Low growth: a new start for German economic policy

DThe widespread uncertainty about Germany’s economic future is palpable. At the same time, confidence in the ability of established parties to effectively solve problems is rapidly declining. Social scientists are seeing a growing willingness on the part of many people to make decisions in response to their grievances and concerns about the ballot box in ways they could not have imagined just a few years ago.

As experience in other countries shows, political fringes often benefit from this willingness to change, even if they themselves cannot offer any reasonable alternatives. But it is also possible – as Emmanuel Macron has demonstrated – for a sudden and far-reaching reorientation of the political center that would bring established centrist forces to the brink of collapse. The idea that such upheavals could only happen elsewhere but in Germany would be naive.

In their own interests, established parties of center left and right must also advocate credible, ideology-free economic policies that focus on what is urgently needed. The starting point must be a ruthless diagnosis of the state and prospects of the country. Like Bundesbank President Joachim Nagel, talk of Germany as the “sick man” of Europe may be considered exaggerated. The need for reform remains clear.

Better governance and a better education system

According to new estimates, the potential growth of the German economy, that is, the possible growth rate at full utilization of existing capacities, is only about half a percent per year. The main reasons are demographic changes (which reduce labor supply), low productivity growth and high energy prices. A realistic policymaker will not, like the Chancellor, talk about a new economic miracle as a result of the green transformation, but will instead consistently try to mobilize at least a small existing potential.

The demographic changes with the retirement of the baby boomer generation have been anticipated for decades. Today, this leads to a previously unknown situation where important sectors of the economy are paralyzed, while, on the other hand, many other companies are desperately looking for employees. Taking into account the labor market, as well as the projected burden on social insurance due to demographic changes, it seems that policymakers will be interested in good framework conditions for the highest possible level of employment.

For this to happen, work must be worthwhile from the employees’ point of view compared to a situation in which people do not work. This knowledge is ancient. However, in the current debate about citizens’ money, it seems that the SPD and the Greens in particular are completely underestimating the psychological importance of the wage gap demand – while at the same time demonstrating an understanding of big industry’s desire for subsidies.

Any meaningful discussion about economically sound immigration of skilled workers is overshadowed by out-of-control migration, which is doing more harm to the ruling parties than anything else – and which in turn leaves an impression, especially on people with lower labor incomes . for example, in the struggle for meager living space, politics is to their detriment.

Low productivity growth is not a new observation. This deficiency cannot be overcome quickly, but better governance, a more effective education system and modern infrastructure are as important as ensuring technological progress rather than dispelling fear of change. Policymakers will have to recognize that, contrary to the zeitgeist, more government spending financed by debt is often the problem, not the solution.

What also cannot be quickly reformed is energy policy, which has long been characterized by geopolitical ignorance (including in terms of economics) and ideological blindness and which does not actually deserve the name. The realization that the green transformation cannot be achieved as quickly as desired, and the recognition that abandoning nuclear power was a serious mistake, as well as the willingness to take people along instead of giving them rules for their lives, could at least initiate the beginning of a turn.