What is the basic problem with society

Social situation - what are the most pressing problems?

Democracy seems to be in danger. Populists and autocrats are enjoying growing popularity and offering supposedly simple solutions to social problems. How can the social sciences help analyze these problems? What recommendations can you give? Are the problems perceived as central by the public in fact the most important ones? Some scholars see a decision about priorities as normative and therefore outside their area of ​​expertise. The participants in the interview can still agree on key problem areas - the unequal distribution of income and wealth and the threat of old-age poverty.

Equal opportunities and an inclusive social market economy

Marcel Fratzscher

“The people misunderstand most things; but most of it feels right, ”wrote Kurt Tucholsky in 1931 with a touch of irony about the misuse of people's basic sentiments by politics. This quote can be transferred to the discussion that is not only going on in politics and society, but also among economists: Has inequality increased in Germany? There is no question that at least perceived social inequality is a major cause of three of the greatest challenges of our time - the emergence of populism, protectionism and paralysis. However, these challenges will not be solved by more polarization and a struggle for distribution, but require the strengthening of those elements that have made the social market economy in Germany successful over the past seven decades.

Populism, protectionism and paralysis as risks

70% of Germans say in surveys that they perceive social inequality as too high. More and more people feel left behind. They feel like hard work is getting less and less worthwhile. Many fear that their social security is weak and that in the event of illness, unemployment or retirement age, they will not be enough to maintain their accustomed standard of living. Others rightly point to the good economic development in Germany. The unemployment rate is currently lower than it has been in decades. The employment rate is increasing, especially among women, immigrants and the elderly. Even people with low incomes have significantly higher wages today than five years ago and the gap between rich and poor has at least not widened, but has stabilized or has even decreased in some elements

What kind of inequality has increased and which has not been arguable. However, it cannot be denied that social divisions and conflicts have widened across the western world in the past decade.2 From the election of a xenophobic and sexist President Trump in the US to the Brexit vote in the UK towards the rise of right-wing and left-wing extremist parties across Europe - the increasing division is clearly evident and poses huge challenges for Western democracies.

The economic risks of this development can be summarized as three “P”: populism, protectionism and paralysis. Donald Trump's populism, like most populist parties in Europe, is less about content than about a political style that focuses on demagogy and an anti-market and illiberal economic and social policy. With their attacks on the political and economic elite, these populists in the USA and Europe were able to win many votes - the support of those people who are economically left behind or who have worries about the future.

Such a policy is poison for the economy. Because it creates uncertainty about economic framework conditions, for example when new trade barriers are announced or economic conflicts with China are evoked. Such uncertainty will reduce demand and growth, and drive investments and jobs abroad. This is very dangerous for Europe, because the euro area is still in a deep crisis, with high unemployment and low incomes in many places, especially in southern Europe. This uncertainty could derail the economic recovery in the euro area. Germany is currently in a good position, but would inevitably be drawn into the wake of another European crisis.

The second economic risk is protectionism, which relies on isolation, international confrontation and the renationalization of economic policy. Even if protectionism in its worst form can be averted, currency conflicts will intensify worldwide, with governments trying to gain a competitive advantage

Europe and the euro as suffering

The risk of protectionism for Europe is even greater than for the USA. The European internal market can only function through close cooperation between its member states. The renationalization of economic policy in Europe in recent years has already caused great damage. It is precisely the positions of German policy towards Europe that bear the signature of such a renationalization. Germany is criticized by its European neighbors for its austerity policy, its rejection of deposit insurance in the banking union and its attacks on the monetary policy of the ECB - sometimes, but not always wrongly. Protectionist tendencies will probably lead to the euro and Europe becoming an election campaign topic in Germany, on which not only the right-wing extremist parties are trying to win votes with sharp criticism.

The biggest victims of protectionism and renationalization could be the European single market and the euro. Germany and its economy would suffer particularly as a result, because hardly any other country is so dependent on its export economy. Almost every second job in this country depends directly or indirectly on exports, of which almost two thirds go to Europe. The common currency is not a pretext for transferring capital from Germany to other countries, but rather it holds the core of Europe together and ultimately ensures very advantageous framework conditions for German exporters.

Paralysis, or paralysis, in many policy areas is the third major and at the same time the most dangerous risk, both in the US and in Europe. Today we live in an economically extremely intertwined world in which there are de facto no national economies any more. These interdependencies mean that the most important economic and political challenges of our time can only be solved together. Successful climate and environmental policy, preventing tax evasion, regulating the financial markets, reforming the European Union and controlling migration - all of this calls for close global cooperation. And that is exactly what seems impossible under a US President Trump.

In Germany and Europe, too, such paralysis will prevent or at least delay urgently needed economic reforms. The crisis countries of Europe have initiated important and good reforms in recent years, but urgently need to implement more in order to create new jobs, give people future prospects and combat the high level of social inequality.

Justice versus Efficiency of Distribution

The established parties in Europe and Germany are making a big mistake when they try to combat this threatened damage themselves with populism and protectionism. Politics can only avert this damage if it recognizes its causes. This requires a fundamental rethink in economic and social policy. What is needed is an inclusive economic policy that, through better education and qualifications, more targeted labor and social policy and openness, takes more people with it and offers them prospects for the future

The political parties answer the question of social inequality in fundamentally different ways. The political left and right see the inequality of income and wealth as a major problem of justice and want to fight it through more state, more taxes and less market. The political parties, which are more in the middle, do not see inequality as unjust and therefore do not want a larger welfare state, but rather lower taxes and a smaller state.

