social growth.pdf
TRANSCRIPT
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INTERNATIONAL POLICY ANALYSIS
TheconceptofsocialgrowthpresentedhereistheFriedrich-Ebert-Stiftungs(FES)proposalforaprogressiveeconomicpolicymodel.Theaimistodevelopagrowthmodelthatcombinesprosperityforallwithsustainabilityandjustice.Itsprimarytar-getisGermany,butitisalsointendedtoapplytoEuropeandglobally.
Althoughtheprogressiveeconomicpolicyproposedhereisfocuseddirectlyonover-comingtheeconomicandsocialcrisisbymeansofsocialandthereforefairlystruc-turedgrowth,itsindirectaimistoalleviatetheenvironmentalandpoliticalcrisisinwhichGermany,Europeandtheworldfindthemselves.
Social growth, with its focuson education, health, care and climate protection,putslesspressureonnaturalresourcesthantheconventionalmarket-drivengrowthmodel.Italsodeliverstheresultsthatpeopleexpectfromdemocraticpolitics,namely
jobsandashareintheprosperitythesejobscreate.
Inthisway,socialgrowthconfersalegitimacyondemocracythatseemstohavebeenlost,notsomuchbecauseofmistrustinitsprocedures,butratherthepaucityofsociallyacceptableoutcomesinotherwords,statesinabilitytogovernmarketsintheinterestsofsociety.
Social GrowthModelofaProgressiveEconomicPolicy
January2012
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Content
Preliminary Remark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1. The Problem: Unbalanced Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. The Entangled Debate between Market Liberals and Growth Sceptics . . . . . . . . . 5
3. The Concept of Social Growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Work,Productivity,Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 DemandandDistribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 StateandMarket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 EuropeanIntegrationandGlobalisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. Compass for the Future: A Progressive Economic Policy. . . . . . . . . . . . . . . . . . . . 12
4.1 OvercomingtheDebtCrisis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 ScenariosforaSocialGermany. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 SustainableGrowthfortheWorldEconomy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 DemocraticGovernanceofInterdependentEconomies . . . . . . . . . . . . . . . . . . . . . . 14
5. A 10-point Programme for a Progressive Economic Policy. . . . . . . . . . . . . . . . . . . .16
5.1 GuaranteeaStableSupplyofCreditwithEffectiveFinancialMarketRegulation. . . . 16
5.2 UseEducationPolicytoBoosttheForcesofGrowthand
ExpandOpportunitiesforAll. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 OpenUpNewAreasofGrowthwithIndustrialPolicy . . . . . . . . . . . . . . . . . . . . . . . 18
5.4 StrengthenthePositionofEmployeesbymeansofMinimum
WagesandCodetermination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205.5 FundPublicTasksProperlyandFairlybyReformingTaxPolicy. . . . . . . . . . . . . . . . . . 20
5.6 StabilisetheEconomyandtheDebtSituationbymeansof
anAnti-cyclicalFiscalPolicy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.7 StrengthenForcesforGrowthinEuropebymeansofaRobustPublic
FinancialArchitecture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.8 ProvideforMoreStabilityintheEurozonebymeansof
Economic-policyCoordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.9 EnsureDecentWorkforAllbymeansofEuropeanandGlobalStandards. . . . . . . . 25
5.10ManageGlobalisationbymeansofaNewEconomicandMonetaryOrder. . . . . . . . 25
6. Epilogue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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PreliminaryRemark
The concept of social growth presented hereis the
Friedrich-Ebert-Stiftungs(FES)proposalforaprogressive
economicpolicymodel.Theaimistodevelopagrowth
modelthatcombinesprosperityforallwithsustainability
andjustice.ItsprimarytargetisGermany,butitisalso
intendedtoapplytoEuropeandglobally.
Althoughtheprogressiveeconomicpolicyproposedhere
isfocuseddirectlyonovercomingtheeconomicandso-
cialcrisisbymeansofsocialandthereforefairlystruc-
turedgrowth,itsindirectaimistoalleviatetheenviron-
mentalandpoliticalcrisisinwhichGermany,Europeand
theworldfindthemselves.Socialgrowth,withitsfocusoneducation,health,careandclimateprotection,puts
lesspressureonnaturalresourcesthantheconventional
market-drivengrowthmodel.Italsodeliverstheresults
thatpeopleexpectfromdemocraticpolitics,namelyjobs
andashareintheprosperitythesejobscreate.Inthis
way,socialgrowthconfersalegitimacyondemocracy
thatseemstohavebeenlost,notsomuchbecauseof
mistrustinitsprocedures,butratherthepaucityofso-
ciallyacceptableoutcomesinotherwords,statesin-
abilitytogovernmarketsintheinterestsofsociety.
Thistextisbasedonawealthofstudiesandreflections
thathaveemergedinrecentyearseitherwithintheFES
orcommissionedbyitpartlyinthecourseofthepro-
ject Germany 2020 (20072009), partly within the
frameworkofitssuccessorprojectSocialGrowth.The
longbibliographyincludesthesepublications,butalso
reflectsthediversecontributionsofprominentexperts.
Within theFES, Ren Bormann, Michael Dauderstdt,
PhilippFink, SarahGanter,SergioGrassi,BjrnHacker,
MareiJohn-Ohnesorg,GeroMaa,ChristophPohlmann,
MarkusSchreyer,HubertSchillingerandJochenSteinhil-
bercollaboratedwithintheframeworkofataskforce.
Summary
Theeconomicandfinancialcrisishaslaidbaretheweak-
nessesofthedominantgrowthmodelinnouncertain
terms.Manifestly,thisgrowth,whichwaslargelyaban-
donedtomarketforces,wasnotsustainable.Bolstered
byageneralrollingbackofthestateandaliberalisation
of labour markets, in Germanyand indeed worldwide
incomeinequalityincreased.Thiswascompoundedby
evermorelopsidedeconomicdevelopment,drivenbythe
globalisationoffinancialmarkets,leadingtoanexplosion
offinancialassetsandcorrespondingdebts.
Internationally,thisdevelopmenttooktheformoflarge
imbalancesininternationaltradeandcapitalmovements.
Tothisday,thehighcurrentaccountsurplusesofsome
countriesarematchedbythehighcurrentaccountdefi-
citsofothercountries.Overtheyears,thesesurpluses
anddeficitshavegeneratedahighlevelofexposureand
foreigndebtswhich,togetherwiththepublicdebtwhich
hasincreasedsharplysincethecrisis,havereachedalevel
thatisno longersustainable.Debtreductionstrategies
arenowthereforecalledforthatgenerallyentailarever-
salofcurrentcapitalflows.However,theburdenofad-justmentcannotbebornebythedeficitcountriesalone;
thesurpluscountriesandGermanyinparticularmust
alsoparticipate.
A simple return to pre-crisis businessas usual scarcely
seemsconvincing.Ifmorebalancedandsocialgrowth
istobeachievedwehavetobidfarewelltotheideaof
efficientfinancialmarkets.Thecrisishasshownthat
marketsarecharacterisedratherbyherdbehaviourand
regularlyprecipitatedchangesofsentiment.Handing
overcapitalallocationtothefinancialmarketsalonehas
ledtocolossalerrors.Inlightoftheseenormousmarket
failures,effectiveregulationofbanksandfinancialmar-
kets and a more emphatic social and industrial policy
commitmentbythestatearecalledfor.
Thegoalofthesocialgrowthmodelproposedhereisa
changeofcourseineconomicpolicyandthebolstering
ofdomesticdemand.FuturegrowthinGermanyislikely
tobenotprimarilyinindustrybutinservices.Thereisa
greatdealofcatchinguptodo,especiallyinsocialser-
vices,suchaseducation,healthandcare.Manyneeds,
inparticularthoseoflowandmiddleincomeearners,cannot be satisfied because of a lack of purchasing
power.Thatiswhyanewsocial,macroeconomicallyvi-
able,structurallycoherentandequitablegrowthmodel
isneededthatcanabsorbtheunemployedortheunder-
employedinagrowingservicesectorwithdecentwork;
increaseemploymentandproductivityoverall;andim-
proveincomedistribution.
In order toreduce the inequalitywhich is one ofthe
causesofthecrisistaxpolicymustbeusedmorevigor-
ously,forexample,byraisingthetoptaxrateandrein-
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troducingthewealthtax.Inordertoreduceimbalances
in the Eurozone,coordination of wagepoliciesmakes
sense,asdoesclosercoordinationofeconomicpolicy,
includingthesurveillance of currentaccountsurpluses
anddeficits.Jointeurobondscouldbethebeginningof
genuine,evenfiscalintegrationwithintheEurozone.
Socialgrowthmustguidethemarkets,notonlyinEu-
ropebutalsoglobally,directingtheireffectsalongso-
ciallydesirablepaths.Thisincludesminimumstandards
withregardtoworkingconditions,safeguardingthewel-
farestateandacoordinatedglobalmonetarypolicythat
controlsexchangerateupheavalsthatareharmfulforthe
realeconomy.Aprogressiveeconomicpolicyimplement-
ingthismodelshouldthereforebebasedonthefollow-ingten-pointprogramme:
1. Guarantee a Stable Supply ofCreditwithEffective
FinancialMarketRegulation.
2. UseEducationPolicytoBoosttheForcesofGrowth
andExpandOpportunitiesforAll.
3. OpenUpNewAreasofGrowthwithIndustrialPolicy
4. StrengthenthePositionofEmployees bymeansof
MinimumWagesandCodetermination.
5. FundPublic TasksProperly and Fairly byReforming
TaxPolicy.
6. Stabilise the Economy and the Debt Situation by
meansofanAnti-cyclicalFiscalPolicy.
7. StrengthenForcesforGrowthinEuropebymeansof
aRobustPublicFinancialArchitecture.
8. ProvideforMoreStabilityintheEurozonebymeansofEconomic-policyCoordination.
9. Ensure Decent WorkforAllbymeans ofEuropean
andGlobalStandards.
10.ManageGlobalisationbymeansofaNewEconomic
andMonetaryOrder
1.TheProblem:UnbalancedGrowth
Theglobaleconomicandfinancialcrisisthatbrokeout
in2007hadonlyjuststartedtoshowsignsofbeingat
leastpartlyovercomewhenitreturnedwithfullforce.
Whileinsomestatestheenormousfinancialassetsand
gross domestic product (GDP) of the pre-crisis period
havemore or lessbeen restored, unfortunately others
continuetosufferfromtheconsequencesofthecrisis
intermsoflowgrowth,higherunemploymentandris-
ingpublicdebt.Thenowalarminglevelofpublicdebt,
however, is not least a result of the anti-crisis policies
that,bymeansofbankbailoutsandeconomicstimulus
packages,hadenabledtherapidovercomingofthecri-
sisinthefirstplace.Nowthefinancialmarketcrisishasbeentransformedintoapublicdebtcrisiswhichinturn
threatenstotriggeranewbankingcrisis.
