MEMORANDUM 2008

REDISTRIBUTION OF INCOME, WORK AND POWER

Alternatives to Serving the Upper Class

By Alternative economic policy study group

[This press release is translated abridged from the German on the World Wide Web, www.memo.uni-bremen.de.]

[Memorandum 2008 assesses the economic- and social policy of the great German coalition and criticizes the unjustified upswing euphoria. The upswing will only be possible when internal demand increases, the memorandum shows. This presupposes an economic rethinking. Therefore the discussions around distribution policy, regulation of financial crises and the question how a suitable labor market- and working hours policy can secure and expand employment are at the heart of the 2008 edition. Additional chapters focus on the situation in East Germany and education- and health policy. A more detailed summary of Memorandum 2008 will be available in early January 2009. Alternative economic policy is vital to avert exploding inequality and environmental destruction. Readers are urged to download the German original in www.memo.uni-bremen.de.]

ECONOMIC DEVELOPMENT:
REPRESSED RISKS

The imminent end of the economic recovery is homemade and not a result of the American mortgage crisis. Without increasing internal demand, the upswing based on replacement-investments and exports cannot continue.

The alternative economic policy study group did not share euphoric elation on the latest upswing. This was not the first time short-sighted calculated optimism and misinterpretations led to wrong predictions because of inadequate attention to deeper, long-term causes of German growth weakness and mass unemployment. Not surprisingly high growth forecasts were withdrawn since the economy proves to be very fragile. The cause lies in the continuing weakness of the internal German economy, not in the American mortgage crisis. Higher wages and salaries along with a new basic orientation of economic policy are necessary to overcome the aggregate economic and social problems.

From a fiscal perspective, a return to a just tax system is urgent alongside a sweeping expansion of public investments.

LABOR MARKET:
REDUCING WORKING HOURS AGAINST PRECARIOUS EMPLOYMENT AND POVERTY

The decline in unemployment reflects the business cycle and is not a consequence of Agenda 2010. On the other hand, Agenda 2010 is the cause of an increasing privatization. Full employment can only be reached by increasing internal demand and redistributing working hours. A reduction of working hours for everyone helps rather than reducing work to zero for many.

The German government and parts of academia and the media try to depict the current labor market development as the result of labor market reforms. Actually unemployment only declined because of the business cycle. The labor market reforms have had massive consequences but no successes. They contributed to a precariousness of large sectors of employees and the unemployed. Children are victims of this development. Lasting labor market successes – like “full employment” as recently discussed – cannot be realized through labor market reforms or economic growth. A reduction of working hours is necessary. In nearly the whole history of Germany, economic growth turned out lower than the higher productivity with the immediate consequence of a falling volume of work. This must be cushioned by reduced working hours.

EAST GERMANY:
BASIC PROBLEMS UNSOLVED

The East German economic weakness continues. Hopes for an assimilation process triggered by the “automatic market mechanism” have again proven false. Building an active economic policy is vital, not dismantling.. East German problems are not solved by an “automatic market mechanism. A different economic policy toward and in East Germany is necessary to bring changes. This different policy must also be seen as a chance for all Germany.

FEDERALISM COMMISSION II:
DEBT MORATORIUMS INHIBIT DEVELOPMENT

The propagated “debt moratorium” arises out of false economic logic. From an aggregate economic perspective, such a moratorium is irrational and untenable. The state must support part of the aggregate economic savings through public borrowing and through spending investments in national economic activity…

EUROPEAN UNION:
NEW AGREEMENT FOR OLD POLICY

The continuing poverty in the European Union is homemade. The uninterrupted market-opening- and deregulation mania of the European Union is responsible for this poverty. In this way, mass unemployment in Europe is promoted and not combated.

PUBLIC HEALTH SYSTEM:
COMPETITION AND DIVISION INCREASE

Focusing on contribution stability ignores important criterion for “appropriate,” “humane,” “necessary” and “adequate health services.” Inequality in health- and life-chances is forced with the dominant policy.

