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Waiting for a Wunder A survey of Germany lFebruary 11th 2006
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C B M R Y G K W C B M R Y G K W The Economist February 11th 2006 A survey of Germany 1
Waiting for a Wunder Also in this section
In a bind The grand coalition will need quite a lot of luck to make Germany work better. Page 2
Wasting brains Germany’s school system fails to make the most of the country’s human capital. Page 4
Squaring the circle Despite a raft of reforms, Germany’s labour market still excludes far too many people. Page 6
Land of cliques Corporatism and lack of competition are the enemies of an e cient economy. Page 8
Thinning blood On immigration, Germany is torn between its Germany’s economy is picking up, and its football fans hope for a past and its future. Page 10 World Cup victory this summer. But a lot more will have to come right before the country gets back on track, says Ludwig Siegele Reincarnation valley F YOU are visiting Germany this spring, to a Walk of Ideas through the capital, The city of Jena provides a tantalising Iwatch out for footballs. They are every- complete with oversized sculptures of glimpse of the way Germany could be going. where, on posters, buses or entire build- German inventions. Page 12 ings, even though the World Cup which The hope is that a victory, or at least a the country is due to host this summer is respectable result, will help cure the collec- still four months o . A German rm is tive depression that descended on Ger- Letting go even wrapping the giant globe atop east many when the economy started to sag at Germany needs to loosen up or face decline. Berlin’s landmark television tower to the beginning of this decade just as win- Page 14 make it look like a football. If marketing de- ning the 1954 World Cup, held in Switzer- partments had the technology, a German land, helped to heal the national psyche daily recently joked, they would project a after the war and kicked o the Wirt- football on to the moon. schaftswunder (the post-war economic Acknowledgments Nor is it just marketing people who are miracle). The Wunder von Bern, as the un- In addition to those mentioned in the text, the author would like to thank the following people for their help with getting excited. For the duration of the expected victory came to be known, preparing this survey: Wilhelm Adamy of Deutscher Ge- tournament most German states will lib- helped to restore Germans’ battered pride werkschaftsbund, Michael Burda of Humboldt University, eralise shopping hours, and the govern- in their country. Warnfried Dettling, Klaus Dörre of Jena University, Philipp Genschel of International University Bremen, Ingolf ment is even thinking of deploying the What are the chances that a Wunder Gritschneder, Wolf-Dieter Hasenclever, Arthur Heinrich, army around stadiums for the rst time in von Berlin might kick o a similar cultural Marie-Luise Ho mann of Capital, Michael Hüther of In- the Bundeswehr’s history. Germans, it and economic rebirth? The answer de- stitut der deutschen Wirtschaft, Hans-Helmut Kotz of Deutsche Bundesbank, Wolf Lepenis of Institute for Ad- seems, are taking the World Cup extremely pends on your perspective. Germany to- vanced Study Berlin, Randolf Margull of Technology and seriously and not just because most of day is like one of those pictures where, de- Innovation Park Jena, Wolfgang Merkel of Social Science them are passionate football fans. The last pending on how you tilt it, you see two Research Centre Berlin, Elisabeth Niejahr and Klaus-Peter Schmid of Die Zeit, Paul Nolte of Free University Berlin, time the world paid so much attention to di erent images. In exports, it is already Wolfgang Nowak of Afred Herrhausen Society, Ulrich Germany was 16 years ago when the [Ber- world-class. Many of its global companies Pfei er of empirica and Klaus F. Zimmermann of German lin] Wall came down, says Angela Merkel, have never been more competitive. With Institute for Economic Research. the country’s new chancellor. exports of nearly $1 trillion in 2005, this Germany aims to use the attention gen- medium-sized country (smaller than the A list of sources can be found online erated by this world-class event to repair American state of Montana, but with 82m www.economist.com/surveys its battered image. Made in Germany people) already sells more goods in the An audio interview with the author is at has long since lost its ring; now govern- world market than any other. www.economist.com/audio ment and big business have teamed up in Investment and domestic demand are a campaign to sell the country as the Land also picking up at last, so Germany’s econ- A country brie ng on Germany is at of Ideas . In Berlin, where the World Cup omic outlook at home, too, has bright- www.economist.com/Germany nal will be played, visitors will be treated ened. In case you missed it, Germany is1 2 A survey of Germany The Economist February 11th 2006
2 no longer the sick man of Europe, says cial scientists have described, o ering a Elga Bartsch, an economist at Morgan Stan- Modest expectations 1 social elevator for everybody. When it ley, an investment bank. In 2006, she pre- ”Do you regard the new year with hope or fear?” comes to social justice, Germany is already dicts, the country’s economy will grow by doing less well than many other European GDP Sceptical 1.8%, the highest rate since 2000 and in line Don’t know countries, according to a recent study by % change * † Hopeful with the European average. But the labour 14 70 BerlinPolis. For instance, the risk of pov- market does not seem to have turned the 12 60 erty has greatly increased in recent years, corner yet: in January, unemployment be- especially for the young. About a fth of 10 50 fore seasonal adjustment again hit 5m, or Germans under 16 now live in households 12.1% of the workforce. 8 40 with incomes below the poverty-risk Perhaps most importantly, after years 6 30 threshold. of chronic depression, the mood is much 4 20 The fault does not lie primarily with improved. According to the Allensbach In- 2 10 globalisation and the locusts , as many stitute, a polling organisation, 45% of Ger- + + Germans have taken to calling foreign in- 0 0 mans now say that they are hopeful for – – vestors. Rather, it is the very systems 2006 (see chart 1). Business sentiment has 2 10 meant to guarantee a well-balanced soci- not been so good since the new-economy 1949 55 60 65 70 75 80 85 90 95 2005 ety, along with the attempts to preserve *Not including Saarland and West Berlin up to 1960 bubble. Politicians, too, have changed †West Germany only up to 1991 them, that are increasingly dividing Ger- their tune since last autumn’s election that Sources: Institut für Demoskopie Allensbach; man society. Those systems now serve Federal Statistics Office; World Bank ushered in a grand coalition. The new-year vested interests, driving a wedge between address by Angela Merkel struck an up- well-provided-for insiders and marginal- beat note. I want to encourage us to nd red at an employer’s whim. ised outsiders. out what we are capable of, she told her The risk is that Germany’s labour mar- This survey will describe the ways in fellow Germans. I am convinced we will ket, in particular, will end up American- which Germany’s institutions have slid be surprised. ised , but without the good points of the from virtue to vice: in politics, in the labour Look at the country from a di erent an- American one, such as its openness and in- market, in education, in competition pol- gle, however, as this survey will do, and it clusiveness, argues Wolfgang Streeck, icy and elsewhere. It is not that the country becomes clear that even if it won the head of the Cologne-based Max Planck In- has not tried to change. But most of these World Cup for the rst time since 1990, it stitute for the Study of Societies. In many changes have been designed to optimise would have plenty left to do. Germany areas, he says, the German story has been existing systems rather than change them may be in better shape than France or Italy, one of a high average and a low standard fundamentally. and many other countries would love to deviation : a rich society with wealth and This survey will journey through a have its problems, but that does not mean opportunity fairly spread, with few outli- country struggling with change, passing it is in robust health. Most importantly, if it ers at either end of the scale. But increas- through Berlin, Stuttgart, Nuremberg, Co- does not start tackling its structural pro- ingly, he says, the story is turning into one logne and Frankfurt. It will note that in blems in earnest soon, it may nd itself of a low average and an exploding stan- some ways the future has already arrived: stuck with something its people dread: dard deviation . it is simply distributed unevenly. Much of amerikanische Verhältnisse, or American If think-tanks have their numbers right, it can be found in places where you might conditions , code for a socially polarised Germany has already ceased to be the eq- least expect it such as in the eastern city society in which workers are hired and uitable middle-class society that other so- of Jena, where the journey ends. 7 In a bind
The grand coalition will need quite a lot of luck to make Germany work better
AST summer Sir Peter Torry, Britain’s the Nazi era. But in recent years self-criti- san Neiman, an American philosopher Lambassador to Berlin, asked a group of cism had been veering towards self- ag- and director of the Einstein Forum in Pots- journalists which new German lms he ellation. German self-esteem had been dam. She pointed to Germany’s low crime should watch. They came up with a list of badly hurt by the slide from the top of the rate, its admirable cultural infrastructure titles that pretty much summed up what economic and social league. The feeling and its good public transport system and had been on Germany’s mind in recent was fed by the media and by professional argued that in their self-pity, Germans years: Ways to Improve the World , The doomsayers. tend to forget that their country is in better Fat Years Are Over and The Great De- Yet in the months before last Septem- shape than most. What they badly need is pression . ber’s election, people started to get fed up some American can-do optimism. Germans have never been wildly with despondency and started buying Since the new government was in- cheery (see chart 2, next page); explana- books that made them feel better about stalled in November, the mood has much tions for the national malaise include the themselves. One of the more interesting improved. Polls show that people are more weather, Protestantism, philosophy and was Foreigners See It Di erently by Su- willing to accept change. The political con-1 The Economist February 11th 2006 A survey of Germany 3