Theeconomiccrisisshowsthattheprevailingmodelof
economicgrowthhasfundamentalweaknesses.Asimple
returntopre-crisisbusinessasusualscarcelyseemspossi-
ble.Inkeepingwiththis,abroaddebaterecentlygotun-
derwayonthebenefitsanddisadvantagesofeconomic
growth. This goes hand in hand with another debate
onstateandmarketfailurescausedbythefinancialand
economiccrisis. Weneed tounderstand the mistakes
thatresultedfromunguidedgrowthprocessesin order
tobeabletodevelopalternativestrategies.Themodel
ofsocialgrowthservesthisverypurpose.Agrowth
modelmustbeoutlinedthatissociallybalancedandthus
alsolesscrisis-prone.Thisentailsamoreactiverolefor
thestate,notonlydomesticallybutalsointernationally
withintheframeworkofcooperationandinthecoordi-
nationofeconomicandsocialpolicy.
Thecrisisdidnotemergeoutofnowhere.Itscauseslayin
alongperiodofunbalancedglobalgrowth,accompanied
byincreasinglyunequalincomedistributionthat,inturn,ledtoanexplosioninfinancialassets.Theseassetshad
theirdownsideinenormousdebtsarisingfromaccumu-
latedstatebudgetandcurrentaccountdeficits.Inmany
countries,this wascompounded by theoverindebted-
nessofprivatehouseholds,forexample,intheUnited
States,theUnitedKingdom,Greece,SpainandIreland.
Insomecountriesforexample,theUnitedStates,Japan
andGreecethepublicauthoritiesgotdeeplyintodebt
financingthedemandneededforgrowth.Therapidpar-
alleldevelopmentofdebtsandassetsuptotheoutbreak
ofthecrisiswasmadepossiblebythelackofregulation
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ofglobalfinancialmarketsandbecausethelatterdis-
tributedriskrecklesslyandwithoutpropertransparency
orcontrol.
In this way, large imbalances accumulated in interna-
tionaltradethatcouldnotbeequalisedviamarketor
pricemechanisms,butbecameentrenched.IntheEu-
rozone, despite robust growth, divergences between
thememberstatesinrecentyearshaveincreasedstead-
ily.The EuropeanCentral Banks(ECB)singlemonetary
policyencourageddebt-drivenasymmetricalgrowthin
theformerhigh-interestratecountriesofSouthernEu-
rope, withmarked currentaccount imbalances, which
collapsedinthefinancialmarketcrisis.
Thislopsidedgrowthwasmadepossiblebyensuinglong-
termtrendsthat,inturn,hadandcontinuetohave
repercussionsforglobalgrowth(Dauderstdt2011b):
Globalisation:Theinternationalisationofmarketsfor
information,capital,goodsandservicesandlabourhas
fosteredgrowthsincearound1990.Thetransformation
offormercommunisteconomiesespeciallyChinaand
theincreasing involvement of developingand emerg-
ingcountries in the global economy have enabled an
internationaldivisionoflabourandgainsfromspeciali-
sation,thusboostingproductivity.Inglobalterms,this
hasledtogreaterprosperity.Ontheotherhand,thisex-
clusivelymarket-andcompetition-orientedglobalisation
hasforcedallthecountriesconcernedtoundergomajor
upheavalsinordertoadapttothenewcircumstances.
Increasinginequality:Risingincomesbecameincreas-
inglyunequallydistributedsincethedistributivepower
ofstatesandtradeunionsoremployeeswasweakened
byglobalcompetitionfortaxrevenues,productionloca-
tions,investmentandjobsinfavourofcorporations,as-
setholdersandinvestors.Inpractice,arisingprofitshareandafallingwagesharecanbediscernedinallcountries,
aswellasawideninggapbetweenrichandpoorasa
consequenceoftheextremelyunequaldistributionofthe
fruitsofglobalisation.
Crisis-prone financial markets: The liberalisation of
global capital markets has also meant that thefinan-
cialsectortodayoperatestoalargeextentisolatedand
disconnectedfromtherealeconomy.Short-term,often
speculativecapitalmovementsthreatenthestabilityof
financialandeconomicsystems.Inrecentyearsanddec-
ades,therefore,theglobaleconomyhasincreasinglybe-
comemorecrisis-prone.
Atfirstsight,Germanyseconomyespeciallyitsexport
economyhasbenefitedfromthesedevelopments.It
offersarangeofproductscapitalandluxurygoods
forwhich,thankstotheinequalityofglobalgrowth,de-
mandabroadisstrong.Germanyhasinternationalised
itsproductionprocesses,theoutcomeofwhichisaby
internationalcomparisonstrongandrelativelylargein-
dustrialsectoralongsidearelativelysmallservicesector.
Oncloserexamination,however,anumberofproblem-
aticdevelopmentscanbediscernedinGermany.Forex-
ample,becauseofitsstrongdependencyonitsexportin-dustrytheGermaneconomyisextremelypronetocrises
abroad.Thisaffectsnotonlythebankingsector,which
inthe wake ofthe globalfinancial crisis was brought
tothebrinkofdisasterandhadtobebailedoutbythe
state,butalsotherealeconomy.Ataroundminus5per
cent the collapseof growth inGermanyin 2009 was
amongtheworst,byinternationalcomparison.Although
unemploymentincreasedonlymoderatelythisconcealed
amassivefallinhoursworkedduetoreductionsinwork-
ingtimeaccountsandshort-timeworking.
Inalongertermperspective,too,Germanysgrowthand
employmentdynamic is disappointing by international
comparison.Growthwasratherweakupto2005due
toitspredominantdependenceonexportsurplusesat
theexpenseofdomesticdemand.Alsoalarmingisthe,
byinternationalcomparison,lowandrapidlydeclining
aggregateproductivitygrowth(vanArketal.2009).The
unemploymentfiguresinGermanywerehighforacon-
siderableperiod,evenbeforethecrisis.Thankstothead-
vanceoffinancialmarketcapitalismandalabourmarket
policythatpromotesprecariousemploymentrealwages
stagnated. Inequality of income and wealth increasedmore rapidly than in almost any other OECD country
(Bontrup2010).Thelowqualifiedinparticularcontinue
tobeunabletoenterthelabourmarket.Accordingly,al-
readyduringtheyearsbeforethecrisisfewerandfewer
peoplebenefitedfromeconomicdevelopment;opportu-
nitiesforeconomicandsocialmobilityhavedeteriorated
andtheriskofpoverty(especiallyinoldage)hasrisen.
Theseserioussocialproblemsthreatennotonlyfurther
economicdevelopment,butalsosocialcohesion.
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ThestateinGermanyhasalsopulledbackfrommany
areasofeconomicandsociallifeinrecentyears.Thisis
reflected,ontheonehand,inthedevelopmentofgov-
ernmentexpenditurerelativetoGDPwhich,shortlybe-
forethecrisis,felltothelowestvaluesincereunification.
Asaconsequenceofthis,inthepublicsectorGermany
nowhasoneofthelowestinvestmentandexpenditure
ratiosforinitialandfurthertraining,aswellasforpublic
infrastructure.Thishasdampenedeconomicgrowthin
recentyearsandunderminesthebasisforfuturegrowth.
Thetaxratiohasalsofallensharplyinthewakeofexten-
sivetaxcuts,asaresultofwhichthestate,inthepast
tenyearsalone,hasforgonerevenuesofaround350bil-
lioneurosandnowstandsataverylowlevelbyinterna-tionalcomparison.Thegoalofusingtaxcutstostimulate
investmentactivity amongprivate companies was not
achieved,however.Instead,thesetaxcutshavereduced
the redistributive capacity of the German tax system.
Capitalandassetsarescarcelytaxedanymore,which
servesonlytoaccelerateincomeandwealthinequality
evenfurther.Incontrast,therecipientsofearnedincome,
especially medium incomes also asconsumers are
effectivelybearingmoreandmoreoftheaggregatetax
andcontributionburden.Asaresult,thestate,andpri-
marilytheLnderandthemunicipalities,whichcarrythe
bulkofpublicinvestment,lackthefinancialmusclethey
needtocopewithtasksastheyarise.Noteventhegoal
ofreducingthepublicdebtcouldbeachieved.German
publicdebtgrewduetothelongperiodofweakeco-
nomicgrowthandhighunemploymentevenbeforethe
crisisandincreasedsharplyinthewakeofthefiscalpolicy
bailoutsneededtoovercomethecurrentcrisis(Priewe/
Rietzler2010).
Becauseofitsstrongexportorientation,growthinGer-
manyslumpeddramatically(minus5percent).Onthe
otherhand,itwasabletorecovermuchmorequicklythanothercountriessinceitbenefiteddisproportionately
from the recent global upturn. The latter came about
becauseofthegovernmenteconomicstimuluspackages
andmassivelyexpansivecentralbankmonetarypolicies
appliedworldwide.Theeasingofthelabourmarketper-
mitted modest nominal wage rises. Nevertheless, the
German economy has returned to its export-oriented,
unbalancedgrowthmodel.Thecurrentlyverylowreal
interestratesowingtolownominalinterestratesand
slightly higher inflation alsostrengthen growth.The
post-crisis economic miracle, however, depends on
Europeanandglobaldemand,asitdidbeforethecrisis.
Thedevelopingandemergingcountrieswhichatpresent
aresupportingtheglobaleconomicupturnarehavingto
contendwiththeoverheatingoftheireconomies,specu-
lativecapitalinflowsandloomingassetpricebubbles.
Thereareconsiderablemacroeconomicrisksandpublic
policyshortcomings,bothinEuropeandglobally,which
makethebasisoftheupturnappearfragileandthedis-
tributionofitsbenefitsunfair.
Economiccrises are likely toget worseif theircauses
arenotaddressedandtheirmanifestationsarenotad-
equately regulated and subdued. Unguided economic
growthwillaugmentfurtherriskydevelopmentsworld-
wide: for example, in the past,economicgrowth hasacceleratedgreenhousegas(CO2)emissionsandcaused
thepriceofmanyrawmaterialstorise.Climateprotec-
tionposesamajorchallengeforcollectiveactionatthe
globallevel since polluters households, corporations
andcountriescanfree-rideonthosewhomakeecono-
mies.Theloomingcompetitionforaccesstorawmate-
rialswillintheidealcaseleadtomorecompetition
among importers of raw materials for the markets of
theexportingcountries(sothattheyareabletopayfor
thoserawmaterials)andtoaracetoimproveresource
efficiency,butitcouldalsoturnintoconflictsforterrito-
rialandeconomiccontrolofnaturalresources.
Worldpopulationgrowthisalsoprogressivelybecoming
athreattogrowth,althoughinthepastithasdonemost
tobolstereconomicgrowth.Demographictransitionto
stableorshrinkingpopulationsalongsiderisinglifeex-
pectancyisdramaticallychangingtheagestructureof
societies.Laboursupplywilltendtodecrease,whilethe
needsandexpectationsoftheolderpopulationwillin-
crease.Thepainentailedbythisdemographictransition
willstarttobefeltinGermanyonlyfrom2020,although
itwillprobablyhavethepositivesideeffectofreducingunemployment.