Both sides are wrong. This debate should not be about justice. Because justice is something completely subjective. Such a debate is likely to exacerbate the polarization of society and thus the feeling of injustice. When parties talk about justice, they are mostly concerned with the interests of their own constituencies and not with the question of how prosperity can be secured in the long term. The 2017 election campaign is increasingly turning into a distribution campaign in which each party tries to win over potential voters through election gifts - with promises that are usually not kept in the long term.5 The controversy over tax cuts or increases is one between rich and poor . In the discussion about pension increases and pension obligations, old and young people face each other. The issue of spouse splitting and child benefit creates a conflict of interests between families and people who do not have the happiness of family life or who pursue other forms of living together. The debate about promoting and promoting migrants divides society into locals and immigrants. And the dispute over wages and corporate taxation polarizes workers and entrepreneurs.

Equal opportunities as the key

All of these topics are certainly relevant. But they lead to an even deeper division in society that is harmful. Germany has no fundamental problem of a welfare state that is too small or that the tax burden is too unequal. On the contrary, hardly any other country in the world has such a strong and efficient welfare state as Germany. The tax burden is distributed fairly evenly across income, so that no group in society can credibly complain about systematic disadvantage.

It should not be about the question of justice, but rather about the question of efficiency in the political dispute between the parties - i.e. how better equal opportunities and participation can improve economic and social “prosperity for everyone”, to quote Ludwig Erhard. Because the inequality of opportunities, income and wealth in Germany has reached an extent that is economically and socially damaging, productivity, growth, health and innovation and ultimately the prosperity of everyone, not just those directly affected

We Germans are rightly proud of our social market economy, which was the basis of the social contract for decades and which was decisive for the economic miracle after the Second World War. The success of this social market economy was based on the fact that it combined a strong welfare state, a high degree of personal responsibility and a functioning market economy not as a contradiction, but as mutually dependent conditions for prosperity and social cohesion.

Today, however, Germany is further removed than ever from the ideal of the social market economy. Equal opportunities exist for fewer and fewer people. More and more are being left behind or fear this. Social mobility in Germany is low - those who are born today into a socially disadvantaged and educationally poor family have a much more difficult time than in the past or in many other western countries to get a good education and training and the social and economic To achieve advancement. 7

More and more people are losing their economic independence and are dependent on state services. One in three households in East Germany today receives half or more of its income from the state. Many people worry about whether they will be able to maintain their standard of living in old age. And more and more parents fear that their children will have it no better than they do. Many women still find it unusually difficult to get the same opportunities and the same wages and recognition in the job market as men. Many migrants feel desperate at the difficulty of acquiring the skills they need to take up employment. All of these facts are in stark contradiction to the ideal of a social market economy.

An inclusive social market economy as a social contract

The central question of the political conflict in Germany should be what a new social contract should look like that reconciles the “social” with the “market economy” not only for a few, but for as many people as possible - an inclusive social market economy. Above all, this requires improving equality of opportunity and social mobility in Germany - and not by initiating a debate about envy and a struggle for distribution, as the political parties are currently doing. Rather, the goal must be to offer people good educational opportunities more frequently than before, to bring them successfully into the labor market, to enable them to participate in technological change and globalization, and to better protect them socially so that they can take advantage of opportunities as well as responsibility for themselves self.

Such an inclusive social market economy creates prosperity for everyone; it does not serve a few, but society as a whole. People who receive a good education, develop their talents and can use their skills, which are promoted on the job market and are socially secure, not only help themselves, but they also contribute to the economy and society - for the benefit of all. The entrepreneur benefits from better qualified and well-paid employees just as much as they do themselves. The state can levy fewer taxes and still do its job of social security better if more people have the chance to take on personal responsibility and not be dependent on the welfare state. All of this would improve economic and social performance and lead back to what made Germany so successful in the first decades after the Second World War: high and shared prosperity

For an inclusive social market economy, at least five policy areas must be addressed: It needs

  1. an education offensive that improves quality, especially in early childhood education, but also in the school system and opens it up to more children;
  2. a family policy that provides women, single parents and socially disadvantaged people in particular with better opportunities both at work and in private life;
  3. a more inclusive labor market policy that takes more account of the forgotten of past labor market reforms, such as the long-term unemployed, people with health problems and immigrants;
  4. a fundamental tax reform that abolishes privileges and thus ensures more market and competition and an equal burden; and
  5. a reform of the social systems that is much more targeted towards those people who need help.

Social inequality in Germany is a serious economic, social and political problem. It is one of the central causes of the most important challenges of our time - the emergence of populism, protectionism and paralysis. The solution, however, does not lie in a distribution battle over taxes and transfers. Politicians should focus their priority and efforts on equal opportunities. Germany needs an inclusive social market economy that is based on the strengths of the past seven decades, i.e. on personal responsibility, a strong welfare state and a functioning market economy, and at the same time takes more people with it and opens up prospects for them.