2 stellation also appears much more favour- able for reforms: the grand coalition has a two-thirds majority in the Bundestag, Ger- many’s lower house, and also controls the Bundesrat, the upper house, albeit by a much smaller margin. Perhaps for the rst time since uni cation, there seems to be a real opportunity for politicians to prove that they can move fast and far enough. In the early 1980s, when America and Britain were in crisis, Germany was praised as a clockwork mechanism whose cogs meshed perfectly rather like those well-engineered German machines that never seem to break down. The German model , although to a large extent the re- sult of historical accident, performed bril- Merkel advocates small steps liantly at a time when high-quality indus- trial products were much in demand and the Bundesrat, their representative body in opposition, the CDU, which had taken the pace of economic change was still rela- Berlin, the Länder have a say in many key control of the upper house. tively slow. areas. The nancial constitution , a cob- Predictably, the result of all this ma- The political system, in particular, had web of tax-revenue equalisation and joint noeuvring was a bit of a mess. Agenda proved highly e ective at delivering public spending by the di erent levels of 2010 tried to move in the right direction, smooth, incremental change. It was a government, has allowed wealth to be but much of it consisted of short-term s- machine with two big wheels in the mid- spread pretty evenly across the nation. cal repairs mixed with political compro- dle, the Christian Democrats (CDU) and Yet it is Germany’s federal structure mise. Even so, it cost the SPD one regional the Social Democrats (SPD), and a small that has increasingly jammed up the coun- election after another. When the party lost one running in coalition with either one of try’s political machine. Through legal power in its traditional ef of North Rhine- the larger two, the Free Democrats (FDP). changes and judgments by the Federal Westphalia in May last year, Mr Schröder Faster-turning wheels to the right and to Constitutional Court, the Länder have ac- realised that his method had run its course the left never really got anywhere, partly cumulated too many veto rights, o ering and sought new federal elections hoping, because of Germany’s experience with many points of leverage for interest some say, that the result would be an o - fascism and partly because of communist groups and making most reform exceed- cial grand coalition. East Germany next door. Even the Greens ingly di cult. The nancial constitution, did not disturb this arrangement much, be- for its part, has come to discourage the New brooms cause they quickly became simply a left- states from trying new solutions. Now that it has come to pass, will this new leaning alternative to the FDP. German uni cation in 1990, welcome left-right alliance, led by Angela Merkel, The machine had powerful safeguards though it was, probably made reform even make a better st of resolving Germany’s built in to keep it on track, particularly the harder. To speed up eastern Germany’s problems? It has certainly brought a Länder, Germany’s constituent states. Via integration, vast amounts of money were change in style. Mr Schröder trusted his in- pumped in (a total of 1.3 trilllion to date), stincts and was a master at taking people and any plans for change were put on by surprise. Ms Merkel, by contrast, is ut- Could be worse 2 hold. Even now, the eastern Länder receive terly methodical. A doctor of physics, she Selected countries transfers from the western ones of 80 bil- seems to view political challenges as a sci- Subjective well-being*, most recent figures, net score lion a year, or 4% of Germany’s GDP. enti c experiment in which she allows the 01234 Uni cation gave Helmut Kohl, the di erent forces to slug it out before inter- chancellor of the day, a new lease of politi- vening. This may be a useful quali cation Switzerland cal life, and from the mid-1990s he did try for heading a grand coalition, a con gura- United States to introduce some structural reforms. But tion last tried, with limited success, in the Britain tripartite talks with trade unions and em- late 1960s. In theory at least, she should W. Germany ployers proved fruitless, and reforms were manage to keep the two big parties to- SPD France blocked by the , which at the time con- gether: both of them now need to be on trolled the Bundesrat. their best behaviour, or run the risk of be- Spain Mr Kohl’s successor, Gerhard Schröder, ing punished at the next election. Italy found himself in a similar bind after only Already, the thrust of German politics E. Germany one term of o ce. Like Mr Kohl, he tried tri- has changed perceptibly since the co- Japan partite talks. When those failed, he set up alition was formed in November. Ms Mer- commissions to draw up reform propos- kel, who during the election campaign ad- Poland als, and pushed them through as his vocated rapid reforms, now talks about the Turkey Agenda 2010 . To the dismay of his inter- need for small steps . At times she sounds *Combined measure of self-reported happiness and life satisfaction nal opposition, the SPD’s left, he operated almost like a Social Democrat. Journalists Source: World Values Survey a de facto grand coalition with the external have started to complain that there are not1 4 A survey of Germany The Economist February 11th 2006
2 enough leaks or backstabbing, and lobby- ond bet: getting the coalition partners to their veto rights over federal a airs, in re- ists are nding it harder to get traction. agree to sustainable solutions to at least turn for gaining more local powers, nota- Yet for the new government to make a some of the country’s structural problems. bly over education. But it is quite another di erence, it needs to win three gambles. The test case will be the nancing of health question whether the states will go along The rst is to reduce the budget de cit care, which the government intends to with a reform of Germany’s nancial without killing the incipient recovery. This tackle later this year. With medical spend- constitution . And Ms Merkel’s rivals with- year it intends to spend a bit more, even if ing expected to rise steeply because of de- in the CDU, most of them state premiers, that will cause Germany once again to ex- mographic factors as well as technological may want to keep her from becoming too ceed the limit of 3% of GDP set by the EU’s progress, the big question is how to keep successful. stability pact. Next year, however, it plans health-care contributions from becoming Much, therefore, can still go wrong on to cut subsidies and other spending and, a prohibitive tax on labour. the way to further reform. And even if Ms above all, increase the value-added tax The third wager is that the Länder will Merkel’s small steps lead somewhere, rate from 16% to 19%. do their bit to improve the way Germany is they may not solve some of the biggest pro- The weaker the recovery, the more di - run. They have already agreed to a reform blems such as education, the subject of cult it will be for Ms Merkel to win the sec- of the federal structure, which will reduce the next article. 7 Wasting brains
Germany’s school system fails to make the most of the country’s human capital
HAT is the best way of measuring German education. Like other European sity). Only at the Grundschule (elementary Wimprovements in a school system? countries, Germany from the Middle Ages school) are pupils from all ability groups Grades, perhaps; or the proportion of stu- developed a school system based on class. taught together. dents getting a high-school diploma. In But whereas most other European coun- After the second world war the Allies Germany, though, it may be the number tries have since moved on to more inclu- tried to impose a uni ed school system on of cafeterias in schools. Hundreds are be- sive systems, Germany has essentially the country, but the Länder refused to play. ing built in a nationwide e ort to create the stuck to a three-tier structure: the Haupt- They have always seen education as a infrastructure that will allow schools to schule (for students who hope to go on to question of local power, which explains operate all day so that children can spend an apprenticeship), the Realschule (whose why state governments ended up with more time learning, instead of being sent graduates typically take middling white- such wide-ranging responsibilities for it. home in time for a hot lunch. collar jobs) and the Gymnasium (awarding Yet in practice this has meant that German Yet this construction activity also the Abitur that admits the holder to univer- education combines the worst of both cen- shows how far Germany still has to go to tralisation and devolution. To comply with modernise its school system, and to turn it the constitutional requirement for equal- into an e cient engine for promoting tal- ity in living conditions , the Länder must ent and brains. German schools are superb agree on some common rules, which has at separating insiders from outsiders. But proved a barrier to reform: the body in so doing, they squander the human cap- created for that purpose, the Standing Con- ital that the country needs to prosper. ference of the Ministers of Education and In Germany, there is nothing more Cultural A airs, has to agree unanimously controversial than education, says Hel- on any change. mut Rau, minister of education and cul- Another barrier to reform is ideology. tural a airs in the state of Baden-Württem- Education has always been a battleground berg. He has just been grilled in the state of ideas, particularly since the rst Gesamt- parliament in Stuttgart over his govern- schulen (comprehensive schools) opened ment’s school reforms. Parents have com- in the mid-1960s. Many on the left saw this plained that even younger pupils are now type of school as a silver bullet to ensure required to stay in school for several after- equal opportunities for all. The right, for its noons a week and are given lots of home- part, made Save the Gymnasium its rally- work on top. This is because Baden-Würt- ing cry. It seems to have won: only about temberg has just become the rst western 700 out of over 19,000 secondary schools state to cut the period of secondary school- are now Gesamtschulen. ing from nine to eight years (in the east, Crucially, the main bene ciaries of the eight years has always been the norm). present system are determined to resist It’s just getting too much, exclaims one change. This is about keeping many away MP who is also a mother. from society’s feeding troughs, says Wilf- To understand such complaints, you ried Bos, head of the Institute for School need to know a bit about the history of Wait till you see the homework Development Research in Dortmund. And1 The Economist February 11th 2006 A survey of Germany 5