2.TheEntangledDebatebetweenMarketLiberalsandGrowthSceptics
Currentinterpretationsofthedominantgrowthmodels
crisistendenciesvarywidely.Ontheonehand,thereare
thoseadvocating approaches aimedat legally codified
solutionsbasedonpoliticalconsensusanddemocratically
legitimisedasfaraspossible.Theseshouldbeglobalor
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atleastmultilateral,Europeanornational.Ontheother
hand,therearethosewhoareconfidentthatwithina
ratherminimalstate framework competition between
nation-states,enterprisesandindividualswillleadtoso-
lutionstothecurrentproblemsatnational,Europeanand
globallevel.Forcreditorstates,assetholdersandthema-
jorityofemployerstheappealofthisoptionisthatthese
solutionstendtoreflecttheiraptitudesandinterests.
Thislandscapeistraversedbyacleavagebetweenthose
whoadvocateglobalisation,Europeanisationandgrowth
andthosewhoabjurethem.Thelatterwanttorestrain
globalisationinfavourofnational,regionalandlocalcir-
culationofgoodsandfinanceandtorenouncegrowth;
theformer welcome such developments, even if they
maywishto organisethemdifferently. Thoseabjuring
growthencompassbothradicalright-andleft-wingpo-
sitions,theformerseekingsalvationinthedismantling
ofglobalisationinfavourofnational,regionalorlocal
circulationofgoodsandfinanceandareturntopopulist-
nationalistpolitics,whilethelatterdreamofconstructing
eco-socialisminonecountryreleasedfromthedictatesof
theworldmarketandofgrowth.Theyalsodemandthe
contractionofgrowth(degrowth)in ordertoenable
developingandemergingcountries,takingintoaccount
environmentallimitations,togrowfurther.
Box 1: Why growth at all?
Criticsofgrowthofaconservative(Miegel2010),green(Seidl/Zahrnt2010)andleft-wing(Passadakis/Schmelzer
2011)persuasionfundamentallycallintoquestionthewisdomoffurthergrowth.Itisnotenvironmentallysustain-
able,nolongerfulfilsgenuineneeds,doesnotmakepeoplehappyandisbasedontheexploitationofnature
andpeople,especiallyinpoorercountries.Thecompulsionformoregrowthissupposedbysometobetheresult
oftheneedtofinancesocialsecuritysystemsastheyarecurrentlysetupandbyotherstoresultfromtheneed
tosatisfythecommercialinterestsofcapital.
Thiscriticismdoesnotholdwater.Growthisimportantinordertomeetmajorsocialneedsthathavenotyet
beensatisfied.Growthalsomakessenseinbranchesandareaswhichremainunderdeveloped,suchaseducation,
careandclimateprotection.Economicgrowthneednotconsumemorerawmaterialsandenergy.Forexample,
itcanalsoresult fromthetransformationofhouseholdactivities intomarket-relatedemployment.Growth is
thereforenottoberejectedacrosstheboard.Itismuchratheraquestionofwhichotherrealgoodsandservices
shouldbeprovidedandwhoseincomesshouldgrow.Moreeducation,care,healthandrenewableenergiesare
sociallydesirable.TheincomesoftheworldspoorestandevenpoorpeopleinGermanyshouldalsoincreasein
theforeseeablefuture.
However,growthisbynomeansanautomaticpanacea.Forexample,althoughuncriticaladvocatesofgrowth
arekeentopointoutthatwithoutgrowthfullemploymentandfairerdistributioncouldnotbeachieved,thatis
onlyahalf-truth.First,fullemploymentcouldalsobeachievedthroughtheredistributionofnecessaryworkand
income,evenifthatwouldbemuchmoredifficultpoliticallywithoutgrowth.Second,growthisnoguaranteeoffullemploymentandmoreequitableincomedistribution,asthepasthasshown.Inordertoachieveormaintain
fullemployment,growthmustbeovertheemploymentthresholdprovidedbyaggregateproductivityincreases.
Buttheseproductivitygainscanaswasfrequentlythecaseinthepastalsobeconvertedintomorefreetime.
Thisshouldbedistributedinsuchawaythatlargegroupsofemployeesarenotunemployedlongterm,butrather
everyonehasshorterweeklyworkinghours,moreholidaysorlongerretirementinoldage.
Inthefinalanalysis,growthcontinuestomakesensewheretherearestillmajorunsatisfiedneeds,whether
amongpoorpeopleonlowincomesorinsectorswithlowpurchasingpowerbutsubstantialneed(Dauderstdt
2010a).Incontrast,thereshouldbenoincreaseinluxurygoodsthatscarcelyenhancesocialprosperity.
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InGermanyspartypoliticallandscaperadicalpositions
havesofarplayedarelativelyminorroleandmaybe
foundalmost exclusively outside parliament.Although
critiquesofgrowthandglobalisationandEuroscepticism
arefrequentlyencounteredinthepublicdebate,opting-
outsofaratleastisnotaseriouspoliticalstandpoint.
However,therearealsoconsiderabledifferencesamong
thosewhobasicallyadvocategrowthandbelieveittobe
necessary,forexample,withregardtotheextentoftheir
willingnesstoseeksupranationalsolutions,takeglobal
andEuropeanresponsibilityandexercisesolidarity.
Thesedifferencesmanifestthemselvesinparticularwith
regardto:
thedemocratic and social management/governance
ofglobalisation;
the relationship between supply-side and demand-
sideorientationsineconomicpolicy;
thesignificanceofcooperationandcompetitionbe-
tweenstates;
theissueofthecontainmentofglobalmarketses-
peciallythefinancialmarketsbyinternationallyagreed
standardsandregulations.
TheGerman economicpolicy debate isdominated by
thetraditionalcleavagebetweenthosewhoattachmore
importancetomarketforces,privateinitiativesandper-
sonal responsibility andthosewho wish to establish
moreegalitariansocialorevenmoreecologicalrelations
bywayofstateinterventioninandagainstthemarket.
Thegovernanceroleofthestateisnotindispute.Inthe
firstcamptherelianceisonsupply-sideforces,which
areobstructedbyexcessivegovernmentregulation,too
hightaxesandstrongtradeunions;intheothercampallthisisregardedasnecessarycorrectionformarketfailure.
Whiletheformerregardinequalityasanaturalconcomi-
tantofgrowthandtobeaccepted,thelatterconsiderit
tobearesultofmarketpowerwhich,alsointheinterest
oflong-termgrowth,mustbeevenedout.
3.TheConceptofSocialGrowth
Theconceptofsocialgrowthisintendedtodefinea
paradigmthatoffersanalternativetothedominantdis-
coursebasedonmarket-drivengrowth,butalsothecur-
rentlyfashionablescepticismaboutgrowth.Theideaisto
redefinesuchkeynotionsaswork,valuecreation,
productivity,investmentanddebtandtoinstitute
aneconomicpolicyrevamp.Themainpointhereisthe
recognitionthatmarketsingeneraland,inparticular,
financialmarketshaveprovenunsuitableforprovid-
ingrationalresourceallocationandincomedistribution.
Socialneeddiffersfundamentallyfromunequallydistrib-
utedpurchasingpower.Thisapproachwillbeexpressed
intermsofconcreteeconomicpolicyrecommendations,
whose embedding in the social growth paradigm
willtheideaisconferonthemstrongerjustification
andmoreconsistency.
Socialgrowthisintendedtoofferasmanypeopleas
possibleanopportunityfordecentworkandasharein
socialprosperity.Needlesstosay,onecandistributeonly
whathasbeenproducedbutpeopleshouldalsoreceive
theirpropershare.Thescopefordistributionopenedup
byrisingemploymentandproductivityincreasesshould
beusedformoreprivateandpublicconsumptionandin-
vestment,butalsomorefreetime.Thatincludesshorter
workingweeks,morevacationsandalongersafeguarded
retirement.Morejobsandproductivityincreasesrequire
investmentintangibleandintangiblecapitalstock,in-
cludinghumancapital.Thesesocialinvestmentsmustbe
promoted,channelledandliberatedfromthefinancial
marketcasino(Dauderstdt2010d).
3.1Work,Productivity,Investment
Onthesupplyside,economicgrowthresultsfrommore
workand/orhigherproductivity(seeFigure1).Botharise
primarilyfrommoreinvestment,whichcreatesnewjobs,
or,bymeansofamodernisedcapitalstock,makeslabour
moreproductive.However,thethreekeygrowthfactorsrequireamoreprecisedefinitioniftheyaretomeritthe
predicategoodorsocial.
Decentworkisworkthatisproperlypaidandthusen-
ablesworkingpeopletolookafterthemselvesandtheir
familiesadequately.Italsoallowsemployeestohavea
say in theirworkplaces.Theseconditions arebestful-
filledwithfullemploymentsincethatconferssubstan-
tialmarketpoweronwageearners.Itshouldbenoted,
however,thatadditionalemploymentthatreplacesun-
declared(black)work,workinthehomeorvoluntary
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workcreatesnewprosperityonlytotheextentthatitis
moreproductive.
Social productivitydiffers from productivityas tradi-
tionallyunderstoodandmeasuredinthatittakesintoac-
count(negative)externaleffectsandexcludesincreases
inefficiencyachievedattheexpenseoftheemployees.
Thevalue ofa product good orservice expresses
a social need.Value creation can also result from im-
provements inqualityfromthe consumersstandpoint.
Apparentproductivityrisesachievedsolelybymeansof
higheroutputorlowerinputprices,workintensification
(in otherwords,more work inthesametime),a con-
cealedreductioninqualityoranorientationtowardsan
elitistdemandstructureresultingfromunequal incomedistributiondonotincreaseaggregatesocialwealth.
Social investments are expenditure that generate
growtheitherbycreatingjobsorincreasingproductiv-
ity.Restructuringofassetsbetweendifferentfinancialin-
vestmentvehiclesdoesnotcount.Besidesthetraditional
investments of private entrepreneurs in better capital
stockandthusinnewormoreproductivejobsgovern-
mentspendingnotonlyinbricksandmortar(inother
words,infrastructure)butalsoineducation,researchand
healthcounts.Thespendingofprivatehouseholdson
housing, educationandso on alsoincreaseprosperity
overthelongterm.
Investmentoccursintheprivateeconomyonlyifinves-
torscanexpectanincomestreamtojustifytheoutlay,
whichisoftenfinancedbyloans.Enterprisesexpectde-
mandfortheirproducts;thestateexpectshighertaxrev-
enues;privatehouseholdsexpectrisingincomeand/or
lowercosts(forexample,onrent).Theseincomesarise
onlyifotheractorsincurthecorrespondingexpenditure.
Forthatpurposetheyneedaccesstoincomeorcredit
(seeSection3.2).
Ontheonehand,notallprivateeconomicinvestmentis
usefulwithregardtosocialgrowthperse,whileonthe
otherhandtheprivateeconomysystematicallyneglects
sociallyvaluableinvestments.Thismarketfailurethrows
upthequestionofwhatshouldgrowinthefuture.Al-thoughtheindustrialsectorwillcontinuetooccupyan
importantpositionintheGermaneconomyitcannotbe
assumed that,on balance, its growth will in the long
termleadtomoreemployment.Infact,theGDPshare
oftheindustrialsectorandinemploymenthasbeende-
cliningforseveraldecadesinmostdevelopedcountries,
althoughinGermanythistrendhasbeenslower.Indirect
contrast,employmentinserviceshasrisen.Thereisstill
considerable employmentpotential in the latter, espe-
ciallyinsocialservices.