  • 1 Poverty and Wealth Report of the Federal Government, April 2017; M. Fratzscher: Distribution struggle - Why Germany is becoming more and more unequal, Munich 2016; OECD: In It Together, Paris 2015; S. Bach, M. Grabka, E. Tomasch: Tax and transfer system: high redistribution, especially through social insurance, in: DIW weekly report, No. 8/2015, pp. 147-156.
  • 2 A. B. Atkinson: Inequality: What Can Be Done ?, Cambridge 2015; OECD: Divided We Stand: Why Inequality Keeps Rising, Paris 2011; T. Piketty: Capital in the 21st century, Cambridge 2014.
  • 3 M. Fratzscher: "Donald Trump paralyzes", column "Fratzscher's distribution questions", Zeit Online from 02/10/2017.
  • 4 Poverty and Wealth Report of the Federal Government, loc. Cit .; OECD: The effects of pro-growth structural reforms on income inequality, Chapter 2, Economic Policy Reforms, Paris 2015.
  • 5 J. Goebel, M. Grabka, C. Schröder: Income inequality in Germany remains high: young people living alone and young professionals are increasingly at risk of poverty, in: DIW Wochenbericht, No. 25/2015, pp. 571-586; M. Fratzscher: The elite closes their eyes, column "Fratzscher's distribution questions", Zeit Online from 23.12.2016.
  • 6 OECD: The effects of pro-growth ..., loc. Cit .; M. Grabka, C. Westermeier: Real net wealth of private households in Germany has shrunk from 2003 to 2013, in: DIW Wochenbericht, No. 34/2015, pp. 727-738; S. Bach, M. Grabka, E. Tomasch, op.
  • 7 Poverty and Wealth Report of the Federal Government, loc. Cit .; D. Schnitzlein: Is It the Family or the Neighborhood? Evidence from Sibling and Neighbor Correlations in Youth Education and Health, SOEPpapers, No. 716, 2014; K. Spieß: Investing in education: early childhood has great potential, in: DIW weekly report, no. 26/2013, pp. 40-47.
  • 8 Poverty and Wealth Report of the Federal Government, loc. Cit .; M. Fratzscher: The elite are closing their eyes, op.

Strengthen the poverty resistance of the pension insurance and organize the restructuring of the tax and contribution system

Bert Rürup

Every scientist has a paradigm in his head, his or her theoretical understanding. And these glasses of theory do not serve to perceive the complexity of reality, but rather to recognize particularly sharply what the individual paradigmatic interest in knowledge is directed to. A liberal market economist like Hans-Werner Sinn will, when looking at Greece, still recognize excessive wages as the main evil in the country, while a Keynesian like Peter Bofinger will see output gaps that need to be closed through loan-financed investment programs. And a historian will presumably see the cause of the economic misery and pre-modernity of this country in the 400 years of occupation by the Turks. Because this occupation would have meant that many Greeks still had a deep distrust of government authorities and, above all, tax laws, but at the same time would have done everything to get their children into civil service. In addition, this historian will see that this occupation prevented an Age of Enlightenment in Greece or nobility structures and thus regional administrative elites from developing. Correspondingly, the policy recommendation of this historian will be different from that of a poverty researcher or an economist.

Every participant in this “time talk” will therefore reflect the perception of the need for reform, which has been shaped by his or her scientific interest in knowledge and / or his life experience. Intellectual honesty should therefore forbid calling for a political prioritization of one's own recommendations. In a democracy, social justice is determined by the respective diagonal in the parallelogram of political forces - and not by scientists.

This of course also applies to the two socio-political building sites that the author of this article sees as the primary tasks of the next federal government: on the one hand, the increased poverty resistance of the statutory pension insurance in conjunction with a reorganization of tax co-financing, and on the other hand, a restructuring of the tax and contribution system with the aim of increasing the redistribution intensity of the income tax rate without increasing the tax rates and at the same time relieving small and medium-sized incomes of compulsory contributions by means of an exemption for the employee shares of social security contributions.

Increased poverty resistance of the statutory pension insurance

Of the 82 million inhabitants of Germany, 66% are members of the statutory pension insurance either as contributors or as retirees. The pension policy focus of the next federal government should therefore be on increasing the poverty resistance of this most important old-age security system. Even if poverty in old age is not an acute social problem, credible protection against this risk is required for the sustainable legitimation of our statutory pension insurance, especially in the coming age of digitalization. The post-industrial labor market is likely to be characterized by a decommissioning of work, regardless of political promises to the contrary. In addition, there will be a mix of diverse forms of employment with increasing polarization of labor incomes and the consolidation of a large low-wage sector, in short a creeping loss of importance of the currently dominant normal employment relationship.

A valid measure of the spread of old-age poverty is the number of those who are dependent on state welfare benefits in old age. The at-risk-of-poverty rate is the much more popular measure among social organizations. However, the percentage of households with an income below 60% of the median income of all households is particularly suitable for measuring the inequality of the distribution of income. However, it is a poor measure of the actual material supply of households at risk of poverty - all the less so if this rate is based on equivalence-weighted income.

The number of recipients of basic security benefits in old age has risen slightly for years, but is still at a very low level even in international comparison, and a slight decrease has recently been reported. There are currently 526,000 people receiving these welfare benefits.1 That is 3% of people of retirement age. A quarter of them do not receive a pension at all, and 40% receive a pension of less than 400 euros per month.2 The most important reasons for need are currently reduced earning capacity and lack of contribution periods in the pension insurance. That is why most of the people living in old-age poverty today would still be dependent on state welfare even with the pension level of 53% demanded by the party “Die Linke”. The claim that an increase from the current 48% security level to 53% in 2001 would make the pension “structurally poverty-proof” is therefore simply wrong.