2 indeed Germany’s school system is bril- the education minister, are the new curric- ests from parents. Yet critics also blame the liant at what it was built for: selection. In ula, which give each school a fair amount plethora of new tests: schools will now most Länder, following four years at ele- of autonomy. It has always been an illu- teach to the tests instead of taking advan- mentary school, pupils are streamed into sion to think that we are able to tell schools tage of their greater independence. one of the three kinds of secondary exactly what to do, says Mr Rau. At any rate, such reforms will not re- school. A pupil who happens to be a slow Since the reform, the schools them- solve the other big problem of Germany’s learner or whose family does not particu- selves can decide how to ll a third of the education system: social segregation. larly value education will nd it very hard lessons. The character of the curricula has Again, it has been PISA that has forced the to move up from a less demanding school changed as well. In the past, for instance, country to face reality. When another to a Gymnasium. By contrast, those who English teachers in 10th grade were told round of results made headlines in No- cannot keep up with the pace at the Gym- how many words and which grammatical vember last year, German students’ per- nasium soon nd themselves demoted. rules they had to teach their students and formance turned out somewhat better Add the facts that teachers’ unions exactly what they should tell them about than the rst time, but a di erent measure wield lots of power and that schools are America. Now the curricula are all about attracted more attention: a 15-year-old’s overregulated and underfunded, and it is competencies , general skills that stu- school record depended more heavily on easy to understand why German schools dents are expected to master. To make sure socio-economic background than in any are ine cient and often ine ective. There they do, they have to take state-wide tests other big industrial country (see chart 3). In are hundreds of curricula that describe every other year. Germany, the child of a professor is four what teachers should teach, but few mech- Some schools are already learning to times more likely to go to a Gymnasium anisms to ensure that the children have ac- make use of their new-found autonomy. than the equally bright child of a manual tually taken it in. Nor is much o cial atten- worker. The chances of an immigrant’s tion given to individual support, whether child will be even more skewed. for weaker or for exceptionally bright stu- Class act 3 Look at almost any Hauptschule, and dents. Instead, parents spend vast sums on Student performance in mathematics and you will soon discover that schools are not supplementary private tutoring, often pro- importance of socio-economic background created equal either. The Pestalozzischule vided by teachers in their spare time. OECD in Rohr, another suburb of Stuttgart, is cer- AVERAGE 25 tainly one of the better-run, and Maria Life after PISA Turkey OECD Germany Pfadt, the principal, goes to great lengths to 20 average Despite all this, Germans long considered United States France give her students a good start. She works their country’s school system among the Poland Sweden closely with local businesses, which regu- 15 best in the world. What persuaded them OECD Italy Japan larly give presentations at the school (and PISA OECD AVERAGE otherwise was , the ’s Pro- 10 one recently donated 250,000 for a gramme for International Student Assess- Russia Canada building to house such events). She even Finland ment, which compares educational 5 gives classes in manners, and takes stu- achievement in di erent countries. The and socio-economic background dents to the opera to reduce social barriers. 0
rst results in 2001 came as a nasty sur- Strength of relationship between performance Yet if the Geschwister-Scholl-Gymna- 400 425 450 475 500 525 550 prise: Germany ranked only 21st in reading Average student performance in mathematics sium comes across as a secondhand Mer- skills and 20th in maths and science cedes in good repair, the Pestalozzischule is among 31 countries assessed. The loss of Source: OECD, PISA study 2003 more like a beat-up Volkswagen. Its teach- reputation became a powerful force for ers give more lessons to larger classes but change, says Dieter Lenzen, president of At the Geschwister-Scholl-Gymnasium in are paid less. More than a third of its stu- Berlin’s Free University. Sillenbuch, a suburb of Stuttgart, the new dents are immigrants’ children, compared The PISA shock , as it came to be curriculum has led to a series of internal with 7% at the Gymnasium on the other known, did indeed trigger much reform ac- reforms, says Irmgard Brendgen, the side of Stuttgart (although, to be fair, fewer tivity, but all within the existing system. school’s principal. Subject teachers, for in- of them live in its catchment area). In the Western Länder began shortening the stance, have had to start co-operating with centres of big cities, the children of immi- Gymnasium course, clearing out their cur- each other and draw up guidelines for grants often make up the majority of a ricula and controlling their schools’ output their area of expertise. Because school class, and sometimes all of it. through state-wide exams. Their standing days are now much longer, the school de- Even more disappointing for the stu- conference is now working on drawing up cided to do away with the 45-minute les- dents who attend a Hauptschule, Ger- nationwide educational standards. And sons that are customary in Germany and many’s famed dual model for appren- the federal government has started a 4 replace them with periods of 90 minutes. tices (who spend half their time on the billion programme to create Ganztagsschu- This, in turn, set o new thinking about shop- oor and the other half in a voca- len, or full-time schools. the best teaching methods for such a per- tional school) is no longer the social eleva- The state of Baden-Württemberg is gen- iod. It has been a demanding, but also a tor it once was. Many would-be appren- erally seen as a model in education, partly very positive process, says Ms Brendgen. tices are crowded out by graduates of because its school system provides for Yet elsewhere things have not gone so grander schools. And the maths de- some upward mobility and partly because smoothly. Many Gymnasien in Baden- manded in some apprenticeships can be it started out on reforms even before PISA. Württemberg seem to be stuck in their old far too hard for somebody with only basic It was the rst west German state to ways: they do what they have always schooling. Besides, many German rms shorten the Gymnasium course by a year. done, and just cram the same syllabus into simply no longer take in apprentices. All But the core of the reforms, says Mr Rau, a shorter period of time hence the prot- this explains why more than half of voca-1 6 A survey of Germany The Economist February 11th 2006
2 tional-school students no longer do a clas- create a culture of individual support. has to import them from other Länder. In sic apprenticeship but enrol in some other In the long run, Germany may have no fact, in Germany as a whole the share of professional programme. choice but to do away with its three-tier students who qualify for admission to uni- At stake are not just equal opportuni- school system. Such attempts have failed versity is low by international standards: ties, but the future prospects of the Ger- before, but two new forces are now at the current number is only 35%, compared man economy. The German education work. One is demography: as the number with an OECD average of 56%. system is wasting valuable potential, says of pupils drops rapidly, having just one, Moreover, for Mr Lenzen, the Free Uni- Andreas Schleicher, a co-ordinator of PISA comprehensive, kind of school may be versity’s president who co-ordinated the research at the OECD. He has become more e cient than maintaining three. Bavarian study, reforming Germany’s something of a persona non grata among The other force is business, which can- schools will not be su cient. He reckons Germany’s education establishment, per- not thrive without well-educated employ- that its nursery schools, universities and haps because he dares to criticise his own ees. It was a lobbying organisation for Ba- professional training also lag behind, and country. Mr Schleicher thinks that in its varian business, the Vereinigung der that the country needs to rethink its entire education policy Germany needs to be- Bayerischen Wirtschaft, that in 2003 pub- educational system to produce enough come more like Finland, which twice lished the most comprehensive study so brains for its economy to prosper. topped the PISA charts for literacy. For in- far on how to reform Germany’s educa- Yet the creation of outsiders is not the stance, it could start teaching children in tion system. According to the PISA study, sole prerogative of Germany’s school sys- nursery school rather than simply letting Bavaria has the best students in the coun- tem. Social divisions are widened and them play, stop selecting students for dif- try but the smallest proportion of those deepened further by the labour market, ferent types of schools so young, and awarded the Abitur, which means that it the subject of the next article. 7 Squaring the circle
Despite a raft of reforms, Germany’s labour market still excludes far too many people