Life expectancy and health depend greatly on the quality of social relations and distribution conditions. Studies from many countries confirm that mortality and morbidity are not only differently distributed between poor and rich but gradually increase down the social ladder… The failed employment policy, pressure on wage incomes and contribution revenue, the so-called cost-problem, is cyclical and inevitably on the political agenda. The social inequality in health- and life-chances in German society can be expected to intensify. Human health reacts sensitively – positively and negatively – to socio-economic changes…

EDUCATION SYSTEM:
SPLINTERED AND UNDER-FINANCED

The education system is still massively under-financed. “Good education for all” propagated again and again and directed against unjust education chances requires an expansion of education financing at least to the Scandinavian level…

In our understanding, education is individual human development enabling individuals to produce and appropriate social and cultural wealth. This understanding of education reflects the relational interplay of person and society in its different dimensions (democracy, economy and personal development). Political education is an important partial aspect, which may not be understood as greater acceptance of neoliberal reform policy… Managers increasingly immunized against criticism fortify dominant consciousness. Education must promote empathy, solidarity, democratic attitudes and political discernment as antidotes against an increasing “group-based misanthropy” (Heitmeyer) that is influenced by the economistic colonization of thought and action. We need education both to secure the economic foundations and as a foundation for democratic and social engagement.

CRISIS UNDERRATED

German memorandum group urges an economic program of 110 billion euro, reduced collective working hours and raising unemployment benefits

By Jorn Boewe

[This article published 11/21/2008 in: Junge Welt is translated from the German on the World Wide Web, www.jungewelt.de/2008/11-21/028.php.]

In view of the threatening economic crisis, the “alternative economic policy study group” urges a “massive economic program” of 110 billion euro. Around three-quarters should be financed from a higher taxation of gigantic assets and incomes. Parallel to the publication of the German government’s expert opinion, the network of leftist economists has offered its “Memorandum for an effective social economic policy” every year since 1977 at the end of April. In the middle of November 2008, the group published a special memorandum titled “Crisis Underrated. Massive Economic Program Necessary.” The scholars criticize the German government and its “economic wise men” for deficient understanding of the causes of the crisis and weak strategy for overcoming the crisis.

WRONG DIAGNOSIS

The “council of experts on comprehensive economic development” sees the main cause for the “total economic downturn” in the financial crisis. This is a wrong diagnosis, the memorandum group says. The crisis in the financial markets escalated in late summer 2008 and reached its temporary peak in October. The gross domestic product in Germany had already been declining since the second quarter of 2008. The cause of the economic downswing is “the weakening domestic demand that has continued for years,” the academics write. This weakening will even intensify through a “policy of wage reserve allied with Agenda 2010,” said Mechthild Schrooten from the University of Bremen after presenting the paper in Berlin. The recent upswing (2005 to 2008) turned out “strikingly weak” compared to the previous upturn (1998 to 2001), the authors emphasize. Hardly triggered by the so-called reforms of the SPD-Green German government, the economic revival since 2004 was a normal economic upswing supported by a continuously strong export surplus. On the other hand, “the largest demand aggregate, private consumption, did not contribute to the upswing.” “Agenda 2010” clearly produces a “negative growth effect.”

SUPPLY VERSUS DEMAND ORIENTATION

The “so-called economic program of the German government” is completely inadequate” in light of the causes and extent of the crisis, stressed Heinz-Josef Bontrop from the Gelsen Academy. It is “almost entirely supply-oriented and aims at “further redistribution from the bottom to the top.” As an example, Bontrop named the planned exemption of the motor vehicle tax in the purchase of new cars. Here “persons who buy big cars,” receivers of higher incomes, were financially favored – at the expense of the general public. “We reject this program for substantive reasons,” Bontrop said.

Instead the memorandum group urges a comprehensive economic program of “110 billion euro.” Around 17 billion of that sum should be spent as an emergency measure to raise the Hartz IV benefit from the present average 349 to 450 euro. Such an increase would have an “immediate demand effect.” Another 18 billion should be spent on expanding public employment and financing a “comprehensive collective reduction in working hours.” Without the latter, reducing the structural mass unemployment in Germany is inconceivable, Bontrop underscored.

For “the next ten years,” a public investment program of 75 billion euro must be carried out, the scholars insist. Modernization of the public infrastructure (15 billion), education, research and culture (20 billion), railroad infrastructure (ten billion), urban development and social housing (ten billion), hospitals (five billion), development of renewable energy (five billion) and revitalization of water- and waste disposal-systems (four billion) must be priorities.

The financing of these proposals in the long run is “possible without increased state indebtedness,” the memorandum group emphasizes. Only in the short-term do the scholars see a need for new indebtedness “of around 30 billion.” From their perspective, the large part should be amassed through “a changed tax policy” and “combating economic criminality and tax evasion.” Concretely they propose raising the corporation tax rate from 15 to 22 percent (in 2000 it was 40 or 45 percent) and increasing the top tax rate from the current 42 to 48 percent – for those with an annual taxable income of 60,000 euro and up. In addition, the property tax abolished in 2006 must be restored and a stock turnover tax (estimated revenue around ten billion euro) reintroduced.