In order to counter the fears of future poverty in old age that are widespread in the population and to increase the acceptance and legitimacy of the statutory pension financed from compulsory contributions, it would be wise to loosen the principle of equivalence, which has so far been very high, and to make the pension more poverty-proof. Because the principle of equivalence aims to ensure that the personal pension is measured strictly according to the length of the years of employment subject to social insurance contributions and the amount of the respective wage. Those who pay high contributions for a long time also get a high pension. And those who received a low wage during their employment phase should only receive a small pension as a pensioner. The aim of this principle of pension determination is that every beneficiary in the pyramid of pensioners has the same relative income position that he had in the pyramid of wage earners during his entire insurance period. In most OECD countries, on the other hand, pensions are set higher for long-term low-wage workers. And the IMF and the OECD have long been called for not to focus on securing a standard of living, but on avoiding poverty

The relativization of the equivalence principle in the interest of a high level of poverty stability requires the federal government to reorganize the expenditure of the statutory pension insurance. Since 1957, the expenditure of the pension insurance has been co-financed by subsidies from federal tax funds. Since the equivalence principle and thus the contributions paid by the insured during their working life should be decisive for the amount of the individual pensions, these tax monies are formally considered as compensation for the expenses transferred to the pension insurance in the interests of society as a whole - the non-insurance benefits. But nobody knows what non-insurance benefits are, there was never a legal definition or even an official government compilation. The pension insurance publishes catalogs of these benefits at irregular intervals. However, these compilations change over time. And as luck would have it, the volume of expenditure for these services is always exactly as high as the actual tax subsidies. The argument of compensation for non-insurance benefits became completely a farce from the year 2000 at the latest, when the pension contribution was reduced with the eco-tax income. No less revealing are the recently called for by Minister of Social Affairs Andrea Nahles “demographic subsidies of the federal government” in relation to the pension expenditure with which she wants to finance her reform plans. It would therefore be a requirement of political honesty to say goodbye to the alibi of non-insurance benefits to justify tax co-financing of pension insurance. A clean answer would be to switch to a federal contribution in the form of a fixed percentage of the total expenditure. This share is currently just under 23% 4 and is the largest position in the federal budget.

Finally, a policy that aims to reduce the risk of old-age poverty requires widening the number of people insured in the statutory pension scheme. Currently it is mainly the dependent employees who are compulsorily insured there. With the exception of the self-employed who are not members of one of the 91 professional pension schemes, all employed persons must be covered by one of the numerous existing compulsory old-age insurance systems. This group of non-compulsorily insured workers comprises around 3 million people and ranges from self-employed taxi drivers to the owner of a nail salon with an assistant to the owner of a large company. Here politicians should find the strength to make all these self-employed compulsory members of the statutory pension insurance - provided that they are still of an age that enables them to acquire significant claims. Incidentally, the taxpayers would also be insured against otherwise probable burdens from welfare obligations.

Reconstruction of the tax and duty system

The interaction of the income tax, which is increasingly less redistributive, and the compulsory social insurance for earned income from the first euro onwards results in an extraordinarily high level of compulsory tax for employees - especially for single people. This is the result of the latest calculations by the OECD.5 Only because of the anachronistic spouse splitting and the rather generous tax treatment of children is this compulsory tax burden for single-income households with children noticeably reduced, but still remains well above the average for other industrialized countries. The fact is that Germany is one of the frontrunners among the industrialized countries when it comes to burdening labor income with compulsory state taxes. Against this background, there is much to be said for a coordinated reform of the income tax rate and a reorganized assessment of the employee's share of social security contributions with the aim of relieving the burden on low wages.

It would be worth examining an exemption for the employee and pensioner shares of the compulsory social insurance, which the trade unions have already discussed in the past decade. With an amount of 1200 euros per year, all employees subject to social security contributions would be relieved by a good 20 euros per month and pensioners by 11 euros. The costs for this amounted to roughly 11 billion euros6 - significantly less financial resources than for the tax cuts that are currently underway. The federal government would have to reimburse the social security funds for the losses so that the contributors would not suffer any disadvantages, for example through lower pension entitlements or higher contributions on incomes above the tax exemption. Part of these reimbursement costs would be self-financing, as health insurance contributions in full and pension contributions in part can be deducted from tax. Such an allowance for social security contributions could also counteract the decoupling of the lower-income lower 40% of employees from the average increase in real income, which has been ongoing for around 20 years, as highlighted in the Federal Government's latest poverty and wealth report.

But income tax itself should also be reformed. For a long time it was considered the “Queen of Taxes” because it has a high income and, with its progressive tariff, is committed to the redistribution goal. It is still high in volume, but it is less and less committed to the goal of redistribution. There are two reasons for this: on the one hand, the top tax rate was reduced from 53% to 42% at the beginning of the 2000s, and on the other hand, the limit above which the top rate applies was noticeably reduced in order to limit the tax shortfalls. Twenty years ago, the income of a single person over 61,376 euros was burdened with 53%. Today the top tax rate takes effect from 54 058 euros. If you disregard the tax on the wealthy that was added in 2007, which only affects the top percent of top earners, the tariff has been greatly reduced.

Then there are the secret tax increases. The "cold progression" is known when taxpayers are burdened more heavily as a result of inflation, although their real income remains constant. Since 2017, these inflation-related clandestine tax increases have been compensated retrospectively through corresponding tariff adjustments. On the other hand, the tax increases due to generally rising real incomes, which are also compressing the progression zone and thus reducing the redistribution intensity of the tariff, are not taken into account. As a result, more and more taxpayers are moving up the tax rate, even if their relative income position in society remains unchanged. This means that more and more middle-income recipients are sliding into the area of ​​high, but hardly rising, marginal tax rates. In 1960 you had to earn eighteen times the average wage and 20 years ago it was still almost two and a half times in order to be affected by the top rate, today it is only one and a half times as much. This significantly dampens the tax redistribution and allows the top tax rate to apply even to middle incomes. The fact that there is a need for reform here should actually be undisputed across party boundaries.

