The Death of Economic Liberalism in Germany?

Olaf Scholz’s SPD and the Greens, along with their dedicated supporters in the media, are out to blame Germany’s small liberal party, the FDP, for the problems of their – now fallen – three-party government.

The refuseniks

Over the past two years, whenever the Scholz government was stuck, SPD and Green politicians were always quick to argue that the FDP, the primary political force representing economic liberalism in German politics, deliberately miscast their partner in government as serving only the interests of a small clientele.

Tactically, that may seem like good politics, but strategically that assertion is quite self-defeating for the SPD and the Greens alike.

What these two parties don’t seem to understand is that advancing the cause of economic liberalism and pushing for an effective economic growth agenda, as the FDP and former Finance Minister Christian Lindner consistently did, is the very basis for the SPD’s and Greens’ key political goal – at least maintaining, if not even expanding the welfare state.

That is why agreeing on a wide-ranging growth agenda was much more in their interest than that of Germany’s fledgling liberal party.

Not a partisan political matter

As a matter of fact, seeing to it that the German economy could throw off a lot of the overregulation that kills GDP growth is the message that has been sent daily for some years now by most Germany companies.

Forget whatever the FDP wanted.  It was those companies’ message that was ignored, even though especially the Mittelstand companies – not the large industrial conglomerates – not only form the country’s economic backbone, but also account for most of the employment in Germany.

However, other than clamoring for a relaxation (or removal) of the debt brake, the SPD and the Greens offered no real relief to companies.  Neither does the Greens’ favorite policy tool – offering subsidies to a few politically favored companies.

The SPD and the Greens were not prepared to remove the manifold bureaucratic hurdles fast enough that stand in the way of any meaningful investment agenda in Germany.  Those hurdles will still be there when more public funds are available.

The SPD/Green pincer movement

The SPD’s and Greens’ joint effort to deliberately miscast economic liberalism in German politics as serving only the interests of a small clientele could turn out to be a disaster for the German people at large.

In that context, the two parties should have realized all along that, especially on the crucial issues of the economy and migration, the FDP indirectly represents far more than the 4% of voters it reaches in national polls.

Inside the Scholz government, the FDP also de facto represented sizable segments of CDU voters.  While that party – slated to lead the next German government – was not a formal part of the coalition, pursuing an inclusive style of politics to strengthen the country’s political center would have been highly advisable.

Irresponsibly playing into the fraying of Germany’s political center

Essentially telling the FDP to roll over time and again because it represents less than 5% of German voters at the federal level only had one concrete result: It further undermined the political center in German politics.

That was astonishing insofar as the SPD and the Greens, with good reason, always warn about the fraying of that center because of the advances of the hard right and hard left.  And yet, given their constant beating up on the FDP, their in principle wise political argument was not reflected in their governing practice.

Olaf Scholz, the socialist

In this overall context, it is instructive to take a closer look at Germany’s soon-to- be ex-Chancellor Olaf Scholz.

Even though a former finance minister, Mr. Scholz evidently fails to grasp who and what creates the financial foundations of the welfare state.

For evidence, look no further than his response to businesses expressing their worries about misplaced government economic policies.  Incapable of ever accepting any criticism, he talked high-handedly about “complaining being the song of the businessman.” In that, he is showing the socialist colors of his youth.

Evidently, the problem extends well beyond Mr. Scholz. Consider the proposition that continues to prevail in the trade union camp and among left-of-center politicians.  According to them, the welfare state in Germany is still far too weak. That only sends one message: Those folks have no clue about the realities of the global economy.

The myth of Germany as a rich country forever

This mindset is obviously based on the flawed assumption that Germany is a rich country forever and that the only politically relevant issue therefore is how to distribute the available “cake” ever more lavishly in the form of social policy.

The fact that union-negotiated long-term employment guarantees, as at Thyssenkrupp and VW, are a millstone for the companies and hollow out their future prospects, is deliberately ignored.

No matter how much Olaf Scholz wants to save those particular jobs, it is a futile effort.  Not only have the winds in the global economy decisively turned against Germany, but his own government’s mismanagement of the energy transition has structurally added to the in-country cost.

Under those circumstances, many industrial companies, especially large bloated ones, have no choice than to cut their domestic workforces and relocate their production abroad.

Conclusion

The outgoing German government has demonstrated in ample fashion that it is incapable of successfully and consistently pursuing a successful path for economic and growth policy.