Socialgrowthwillalsotakeplacepredominantlythrough
the expansion of service provision, especially in areas
suchaseducation,careandhealth.Here,too,growth
Figure1:Thesupplysideofsocialgrowth
Social growth Value=socialneedFullemployment
Codetermination Socialproductivity SustainabilityDecentwork
Socialinvestments Quality
(forconsumers)
Socialwork:
Housework,
voluntarywork,
undeclaredwork
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willresult,ontheonehand,inadditionalemployment
and, on theother, from higherproductivity. The new
jobsarepartlyabsorbing,atpresent,theunemployedor
thoseinvoluntarilyworkingonlypart-time,andpartlyser-
viceswithinthefamilyarebeingtransformedintomarket
services.This increases GDP, although social prosperity
increasesonlytotheextentthatmarket-orientedworkis
moreprofessional,moreproductiveandofhigherquality.
Itwaslongfearedthatservicesproductivitycannotreally
increase(knownasBaumolscostdisease).However,
thisthesis bracketsoutimportantproductivity compo-
nents,suchasqualityandintangiblecapital.
3.2DemandandDistribution
Social growth requires likeevery stable and sustain-
ablegrowthprocessadequatedevelopmentofaggre-
gatedemand.Socialdemandisconstrainedbytheag-
gregateofincomes,statetransfersandadditionallend-
ing(seeFigure2).Incomeshaveanimpactondemand
onlyiftheyareeitherspentdirectlyoraredivertedvia
thestatetaxesandcontributionsorviathefinancial
sectortothosewhospendthem.Asarule,themoney
divertedviathestateisspentsinceboththerecipients
oftransferpaymentsandthestateasproviderofpublic
goodsbarelysave.Concerningthesavingsmadeavail-
abletothefinancialsectorthingsaremoreproblematic
sincetheycanflowintoinvestmentvehiclesthatscarcely
stimulatetherealeconomy,atleastdirectly.However,the
financialsectorespeciallywhenthecentralbanksmon-
etarypolicyisaccommodatingcanalsocreateloansbe-
yondthesavingsofotheractors(mainlyhouseholds,but
alsocompaniesand,rarely,thestate).Onlytheseloans,
whichexceedsavings,feedgrowth.
Growthindeedrequiresthatsectorsoractorsarewilling
toincur debtand thusto absorb the savingsof other
actorsorsectors.Withoutthiswillingnesstoincurdebt
growthwouldgrindtoahaltsinceotherwiseincreasing
supplywouldnotfindsufficientdemand,otherthanvia
falling prices. Thiswillingness depends on the interest
rate.Interestratesmustbelowerthanexpectedreturns.
Withregardtotheeconomyasawhole,however,thebankofissuemustselecttheinterestrateinsuchaway
thattheresultingtotallendingandthecorresponding
demanddonottoofarexceedrealsupplyopportunities
andonlyleadtoinflation.InthepasttheGermanBun-
desbankortheEuropeanCentralBank,fromtheGerman
pointofview,tendedtoacttoorestrictivelysothatde-
mandfellbelowpotentialsupplyandgeneratedunem-
ploymentandweakgrowth.
Fora while, therefore, borrowing cancompensatefor
a lack ofdemand owingto low wages, as happened
in the United States in the yearsbefore the outbreak
ofthefinancialcrisisin2007.TheUSexampleshows,
however,thatescalatingdebtcannotbeasustainable
Figure2:Circulationofincome
Householdincomefromwagesand
otherearnings,aswellassocialtransfers
Transfers
Taxesand
contributions
Lendingby
thefinancialsector
Consumerspending
Productionfor
themarket
Productionofpublic
goodsandservices
Savings
Householdincomefromwagesandotherearnings,aswellassocialtransfersplusnewnetdebt
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substitutefortoolowandunequallydistributedincomes.
Highincomesleadtoahighsavingsrate.InGermany
andmanyothercountriesincomedistributioninthepast
twentyyearshasbecomemarkedlymoreunequal.The
incomesofthericherpopulationstratahasrisenmuch
morequicklythanthoseofthepoorerstrata.Thishasnot
onlydampeneddemandbuthascausedtheemergence
ofademandstructureincreasinglyorientedtowardsthe
interestsofwealthierhouseholds(luxuryandpositional
goods).Thistrendwasreinforcedbythediminishingtax
burdenon wealthierhouseholds.Thesetax breaksalso
limitedthecapacityofthestatetosatisfysocialneedsfor
publicgoodsandservices.Infuture,therefore,itmustbe
ensuredthatadditionalvaluecreationisalsosharedby
employees.Onlyinthiswaycanweakdemandbepre-ventedfromhinderinggrowth.
3.3StateandMarket
Forastart,thecirculationofincomebetweensupplyand
demandoperatesregardlessofwhethersocialneedsare
metpubliclyandcollectivelyorprivatelyviathemarket.
Thefrequentlyexpressedassumptionthattaxesandcon-
tributionslowerdemandiswrong,asalreadyexplained.
Onthecontrary,demandandsupplywillbecreatedand
additionalemploymentandgrowthwillresult,whenthe
stateundertakesanyexpenditurenotundertakenbythe
private sector. What justification scepticismabout the
statedoeshaveconcernstheassumptionthatthestate
mightbealessefficientsupplierthanthemarketand
privateenterprise.Onlyinthiscasecouldmoregrowth
beexpectedfromprivatisation.
Onepossibleadvantageofthemarketisthebetterad-
justmentofsupplytodemandviathepricemechanism.
Ideally,priceswouldreflectsocialpreferencesandguide
the factorsof production towards those activitiesthatfurnishthesupplycorrespondingtothesepreferences.
Realityisratherdifferent,however:
Therearemarkeddifferencesofincomeandwealth
andthuspurchasingpowerisunequallydistributed.This
distortstherelationshipbetweenpricesandsocialprefer-
encesandneeds.
Thepricemechanismexcludesexternalcostssuchas
environmentalpollutionandbenefitsandmalfunctions
withregardtopublicgoods(forexample,publicsafety,
financialmarketstabilityandsoon).
Becauseofinformationasymmetriesthebenefitsfor
the consumer aresignificantly smaller. For example, a
consumerbuysagoodandthusincreasesGDP,butlater
realises thatthis producthas barely benefited him (or
notatall).
The capital markets on whichasset prices are sup-
posedtoreflectexpectedreturnsarecontrarytothe
longpopular hypothesis of efficient markets notre-
allyefficient,butratheroperateintermsoftheherdin-
stinct.Inthiswaytheyguideinvestmentstowardsseg-
mentsforexample,housebuildingintheUnitedStates,SpainandIrelandinwhichsocialneedmayultimately
belowerthanthemarketsexpect.
Forallthesereasons,whichreflectmarketfailure,gov-
ernmentregulationofthemarketsisnecessaryandcer-
tain social needs must bemet bythe state. However,
efficiencymightbeenhancedifsupplyismetbyprivate
firmsonbehalfofthestate.However,efficiencyandpro-
ductivitymustnotbeconfusedwithcostreductions.Cost
reductionscanbetheresultofdownwardpressureon
wagesorotherinputprices,whichmeansthatprosperity
ismerelyredistributed.
Oncloserexamination,thedemandoftenexpressedthat
the stateshould keep out ofstructuralchange in the
economyandallowmarketforcesfreeplaydoesnothold
water.Thestatehasalwaysimplementedanindustrial
policy,whetheropenlythroughdirectsupportforindivid-
ualsectorsorbranches,orcovertly,forexample,bypro-
motinginternationalcompetitivenessviathestateeduca-
tionandtrainingsystemorevenbymeansofeconomic
stimulusmeasures,suchascompensationforshort-time
workingwhichhasmadethingsaloteasierforthecon-structionindustryandmanufacturingtocopewiththe
financialandeconomiccrisis,therebypreventinglossof
productioncapacity,knowledgeandgrowthpotential.
Furthermore, there are many historical examples that
confirmthatthe market isnotalwaysbetter than the
stateat opening upnew areasof growth successfully
and sustainably (microprocessors, the internet, renew-
able energies). The financial and economic crisis, too,
hasshownthatallowingmarketforcesfreeplaytoguide
investmentsdoesnotalwaysbenefitsociety.Thestate
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shouldthereforetry,withintheframeworkofasustain-
ableindustrialandstructuralpolicy,toguideinvestments
andcapitalflowstowardsforward-lookingandprogres-
siveusesthatbenefitsocietythemost.Atthesametime,
itshouldnotattempttoholdbackunavoidablestructural
change, butprovidesocial policy support forthenec-
essary environmental,economic and social adjustment
processes.Thereisnoalternativetoorganisingproduc-
tionandconsumptioninfutureinwaysthatconserve
resources,theclimateandtheenvironment.
3.4EuropeanIntegrationandGlobalisation
Intransnationalmarketsthecirculationofincomes(seeFigure2)takesplaceacrossnationalbordersandcanno
longerberegulatedandbalancedoutbyasupranational
stateifprivateactorsorindividualstatesgenerateimbal-
ances.Onthebasisofverydifferentnationalincomelev-
elsglobalorEuropeancompetitionbetweenlabour
forcesdampenswagedevelopmentinmanycountries,
increasinglydetachingitfromproductivitydevelopment.
Incomeinequalityisrisinginmostcountries.However,
thecatching-upofsomecountries,suchasChina,isre-
ducingglobalinequalitybetweencountriesa little.The
resultinggrowthinsavings,however,stimulatesspecula-
tiononassetmarkets.
SocialgrowthattheglobalandEuropeanlevelscallsfor
fullemploymentheretoo, besides further productivity
growth via investment in the real economy. Demand
mustbeensuredthroughbetterdistribution,inparticu-
larbymeansofproductivity-orientedwages.
Globally,thismeansthatespeciallyinpoorcountries
unemploymentmustbereduced,workingconditionsim-
provedandwagesincreased.Catch-upstrategiesbased
onexportsurplusesandlowwagesshouldbebalancedby strategies directed towards domestic demand and
fighting poverty. Financing the necessary investments
shouldnotbelefttopoorlyregulatedglobalcapitalmar-
ketssubjecttotheherdinstincts,maniasandpanicsof
theactorsoperatinginthem.
ThereisalsoahighlevelofinequalityinEuropethat
primarilytakestheformofmajorregionalincomedif-
ferentialsbetweencountries,althoughinequalitywithin
mostmemberstateshasincreasedinrecentyears.Re-
cent regional catch-up, which had reduced between-
countryinequalityandwhichthedebtcrisishasabruptly
terminated,mustberevivedwithintheframeworkofa
Europeangrowthstrategy.In theEU,too,therequisite
investmentsmaynotbelefttothefreemarket.Toomuch
wasinvestedandtoorashlyinSpanishandIrishreal
estate,abadinvestmentthathashaddireconsequences.
Decentworkinthesinglemarketmustbeprotectedby
meansofhighminimumstandardswithregardtowork-
ingtime,workingconditionsandremuneration.Supply
anddemandinEuropemustbemanagedbymeansofa
coordinatedeconomicpolicythatpromotesenvironmen-
tallyandsociallysustainabledevelopment,achieveshigh
growthandemploymentandlimitsimbalances.