The progression zone, which today only comprises 10% of the width of the progression area 60 years ago, should be expanded again and the income limits should be dynamized in accordance with the development of nominal wages. In addition, the wealth tax, which is unsystematically flanged to the tariff, is integrated into the tax tariff. Last but not least, it must be taken into account that employee incomes between 54 058 and 76 200 euros are currently charged both with the top tax rate and with contributions to pension and unemployment insurance. It therefore makes sense to flatten and lengthen the tariff curve in such a way that the current top rate of 42% does not apply before the dynamic income threshold for pension insurance has been reached. In addition, this tax rate should rise continuously up to 45% and - currently - not apply before 80,000 euros for single people.

All parties represented in the Bundestag are calling for the withholding tax to be abolished and for capital income to be charged with the personal tax rate again. This is required in terms of taxation, but it would be unwise. Currently, three quarters of the withholding tax revenue is based on dividends. A significantly higher taxation of dividends than 25% up to at most 30% is constitutionally hardly possible, since these profits have already been taxed at the company. In addition, there would be a considerable administrative burden, because the entire costs of calculating and paying the tax on capital income would be shifted from the banks back to the tax offices. In addition, losses from stock transactions, for example, would then have to be offset against other types of income. In addition, a resurgence in tax avoidance strategies can be expected.

From a fiscal and distribution point of view, it would be wiser to raise the compensation rate moderately. The expected tax shortfalls could be counter-financed to some extent by flattening and extending the tariff. At the same time, the redistributive intensity of taxation would increase, the burden of compulsory taxes on wages of dependent employees would decrease, but overall, only a limited number of taxpayers would be additionally burdened. Such a package should be feasible in all realistic coalition variants of the next federal government. It is strange that the party headquarters of the Union parties, SPD, Greens or FDP have not yet thought of it.

  • 1 Federal Statistical Office, as of December 2016.
  • 2 B. Kaltenborn: Basic security benefits in old age: access and pension receipt, research report on the FNA project, No. 1/2016.
  • 3 OECD: Pensions at a Glance 2015, Key findings Germany, December 2015.
  • 4 German pension insurance.
  • 5 OECD: Taxing Wages 2017.
  • 6 Employee share of social security contributions: 20.5%; Proportion of pensioners: 10.95%; (1200 euros x 32 million employees subject to social security contributions x 20.5%) + (1200 euros x 21 million pension recipients x 10.95%) = 10.6 billion euros.

Discourse ethics in "post-factual times"

Jochen Pimpertz

In the run-up to elections in particular, there is a strong incentive for the parties to signal their socio-political competence with generous promises of performance. The list of fields of action seems almost endless. It is all the more important to answer the question about the most pressing problems in order to maintain orientation in social policy in view of the scarcity of resources.In view of the media coverage, the impression arises that questions of income and wealth distribution as well as old-age pensions are perceived as particularly problematic. Often, however, the focus is less on sober findings than on denouncing grievances. For this purpose, facts are sometimes underlaid with emotional images, without providing detailed evidence of whether the associated expectations and concerns stand up to an empirical test. This applies, for example, to the scandals of income distribution or appeals to vague fears of increasing poverty in old age. In the same breath, terms such as justice or solidarity are used, which suggest a solution to the problem, but without specifying which specific ideas are hidden behind these concepts. Scientific ethics of discourse, on the other hand, requires a differentiation between facts and normative statements, whereby values ​​not only have to be identified, but also require an explicit justification.

But is the competition for the better argument alone enough to identify pressing problems? Findings and evaluations on a singular topic are not up for discussion. Rather, answering the initial question requires a comparative assessment of different problem situations. For the economist, this reveals a fundamental dilemma in dealing with socio-political issues. Because a scientifically justified answer not only requires a methodically reliable diagnosis, but also a criterion for weighing up the alternative uses. The allocation of scarce resources is an intrinsic subject of economic research. That is why economics seems to be predestined to prioritize social problems according to their urgency. But as soon as the decision on the use of funds is not based solely on the efficiency criterion - this is the case, for example, when social policy strives to correct market results - economics can hardly justify alternative norms beyond its inherent liberal value judgment, according to which social policy fields of action are weighed against each other can be.

Against this background, it becomes clear that the following list of the most pressing socio-political problems cannot be expected without also including exogenous values. If, however, a discussion of non-economic norms is dispensed with in this forum - this is intended to guide action in the following - the discipline can nevertheless make contributions to narrowing down possible problem areas. In the brevity offered here, however, only cursory examples can be given.

Perceived and Actual Distribution of Income

The different ideas about a fair distribution of income are expressed in the various positions on tax and transfer policy. In the context of the question dealt with here, it is important how these positions are justified. Often reference is made to the development of income distribution. The perception in the population differs from the empirical findings. This applies to many societies, but is clearly evident in Germany, among others. This fact is significant because the individual assessment of income differences and redistribution preferences tend to be more closely related to the subjectively perceived inequality than to the empirically proven income distribution.1 It is therefore all the more important to argue based on facts instead of appealing to "perceived truths". If one analyzes the income distribution over time, it also becomes clear that the finding depends on the choice of the observation period. Since reunification, three phases can be distinguished in which, for example, the center of society has developed in different directions. According to this, the group of people with needs-weighted net income between 80% and 150% of the median rose from 50.5% to 54.8% between 1991 and 1997 and then fell again to 49.7% by 2005. Since then, the layer structure has remained almost unchanged with a confidence interval of 95%. The proportion of people at risk of poverty has therefore proven to be similarly stable since 2005, especially if the current trend is adjusted for the influence of the population with a younger migration background

