Challenges faced by the welfare state

Author: Kaufmann
Publisher:
Publish Date: 2004-12-01
Features: In the fall of 1994, when the author attempted for the first time to outline the current challenges facing Germany's social welfare system in the form of an academic report, the issue had just become the subject of public media discussion but had not yet become a topic of political debate. Now, we are in the midst of struggles surrounding new pension and tax laws; cuts in social assistance and unemployment insurance have already been implemented, and debates over the next phase of structural reforms in health insurance are gaining momentum. Taxes are decreasing, while unemployment rates have set new records. Business circles complain about high wage-related costs, while trade unions mobilize against attempts to undermine employees' vested interests. A widespread struggle over distribution has begun, something the Federal Republic of Germany has never experienced since its founding. The question is no longer how to distribute growth, but how to distribute austerity within the framework of stagnating or even shrinking public budgets. Times of growth are always better than times of austerity. What is particularly confusing is that, at the same time, the stock market is booming, self-employed income is excessively inflated, and government policy is striving to lower high tax rates. Some talk of "class struggle from above," while others speak of "social envy" and "investment must yield returns." Germany's social welfare system has become unrecognizable. Over the past two years, like many of my contemporaries, the author has been angered by political spectacles or the mendacious moralizing of various associations for various reasons. Whether it is a plan to halve unemployment by reducing the burden on business (which also reduces the burden on high-income non-entrepreneurs) or struggles against cuts in employees' sick pay or against taxing pensions or wage-related contributions, these strategies are hardly convincing. Cuts in social welfare expenditures are, rather, inevitable, and even more urgent in light of the failure to redistribute toward future generations and the delayed introduction of new training measures. However, we cannot expect to overcome economic stagnation through such cuts. It is necessary to seek rules to limit the rise in wage-related costs, but this cannot serve as a program for revitalizing the economy. The historical achievements of the welfare states in Europe are based on the complementarity of economic and social policies, and in both areas, people have made mistakes in the past, for which we must now pay the price. The link between economic growth and income redistribution is largely uncertain, meaning that, depending on various circumstances, it can sometimes be positive, sometimes neutral, and sometimes negative—and, according to quantitative studies, this link is quite weak. Therefore, it is entirely wrong to claim that the amount of social welfare expenditures is the main reason for the sluggish economic development. On the contrary, it is undeniable that only what is first produced and then retained by the state can be redistributed. Recently, due to the liberalization of international capital flows, opportunities to evade state retention have significantly increased, and people are also working harder to find such opportunities. As a result, the predictable growth trend in social welfare expenditures today faces challenges to its funding capacity. In this way, the intensification of distribution conflicts is almost inevitable. It is meaningless to complain about the "brief dream of lasting prosperity" (Bulкат·Luts) or about the loss of a spirit of solidarity and mutual assistance. The author believes that we will have to accept the long-term trend of underemployment, but despite this, we must still find ways to live together effectively. This can only be achieved if we focus not on the superficial zero-sum game of income distribution but on the broader connections of welfare production in Germany and its increasing dependence on transnational development. This book is dedicated to this. The main purpose of this book is that the difficulties we currently face in economic and social policy are due to multiple factors, that is, they stem from various, largely independent changes. Accordingly, the "reform of the social welfare system" cannot be "achieved overnight" but can only proceed gradually through coordinated reforms. And to ensure that this reform moves in a more ideal direction in the long run, it is necessary to describe the problem clearly and thus prioritize it. The following analyses, which draw on economics, sociology, and political science, are primarily intended to lay the foundation for the author's judgment, and therefore, partisan slogans should be avoided as much as possible. However, the author will not shy away from discussing practical conclusions when he believes they are convincing. This book incorporates various suggestions from many colleagues, staff members, and students. Special mention should be made here of Hartmut Ehlers (Bielefeld), Karl Gabriel (Weichacht), Friedhelm Hengge (Berlin), Karl Heinz (Bremen), and Stefanie Leibfried (Bremen), especially Torsten Stürlich, who not only created the charts but also provided the author with accurate new information. Just before going to press, the author also received many useful comments and suggestions at a meeting of the Social Policy Division of the German Sociological Association, where the preliminary draft of this book was discussed. I am grateful to Rolf G. Heinz, Thomas Orke, and all the participants who are interested in this book. I am also grateful to Rita Nischus for meticulously preparing this multiple-proofed typescript. Franz-Xaver Kaufmann May 1997, Bielefeld