Onekeyproblemwiththecurrentinternationalmonetarysystemresultsfromthefactthatonenationalcurrency
atpresent,theUSdollarisusedastheglobalcurrency
andasthemainreservecurrency.Inordertomakeavail-
ablesufficientliquidityfortheglobaleconomythecoun-
tryissuingtheglobalreservecurrencyhastorunadeficit.
Thestabilityoftheworldeconomyandtheworldmon-
etary system, however, depends on the confidence of
internationalcapitalmarketsinthestabilityofthemain
reserve currency. Deficitsshake thisconfidence, which
timeandagainhasbeenreflectedinsharpfluctuations
intherealvalueoftheUSdollar.Thankstothedominant
economicandpoliticalpositionoftheUnitedStatesand
intheabsenceofalternativesthisconfidenceatleast
hithertohasneverbeenlostentirely.
Sinceinternationalcurrencyreserveshavehithertobeen
heldmainlyinUSdollarstheUnitedStateshasbeenable
topursueanexpansivedomesticpolicy,whichfavoured
anunsustainableassetpriceandconsumptionboom.In
thecurrent world monetarysystem, Chinasaccumula-
tionofreservescombinedwithexpansivemonetaryand
fiscalpolicyintheUnitedStateshasresultedinasym-
metricalmaladjustment:aslongasthesurpluscountriesarewillingtokeeptheirreservesinUSdollarsneitherside
willcomeunderanyadjustmentpressure.Themonetary
andfiscalpolicyofthedominantreserve-currencycoun-
try(theUnitedStates)isorientedprimarilytowardsdo-
mesticeconomicgoalsandthusmoreorlessacceptsthe
negativeeffects(intheformofoversupplyorshortages)
ongloballiquidity.Inthecontextofderegulatedfinancial
markets the world monetary system structured in this
wayleadstocyclesofboomandbust,inotherwords,
toassetpricebubblesthatthenperiodicallyburst.Until
stepsaretakentoreduceglobalimbalancesandtore-
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storetheworldeconomytosomesortofequilibriumnew
financialandeconomiccriseswilloccur,harmingglobal
growthandthusalsotheprosperityofallcountries.
4.CompassfortheFuture:AProgressiveEconomicPolicy
Whatwouldanewsocialgrowthmodellooklikeand
whateconomicpolicyinstrumentscouldbeusedtoim-
plementit?Intheshortterm,weneedtosurmountthe
debtcrisis,whichmustbeaccompaniedbystructuralre-
regulationofthefinancialmarkets.Inthemediumand
longtermsweneedagrowthmodelthatbothenables
andguaranteesmoresocialbalanceandenvironmentalsustainability.Sincethiscanscarcelybeexpectedfrom
marketforcesevenifthoseforcesweredeployedon
thebasis of an ingenious economic policy to achieve
thesegoalssuccessdependsmorethaneverongov-
ernment policy. In a globally interdependent economy
effectivesupranationaleconomicpolicyrequirestheclose
cooperationofnationalgovernmentsandtheestablish-
mentofregulatoryandgovernancestructures.
4.1OvercomingtheDebtCrisis
Thedebtcrisishasitsrootsintherealeconomyandthe
financialsystem.Intherealeconomyincomeinequality
withincountriesandpartlycausedbythatmacro-
economicimbalancesbetweencountrieshaveincreased
(Busch2009).Withoutthegrowingindebtednessofthe
sectorsand(deficit)countrieswhich,intheexpectation
oflong-termgrowthwerewillingtoconsumeandinvest
beyond their income, thegrowthfrom which thesur-
pluscountrieshavebenefitedwouldhavecollapsedlong
beforethefinancialcrisis.Thefinancialsystem,onthe
onehand,createdtheconditionsenablingdebt-drivengrowthtokeepgoingforsolongand,ontheotherhand,
extendedunsustainablegrowthpathsbyshiftinganddis-
guisingrisk.Evenworse:theperceptionofriskfluctuated
sochaoticallybetweenfalseoptimismandsheerpanic
thatadeepcrisiswastriggeredwithgraveconsequences
fortherealeconomy.
Onlymassivemonetaryandfiscalpolicyinterventionby
centralbanksandgovernmentswasabletolimitandmit-
igatetheeffectsofthisfinancialmarketcrisisonthereal
economy.Asaresult,assetvalueshaverecoveredwell,
butattheexpenseofarestructuringontheliabilitiesside
onwhichstateshavenowtakenupamuchlargerpro-
portionofdebtsandrisk(Dullien/vonHardenberg2011;
Dullien2010a;McKinsey2011).Inordertocleartheway
fornewandsustainablegrowthsubstantialdebtreduc-
tionisunavoidable.Thiscanbeachievedinthreeways
(whichmaybecombined)(Dauderstdt2009b):
1. A debt (and wealth) haircut, which has already
takenplacewithregardtoprivatedebts(forexample,
USmortgages).Debtforgivenesswithregardtostates
makeslesssense,notleastbecauseinmanycasesitaf-
fectsbanksthatwouldthenhavetoberecapitalisedor
bailedout.Inthatwaytherewouldbenohaircutbutonly
achangeofdebtor:thestatewouldremainsittingonthedebt(asakindofdebtoroflastresort).
2. Expendituresurplusesonthepartofcreditorsleading
torevenuesurplusesonthepartofdebtors.Tothatend,
surpluscountrieswouldhavetobewillingtoacceptcur-
rentaccountdeficits;assetholderswouldhavetoinvest
and/orconsumeheavilyorbetaxedmore(wealthtaxes,
wealthlevy,inheritancetaxes).
3. Muchhigherbutstillcontrolledinflationabout4to
6percentayearforseveralyearsthatwoulddevalue
thedebtinrealterms.Centralbankswouldhavetoput
upwiththesepricerisesandnotrespondwithinterest
raterises.Inparticular,poorerrecipientsofregularin-
comespensions,socialbenefits,lowwageswould
havetobeprotectedagainstafallintheirlivingstandards
andadiminutionoftheirpurchasingpowerbysomesort
ofinflationaryadjustmentintheformofrisesinincome
and/orfinancialrelief.
Theway out ofthecrisiswill involveall threecompo-
nents.Fromthestandpointofprogressiveeconomicpol-
icy, however, the second component willdominate. Itharbourslessdistributionriskforthepoorandreduces
growthimbalances.Atthesametime,thefinancialmar-
ketsmustberegulatedinsuchawaythatnomoreas-
setbubblesemerge.Thisdoesnotmeananunreason-
able restriction ofloansfor the real economy but the
curtailmentofspeculation,moretransparencyandclear
assignmentofrisksandliability.Tothisendallshadow
banksmustbedoneawaywith,thejungleofexoticfi-
nancialproducts must be cleared, a financial transac-
tiontaxhastobeintroducedandthefinancialindustry
mustbetrimmedbackonthebasisofasolid,boring
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business model (financing the real economy, maturity
andrisktransformation)withappropriateremuneration
structures(Kamppeter2011;Kapoor2010;Dullien/Herr/
Kellermann2009,2011).
4.2ScenariosforaSocialGermany
InGermany,thegrowthmodelbasedonwagerestraint
androllingbackthestatemustbecorrected.Thishas
causedsocialdivisionandfragilegrowththatislopsid-
edly dependent on exports (Bontrup 2010). Domestic
demand, in particular in areas with substantial social
needssuchasrenewableenergies,education,careand
healthmustbereinforcedbymeansofmoreequitableincomedistributionandsolidlyfinancedpublicconsump-
tion.Intheseareas,additionalemploymentandincome
canalsobegenerated.
The Friedrich-Ebert-Stiftung (FES) in threemajor stud-
ieshasworked outscenariossimulating social growth
inGermany:
1. Thefirststudy,withintheframeworkoftheFuture
2020project,wascarriedoutbyBartschEconometricsin
2008/2009(Bartschetal.2009a;Bartschetal.2009b).
Itassumedanincreaseinpublicinvestment,especially
intrainingandeducation,aswellasaproductivity-ori-
entedwagepolicy.Theresult,comparedtoabaseline
scenario with economic policyunchanged, was much
highergrowthwithlowerunemployment,betterdistri-
butionand lower public debt (Bormann etal. 2009a;
Bormannetal.2009b).
2. A second studyon growth through the expansion
of social services, by Prognos (2010/2011), calculated
thatthecreationofaround1millionjobs,especiallyin
care,wouldincreaseGDPbyaround22billioneuros(inotherwords,about1percentofcurrentGDP),about
two-thirdsofwhichwouldgothroughthestate(about
half and half taxesand socialcontributions) and one-
thirdthroughthe market.Households wouldtherefore
financeaboutone-thirdoftheirownadditional(wage)
incomeviaincreasedspendingonindividualconsump-
tion,withtwo-thirdscomingfromspendingonpublic
services(Prognos2011b).
3. Inathirdstudy(2011),ontheInterdependence be-
tween Development of the Health Market and Develop-
ment of the Economy and Employment,theRheinisch-
WestflischeInstitutfrWirtschaftsforschung(RWI)ex-
aminedtheconsequencesforgrowthandemployment
ofastrongexpansion2percentayearofthehealth
sector.Itassumesaveragerealproductivitygrowthof1
per cent a year, with productivity inthe healthsector
growingonlyhalfasquickly,inotherwords,at0.5per
centperyear.By2030,inthatcase,thehealthsectors
shareofvalueaddedwillincreasefrom10percentto
13percentanditsemploymentsharefrom12percent
to 16per cent ofthe German economy. Correspond-
ingly, health spending will increaseas a proportion of
householdspending,albeittoafargreaterextentamong
poorerhouseholds(from16percentto24percent)than
amongbetteroffones(from6percentto10percent).Contributionrateswillalsorisesharply.However,spend-
inginotherareaswillnotthereforeshrinkinabsolute
termsandwelfarewillalsoincrease(RWI2011).
Germanycanthereforepursueadifferentgrowthpath,
complete withenergy transitionand theexpansion of
social serviceswithout increasing indebtedness among
privatehouseholdsandthestatebudget.Itshighexport
surpluses demonstrateuntapped consumption and in-
vestment potential. But even without them Germany
neednotfearafallinprosperity.Althoughconsumption
andproductionstructuresneedtochange,thetransfor-
mationcantakeplaceinacontextofgrowthbymeansof
moreemploymentandhigherproductivitywithoutinvol-
untaryreductionsintraditionalconsumption.Tothisend
stablepurchasingpowermustbeensuredtomeetthe
newneeds,optimallybymeansofmoreequalincome
distributionandthelimitationofassetgrowth(Dauder-
stdt2011a;Pfaller2010b).
4.3SustainableGrowthforthe
WorldEconomy
Germanys export-oriented growth path has contrib-
utedtotheemergenceofimbalancesintheEuropean
andglobaleconomies,whichhaveproventobeunsus-
tainableoverthelongterm(Artus2010;Dauderstdt/
Hillebrand2009;Dullien2010b;Mnchau2010).Social
growthasdescribedabovewillhelptoeasetheeco-
nomicsituation.BesidesGermany,however,therearea
numberofcountriesespeciallyChina,Japanandsome
oilexporterswithconsiderableexportsurpluses.The
downsideofthisaremassivecapitalexportswhichinthe
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recipientcountriesinturntriggerexuberantbubble-
likegrowth(Priewe2011).Asarule,theseimbalances
areaccompanied by various wagetrends,namely real
wagestagnationcombinedwithlowunitwagecostsin
manysurpluscountries(especiallyGermanyand Japan)
andsharplyrisingunitwagecostsinmanydeficitcoun-
tries(forexample,ontheEuropeanperiphery)(Dauder-
stdt2009a;Busch2009).
