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  September 10, 2017

'The Model Economy' in Germany is Growing a Class of Working Poor

General election campaign is in full swing in Germany but little attention is being paid to the high proportion of working poor explains economist Heiner Flassbeck.
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Dr. Heiner Flassbeck graduated in April 1976 in economics from Saarland University, Germany, concentrating on money and credit, business cycle theory and general philosophy of science; obtained a Ph.D. in Economics from the Free University, Berlin, Germany in July 1987. 2005 he was appointed honorary professor at the University of Hamburg.

Employment started at the German Council of Economic Experts, Wiesbaden between 1976 and 1980, followed by the Federal Ministry of Economics, Bonn until January 1986; chief macroeconomist in the German Institute for Economic Research (DIW) in Berlin between 1988 and 1998, and State Secretary (Vice Minister) from October 1998 to April 1999 at the Federal Ministry of Finance, Bonn, responsible for international affairs, the EU and IMF.

Worked at UNCTAD since 2000; from 2003 to December 2012 he was Director of the Division on Globalisation and Development Strategies. He was the principal author of the team preparing UNCTAD's Trade and Development Report, with specialization in macroeconomics, exchange rate policies, and international finance. Since January 2013 he is Director of Flassbeck-Economics, a consultancy for global macroeconomic questions ( Co-authored ACT NOW! The Global Manifesto for Economic Policy published in 2013 in Germany.


SHARMINI PERIES: Welcome to The Real News Network. I'm Sharmini Peries, coming to you from Baltimore.

Germany is preparing for a general election on September 24th. While Germany has a reputation for being a social democracy with low unemployment, strong unionization, and a strong economy, Olivier Cyran of Le Monde diplomatique argued that many Germans live under the poverty line, even if they are employed. Yet, in a recent interview, Chancellor Angela Merkel of Germany responded to the issue of the working poor in Germany as such.

ANGELA MERKEL: I am concerned with trying to provide jobs for as many people as possible. We have improved in the last years and have managed to halve unemployment since 2006, but we have also made sure that minimum earning capacity has improved through the minimum wage. This means that people who work the full day should not be reliant on welfare.

SHARMINI PERIES: On to talk about this with me is Dr. Heiner Flassbeck. He is the former director of the Division on Globalization and Development Strategies at UNCTAD. He is now the director of Flassbeck Economics, a consultancy for global macroeconomic questions. He has also co-authored Act Now, the Global Manifesto for Economic Policy. It was published in 2013 in Germany.

I thank you so much for joining me today, Heiner.

HEINER FLASSBECK: Thanks for having me.

SHARMINI PERIES: So, Heiner, let's start off with that clip we had of Chancellor Angela Merkel. Do you tend to agree that Germany has improved and managed unemployment as she says? Then, of course, if it has improved, has it been at the risk of creating a class of employed-but-poor?

HEINER FLASSBECK: Yeah, it's not true. Let me say it's not true. It's a bit longer story, let me explain a bit from the beginning. What Angela Merkel says is an ideology. It's an ideology of her party, but also it's affecting the Social Democrats, that says if you go for a policy that reduces unemployment, this is the best kind of social policy that you can have. Even if people suffer or if wages fall, this is then absolutely necessary and is justified because falling wages do a good thing, produce a good thing, namely more jobs, which is not true.

You see, this is important to understand. It's not true. In the case of Germany what has happened when Germany has reduced its wages to quite an extent at the beginning of this century, and then what happened, Germany got the opportunity that it was in the currency union and, inside the Currency Union, it has gone for a kind of beggar-thy-neighbor policy, which means Germany has, with its reduction of labor costs, it has improved its competitiveness at the expense of its neighbors, and that is why we have Euro-crisis today and for the last 10 years, so to say. But Germany is doing better in so far, but this is not a recipe for all the countries in the world, not for a big country, not for a big closed economy like the United States or the Europe as a whole.

It was just, so to say, an opportunity that Germany took and it violated by this at least the implicit rules of the Monetary Union. Now the situation is such that Germany indeed has rather low unemployment compared with the other Europeans. Unemployment is falling very slowly, but it's falling quite steadily, but it is not, so to say, the immediate result of the reduction of the social contributions to the poorer people or the reduction of the wages, it's mainly the result of Germany's huge export surplus that we have now, which, as I said, cannot be copied by other countries.