It is therefore difficult to justify the vote for or against a redistribution policy that deviates from the status quo on the basis of the development of social classes. The mere determination of stability or change does not allow an assessment of the income distribution, because it remains open which reference year corresponds to the majority distribution preferences. Mind you, a vote for more or less state redistribution is left to the individual. But it can hardly be deduced from the historical development of income distribution and requires an alternative justification, at least in the scientific context. In doing so, it must withstand the objection to the actual distribution of the tax burden. After all, households in the top decile, which receive around 28% of all gross household income, shoulder 48% of income tax revenue. If the distribution of the VAT burden is included, the share of the cumulative tax revenue is reduced, but at 37% it still remains disproportionately high

Old-age security and the risk of poverty in old age

In the context of old-age provision, however, arguments are not even made with the actual distribution of income, but with the assumed future development of poverty risks. In doing so, the protagonists of the various reform proposals adopt an artifice from economics and argue under otherwise unchanged conditions. At first glance, it seems plausible that if the statutory security level falls, retirees are more likely to be at risk of poverty than they are today. However, there are several objections to this argument: First of all, in addition to the statutory pension insurance, other relevant influencing factors are subject to change, which are masked out with the aid of the ceteris paribus condition. Since the risk of poverty is measured in the household context, both the income from company and private pension schemes and the income of the partner must be taken into account. Changes in employment behavior, pension behavior and household composition have an impact on the future development of the risk of poverty in old age, as do changes in the statutory pension level. If one also takes into account the possibility of joint pension planning, the pension behavior must be discussed at household level instead of at individual level Median income is defined. A justification for state intervention is therefore on a shaky basis if it relates solely to the rule-based decrease in the statutory level of security

But even then, a stabilization or even an increase in the statutory pension level can hardly be justified with the aim of preventing poverty. On the one hand, such an instrument would not be very accurate, as retirees would also benefit from improved statutory provisions who do not need any help. On the other hand, a higher level of security only provides effective protection against poverty if the threshold to the risk of poverty or the right to basic security is overcome simply because of this increase. This objection is in no way intended to trivialize the problem of old-age poverty. Specific solutions, e.g. for the problem of shameful old-age poverty, are still in demand. If, however, the focus is on long-term poverty prevention for broad sections of the population, should the focus not be more on the ability of individuals to earn and secure a sufficient income, instead of jeopardizing the statics of a functioning old-age provision? 6

Intergenerational dimension of the concept of solidarity

Finally, especially in the context of statutory health insurance, reference is made to the term solidarity, e.g. to justify an expansion of the group of people with compulsory insurance and a broadening of the contribution assessment basis. Regardless of the positioning in terms of content, this reference suggests that this is a clearly defined concept. Even if the population's approval of the solidarity principle can be assumed to be high, the principle is only defined abstractly in theoretical literature. On the one hand, the collective's responsibility for a member in need is central (the stronger helps the weaker); on the other hand, the member’s obligations are also emphasized to do what he can to avoid the "loss event" and to help those in need according to his own requirements to contribute to one's own performance. But where the obligation ends and under what conditions a claim against the community arises can only be determined in concrete terms.

Applied to statutory health insurance, the effects that arise from contribution financing show that the solidarity principle breaks down into two dimensions. Solidarity in the narrow sense can be understood as the risk compensation between members who differ in their health risk according to gender, age and predisposition, but are assessed for payment of contributions regardless of their individual risk profile. With solidarity in the broad sense, however, a social equalization mechanism can be defined that results from income-related contribution financing, which, even with identical health risks, leads to differently high contribution claims depending on individual performance

If one first abstracts from the social equalization and assumes that the solidarity equalization is to be established via a risk-independent contribution that is the same for all insured persons, then this must be based on the amount of the average expected treatment expenses in the collective. If the health risk increases with age, the members of younger cohorts pay a higher contribution than their age-appropriate expenditure expectation corresponds to; older members benefit in reverse. In the solidarity community, there is a risk balance between young and old.

However, as soon as the group of insured persons ages, the age groups with above-average expenditure risks are more frequently occupied. Even if the health risk remains unchanged at any age, the average expenditure expectation in the collective increases - simple simulations suggest an increase of a good fifth by 2050 compared to the status quo. This increases the cost of risk equalization for members of younger cohorts compared to members of previous cohorts, without resulting in a higher entitlement to care for the individual. This means that solidarity between young and old in the cross-section of the community is preserved at all times. In an aging population, however, this occurs at the expense of the members of subsequent cohorts; the solidarity balance between young and old creates one-sided burdens.

Demographic change has a similar effect on that part of the social balance that relates to the redistribution of income between young and old. Because with wage-proportional contributions, the financial contribution of retirees is systematically lower than with working members, as long as the pensionable income only replaces part of the corresponding earned income. If the proportion of older people increases, the average contribution achieved across the entire collective falls, all other things being equal. If a resulting funding deficit is compensated for with a higher contribution rate, the members of the following cohorts have to shoulder a higher social equalization burden than those of the previous cohorts, without this resulting in a higher pension entitlement for the individual. Here, too, the balance between young and old in the cross-section of the solidarity community is maintained at all times, while inconsistencies arise over time.

These model considerations in no way speak against the solidarity principle. However, they reveal that the reference to an established socio-political norm is not enough to justify an expansion of the existing security systems. On the contrary, the analysis of economic effects helps to track down inconsistencies in normative basic positions.