Pre-crisisgrowthtosomeextentreducedthestillenor-
mousincomedifferentialsbetweencountrieswithinEu-
ropeandalsoglobally(Dauderstdt2010c;2011c),al-
thoughaccompaniedby,onthefaceofit,perversecapi-
talflowsfrompoorcountries(China)torichones(United
States).Thismakesitallthemoreimportanttoestablishtheeconomiccatch-upofpoorercountriesonasustain-
ablebasisandtoliberatethemfromtheirsubordination
tosharplyfluctuatingcapitalmarketmovements.Fund-
ingtheexpansionoftheircapitalstockintheform
ofcorporatecapital,infrastructureandhumancapital,
suchashealthandeducationmustbelongtermand
speculation-proof. The resulting productivity increases
willbenefitsocietyasawholebothinagivencountry
andworldwide,evenifparticularsectorsandlocalities
havetosufferpainfuladjustmentprocesses(Dauderstdt
2010b).
Thesustainabilityofgrowthisnotonlythreatenedbyits
dependenceonthefinancialmarkets,however,butalso
bytheimmensestrainitimposesonglobalresources.Ris-
ingrawmaterialpricesindicatethatdesiredconsumption
exceedscurrentandinthecaseofmanyresourcestheir
long-termsupply.Thepricemechanismwillensureover
thelongtermthatsupplywillincreaseanddemand,due
toeconomisationandsubstitution,will relativelydimin-
ish.Butrisingpricesburdenpoorerpeopledisproportion-
atelyandmoreintensiveexploitationofmineralresources
isoftenaccompaniedbymassivesocialcostsandenvi-ronmentalpollution,whichevenrisingpricesoftendo
notadequatelyreflect.
Although,duetotraditionalgrowth,environmentalpol-
lutionweighsheavilyonthenaturalbasisoflife,espe-
ciallytheclimate(Netzer2011),thewayoutcannotbe
simply to renouncegrowthor degrowth. Too many
peoplestilllacknourishment,clothing,housing,health
care and education. Social growth should therefore
beappliedselectivelyinmanyrespects:theincomeof
poorerpeopleshouldgrowmorerapidly;investmentthat
savesresourcesinthemediumtermshouldincrease;so-
cialservicesshouldgrowsincetheymeetsocialneeds
andaregenerallylessresourceintensive(Spangenberg/
Lorek2003).
4.4DemocraticGovernanceofInterdependentEconomies
Giventheenormousimpactoftheglobalriskswehave
described the success of national development paths
shouldbeensuredbyacooperativeglobaleconomicand
structuralpolicy.Incontrasttoglobalisationdiscourseat
thebeginningofthe1990sinwhichtheeconomywas
depoliticised,thestatediscreditedandglobalprocessesrangedagainsttheMolochstate,inthecomingyears
politicsmustreplacetheprimacyoftheeconomy.The
searchfornewpolicyspacewithinthisframeworkmust
be characterised by pragmaticsolutions,however, be-
yondstatism,butalsobeyondhostilitytothestate.This
opensupthepossibilitytoconductapoliticaldebateon
amodernconceptionofthestatealsoandespeciallyat
regionalandgloballevel(Steinhilber2008).
Evenifitsexportfixationdiminishes,Germanywillalso
inthe future bedependent ona properly functioning
globaleconomy. Itsprosperity willdepend on,among
otherthings,whetherinternationalgoodsandfinancial
marketsremainstableandtheelementsofglobaleco-
nomicregulationcanbeadaptedtothenewconditions.
Creatingaviableexternaleconomicpolicyaimedatco-
operationand integrationwill therefore be a keytask
forthefuture.GiventherelativeweaknessofGermanys
voiceintheconcertofeconomicpowersthiscanbecar-
riedouteffectivelyonlywithintheframeworkofastrong
EuropeanUnion.
ThefactisthatinEurope,asdemonstratedbythecrisisand effortsto overcome it, but also against the back-
groundofthecommonchallengesthatlieaheadfor
example,withregardtothefurtherglobalisationofmar-
kets,climatechange,increasingresourcescarcityandde-
mographicchange economicpolicycannolongerbe
confinedwithinnationalborders.Thesinglemarketand
monetaryunionlongagocreatedasituationofshared
responsibilityandcompetencebetweenthenationaland
supranationallevels in the EU. However, the financial
and economiccrisis revealednumerousdefects,short-
comingsandimbalancesinEuropeslopsidedintegration
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process(Busch/Hirschel2011;Hacker2011a).Itscentral
projectstheformationofthesinglemarketandofeco-
nomicandmonetaryunion(EMU)haveindeedbrought
aboutprosperitygainsinthememberstates,butatthe
sametimethenegativeeffectsofglobalisationinEurope
havebeensharpened.Integrationhastakenplacepri-
marilyasamarketcreatingprocessbetweencompa-
nies,butalsobetweenstates:bydismantlingtradebar-
riersandbyintensifyingcompetitionbyloweringwages,
socialsecuritycontributionsandthetaxburdenandby
improvinglocationconditionsinamarketfriendlyway.
Incontrast,themarketshapingandmarketcorrect-
ingprocess,characterisedforexamplebysuchthings
ascommonemploymentprotectionstandardsandsocial
standardsorbytheinstitutionalorganisationandfurtherdevelopmentoftheEUspolicycompetences,hascontin-
uedtocling(Hpner/Schfer2010)toaconstitutional
minimalism(Platzer2009).
However,problemsanddifficultiesincludingthecol-
lapseoftheeuroandthusultimatelyofEuropeandthe
EuropeanIdeacanbeavoidedonlybystrengthening
market-correcting and market-shaping policy instru-
mentsandthusultimatelyonlybymeansofmoreEu-
ropeinthesenseofpoliticalunion(ArbeitskreisEuropa
2010b).TheultimategoalmustbetoconverttheEU
intoapoliticalunioninwhichdemocraticparticipation
rightssimilartothoseinitsmemberstatesareguaran-
teed.However,theremustbenosimplecentralisationof
intergovernmentaleconomic policy decision-making in
Brussels.Thiswouldbejustifiedonlyifitwascontrolled
democratically(forexample,withintheframeworkofthe
Communitymethod)(Collignon2010).Untilthiscanbe
ensured there remains onlythe reinforcementof joint
coordinationandagreementoneconomicpolicybythe
memberstates.Thisalsomeans,however,thattheEU
orallEUmemberstatesjointlywillinstitutionallyhave
the rightto a say inpolicy areas hithertoreserved forthe individual memberstates (Heise/Heise 2010).This
meansinparticularputtingontheagendaamoveto-
wardsdeeperintegrationmeasures:moreEuropein
thesenseoffurtherstrengtheningthecompetitionprin-
cipleandrestrictingthescopeofpolicyformationwould
causetheEuropeanprojecttoimplode.Whatisdecisive
here,therefore,is a new paradigmfor Europeaneco-
nomicgovernancethatunderstandstheequalisationof
economicimbalancesandsocialprogressintheEUas
centraltasks(Hacker/vanTreeck2010).
Althoughinrecentyearssecuritypolicyhasincreasingly
eclipsedtheglobaldevelopmentdilemma,nowtheques-
tion ofsocial growth isforcing its way back onto the
agenda,alsoatthegloballevel.Thisargumentwillsub-
stantiallydeterminethefutureconstitutionoftheworld.
Ithasbecomeapparentthatdevelopmentproblemsare
no longer only the problem of the globalSouth. The
impoverishmentalsoofmoreandmoreregionsinthe
North, not just the South,led tocrises whichendan-
gerthestillprosperingcentres.Thelattersdevelopment
modelisbeingdepletedbytheenvironmentalcrisesthat
willbeheightenedbythecatch-updevelopmentofsome
countries.Socialgrowthatthegloballevelandthusul-
timatelyglobaldevelopmentisthereforenotanoption
withoutanewdevelopmentmodel,whichineverycoun-trycombinesenvironmentalrestructuring of theecon-
omywithfairerdistribution(Netzer2011).Withregardto
thegloballevelthismeansthatlessdevelopedcountries
mustbehelpedtoopenupnewgrowthpathsthatmust
takeaccountoffourfactors:
1. environmentalgrowthwiththeemphasisonCO2re-
duction;
2. sociallysustainablegrowththatcreatesjobs;
3. sustainedgrowththatisnolongersubjecttocapital
marketvolatility;
4. regionalgrowthviaregionalintegrationandintensi-
fiedregionalinfrastructure.
To that end, the regulatory crisis (with regard to the
banks) and the crisis of global economic governance
(withregardtoglobalimbalances)mustberesolved.
However, decision-making structures at global level
inparticularinthecaseofinternationalorganisations,suchastheInternationalMonetaryFund(IMF)andthe
WorldBankcontinuetofaceseriousproblemsconcern-
inglegitimacyandacceptance.Theseorganisationsare
stilldominatedbythetraditionalindustrialisedcountries
andthusprimarilyrepresenttheirinterests.Theyreflect
theeconomicbalanceof importanceandpowerofthe
periodof theirfoundingafterthe end ofthe Second
WorldWar,andnottheglobalbalanceofpowerasit
stands today. Theyaretherefore regarded as unrepre-
sentativeandundemocraticbyemerginganddeveloping
countries.However, informalbut powerfulgovernance
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forums,suchasformerlytheG7/G8andtodaytheG20,
expandedto includesomeleadingemergingcountries,
alsohaveseriouslegitimacyproblemswhichmakestates
thatarenotrepresentedtherereluctanttogetbehind
them.
Thesolutionofkeychallengesforthefuturethatarenow
arisingatthegloballevelcanbeachievedonlytogether
withtheemerginganddevelopingcountries,whichin
recentyearshavebeenmorecloselyintegratedininter-
national financial and tradestructures (Joerien/Stein-
hilber2008).Thepost-WarmultilateralismoftheBret-
tonWoodsinstitutionsthatarenowsinkingunderthe
deadweightoftheirobsoletestructuresmusttherefore
bereformedandthedevelopingandemergingcountriesmustbeintegratedinnewinstitutionsonequalterms.
AlthoughtheG20representsastartwithregardtoes-
tablishing a forumin which todays leading economic
powerscangettogetheronanequalfooting(Pohlmann/
Reichert/Schillinger2010),thislikethetimidreforms
oftheIMFandtheWorldBankisnotenoughtobring
aboutpositiveintegration.Theinternationalcommunity
hasasyetbarelybeguntoaddresstheissueofefficient
andsustainableglobalgovernancestructuresthatwould
helptoreduceuncertaintyandcomplexityonthebasisof
trustandtoopenupnewscopefordevelopment.