EADQUARTERS can reveal much of labour-market reforms that the govern- per week, mostly at the same pay as be- Habout an organisation. The Bundesa- ment has introduced in the past two years. fore, in return for relative industrial peace. gentur für Arbeit (BA), Germany’s federal But there are doubts that it can really help Wages were often set by national employment agency, based in Nuremberg, Germany’s new outsiders, the growing peak-level bargaining : the IG Metall un- is a case in point: if the star-shaped forma- army of the long-term unemployed, who ion, the biggest and strongest of them all, tion of 1960s high-rise buildings were a now account for more than half of Ger- would negotiate a pay rise in one of its housing estate, it would have been demol- many’s jobless (see chart 4). strongholds, which would then be ished long ago. Inside, the building is pure If Germany’s education system was adopted by unions and employers in other Kafka: long grey corridors that meet at built speci cally to protect insiders, its la- sectors. At the same time, wages at the strange angles, causing visitors to get lost. bour-market was meant to be all-inclusive. lower end of the scale tended to rise dis- Yet open a door on the 8th oor, and It managed well until the early 1970s, proportionately fast, making unskilled la- you suddenly arrive in the 21st century. when the rst oil crisis caused unemploy- bour increasingly unattractive to employ. The brightly lit room is lled with bulletin ment to rise. So the government sent hun- The e ect on labour costs was magni- boards covered with hundreds of charts, dreds of thousands of workers into early ed by the way the country nances its most of them coloured in some combina- retirement, and trade unions pressurised welfare state: through a payroll tax with tion of red, yellow and green. We are us- employers into cutting working hours to 35 matching contributions from individuals ing tra c-light logic to spot problems and employers. Unemployment and quickly , says Dieter Vollkommer, the for- early-retirement programmes pushed up mer head of the BA’s reform team. Outsiders’ plight 4 these contributions, and the cost of labour This o ce is the war room for what Long-term unemployment*, % of total with them. No wonder that the country may be the most ambitious reorganisation keeps losing full-time jobs and their atten- 70 ever attempted in Germany: turning the Italy dant social-security contributions. Con- BA, the country’s largest bureaucracy with 60 tributions now add up to over 40% of gross Germany more than 90,000 employees, into a cus- 50 income, compared with 27.6% in 1970. tomer-oriented service provider , as Mr Uni cation aggravated this vicious cir- BA 40 Vollkommer puts it. The has put much France Britain cle. Much of the cost of integrating the for- e ort into turning the dreaded Arbeitsäm- 30 mer East Germany was piled on to the so- Japan ter its local o ces where jobseekers used 20 cial-security systems because it was to take a number and often wait for hours politically easier than raising taxes. Worse, United States 10 into customer centres , complete with German unions and employers’ associa- crowd control and consultation cubicles. 0 tions, both dominated by westerners, 1980 85 90 95 2000 04 The BA is a sure sign of Germany’s will quickly agreed to raise wages in the east Source: OECD *12 months or over to reform: it is the most visible of a plethora close to western levels. The idea was to dis-1 The Economist February 11th 2006 A survey of Germany 7
2 suade skilled easterners from moving to are compared every month. If an agency the west, but in e ect it priced many low- regularly falls short, heads may roll, but skilled easterners out of the market. the main idea is to ensure that best practice Add the de facto minimum wage set by spreads throughout the organisation. welfare bene ts, along with strong protec- The BA’s new president already has tion against dismissal, and it is easy to see some results to show for his e orts. Partly why Denis Snower, president of the Kiel thanks to his cost-cutting, the government Institute for World Economics, views Ger- is now considering reducing the contribu- many as a perfect example of his insider- tion to the unemployment-insurance outsider theory . It turns on the concept of scheme, currently 6.5% of gross income, by labour-turnover costs in essence, all the two percentage points next January. But costs associated with ring an employee Mr Weise knows that this will not be and hiring a new one. The higher these enough: unless he turns the BA into a rise, the lower the probability that they highly e cient tool for policymakers, its will actually be incurred which is why enemies, who want to dismantle and pri- the people in jobs, the insiders, have an in- New, improved job shop vatise the bureaucratic behemoth, might terest in keeping them high. yet have their way. There are cultural reasons, too, why tion campaign. He asked Peter Hartz, then A visit to the local employment agency low-paid services in particular, the main the personnel chief at Volkswagen, to head in Nuremberg’s city centre reveals how job-creation machine in other countries, a commission to propose reforms. much has changed, but also how much are underdeveloped. Many Germans dis- Most of those proposals became part of more needs to be done. The long queues like the idea of working in services, think- Mr Schröder’s reform package, Agenda have gone. The rule in the entrance zone ing them demeaning. Women, who are 2010, and were implemented through a se- is that it should take no more than 30 sec- still underrepresented in the workforce, ries of Hartz laws. Their purpose was onds to direct customers . If they are tend to do their own housework rather threefold: to make the labour market more newly unemployed, they have to ll in a than outsource it, and many men are do-it- exible by reducing job protection and lengthy questionnaire. If they have an ap- yourself enthusiasts. lowering social-security contributions for pointment, they can go straight upstairs. There is little doubt that long-term un- certain part-time jobs ( mini-jobs ); to re- Yet the biggest changes are less visible. employment would have caused consid- form the Federal Employment Agency and We are now acting like a real company erably more political uproar had the Fed- equip it with better tools (for instance, the and are no longer engaging in much social eral Employment Agency not been there to Ich-AG , or Me-company ); and to en- policy, says Gisela Scherer, one of the smooth things over. Originally a combina- courage the long-term unemployed to look agency’s bosses. Costly long-term re-train- tion of an insurance company and an em- for work by introducing a new at-rate ing schemes have been replaced by short ployment agency, the BA has evolved into bene t ( Hartz IV ). internship-like programmes. And if an un- the organisation that looks after Ger- All these reforms called for some new employed person is hard to place, the many’s growing army of outsiders. In faces. Traditionally, the BA had been run agency does not invest a lot of e ort, ex- 2001, at its peak, it spent over two- fths of by elderly politicians with expertise in so- plains Ms Scherer: he or she will get unem- its budget of 52 billion on so-called ac- cial-security issues, such as Bernhard Ja- ployment bene t for a year and then be tive labour-market policies , code for all goda, who had to resign after the job- better taken care of downstairs . kinds of training schemes and job-creation placement scandal. The current president, Downstairs is where the local Arge programmes. Frank-Jürgen Weise, comes from a very dif- has set up shop. This is short for Arbeitsge- ferent background: a former soldier, he co- meinschaft, or working group, but it is The scattercash approach founded a logistics rm and is an experi- more than that. The Arge is a new type of The shocking fact is not that so much enced nancial controller. It may not be organisation, set up in each German city or money was spent, but that most of it was obvious, but this is exactly the right set of county to look after the long-term unem- wasted. The measures rarely helped the skills for the job. ployed who receive the new at-rate bene- unemployed to nd real jobs. Instead, it When Mr Weise joined the BA as - t under the Hartz IV law. In a way, Ger- was unions and employers’ associations nance chief in 2002, he did not like what many has outsourced all its outsiders to that reaped most of the bene ts. Billions he found: in the absence of reliable data, the Argen (it is unfortunate that arg also owed into huge training rms operated the agency did not really know what it was happens to mean bad in German). by both these groups. Critics point out that doing. In particular, it had no idea whether The big question is whether these bo- representatives of unions and employers the billions spent on retraining had any dies will do a better job than the BA did. in e ect controlled the BA’s federal and re- lasting e ect. Just as with Germany’s edu- Their rst task is to vet applicants for the gional boards. cation system, it was the input that got the new bene t, which is means-tested and It was not without irony, then, that a attention, not the output. paid only to those who are seriously seek- scandal at the BA became the PISA shock Mr Weise’s most important task has ing work. They are still sorting out their bu- that rattled Germany’s labour market. In been to create transparency. Training pro- reaucratic problems, so they have not had early 2002, it emerged that some agency grammes are now evaluated and procured much time to spend on their second main departments had routinely faked job- via central calls for tender, creating a real job: to provide support for their clients. placement gures. As it happened, the market. Local agencies operating in similar What is already clear is that Hartz IV got chancellor, Gerhard Schröder, badly labour markets are competing with each its incentives entirely wrong. The state cal- needed a theme for the forthcoming elec- other, and their performance indicators culates the bene t on the basis of a Be- 1 8 A survey of Germany The Economist February 11th 2006