Normative conclusion

The article may disappoint those readers who expected a concrete answer to the initial question. Instead, the explanations aim at the meta-level and answer the question of what economists can contribute to the social debate in times of "post-factual" argumentation patterns - namely facts for describing and classifying social problems, economic evaluations for the selection of socio-political instruments and a specific perspective in the discussion of social values . In a normative sense, the explanations are therefore not only to be understood as a plea to systematically integrate the economic perspective into socio-political issues, but this is also linked to the call to economists to be accountable for their own, also implicit values, in order to be socio-politically relevant Discussions to be able to have a rational discourse on both facts and values. For it is possible that one of the most pressing problems for the socio-political debates of our time is precisely the lack of differentiation between these dimensions.

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  • 2 J. Niehues: The middle class in Germany. Complex and stable, in: IW Trends, Volume 44 (2017), H. 1, pp. 3-20.
  • 3 M. Beznoska, T. Hentze: The distribution of the tax burden in Germany, in: IW-Trends, 44th year (2017), no. 1, pp. 99-116.
  • 4 M. Beznoska, J. Pimpertz: New empiricism on company pension schemes - spread better than its reputation, in: IW – Trends, 43rd year (2016), no. 2, pp. 3-19.
  • 5 S. Kochskämper, J. Pimpertz: The statutory old-age insurance on the test stand, IW-Analyzes, No. 115, Cologne 2017, p. 11 ff.
  • 6 J. Pimpertz: Against alarmism and trivialization - empirical findings on poverty in old age and economic policy recommendations, in: Sozialer progress, 62nd year (2013), h. 10-11, pp. 274-282.
  • 7 S. Kochskämper, J. Pimpertz: Which redistribution effects does the solidarity principle cover in the statutory health insurance? in: IW-Trends, 42nd vol. (2015), H. 1, pp. 105-119.

Why social inequality is increasing in Germany and what must be done politically about it

Christoph Butterwegge

Social inequality is constitutive for industrial societies organized in a market economy, because part of the population owns the means of production, companies and banks, while another part only has to sell its labor. In the digital financial market capitalism of the future, the conflicting interests between capital and labor will persist, but the antagonism of rich and poor, which is not limited to this, is intensifying considerably, becoming even more evident than in earlier periods of history and superimposing it.

For some time now, growing social inequality has been humanity's cardinal problem. On a global scale, this results in crises, wars and civil wars, but also flows of refugees of unknown proportions, because poverty is, so to speak, the mother of all migration movements.1 In the national context, the increasing inequality of income and wealth also creates unrest, although there is in this country due to the so-called Third and fourth world levels of prosperity that are significantly higher in the third and fourth world have not (yet) resulted in major social and political upheavals, if one ignores the fact that poorer people participate less and less in elections, which leads to a crisis of political representation: Great social inequality leads the political equality, basis and epitome of Western democracy, ultimately ad absurdum. 2

The torn republic

If you look at the social structure of the Federal Republic of Germany, a polarization emerges that is extremely pronounced even in an international comparison. "In Germany, wealth and prosperity are not only limited to a smaller population group than in other countries, but this small group of the rich also holds a significantly larger share of total wealth in the country." 3

As documented again in the Federal Government's Fifth Report on Poverty and Wealth, the imbalance in distribution is primarily evident in wealth, which is increasingly concentrated among a few hyper-rich who have huge capital property and usually also have large inheritances.While the richest 10% of the population owns 51.9% of total net wealth according to the government report, the poorer half of the population only has 1% .4 If one takes into account the statistical uncertainty when recording the high net worth, real social inequality is still likely be much larger than such figures suggest. In any case, the German Institute for Economic Research (DIW) estimates that a third (31% to 34%) of total wealth is concentrated in the richest percent of the population and between 14% and 16% of total wealth in the richest per mille of the population.5 Over 40 million. People, on the other hand, live from hand to mouth, in a nutshell: they are only one resignation or a serious illness away from poverty.

For the existing economic and social system, poverty and wealth are functional to a certain extent. "Poverty or, better said, relative poverty is probably the necessary side effect of a society that is meritocratic in its orientation, in which everyone finds a place for himself according to his performance." 6 While poverty acts as a threat, pressure and discipline against those affected, Wealth appears to be a lure, motivator and engine of achievement for members of the middle class. Poverty is not understood as a social problem, but rather as a self-inflicted fate, which basically represents a just punishment for the lack of will or the inability to sell oneself or one's labor in the market with sufficient proceeds, like wealth as an appropriate reward is viewed as a service that, in the case of a stock market speculator, can simply consist of following the good advice of an investment advisor.

In the Federal Republic of Germany the promise of social advancement was valid for decades, to which it owed its great economic success: "Those who make an effort, are hardworking and achieve something are rewarded with lifelong prosperity." Due to the global financial crisis of 2008/2009, it has given way to the fear of many middle-class members to decline socially despite good professional qualifications and hard work. Since upward mobility has noticeably decreased, 7 right-wing populist parties such as Alternative für Deutschland (AfD) and groups such as the “Patriotic Europeans against the Islamization of the West” (Pegida) are sucking honey from the increasing distributional imbalance that their demagogic propaganda is the result of the machinations a corrupt elite and a wave of immigration into the German social systems (“refugee crisis”). This makes migrant workers, refugees and Muslims the scapegoats for increasing social inequality.