5.A10-pointProgrammeforaProgressiveEconomicPolicy
Thefollowing10-pointprogrammeoutlinesthemostim-
portantreformsthatarenecessaryorconducivetoimple-
mentingtheconceptofsocialgrowth.
5.1GuaranteeaStableSupplyofCredit
withEffectiveFinancialMarketRegulation
Socialgrowth,likeanyformofgrowth,dependsonan
adequatesupplyofcredit.Itmustthereforebeguaran-
teedthatthefinancialmarketswiththeirshort-termism,
periodicexcessiveappetiteforriskandunrestrainedlend-
ing,nottomentiontheirtendencytoherdbehaviour
donotrepeatedlyplungethefinancialsystemandthus
ultimatelyalsotheeconomyasawholeintocatastrophic
crises. In transnationally integrated financial markets
bankshavebothforeigncreditorsontheliabilitiesside
(deposits)andforeigndebtorsontheassetsside(invest-
ments).Depositorprotection,liquiditysupport(lenderof
lastresort)andassetvaluation(withconsequencesfor
minimumreservesandsoon)purelyatthenationallevel
arelessandlessfeasible.Insmallcountrieswithover-
sizedbankingsystemsIceland,Ireland,Switzerland
thestatecanrapidlybeoverwhelmed.
Ifthismarketfailureis tobeovercomeand,ultimately,
thetaxpayeristobeprotected,stronger,morecompre-
hensive and moreeffectiveregulationof the financial
marketsisneeded,whichreducesthedominanceofthe
financialsectorandputsitmoreintheserviceofthe
realeconomy(supplyofcredittoprivatehouseholdsand
enterprises) (Kamppeter2011;Dullien/Herr/Kellermann
2009,2011).Thecoreelementsofnewfinancialmarketregulationthat,ideally,shouldbeimplementeduniformly
atgloballevelbutifnot,atleastatEuropeanlevel,areas
follows (Noack/Schackmann-Fallis 2010; Kapoor 2010;
Dullien/Herr2010;ArbeitskreisEuropa2009;Steinbach/
Steinberg2010):
More transparency and the closing of supervisory
loopholes by meansof central financial market super-
visionthatis,asfaraspossible,uniform,powerfuland
transnational.Itmusthaveauthoritytoissuedirectives
andtoimposeconditions,likenationalsupervisoryau-
thorities.
Jointmonitoringofthefinancialsystemssystemicsta-
bility.
Higherand anti-cyclicalcapitalreservesandliquidity
requirementsforall banksandfinancialintermediaries;
abanonoff-balancesheetentitieswithoutcapitalcover-
ageandlimitsonbanksandfinancialmarketactorsop-
portunitiestoaccruenewdebt(leverageratio)inorder
toreduceincentivesforspeculative,debt-driveninvestor
behaviourandtoenhancethestabilityofthefinancialsystemincrisissituations.
Highercapitalrequirementsforsystemicallyimportant
banksandlivingwills(settlementrules)inaccordance
withwhich(transnational)institutionscanbewoundup
inthecaseofinsolvencywithoutharmingeveryoneelse
toincreasethecostforprivateactorsoffailurearising
fromspeculation.
Reductionofproprietarytradingbycommercialbanks,
perhapsalsoastricterseparationofthetraditionalloan
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businessfrominvestmentbanking;stricterregulationof
privateratingagenciesandtheestablishmentofaEu-
ropeanratingagencytobefinancedfromCommunity
funds(ArbeitskreisEuropa2010b).
Reductionoftheroleofprivateratingagenciesand
banksinternalriskmodelswhenitcomestocapitalad-
equacy.
Reductionofnear-marketfairvalueaccounting.
Limitsontheresaleofloans(securitisations)bycom-
mercialbanks.
Stricterregulationofderivativestradingandmakingitsothattheyaresettledexclusivelyviacentralclearing
houses(reductionofover-the-countertrading).
AEuropeanbankruptcylawforbanksthatensuresthe
problem-freeandorderlywindingupofinsolventbanks.
Establishment of a financial MOT thataccurately
assessesthesocialvalueandtherisksofnewfinancial
instruments,bothforthebanksandforinvestors,before
theirintroduction.Suchinstrumentsshouldbepermitted
onlyiftheyprovidebenefitstosociety(Dullien/Herr/Kel-
lermann2009,2011).
Introductionofafinancialtransactiontax(Paul/Neu-
mann2011),aswellasstricter,morelongterm-oriented
regulationsonbonusesfor(bank)managersthatinpar-
ticularmaketheshort-term,destabilisingpursuitofprofit
and speculation on the international financial markets
unattractive and thusreduce financial market fluctua-
tions.
Germanystraditionaltripartitebankingsystemisto be
retainedandfosteredbecauseithasproveditsworthinparticular thanks tothe savings bank and coopera-
tivesectorinthecrisisasastabilityanchor.Neverthe-
less,Landbanks(Landesbanken)shouldbeconsolidated
andnew,long-termsustainablebusinessmodelsshould
be developed (Noack/Schrooten2009). Effectiveregu-
lation ofthe financial markets isalso a key condition
foragrowth-orientedmonetarypolicy.Withouteffective
regulationthiswouldbehopelesslyswampedinitsef-
fortstoensurebothpricestabilityandfinancialmarket
stabilitysolelybymeansofinterestratepolicy.Withef-
fectivefinancialmarketregulationin place,however,it
shouldavailitselfoftheroomtomanoeuvrethisprovides
andpursueagrowth-orientedmonetarypolicy(Winkler
2008;Illing2011).
5.2UseEducationPolicytoBoosttheForcesofGrowthandExpandOpportunitiesforAll
Onthesupplyside,socialgrowthisdependentongood
initialandfurthertraining.Educationandknowledgein-
creaselabourproductivityandthuscontributetogrowth
and prosperity (Prognos2011a; Blossfeldet al. 2011).
Education is a public goodandenhances peoples life
chances.Marketfailuremeansthattherewillbeinsuf-
ficient provision of educationvia the marketand theprivate sector. Only government education policy can
adequatelyprovidetheinvestmentineducationneeded
for growth and employment,withoutwhich social in-
equalitywillincreaseandsocialcohesionwillbejeop-
ardised.Internationalcomparativestudiesoneducational
standardsshow thatGermanys educationexpenditure
isonlyaroundtheOECDaverageandthatitisincreas-
inglyfalling behind thatof thefrontrunners.The pro-
visionof lifelonglearningissimilarlyunfavourable: this
mustbeexpandedifthereistobesufficientprovisionof
productiveemploymentuntilahigh/increasedretirement
age.Infuture,therefore,Germanymustinvestmorein
initialand furthertraining,butalsocarryout structural
adjustmentin education(Borgwardt 2011;Wernstedt/
John-Ohnesorg2010;AutorengruppeBildungsberichter-
stattung2010).
Theaimofeducationpolicymustbeasociallyjustand
highperformingeducationsystem,rangingfromearly
childhoodeducationtolifelonglearning.Itisnotenough
forthispurposetohaveindividualgoodschoolsoruni-
versities:thereneedstobenationwideprovision,includ-
ingbothurbanandruralareas.Onlybroadpublicprovi-sionwillreachallchildren,youngpeople,traineesand
students,regardlessofparentalincome.Onlyinthisway
canwe reduce thestrong correlation between educa-
tional success and socialorigin,the number ofyoung
people without qualifications and the high dropout
rate.Thefollowingmeasuresarenecessarytothatend
(Baumert2010;John-Ohnesorg2009;Wernstedt2010):
Thedivisionoftasksbetweenthefederalgovernment,
the Lnder and municipalities (with regard to schools,
highereducationandresearch)needstoberedefinedin
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ordertoensureanadequatefinancialbasisforthetasks
ahead.
Education mustbe more individualisedat all levels:
so-calledat-riskstudentsarenotahomogeneousgroup.
Morelanguagetrainingisparticularlyimportant.
Educationmustbeginearliersinceearlylearningand
supportleavetheirmarkoneverysubsequentlearning
stage.Earlysupport,especiallyfortheunder-threes,must
therefore be expanded:there musttherefore be more
childcare places in so-called Kitas (childcarecentres
forchildrenwhoseparentsareinfull-timeemployment)
andkindergartens,openingandchildcareperiodsmust
beadapted(alsoto improvereconciliationofworkandfamilylife)and pedagogicalapproachesandstaffmust
beimproved,withbetterqualifiedpeople.
Theschoolsystemmustbeorientedtowardsalonger
periodbeforeanykindofselectionoccursandinclusive
education,aswellastowardsmorehorizontalandver-
ticalpermeability.Thetendencynationallymustbeto-
wardsatwo-tierschoolsystem.
Thenumberofall-dayschoolsthatnotonlyprovide
childcare,butalsoinclusiveeducationandafternoonles-
sonsfromqualifiedstaffmustbeincreasedandtheirin-
frastructurepremises,heating,newmedia,canteens
andsoonmustbemodernised.Theyshouldbeinte-
gratedinlocaleducationnetworksinordertoprovide
individualsupport.
Training places and full-time occupational training
schoolsshouldbeexpandedinordertomeettheneed
fortraineesinthedualandvocationaltrainingsystem.In
ordertoreducethenumberofthosewhodonotmeet
theminimumconditionsfortrainingforanoccupation
thatwillcontinuetobeviableinthefuture,sustainablemeasuresmustbetakenasearlyaspossible,forexam-
ple,intensificationofsupportforyoungpeoplewithan
immigrantbackground.
Spendingoneducation,researchandscienceforthis
reasonmustbefurtherincreased(target:10percentof
GDP).
Technologicalchangemeansthatmorequalifiedperson-
nelareneeded inall areas. Closely connected tothat
forindividualworkersisthepossibilityofimprovingtheir
earnings.For this reason both thosein work and the
unemployed with low, intermediate and high qualifi-
cations must receivefurtherand higher trainingat all
stagesofemploymentandlife,notonlyinordertoad-
dresstheloomingshortageofqualifiedworkersbutalso
thehigherretirementage.Activelabourmarketpolicy
shouldalsofocusonthegoaloffurtherandhighertrain-
ing.Unemploymentinsuranceshouldbedevelopedinto
employmentinsurance(Schmid2008).Rightsrelatedto
holidays,leaveofabsenceandreturntoworkforem-
ployeesintrainingshouldbeimprovedandindustry-wide
training funds laid down in collective agreements for
smallandmedium-sizedenterprisesmustbesupported
(Bosch2010).Finally,everyoneshouldhavetherightto
trainingandindividualsupport.