2 darfsgemeinschaft, an impossible-to-trans- tection. In their grand-coalition agree- 100 km DENMARK North late term which broadly speaking means ment, the two parties made hiring and r- Baltic Sea1.7 SCHLESWIG- Sea the household in which the jobless person ing a little easier: new employees will in 45.4 HOLSTEIN 1.7 lives. A single person in west Germany future have to wait for two years rather HAMBURG 2.8 17.3Rostock Lubeck23.5 gets 345 a month( 331 in the east) plus than the current six months before their MECKLENBURG- 3.4 BREMEN Hamburg WEST POMERANIA 23.0 health insurance, rent and utilities paid for, job tenure is secure. Now the coalition is 0.7 S Bremen BRANDENBURG BERLIN D 35.6
N which makes it attractive for jobless young toying with something called Kombilohn, P A LOWER SAXONY Berlin BERLIN O L 2.5PoPotsdamtsdam people, for instance, to move out of their a combination of a low market wage plus a R 8.0 L E Hanover MagdeburgMagdeburg A HHOLLANDOLLHAND 23.1 18.2 BRANDENBURG parents’ home. Policymakers had ex- government subsidy. T N E NORTH RHINE- N SAXONY- 2.6 D pected 2.6m Bedarfsgemeinschaften, but Ulrich Walwei, deputy director of the WESTPHALIA ANHALT 17.5 18.1 Leipzig are now faced with as many as 3.7m. Institute for Employment Research, the Dusseldorf Leipzig Dresden HESSE 2.4 SSAXONYAXONY Dresden 26.6 THURINErfurtGIA Yet for all the expense, reorganising an BA’s think-tank, is sceptical about this BoBonnnn 17.9 Jena 4.3 Cologne Bad Hersfeld6.1 Chemnitz 32.1 THURINGIA 18.5 employment agency and introducing a ood of new ideas. First, he says, the ear- BBELG.ELG. 4.1 FrankfurtFrankfurt new bene t does not create any extra jobs, lier reforms have to be properly evaluated. RHIN CZECH 23.5 E PALA LA says Stephan Doll, the boss of the Nurem- Mini-jobs, with a maximum pay of 400 a LUX. TI N REPUBLIC N D Nuremberg A - T Former berg section of the Deutsche Gewerk- month and social-security contributions E boundary schaftsbund, the umbrella organisation of only 25%, have certainly shown that Stuttgart between East and SAARLAND West Germany for Germany’s unions. He speaks from ex- lowering the cost of low-skilled work can 10.7 1.1 BAVARIA 29.8 perience: unemployment in the city is create jobs: there are now nearly 7m of 24.6 BADEN- 12.4 WÜRTTEMBERG Munich AUSTRIA about one percentage point above the na- them. But outsiders do not seem to have FRANCE 30.9 tional average. bene ted, and it is unclear whether these SWITZ.Unemployment, average, %, 2005 All the labour-market reforms were no jobs have simply replaced full-time ones. <9 12-15 0.0 Population more than empty promises , says Mr Doll, Weakening or even doing away with 2004, m 9-12 >18 echoing the prevailing German mood. job protection, from which most insiders 0.0 GDP per person 12-15 ITALY Many now argue that instead of introduc- still bene t despite many changes at the 2004, ¤’000 ing further reforms, the government margins, is certainly no silver bullet, says Population GDP per person should raise wages and start spending Mr Walwei; nor is the Kombilohn. For such 2004 m ¤ ’000 again on infrastructure and education, a model to work, the de facto minimum Germany (total) 82.5 26.4 and on developing the local economy. As wage would have to come down signi - Western* 65.6 28.3 it happens, the new government has re- cantly, which would be tricky in the cur- Eastern* 13.4 18.0 cently announced a programme under rent climate. A better solution, he says, Source: Arbeitskreis Volkswirtschaftliche which 25 billion will be spent on such might be to cut social-security contribu- Gesamtrechnung; Bundesagentur für Arbeit *Excluding Berlin measures over the next four years. tions for all low-wage jobs. Yet the next round of labour-market re- Whatever Germany does, it must re- on o er. If we don’t get supply and de- forms also seems to be under way. During duce its army of outsiders, argues Mr Wal- mand to match at that point, our economic the election campaign last year, the parties wei, or it will be in trouble as the country’s dynamism will go down the tubes. outbid each other with proposals. The So- population starts to shrink. Contrary to But a sclerotic labour market is not the cial Democrats wanted to introduce mini- conventional wisdom, he thinks that a only reason why unemployment remains mum wages to stop wage dumping by east smaller workforce is unlikely to solve the high. Over-regulated markets are just as Europeans. The Christian Democrats were unemployment problem if the job-seekers much to blame, as the next article will keen to weaken union power and job pro- do not match the speci cations of the jobs demonstrate. 7 Land of cliques
Corporatism and lack of competition are the enemies of an e cient economy
ITY tours are one of Cologne’s strong rum called Kölnarena and an addition to nobody really seems to care. It is consid- C points. But if you want to get beyond the city’s exhibition centre have caused a ered folklore just like the carnival here, the cathedral, the Romanesque churches stir recently. The exhibition centre, say crit- says Mr Rügemer. and the old city, ask Werner Rügemer, a ics, was approved without the usual o - Cologne provides a striking illustration journalist. He will take you on a tour of the cial EU-wide call for bids though the city of the way that in some parts of Ger- landmarks of the Kölsche Klüngel, or Co- treasurer explains that this type of contract many’s economy, rent-seeking seems to be logne Clique, a particular form of wheel- does not require a bidding process, and more important than wealth-creation. In a ing and dealing for which the city is fam- that Ernst & Young, a rm of accountants, forthcoming book about reform in rich ous across the country. was asked to check out the market. countries, Adam Posen of the Institute for Mr Rügemer may soon want to add Still, the general impression is that Co- International Economics, a think-tank some new attractions to his tour. A couple logne’s politicians have not tried very hard based in Washington, DC, argues that this of big local property deals an event fo- to make their business transparent and keeps prices high and stops the country’s1 The Economist February 11th 2006 A survey of Germany 9
Spot the wheeling-dealing
2 economy from becoming more e cient. Neither the city nor the fund will say how t in. His academic speciality is Germany’s Nothing much has changed. If any- much the project cost, arguing that to do so health-care system, and to him the health- thing, it has got worse, says Ute Scheuch, would be unusual business practice. care industry is proof that German-style a retired journalist. More than a decade When a TV programme last summer corporatism can be at least as costly as ago, she and her husband, Erwin Scheuch, claimed that the city could have got a backroom deals. Just like education, he a sociology professor at Cologne Univer- much better deal, the public prosecutor’s says, it is a system that protects privileges sity, published a report on the Kölscher o ce in Cologne started to look into it; and without adding any value: It is not only Klüngel. It contained few new revelations, the local Greens, who were in a coalition ine cient, but also creates injustice. but for the rst time it analysed the rules of with the Christian Democrats when the the game. What the authors found was deal was approved, are having second Unhealthy in uence both amusing and alarming. Not only thoughts. We didn’t know that the Esch Seen from outside, some elements of Ger- were the local organisations of both the fund was involved, says Barbara Moritz, many’s health-care system indeed appear Christian Democrats and the Social Demo- their leader. We were told that the project counterproductive. For instance, there are crats controlled by cliques that handed out was for the good of the city, but it seems it the Kassenärztliche Vereinigungen, regional o ces, but in Cologne such deals were ac- was more for the good of the fund. doctors’ associations that negotiate fees tually put in writing. The problem, in Cologne and else- with the public-health insurers and then where, is that local councillors are often distribute the money. They are also meant The way things are done around here unpaid and have no one to help them, so to ensure that there are enough doctors to After such publicity, you would expect the they depend on the information they get go round everywhere, but they seem sim- participants in these power games to be from the city administration. The local pa- ply to provide an arena for in- ghting. more careful. But since then it has emerged pers did not take much of an interest in the Nor does the split in the health-insur- that fat bribes were paid in the 1990s for property deal until the TV programme ance market between public and private the business of building an oversized re- drew attention to it. The publisher of Co- rms make obvious sense. Contributions fuse incineration plant near Cologne. The logne’s three big dailies is also an acknowl- to a public health-insurance scheme are case is still going through the courts. edged investor in the Esch fund. compulsory for everybody below a cer- Now controversy has arisen over Esch, Yet in general, things have improved tain income limit, currently about 47,000 an investment fund run by Cologne-based somewhat, says Hansjörg Elshorst, chair- a year. Above that, people can take out Sal. Oppenheim, Europe’s largest private man of the German section of Transpa- private insurance. Predictably, the public bank, over some of the big local property rency International, an anti-corruption sector is getting stuck with most of the bad deals the fund has got involved in. Esch group. He puts this down to recent legisla- risks, whereas private insurers can cherry- has been raising money from wealthy peo- tion to keep civil servants and public o - pick younger and richer customers. 1 ple, of which Cologne has a good number. cials honest. However, he says, in private That seems unsurprising enough. More rms corruption remains widespread. surprisingly, the fund is run by a former At times of rapid growth, lack of But is it good value? 5 city manager, who took the job after doing accountability did not seem to do much Health-care expenditure, % of GDP, 2003 a deal with Esch. The fund also bagged, on harm; indeed it helped to speed up deci- Public Private favourable terms, two of the city’s biggest sion-making. Yet today each euro wasted deals, which were rushed through the city means a euro less for social services, says 0481216 council without leaving time for thorough Karl Lauterbach, an economist at Cologne United States scrutiny by councillors. University. The city is the most indebted in One of them is now under investiga- the state of North Rhine-Westphalia and Germany tion by the public prosecutor. It concerns a has long failed to invest enough. France project that started in 2003 when Cologne Last September Mr Lauterbach, a Social decided to add some new halls to its exhi- Democrat, won a seat in the federal parlia- Canada bition centre so a big TV broadcaster could ment. Yet he is an example of a rare species move into some of the older ones. The city called Quereinsteiger, somebody entering Italy argued that unless the project went ahead politics after a career in a di erent eld: he Japan* quickly, the TV station would move away originally studied medicine and econom- from Cologne, causing tax and job losses. ics at Harvard. And he has no intention of Britain* The Esch fund bought the land, put up the becoming part of the Klüngel. buildings and rented them out to the city. In any case, Mr Lauterbach would not Source: OECD *2002 10 A survey of Germany The Economist February 11th 2006