For Julian Bank and Till van Treeck, inequality in Germany is “a problem mainly because it brings with it an unequal distribution of freedom and opportunities for political influence, contributes to macroeconomic instability and undermines opportunities for participation. Inequality is thus interwoven with three crises that cannot be viewed separately from one another: a crisis of democracy, social participation and economic stability - a melange with explosive power, as is clear from the growing success of democratic and inhuman ideologies. ”8 Social inequality therefore promotes tendencies towards social disintegration, economic depression and political disorientation.

The fact that society is increasingly falling apart into rich and poor is not an anti-social collateral damage caused by globalization, but rather “homemade”, i.e. caused by wrong decisions taken by those in charge of politics. The tendencies towards social polarization can be traced back to the public opinion leadership of neoliberalism and the reforms implemented or influenced by it.9 Even the EU Commission attested in its latest country report that the federal government had driven the social divide: “In the period 2008-2014, the German Politics contributed greatly to the increase in poverty, which can be attributed to the fact that the needs-based benefits have fallen in real terms and in relation to income development. ”10 The report also mentions the abandonment of wealth tax as the cause of the polarization tendencies mentioned 1997, the lowering of the top income tax rate from 53% to 42% and the introduction of the flat rate withholding tax on investment income.

Political mistakes

Development processes in three core areas of the economic and social system are listed here, which are based on wrong political decisions by governments of different compositions or by the parties that support them:

  • As a result of the partial privatization of old-age provision and the introduction of the Riester pension shortly after the turn of the millennium, i.e. even before Gerhard Schröder's famous and notorious speech in the Bundestag, which was called “Agenda 2010”, the welfare state in general and the statutory pension insurance in particular have gone a long way 11 Despite decades of employment and contribution payments, employees can no longer maintain their accustomed standard of living in old age. The pre-tax security level has fallen from 53% at the time to 48% of average earnings today. It can reach 43% in 2030 without the federal government having to intervene; Minister of Labor and Social Affairs Andrea Nahles had 41.7% calculated for the year 2045 if this is not countered by a new pension reform.
  • As a result of the deregulation of the labor market, the growing low-wage sector, in which almost a quarter of all employees now work, has become the main gateway for in-work, family and child poverty and later old-age poverty. With the “Agenda” reforms, protection against dismissal was loosened, temporary work was liberalized and wage labor made more precarious (introduction of mini and midi jobs and facilitation of work and fee contracts). The law for modern services on the labor market, which is called in the vernacular "Hartz IV", drastically tightened the reasonableness regulations and draconian sanctions of the job center, especially for under-25-year-olds, who after two breaches of duty (e.g. rejection of application training and termination of a further training measure) withdrew the cash benefit and The rent is no longer paid, also put workforces, works councils and unions under enormous pressure. Under Hartz IV's sword of Damocles, they accepted worsening working conditions and lowering (real) wages. Lower wages, for example for agency workers in the automotive industry, led to higher corporate profits. For example, the richest siblings in Germany, the corporate heirs Stefan Quandt and Susanne Klatten, received another record dividend of EUR 1.074 billion from BMW shares in the early summer of 2017 for the previous year.
  • Agenda 2010 was linked to a reform of income and corporate taxation, which has contributed to widening the gap between rich and poor. Since then, high (capital) incomes and corporate profits have been taxed less than ever before after 1945, while the first grand coalition under Angela Merkel, following the red-green government, increased VAT from 16% to 19%, although the CDU chairman was only in the election campaign demanded an increase of two percentage points and polemicized the SPD against this “Merkel tax”. Company heirs were hardly taxed, which is why the Federal Constitutional Court spoke of their "overprivileged". After the reform of the inheritance tax and gift tax law by the CDU, CSU and SPD, one can, under certain conditions, continue to inherit an entire group without having to pay a cent of company inheritance tax

For an agenda of solidarity as the basis of an inclusive society

If inclusion is understood not just as a (special) educational principle, but also - in a much broader sense - as a socio-political model, an inclusive welfare state must be that of equal participation of all residents in the wealth of society as well as in social, political and cultural life allows to be the goal. A paradigm shift from the “lean” to the welfare state that is capable and ready to intervene would be necessary. The basis for this would have to be a concept that links different policy fields (labor market, social and tax policy) in such a way that the redistribution of work, income and assets succeeds.

The "stabilization of the pension level" demanded by the SPD chairman and candidate for chancellor Martin Schulz is not a sufficient target, because it already barely protects many hundreds of thousands of old-age workers from poverty. In addition to restoring the previous level of security before taxes and transferring the Riester contracts to statutory pension insurance, it would be necessary to convert the appropriate insurance classes into solidarity-based citizens' insurance. The self-employed, freelancers, civil servants, members of parliament and ministers would have to be included; in addition to wages and salaries, investment income (interest, dividends) as well as rental and lease income would also have to be contributed. Basically, there must be neither a compulsory insurance limit nor contribution assessment limits that allow privileged groups of people to switch to exclusive security systems and to evade their responsibility for the socially disadvantaged in whole or in part. On the benefit side, a needs-based, poverty-proof and repression-free (sanction-free) minimum income could ensure that all residents are protected downwards, even those who have not or insufficiently acquired entitlements in the previous system.

It is also necessary to push back the low-wage sector through a re-regulation of the labor market, for which in addition to the abolition of the unfounded fixed-term employment contracts suggested by Martin Schulz, a minimum wage increased to more than 10 euros gross per hour without exceptions (for long-term unemployed, young people without vocational qualifications, short-term interns and newspaper deliverers ), a transfer of mini and midi jobs to employment relationships subject to social insurance as well as a ban or severe restriction on temporary work.