia-

tion,higherwagesandlowersocialinequality.However,

suchahighroadstrategyrequiresamoreactivestatein

therolesoffinancier,producerand/oremployerin this

sector.Inparticular,statefundingmechanisms,suchas

socialsecuritysystems,cancontribute,first,tothedevel-

opmentofdemandfor(social)servicesingeneral,and

thentoadequateprovisionandopeningupaccesstoit

forall.TheScandinavianexamplealsoshowsinthiscon-

textthatahighratioofgovernmentexpendituretogross

nationalproductisnoobstacletosuccessfulaggregate

economicdevelopment(Heintze2011;Schettkat2011).

Education,familyandtaxpoliciesmustinfuturebebet-

tercoordinatedwiththecreationandpromotionofde-

centworkwithgoodwagesinthesocialservicessec-

tor. In education policy, care mustbe takento ensure

thatemployeesarebettertrainedbysupportingandes-

tablishing state-recognisededucational and vocational

qualifications. Higher quality can increase acceptance

andwillingnesstopayamongpotentialcustomers.Fam-

ilypolicy,in turn,canboostwomensemploymentand

createnewemploymentopportunitiesinsocialservicesonboththedemandandthesupplyside(Luci2011).In

particular,theintegrationofwelltrainedandqualified

womeninthelabourmarketincreasesdemandforand

thesupplyofsocialservices.Currently,theseareoften

performedbywomeninthehome.Infuture,thefocus

offamilypolicyshouldbelessontransferbenefits,such

aschildbenefitandchild-raisingallowance,andmore

onin-kindbenefits,suchastheexpansionofchildcare

(crches,day-carecentresfortheunderthrees)thatis

responsivetopeoplesneedsand,asfaraspossible,free.


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5.4StrengthenthePositionofEmployeesbymeansofMinimum

WagesandCodetermination

Socialgrowthrequiresawagepolicythatensuresem-

ployees participation in value creation andthus high

masspurchasing power.Stagnatingrealwagesandin-

creasingincomeinequalityarenottobeabjuredmerely

onthegroundsofsocialjustice,butalsobecausethey

contributetostagnatingdomesticdemandand,conse-

quently,tolowaggregategrowthratesandincreasing

externalimbalances(Joebges2010;Joebgesetal.2010).

Wagepolicymustinfuturebeorientedmorestrongly

towardsproductivitynominalwageincreasesinpro-

portiontolonger-termaggregateproductivitygainsplusthecentralbankstargetinflationratenotonlyinGer-

many, but inEurope and indeed globally. Only inthis

waycandomesticdemandbereinforcedsustainablyand

thedangerofemergingimbalanceswithintheEuropean

Monetary Union reduced (Busch 2010; Busch/Hirschel

2011;Pusch2011).Althoughfreecollectivebargaining

setslimitsongovernmentwagepolicyinGermany,the

governmentcaninfluencewagedevelopment:

Ageneral,comprehensivestatutoryminimumwage

underpinsthepositionofeachindividualworkerinwage

bargaining and thus helps toprevent pay scales from

driftingdownwardsandthedevelopmentoflowwages

inthedirectionofpovertywagesthatthreatenpeoples

abilitytomakeendsmeet(Boschetal.2009a;Boschet

al.2009b).Minimumwagescompelcompaniestocom-

peteonthebasisofhigherproductivityandinnovation

instead of lowwages. A statutory minimum wageof,

forexample,8.5eurosperhourwouldnotonlyimprove

theincomesituationoffivemillionpeople,butalsoraise

theearningsofaround14.5millionprivatehouseholds.

It would also ease theburden on the German public

budget tothe tune ofaround 7 billion euros(for ex-ample,lowerincomesupportandhighertaxrevenues)

(Ehrentrautetal.2011).

Thegovernmentshouldceasetopromoteso-called

mini-andmidi-jobsandreintroducethegeneralsocial

securityobligationinordertocorrecttheundesirablede-

velopmentsonthelabourmarketinrecentyears.

Codetermination at the plant and company levels

shouldbeextendedandgeneralcollectiveagreements

should be reinforced by compellingenterprises to join

employersassociationsorbydeclaringcollectiveagree-

ments to be generally binding. Government can and

mustalsogivesubstantivehelptoreinforcetradeunions

sothattheyareabletotakefulladvantageofthemacro-

economicmarginofdistributionandobtaingoodwork-

ingconditions(Hrisch2010;Greifenstein2011;Greif-

enstein/Weber2009,2008).

Furthermore, in future government can and must

beamorepowerfulpresenceasanemployer,notonly

becausepublicservicesandservicesofgeneralinterest

inparticulararecharacterisedbysignificantneedsand

shortcomings, but also because the state has the po-

tentialtosetstandardsfordecent,well-paidjobsinan

importantsegmentofthelabourmarket,therebysend-ingoutimportantpositivesignalstootherlabourmarket

segments.Similarpositiveeffectscanbeachievedbyty-

ingpubliccontractstocompliancewithminimumstand-

ardsondecentwagesandworkingconditions.

5.5FundPublicTasksProperlyandFairlybyReformingTaxPolicy

Theconceptofsocialgrowthisbasedonthefactthat

thestateandthecommunityareresponsibleforasig-

nificantnumberofqualitativelydemandingtasks.State

actionmustmakeupformarketfailureinmanyareas

andthuscreatetheconditionsforbalancedgrowthin

theeconomyandforfinancially,environmentallyandso-

ciallysustainableeconomicandsocialdevelopment.In

ordertoovercomeunderfundinginkeypolicyareasfor

example,education,wherethereisashortfallofatleast

25billioneurosandtobeabletomaketherequisitein-

vestmentforthefuturethestatemusthavesufficientfi-

nancialresources.Againstthebackgroundofthecurrent

budgetdeficitandhighgovernmentdebtthefundingof

additionalexpenditurebymeansofafurtherincreaseinpublicdebtishardlytenable.Whatisrequiredissustain-

ablebudgetconsolidationinthefuture.

Althoughallaspectsofthestatemustcertainlybesub-

jected to critical consideration and examination, the

states planned investments in the future and funding

problemscannotbesolvedsolelybyspendingcuts.Pub-

licinvestmentinGermany,togetherwiththetaxratio,

hasfallentoanall-timelowbyinternationalcomparison.

A responsible, future-oriented and sustainablebudget

strategyshouldthereforeoptimisetherevenuesideand


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SOCIAL GROT

improvethefundingbase.Inotherwords,theaimshould

betoraisetaxesinsomeareas.Inparticular,therevenue

situationofthemunicipalitiesandtheLndermustbe

improvedsinceinfutureconsiderablepublicinvestments

mustbemadethereandgoodsandservicesofgeneral

interestmustbeprovided.

Withintheframeworkoftaxpolicy,therefore,all parts

ofsocietyandallincomegroupsmustparticipate,onthe

basisofsolid

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