2 These arrangements are increasingly Hellwig, then chairman of the commis- tition. In particular, the fees for access to creating a wasteful two-class health-care sion (and now executive director of the the grid are exceptionally high compared system. Because private insurers pay Max Planck Institute), and his colleagues with other countries, discouraging rms higher fees, for instance, their clients usu- argued that the industry was a classic case from using alternative suppliers. No sur- ally get seen more quickly and receive bet- of deregulation gone wrong. prise, then, that electricity prices in Ger- ter treatment. To keep revenues owing, When Germany decided to liberalise many are among the highest in Europe. highly trained hospital doctors often at- its electricity market in 1998, the electricity Equally predictably, power companies tend to the minor illnesses of these private companies, which until then had been re- argue that the connection is not clear and patients rather than doing research. gional monopolies, had to open up their that their costs and taxes have gone up too. To Mr Lauterbach, the solution is to grids to other producers, so consumers But the pressure on them is mounting. Last slash bureaucracy and introduce more and rms could pick their provider. How- summer, the outgoing government passed competition. But even then it would take ever, constitutional problems made it im- a law putting the Federal Network Agency time for the health-care system to become possible to separate power generation and in charge of regulating the electricity mar- more e cient, if experience in other sec- distribution. Yielding to German corpora- ket from next year. Until then, state govern- tors is any guide. tism and e cient lobbying, the govern- ments are supposed to block unjusti ed ment decided to let the industry regulate it- rate hikes, which some of them have actu- Power games self by negotiating the conditions for ally done recently. The tabloid papers have For a demonstration, take a trip to Bonn, network access among the competitors. started campaigns against the power rip- Germany’s former capital, half an hour’s In the early years, prices did indeed fall, o s , and public prosecutors are looking at drive south of Cologne. In a sense, it has though mainly because there was plenty junkets for local politicians paid for by the now become the capital of competition, of spare capacity. At the same time, the energy giants’ gas subsidiaries, which are housing the country’s most important reg- electricity industry consolidated, both also accused of overcharging. ulatory agencies: the Federal Cartel O ce horizontally and vertically. Now only four It may be tempting to see the protests and the Federal Network Agency, a body companies E.ON, RWE, Vattenfall Europe against high energy prices as a sign that overseeing competition in telecoms, rail- and EnBW control more than 80% of Germany, once a prime example of a pro- ways and energy. The city is also home to power generation and most of the grid. In ducer-driven economy, is turning into one the Max Planck Institute for Research on recent years they have also bought stakes driven by consumers. But so far, the prot- Collective Goods, a research body, and the in local power companies, which makes ests seem to be more of a populist uprising Monopolies Commission, a group that ad- these unlikely to switch to other providers. against big business rather than a call for vises the government. As the Monopolies Commission argues more competition. Perhaps Germans have In 2004, the Monopolies Commission in its report, this market structure, in com- not quite grasped the virtues of freer mar- published a scathing report about the state bination with the regulatory environ- kets yet. That certainly goes for immigra- of Germany’s electricity industry. Martin ment, does not make for much compe- tion, the subject of the next article. 7 Thinning blood
On immigration, Germany is torn between its past and its future
SK Heribert Bruchhagen about the eth- man parent, but most of the second group The politicians in Berlin, alas, are being Anic composition of his football team, grew up around Frankfurt. The recruit- less positive. After a brief period in 1999 and he has to consult his secretary. It is not ment policy seems to be working: after a when Germany at last seemed to have ac- that the boss of Eintracht Frankfurt, once bad start to the season, the club worked its cepted that it was an immigration coun- one of the more successful German clubs, way up to tenth place in Germany’s pre- try and even began to see foreigners as an does not care. But when he recruits play- mier league. asset things have again changed for the ers, passports and origins are not much on Every city, goes the joke, gets the foot- worse. In Germany, immigration is still his mind. More important is their price tag. ball club it deserves. Thanks to its huge air- seen as hurting society, says Klaus Bade, a And even more critical, all must speak Ger- port, its nancial district and at one time professor at Osnabrück University. man, and at least a third must hail from the the presence of many American compa- Frankfurt area. In times of crisis, the coach nies’ German headquarters, Frankfurt has Blood or soil? needs to be able to talk directly to the play- become the country’s most diverse city: Germany is not the only country that has ers, Mr Bruchhagen explains in his o ce some 40% of its population of 655,000 problems with immigration, but it faces a overlooking Frankfurt’s stadium. And the hold a foreign passport or come from an special dilemma. In a way, it is torn be- team must be rooted in the region. immigrant background. This has made tween its past and its future: it still yearns The resulting Eintracht squad includes Frankfurt unusually tolerant. We have al- for cultural homogeneity, but will in fact quite a few names that suggest origins fur- ways welcomed immigrants , explains Al- need more immigrants, particularly highly ther a eld: Du-Ri Cha, Jermaine Jones, brecht Magen, head of the city’s integra- skilled ones, to make up for its low birth Mounir Chaftar. Nearly half of them are tion department, because we live and die rate and to keep its economy competitive. foreign-born or have at least one non-Ger- by our internationalism. It is the legacy of romanticism , in the1 The Economist February 11th 2006 A survey of Germany 11
have nished school, they are rarely of- fered even an unpaid internship, let alone an apprenticeship. That is if they manage to nish school at all. According to a 2001 study by Bam- berg University, 15.6% of young foreigners in Frankfurt failed to do so, compared with 6.5% of Germans. Far too many left school at 14. For Germany as a whole, the num- bers are even worse. The situation is cer- tainly not as bad as in France, says Mr Er- san, but if things don’t improve, cars may also be burning here one day. The Turkish community is also to blame. Many have retreated into ethnic ghettos: the availability of a complete Almost like home Turkish infrastructure makes it possible for them to live in Germany without having 2 words of Dieter Oberndörfer, a political grant, if not xenophobic views. There were much contact with Germans. The fact that scientist at Freiburg University, that holds fears that immigrants would take unfair Turkish men in Germany increasingly look Germany back. Thinkers such as Friedrich advantage of Germany’s still-generous for wives in Turkey does not help: their Julius Stahl, a 19th-century lawyer, de- welfare state. And integration often did not children are often raised the traditional veloped the idea that Germans are a peo- go smoothly. Many Turks, in particular, way and do not learn enough German to ple based on descent. The older and purer found it hard to settle in, not least because integrate properly. the tribe, he wrote, the more it will be a a large contingent came from rural Anato- Immigration is not just about Turks, nation. This became mainstream think- lia and had to get used to living in an indus- however, insists Helga Nagel, head of ing, at least among the ruling classes, and trial society as well as a Christian one. Frankfurt’s o ce for multicultural a airs. helps to explain why, some time after Ger- It was only when the coalition of Social Indeed, although they are certainly the many had become a nation at last in the Democrats and Greens came to power in most visible, they make up only about 20% late 19th century, it decided to base citizen- 1998 that things began to change. The rst of the city’s foreign population (which ship on blood rather than soil. government of Gerhard Schröder passed a more or less mirrors the national mix, see The emphasis on ethnic origin also ex- law making naturalisation much easier (al- chart 6, next page). Another 22% come plains why Germany has seen a huge in- though some Länder have now put up va- from former Yugoslavia and 9% from Italy. ux of foreigners with German roots since rious new barriers). Yet faced with the And most, says Ms Nagel, are better inte- the second world war, mostly from eastern threat of terrorism and a deteriorating grated than you might expect. Europe. Individuals who could prove Ger- economic situation, the federal govern- If so, then her department deserves man ancestry were invariably welcomed. ment abandoned plans to liberalise immi- some of the credit. Frankfurt was the rst Immigrants without German roots were gration rules and instead concentrated on German city to create such