5.3OpenUpNewAreasofGrowthwithIndustrialPolicy
Likeanygrowthprocess,socialgrowthisnotstructure-
preservingbutcharacterisedbystructuralchange.Inor-
dertobeabletomeetthechallengesofenvironmental
restructuringandenvironmentalrenewaloftheeconomy
andsocietyclimatechange,destructionoftheenvi-
ronment,finitenaturalresourcesinfutureanenviron-
mentalindustrialpolicywillbeneededtoidentifyand
promotegrowthareasearlyon,butalsotoensurethat
socialandenvironmentalsustainabilityisnotlostsightof
(Schepelmann2010).Germanysenvironmentalindustry
isagoodexampleofsuccessfulindustrialpolicy(BMU
2009).However,withoutpoliticalinterventionsetting
demandingenvironmentaltargetsandtranslatingthem
intoparametersandceilingsforresourceconsumption
andtheirconstantextrapolationintodifferentareasof
productionandprivateconsumptionthisimportantin-
dustrialsectorwouldnothaveemerged(Fischedick/Be-
chberger2009).Thestate,bymeansoflegalregulation,itspurchasingandmarketpoweranditsenvironmental,
research,infrastructure,taxandeconomicpolicy,canand
shouldplayanactiveroleandthusfunctionasanimpor-
tanttechnologydriverandmotorofinnovation.Within
thisframeworkitshouldpromotethedevelopmentand
introductionontothemarketofinnovativeandsustain-
ableproductsbymeansof significanteconomicinvest-
mentincentives(Meyer-Stamer2009).
Infuture,intheareaofclimateandenvironmentalpro-
tection, instead of expensive direct statesupport pro-
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grammeswhoseresultsareoftenuncertain,environmen-
talconsumptionshould,forexample,befullyincorpo-
ratedinpricesthroughtradeinCO2emissionrightsthat
isasglobalaspossible(Lschel2009;Knopfetal.2011).
Anationwideclimateprotectionlawwouldalsobeworth
considering,whichlaysdownspecificguidelinesforall
localauthoritiesandeconomicsectorsinanimplementa-
tionplan.Theaimwouldbetofundamentallychangethe
behaviourofalleconomicactorsandtoecologiseallpro-
ductionstructuresandvaluecreationchains.Withclear
energyefficiencyguidelinesandCO2reductiontargets
furtherimpetuscouldbegiveninrespectofsupplyand
demandwithintheframeworkofpublicprocurementdi-
rectivesandcontractallocation(Pfaller/Fink2011).
The local level shouldenjoy particular priority in this.
Withintheframeworkofsocialdialogueneedsshould
bedetermined,andsolutionsworkedoutandtried.This
willmakeitpossibletocloselyintegrateandlink-upnet-
workconsumers, enterprises, scientists, politicians and
administrators.Overall,inthiswaygovernmentguide-
linesonclimateprotectionandonresourceandenergy
consumptioncouldhelptoreachnationalclimatetargets
andtoimprovecompaniesinternationalcompetitiveness
onemerginggreenmarkets.Furthermore,thisdialogue
processcancontributetothemutualreconciliationofthe
winnersandthe losersof modernisation.Radicalstruc-
turalchangecanleadtosocialhardshipaffectingsociety
asawhole,whichmustbedealtwithasquicklyaspos-
sible(Pfaller/Fink2011;Bretal.2011).
Futuregrowthwilldependtoaconsiderableextenton
thedevelopmentoftheservicesector.Amodernindus-
trialpolicy musttherefore end thesupport policy and
financialdiscriminationagainstnon-physicalgoods.Be-
sides the development of more value added-intensive
industry-relatedservicessocialgrowthdependsprimarily
onthegrowthofhighqualitysocialservices.Germany,byinternationalcomparison,hasasignificantemployment
gapinthisrespect.Ofallservices,itishighqualitysocial
andsociety-orientedservicesbesidesbusinessservices
thatareshowingthemostemploymentgrowthinthe
EU15.Notleastagainstthebackgroundofdemographic
changeconsiderableneedsarearisinginthisregardfor
example,intheareaofcaringforthesickandoldpeople,
andinthesocialandeducationsystemsandthusthere
issubstantialgrowthandemploymentpotential.
Demandforsocialservicesisoftenweakonfreemar-
ketsasaresultoftheso-calledBaumoleffect(Baumol
1967)alsoknownasBaumolscostdisease.Private
companiesthereforeoftenfailtomeetthisdemandad-
equately.Thismarketfailurecanbeovercomebyasmart
servicespolicy,however(Bienzeisleretal.2011;Schett-
kat2010).Thisshouldnotbetakentoimplyalow-road
strategyofservicesdevelopment,whichseekstoincrease
potentialdemandandenablefurtherexpansionofser-
vicesbywayofcostreductionsinthecourseofboosting
thelowwagesectorandsharpeningwagedifferentia-
tion.Thisstrategyultimatelyleadsonlytolowpaidand
precariousjobsandthusalsotopoorqualityservicesand
lowvaluecreation.Expansionofhighqualitysocialser-
vices,astheScandinaviancountriesdemonstrate,isalsopossibletogetherwithmoremoderatewagedifferentia-
tion,higherwagesandlowersocialinequality.However,
suchahighroadstrategyrequiresamoreactivestatein
therolesoffinancier,producerand/oremployerin this
sector.Inparticular,statefundingmechanisms,suchas
socialsecuritysystems,cancontribute,first,tothedevel-
opmentofdemandfor(social)servicesingeneral,and
thentoadequateprovisionandopeningupaccesstoit
forall.TheScandinavianexamplealsoshowsinthiscon-
textthatahighratioofgovernmentexpendituretogross
nationalproductisnoobstacletosuccessfulaggregate
economicdevelopment(Heintze2011;Schettkat2011).
Education,familyandtaxpoliciesmustinfuturebebet-
tercoordinatedwiththecreationandpromotionofde-
centworkwithgoodwagesinthesocialservicessec-
tor. In education policy, care mustbe takento ensure
thatemployeesarebettertrainedbysupportingandes-
tablishing state-recognisededucational and vocational
qualifications. Higher quality can increase acceptance
andwillingnesstopayamongpotentialcustomers.Fam-
ilypolicy,in turn,canboostwomensemploymentand
createnewemploymentopportunitiesinsocialservicesonboththedemandandthesupplyside(Luci2011).In
particular,theintegrationofwelltrainedandqualified
womeninthelabourmarketincreasesdemandforand
thesupplyofsocialservices.Currently,theseareoften
performedbywomeninthehome.Infuture,thefocus
offamilypolicyshouldbelessontransferbenefits,such
aschildbenefitandchild-raisingallowance,andmore
onin-kindbenefits,suchastheexpansionofchildcare
(crches,day-carecentresfortheunderthrees)thatis
responsivetopeoplesneedsand,asfaraspossible,free.
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5.4StrengthenthePositionofEmployeesbymeansofMinimum
WagesandCodetermination
Socialgrowthrequiresawagepolicythatensuresem-
ployees participation in value creation andthus high
masspurchasing power.Stagnatingrealwagesandin-
creasingincomeinequalityarenottobeabjuredmerely
onthegroundsofsocialjustice,butalsobecausethey
contributetostagnatingdomesticdemandand,conse-
quently,tolowaggregategrowthratesandincreasing
externalimbalances(Joebges2010;Joebgesetal.2010).
Wagepolicymustinfuturebeorientedmorestrongly
towardsproductivitynominalwageincreasesinpro-
portiontolonger-termaggregateproductivitygainsplusthecentralbankstargetinflationratenotonlyinGer-
many, but inEurope and indeed globally. Only inthis
waycandomesticdemandbereinforcedsustainablyand
thedangerofemergingimbalanceswithintheEuropean
Monetary Union reduced (Busch 2010; Busch/Hirschel
2011;Pusch2011).Althoughfreecollectivebargaining
setslimitsongovernmentwagepolicyinGermany,the
governmentcaninfluencewagedevelopment:
Ageneral,comprehensivestatutoryminimumwage
underpinsthepositionofeachindividualworkerinwage
bargaining and thus helps toprevent pay scales from
driftingdownwardsandthedevelopmentoflowwages
inthedirectionofpovertywagesthatthreatenpeoples
abilitytomakeendsmeet(Boschetal.2009a;Boschet
al.2009b).Minimumwagescompelcompaniestocom-
peteonthebasisofhigherproductivityandinnovation
instead of lowwages. A statutory minimum wageof,
forexample,8.5eurosperhourwouldnotonlyimprove
theincomesituationoffivemillionpeople,butalsoraise
theearningsofaround14.5millionprivatehouseholds.
It would also ease theburden on the German public
budget tothe tune ofaround 7 billion euros(for ex-ample,lowerincomesupportandhighertaxrevenues)
(Ehrentrautetal.2011).
Thegovernmentshouldceasetopromoteso-called
mini-andmidi-jobsandreintroducethegeneralsocial
securityobligationinordertocorrecttheundesirablede-
velopmentsonthelabourmarketinrecentyears.
Codetermination at the plant and company levels
shouldbeextendedandgeneralcollectiveagreements
should be reinforced by compellingenterprises to join
employersassociationsorbydeclaringcollectiveagree-
ments to be generally binding. Government can and
mustalsogivesubstantivehelptoreinforcetradeunions
sothattheyareabletotakefulladvantageofthemacro-
economicmarginofdistributionandobtaingoodwork-
ingconditions(Hrisch2010;Greifenstein2011;Greif-
enstein/Weber2009,2008).
Furthermore, in future government can and must
beamorepowerfulpresenceasanemployer,notonly
becausepublicservicesandservicesofgeneralinterest
inparticulararecharacterisedbysignificantneedsand
shortcomings, but also because the state has the po-
tentialtosetstandardsfordecent,well-paidjobsinan
importantsegmentofthelabourmarket,therebysend-ingoutimportantpositivesignalstootherlabourmarket
segments.Similarpositiveeffectscanbeachievedbyty-
ingpubliccontractstocompliancewithminimumstand-
ardsondecentwagesandworkingconditions.
5.5FundPublicTasksProperlyandFairlybyReformingTaxPolicy
Theconceptofsocialgrowthisbasedonthefactthat
thestateandthecommunityareresponsibleforasig-
nificantnumberofqualitativelydemandingtasks.State
actionmustmakeupformarketfailureinmanyareas
andthuscreatetheconditionsforbalancedgrowthin
theeconomyandforfinancially,environmentallyandso-
ciallysustainableeconomicandsocialdevelopment.In
ordertoovercomeunderfundinginkeypolicyareasfor
example,education,wherethereisashortfallofatleast
25billioneurosandtobeabletomaketherequisitein-
vestmentforthefuturethestatemusthavesufficientfi-
nancialresources.Againstthebackgroundofthecurrent
budgetdeficitandhighgovernmentdebtthefundingof
additionalexpenditurebymeansofafurtherincreaseinpublicdebtishardlytenable.Whatisrequiredissustain-
ablebudgetconsolidationinthefuture.
Althoughallaspectsofthestatemustcertainlybesub-
jected to critical consideration and examination, the
states planned investments in the future and funding
problemscannotbesolvedsolelybyspendingcuts.Pub-
licinvestmentinGermany,togetherwiththetaxratio,
hasfallentoanall-timelowbyinternationalcomparison.
A responsible, future-oriented and sustainablebudget
strategyshouldthereforeoptimisetherevenuesideand
-
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SOCIAL GROT
improvethefundingbase.Inotherwords,theaimshould
betoraisetaxesinsomeareas.Inparticular,therevenue
situationofthemunicipalitiesandtheLndermustbe
improvedsinceinfutureconsiderablepublicinvestments
mustbemadethereandgoodsandservicesofgeneral
interestmustbeprovided.
Withintheframeworkoftaxpolicy,therefore,all parts
ofsocietyandallincomegroupsmustparticipate,onthe
basisofsolid