SHARMINI PERIES: Right, now Germany is, of course, surrounded by countries with higher median wages, like Austria, Denmark, the Netherlands, France, and even Switzerland. With the European Union allowing citizens of member states to work in any EU country, one would expect that low-wage workers will just leave Germany. Is that your prediction?

HEINER FLASSBECK: No, that's not. It's not happening because it's not just a question of the wage differences. It's always a question of the labor market situation. As the labor market situation, as I said, in Germany's quite good, people are not tend to leave. Some go to Switzerland. Switzerland has an inflow of German workers, that's no doubt about it, because in Switzerland, also, unemployment is rather low. Denmark is not a country that German people would move to, because they do not know the language.

So it's not a question of big movements. The point is, as I said, that Germany has now a very low minimum wage. It's eight Euros and a little bit, which is much too low given the productivity of Germany. So what is necessary in Germany, if Madam Merkel would really be realistic and would not have her ideology of low wages producing jobs, then she would increase the minimum wage. There would be no problem at all given the very high German productivity.

SHARMINI PERIES: Right, now of course, Heiner, you know all of this is developing as Germany is dealing with a large number of refugees coming into the country that has to be settled and employed. Do you think that this new class of workers, mainly refugees, is going to step up, and the impact that this might have, of course, on unemployment and also continuing this class of employed-but-poor workers in Germany.

HEINER FLASSBECK: Well, let me say first, the refugees is a story of 2015. Now refugees are in Italy and Greece. They are no longer in Germany. There is no refugee inflow at this moment of time for the last three years because Europe has closed its borders overall and those people are coming with boats have to stay in Italy and Greece, as I said.

So Germany has no refugee problem, but when the refugees came, there was one year, 2015, then was the opportunity and Germany could have done that easily because of its very sound public finances, Germany could have increased the social contribution to the poor people to avoid what has happened in the end, namely that the people are scared about the inflow of foreigners and that right-wing parties benefit from that, but Madam Merkel was talking about a welcome culture in Germany but she did nothing to, so to say, reduce the tensions between the poorer people in Germany and the refugees.

SHARMINI PERIES: Right, now having said this, this is also a hot issue in the upcoming election. How does the reality of the working poor in Germany affect the upcoming election? Are there significant difference, for example, between the approach of the two largest parties, the Christian Democratic Union, CDU, and the Social Democratic Party, SPD, about how they plan to address this question?

HEINER FLASSBECK: No, it's not a big difference. Look, the Social Democrats have done it all. The Social Democrats and the Green Party were those in the beginning of the century who reduced the social contributions, who said we have to lower the contributions dramatically to make the people search for work and that will reduce unemployment. As I said, this is the wrong story. Something else happened, but and so far the Social Democrats have never distanced from their own mistakes and so there is no difference between the Social Democrats and the Christian Democrats on this, and, as the most probable outcome will be a continuation of the Grand Coalition, so we will go on for the next four years. And you see these people, the poor people, will not change the outcome of the election because they are four or five million people and many of them will not even go to the election, so that will not change anything.

Germany, the perception of Germany is Germany's doing well. Germany's fine. We don't care about the neighbors. We do not care about unemployment in the rest of Europe, and we do not care about some poor people that we have in the country. It cannot be changed. We are successful, so why should we care about them?

SHARMINI PERIES: All right. Heiner, why is it that you say they will, the working poor in the country, won't show up at the polls?

HEINER FLASSBECK: Well, because this is, the people are frustrated. The people feel that they cannot get anything from no one, even the left-wing or right-wing. But, even some of them are attracted by the right-wing party now, although it's absurd because the most neo-liberal part of all the German parties, but they do not vote for Die Linke, for example, the left-wing party. I don't know why, because they are frustrated and they say, "Well, nothing will change my situation, whoever I vote for. This is unfortunately a fact of life."

SHARMINI PERIES: All right, Heiner, I thank you so much for joining us and we hope to have you back next week as we lead up to the elections in Germany taking place on September 24th.

HEINER FLASSBECK: Okay, thank you for the invitation.

SHARMINI PERIES: And thank you for joining us on The Real News Network.


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