an o ce, back also admitted in large numbers, but on dif- tightening security and improving integra- in 1989, after the Greens formed a coalition ferent terms: under Germany’s guest- tion. For example, a new immigration law with the Social Democrats to run the city. worker model , they were expected to go passed in 2004 requires new immigrants When the Christian Democrats and Free home when they were no longer needed. to take German lessons. Democrats took over in 1995, they did not Learning German is doubtless impor- abolish the o ce, as some had feared, and Here to stay tant, notes Ismail Ersan, chairman of the even kept its name. Predictably, though, many of the 14m Türkisches Volkshaus, a cultural organisa- Today, the o ce co-ordinates an im- guest workers whom Germany allowed in tion for Turkish immigrants in Frankfurt. pressive array of programmes. Apart from between 1955 and 1973 stayed on, particu- But those who push hardest for it, he the obvious language classes and transla- larly the Turks. They also brought their thinks, really want assimilation, not inte- tion service, the sta also helps immi- families over, which resulted in many Ger- gration. Turning immigrants into Germans grants to nd their way through the com- man-born foreigners. Add other immi- should not be the objective, he argues: We plicated German education system, get grants, refugees and EU citizens (who can need to nd ways to live together, giving health care and sort out problems. The of- come and go as they please), and it is easy everybody equal opportunities. ce also tries to monitor the state of inte- to see why the number of foreigners grew As yet, that is a distant dream. The third gration not an easy task because, perhaps rapidly, from 500,000 after the second generation of Turkish immigrants, in par- unsurprisingly, Germany does not collect world war to 6.7m (8% of the population) ticular, is increasingly marginalised and much information about its immigrants. today. Another 7m or so Germans are nat- not just because of the school system and Other German cities have since copied uralised immigrants. In record time, all this the labour market. The exclusion starts Frankfurt’s approach. But is that enough to has turned Germany into nearly as much when they become teenagers, explains Mr integrate immigrants, particularly youths of a nation of immigrants as America. Ersan: they often switch to a Turkish foot- from a Turkish background? Unlike other Yet it took German politics until the late ball club at that point because their old countries, including France, Germany has 1990s to accept this reality. Both big parties German club makes it clear to them that never seriously discussed a rmative ac- often felt they had to pander to anti-immi- they do not really belong there. When they tion for immigrants. Nor has it grasped that1 12 A survey of Germany The Economist February 11th 2006
2 immigration policy today is no longer Frankfurt lies Stuttgart, Germany’s second about keeping foreigners out or turning Welcome guests? 6 most international city, which has pro- them into good Germans, but about com- Foreign nationals* in Germany, countries of origin duced a raft of ideas for retaining and at- peting actively in the global war for talent, 2004, ’000 tracting highly skilled people. In 2001, the says Thomas Straubhaar, president of the 0 200 400 600 city launched an action plan to prepare it- Hamburg Institute of International Eco- self for becoming even more international. Turkey 1,764 nomics, a think-tank. In a globalised To foster integration, Stuttgart o ers much knowledge economy, he argues, the Italy the same activities as Frankfurt. But in ad- wealth of a country will increasingly de- Former dition, it tries to make itself as attractive as Yugoslavia pend on highly skilled individuals. Yet possible to the global creative crowd. For- Greece such people are mobile and can choose eign students, for instance, are o ered help where they want to live. Poland with things like nding their way through Croatia the thickets of German bureaucracy. Tempt me Russia More recently, Stuttgart has started to If Richard Florida, an economist at George combine its e orts to attract skilled indi- Mason University,Virginia, has his num- Austria viduals with policies to boost the low birth Bosnia and bers right, Germany still has more work to Herzegovina rate: it wants to become Germany’s most do to become a top choice for what he calls Ukraine family-friendly city. Over the next few high potentials . In his 2005 book, The years, it plans to introduce a range of mea- Flight of the Creative Class , he produces Source: Federal Statistics Agency *Including German-born sures to make life easier for parents and an index measuring the competitiveness children, for instance by providing more of nations in terms of the 3 Ts of econ- many is declining: in the 11 months to No- day care, playgrounds and bicycle routes. omic growth: technology, talent and toler- vember 2005, only 900 arrived, compared This is not ideology or public relations but ance. Germany does not come out too with 2,300 in 2004. sheer pragmatism, says Wolfgang Schus- badly on tolerance, but it lags in develop- Mr Bade of Osnabrück University ter, Stuttgart’s (Christian Democrat) ing talent and implementing technology. thinks this is all the more serious because mayor. To prosper, the city needs both Overall, it ranks only tenth in the global many highly quali ed Germans are leav- more immigrants and more children. creativity index . ing. The numbers are hard to pin down, What is good for Stuttgart, the home of Germany’s 2004 immigration law will but between 1991 and 2003 an average of DaimlerChrysler, might well be worth do nothing to improve that ranking. For- 115,500 people emigrated, many of them considering for Germany as a whole. Yet eigners who have graduated from German young and holding a university degree, ac- immigration does not seem to rank high universities can still be sent packing even cording to the 2004 report of the Expert on Germany’s political agenda. The grand- if they have found a job. And highly quali- Council on Immigration and Integration, coalition agreement mentions it only in ed workers still do not get permanent res- of which Mr Bade was deputy chairman passing, under the heading security . If idence permits. As a result, the numbers of (and which has since been disbanded). that foreshadows neglect of the issue, it these high potentials moving to Ger- A couple of hours’ drive south from could turn out to be a serious mistake. 7 Reincarnation valley
The city of Jena provides a tantalising glimpse of the way Germany could be going
F YOU seek Paradise, go to Jena. The large deposits of quartz sand, chalk and from them. Many of its plants were de- Ibosses of this city in the eastern German soda. Thus endowed, people began mak- stroyed at the end of the second world state of Thuringia, two-and-a-half hours ing glass in the region in the 16th century. war, and what remained was taken away, south of Berlin, may have been a little am- Yet what turned Jena into a 19th-cen- rst by the Americans, then by the Rus- bitious when they named the main rail- tury Silicon Valley was its renowned uni- sians. Still, Jena soon became the base of a way station after an eponymous nearby versity, which attracted not only famous huge Kombinat, as the big state-owned park. Jena is clearly no Garden of Eden. thinkers such as Goethe, Hegel and Fichte, businesses were called in communist East Like any city, it has its problems, not least but also more business-oriented folk such Germany. This one had 27,000 employees an unemployment rate of 12%. But it also as Ernst Abbe. Having developed new when the Berlin Wall came down in 1989, o ers a glimpse of Germany’s future and ways of making microscopes, he found about half of them in Jena, of whom more shows that Germany’s east is not all bad. himself what today would be called a con- than 90% lost their jobs after the economic Historically, Jena embodies the famous tract manufacturer, Carl Zeiss, and a com- shock of uni cation. dictum by Louis Pasteur, the French chem- ponent supplier, Otto Schott. By the begin- Now Jena’s city centre has been com- ist, that chance favours the prepared ning of the 20th century, the rm Carl pletely modernised, thanks to tons of mind. It was a uke of nature that the city, Zeiss had more than 1,000 employees. money from western Germany. The for- by the river Saale and surrounded by It continued to grow rapidly, helped by mer Zeiss factory has made way for the heavily forested uplands, found itself near the two world wars, but also su ering university and a big, smart shopping cen-1 The Economist February 11th 2006 A survey of Germany 13
2 tre. What makes Jena di erent from many Agency, which it felt would not have taken other eastern cities is that there is plenty of enough account of local conditions. In- life on the streets. In some ways, the city stead, it set up an independent local orga- seems a double of Berkeley, California, nisation to look after its long-term unem- complete with well-wooded hills dotted ployed, the only eastern city to do so. with professors’ villas. The comprehensive school across the Alexander von Witzleben, the boss of street, called Jenaplan, aims to ensure that Jenoptik, the successor rm to Carl Zeiss its pupils will not become unemployed in Jena, has a splendid view of the city from the rst place. Visit the school, and you his top- oor o ce on campus. Frankly, if may see a couple dressed in black doing we were in the textile business, we would the tango as part of a project about the no longer be here, he says. The optics in- dance. Such projects are an important dustry is hot again, he explains, particu- component of the school’s life and often larly photonics things like high-end la- involve a mixture of age groups. This al- sers, optical sensors and specialised lows for much more individualised learn- cameras, which Jenoptik is good at. To gen- ing, says Gisela John, the principal. eral surprise, the city was listed in a 2004 The Jenaplan school exists because a study as eastern Germany’s most promis- Alive and kicking group of teachers took the initiative to re- ing business location. vive this particular form of learning, origi- Jena could easily have gone the way of Almost a third of the city’s working popu- nally developed in the 1920s, and the city other eastern industrial centres, where lation have