Challenges Facing the Welfare State -- Social Policy Translation Series

Author: Kaufmann
Publisher:
Publish Date: 2004-12-01
Features: In the fall of 1994, when the author made his first attempt to outline the challenges currently 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 broken out, a phenomenon the Federal Republic of Germany has never experienced since its founding. The issue is no longer how to distribute growth but how to distribute austerity within the framework of stagnant or even shrinking public budgets. Growth is always easier than austerity. What is particularly confusing is that, at the same time, the stock market is booming, self-employed incomes are excessively inflated, yet government policy is striving to reduce 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 exasperated by the mendacious moralizing of various associations for various reasons. Whether it is a plan to halve unemployment by reducing the burden on business circles (which also alleviates the burden on high-income non-business owners) or struggles against cuts in employees' sick pay or against taxing pensions or wage supplements, these strategies are hardly convincing. Cuts in social welfare expenditures are, rather, inevitable, and they seem even more urgent given that redistribution has failed to shift toward future generations and new training measures have been delayed. 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 reviving 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 made mistakes in the past, and today we are paying 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 upward trend in social welfare expenditures today is facing 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" fading away (Bulкат·Luts) or to lament 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 very issue. The central thesis of this book is that the difficulties we currently face in economic and social policy stem from multiple sources, that is, from various different, largely independent changes. Accordingly, the "reform of the social welfare system" cannot be "achieved overnight" but can only proceed gradually through coordinated reforms. To ensure that this reform moves in a more ideal direction in the long run, it is necessary to clearly describe the problem and thus prioritize it. The following analyses, which draw on economics, sociology, and political science, are primarily intended to ground the author's judgment, and therefore, partisan slogans should be avoided as much as possible. However, the author will not shy away from presenting conclusions that he considers convincing as long as they are. This book incorporates the suggestions of many colleagues, staff members, and students. Special mention should be made here of Hartmut Ehlers (Bielefeld), Karl Gabriel (Weichsdt), Friedhelm Hengen (Berlin), Karl Heinz (Bremen), and Stefан Leibfried (Bremen), especially Torsten Strulik, who not only drew the charts but also provided the author with accurate new information. Just before going to press, the author received many valuable 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. Gratitude is expressed to Rolf G. Heinz, Thomas Orke, and all the participants interested in this book. Gratitude is also expressed to Rita Nischus for meticulously preparing this multiple-revision proof copy. Franz-Xaver Kaufmann May 1997, Bielefeld