an academic degree, the high- of Jena as well as the Land of Thuringia let rms were bought by western competitors est share in Germany. They take pride in them get on with it. Jena’s education sys- and then gutted or even closed down. Carl being Jenenser and don’t go home early. tem is exceptionally diverse for a city of Zeiss owes its survival to Lothar Späth, the Jena also has a tradition of liberalism. It 100,000 people: it includes several all-day former premier of Baden-Württemberg, was here that the rst Burschenschaft, or schools, a Montessori school, a bilingual who became its chief executive in 1991. fraternity, was founded in 1815, starting the high school and another one specialising Counterintuitively, he bought a rm in the free-speech movement of its time. In the in sport. Given so much variety, the usual west, a builder of clean rooms and other 1980s, the city was the centre of the eastern distinctions between the Gymnasium and industrial facilities, to give Jenoptik a west- German peace movement, and became other forms of secondary education fade ern face and the cash ow to develop its one of the rst to mount Monday rallies, into the background. photonics business. The rm, M+W Zan- the regular demonstrations that helped to In some ways Jena has had an easier der, was only recently sold o to allow Je- bring down the communist regime in 1989. time of it than other German cities: for- noptik to concentrate on its core business. All of this goes a long way towards ex- eigners make up only around 5% of its Moreover, explains Mr von Witzleben, plaining the unusual political landscape in population. This is not because it is espe- as a former politician Mr Späth knew how Jena today. The city council is controlled cially xenophobic (though there have to keep this species at bay. And he had the by a very grand coalition that includes all been cases of racially motivated violence foresight to protect what is perhaps Jena’s of Germany’s bigger parties except for the that have prompted citizens’ protests), but most important asset: its network of extreme right. The (directly elected) mayor, because the former eastern German gov- highly skilled people. Former Carl Zeiss Peter Röhlinger, is a Free Democrat who ernment let in only small numbers of im- employees were allowed to use the rm’s was a vet before winning his rst vote in migrants, mainly from Vietnam. facilities to create their own companies, 1990. Citizens here are quite demanding, However, the numbers are bound to spawning many start-ups. This has given he says. They want us to make the most of rise, if only to ll the gaps created by the Jena an entrepreneurial ecosystem that is our opportunities. low birth rate (which is even more pro- rare elsewhere in Germany. This has often meant doing things dif- nounced in eastern than in western Ger- ferently. For example, Jena did not shut many) and the continuing migration of Creative destruction down its nursery schools when money younger people to the west. By 2009 at There are start-ups all over the city and sev- was tight, but persuaded their sta to work the latest, we won’t have enough good eral research centres on a campus up the part-time. It also chose to build its shop- candidates for all our apprenticeships, hill. There is also the Technology and Inno- ping centre right in the middle of town worries Jenoptik’s Mr von Witzleben. For vation Park Jena, with about 60 rms, rather than on the outskirts, which has Jena’s economic dynamism to continue, which demonstrates that Jena no longer kept the city centre alive. he says, it may have to try to attract highly relies mainly on optics. Near the entrance Most importantly, Jena is trying new quali ed foreigners. is an incubator for biotechnology rms ways of dealing with long-term unem- Jena has other weaknesses too, not called Biocentiv. Stefan Russwurm, foun- ployment and education. Some of the re- least that its two other large rms, Jena- der of SIRS-Lab, a diagnostics rm, says the sults can be seen on the Tatzendprome- pharm and Schott, are being downgraded experience of radical change when the nade, one of the city’s main streets. On one to mere manufacturing sites by their par- Wall came down played a big part in his side there is Jenarbeit, the agency run by ent companies in west Germany; and that decision to start his company: Otherwise the city to nd jobs for those who are un- there is a marked absence of the Silicon I would not have had the exibility. Back employed for more than a year. When la- Valley kind of venture capitalist. But the then, the world fell apart once a week. Mr bour-market reforms were brought in last city is still the best preview available of Russwurm chose Jena because he found year, the city decided against an Arbeitsge- what Germany might be capable of if the conditions there particularly favourable. meinschaft with the Federal Employment state let go. 7 14 A survey of Germany The Economist February 11th 2006
Letting go
Germany needs to loosen up or face decline
NGELA MERKEL has a mission: putting in another. According to a well-worn Ger- ently, perhaps because they have lived AGermany back among the rst three man political adage, everything is linked abroad for a while. They, too, are all too of- of Europe’s top nations within ten years. with everything. ten shut out or not taken seriously. The German chancellor has yet to explain Germany needs to loosen up, and in With the World Cup approaching, foot- what exactly that would mean. But if some ways it is already doing so. For exam- ball may o er a lesson for Germany. The things went well, a repeat of this survey in ple, trade unions have quietly abandoned nation’s favourite sport is currently facing 2015 should be able to report that in the rigid industry-wide collective bargaining. problems similar to those of the country as past decade the country had thoroughly But the state itself still needs to learn how a whole: not only have other countries’ modernised its education system; that un- to let go. Thorough reform of the federal teams got much better, but foreign players employment had fallen to a bearable 3m; system, one that includes an overhaul of have crowded out native ones in the Ger- that recent years had seen a boom in basic the nancial constitution , would give man premier league. In the ranking of the service jobs; and that Germany had be- the Länder more freedom to do their own International Federation of Football Asso- come a top destination for the world’s cre- thing. But the Länder, too, must let go, not ciations, the national team has dropped ative crowd. least by giving schools and universities from second place in 1998 to 16th now. Alas, not everybody believes that this much more autonomy. It was only after the country’s hum- will come to pass. Wolfgang Streeck at the bling in the European Cup in 2004 that the Max Planck Institute for the Study of Soci- If you can’t beat it, join it German Football Association, a clunky, eties, one of Germany’s foremost social Liberalisation is already making inroads over-con dent organisation, accepted the thinkers, reckons that things are getting anyway, although sometimes to the detri- need for action. It hired Jürgen Klinsmann, worse rather than better. Back in 2003, he ment of society’s outsiders. Education? a former German soccer star, as national wrote: There is little hope that the Ger- More and more private schools are being coach. Mr Klinsmann, who lives in Califor- man political system will overcome its opened for those who can pay for them. nia and is seen as a West Coast German , present immobility, making continued so- The labour market? Illicit work is rampant, has refused to move to Germany and still cial and economic decline the most likely with estimates putting it at 15% of GDP. Im- runs his own company. He exudes opti- scenario for the future. Today he goes fur- migration? According to some experts, mism and is willing to ght to get his way. ther: he argues that even a grand coalition Germany is now home to around 1m ille- German football, it seems, is more will- will have to face the fact that the German gal immigrants. ing to embrace change than the country as state, has, perhaps irreversibly, ex- All this suggests that Germany’s future a whole. A monopoly that isn’t capable of hausted its means . lies in greater diversity. It would help the innovating from within will be swept To make a real di erence, the govern- country’s outsiders to share in and contrib- away at some point, says Theo Zwanziger, ment would have to do a whole host of ute to its success and not just the eco- the Football Association’s new vice-presi- things at once: cut payroll and corporate nomically underprivileged ones, but also dent. Germany would be well advised to taxes, balance the budget, reduce debt, in- those who simply see and do things di er- heed his words. 7 vest more in education and infrastructure and integrate immigrants. Yet given that Future surveys the state’s co ers are empty and growth is O er to readers Reprints of this survey are available at a price of likely to remain moderate, that is an im- £2.50 plus postage and packing. Countries and regions possible task. A minimum order of ve copies is required. Chicago March 18th So what is an exhausted state to do? China March 25th To nd an answer, think about Germany’s Corporate o er South Africa April 8th post-war history. Perhaps the main reason Customisation options on corporate orders of 500 Poland May 6th for the country’s success has been its re- or more are available. Please contact us to discuss Business, nance and economics and ideas birth as a semi-sovereign state , a term your requirements. Wealth and philanthropy February 25th coined by Peter Katzenstein, a political sci- Send all orders to: New media April 22nd entist at Cornell University. The state was The Rights and Syndication Department International banking May 20th weak and fragmented and had to rely on 26 Red Lion Square Business in India June 3rd non-governmental bodies, such as trade London WC1r 4HQ unions and employers’ associations, to get Tel +44 (0)20 7576 8000 things done. Fax +44 (0)20 7576 8492 Yet over time, this system, which origi- e-mail: [email protected] nally was quite exible, has become ossi- Previous surveys and a list of forthcoming ed. Changes in one part of the system surveys can be found online have became extremely di cult because www.economist.com/surveys they often have undesirable consequences