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Capital and Labor: Deeds Must Follow Criticism

by Ottmar Schreiner Tuesday, Jun. 21, 2005 at 10:44 AM

A new balance between capital- and labor income is necessary. Unfortunately the opposite is happening. The constant lowering of capital taxation in Germany fans the European tax lowering competition. The public infrastructure deteriorates.


Only more justice in sharing prosperity leads to more employment. Franz Muntefering’s criticism of capitalism was overdue. To insure social unity, redistribution from bottom to the top must be stopped.

By Ottmar Schreiner

[This article published in: Frankfurter Rundschau online, May 2005 is translated from the German on the World Wide Web, Ottmar Schreiner, born in 1946, has been in the Bundestag since 1980. The Saarlander is part of the left wing of the SPD (Social Democratic party of Germany). He is a co-signer of the “Saarbrucker declaration” against social cuts and for withdrawal of Hartz IV.]

Many mammoth corporations only orient profit maximization in stock prices. It is perverse when the prices rise higher the more persons are laid off. The state can observe its own tasks less and less because the public budgets are bled to death. On one side, there is growing unemployment and poverty and on the other the shameless self-service of part of the manager caste. This destroys the social cohesion and undermines trust in democracy.

If criticism remains nebulous, the seriously injured credibility of the SPD will suffer additional damage. Muntefering’s criticism could be a new change if concrete steps follow – nationally and across Europe.

The high mass unemployment is not only caused by the irresponsible activity of several “predatory capitalists” (Helmut Schmidt) or by growing shifts of firms to low-wage countries. Since the beginning of the 1990s, German firms have invested 30 billion in Eastern Europe… Germany as the “export world master” is one of the globalization winners. Its businesses are extremely competitive. However there is little domestic investment on account of persistently weak domestic demand. Jobs are hardly created. Public investments are at an historical low far below the European average.

The cause is the accelerated redistribution from bottom to the top. The increased mobility of capital in the course of the global liberalization of capital markets occurred along with high profits and stagnating or even declining wages. This development was favored by permanent shifts in tax policy.

All the parties – intentionally or unintentionally – weaken the factor labor. “Moderate” instead of productivity-oriented wage agreements have not led to more employment. Social cuts and labor market reforms have further weakened the factor labor. When unemployment leads to rapid impoverishment and the jobless must accept any work for any low income, readiness to represent their own interest is transformed into sheer anxiety. The march into the poverty wage sector must be reversed and poverty effectively combated. Why shouldn’t legal minimum wages that function well in France, Great Britain, the Netherlands and Belgium help toward living wage incomes in Germany? The social income – above all Unemployment Benefits II and income support – is much too low. The rules were manipulated downwards according to a study of the welfare associations. A clear increase of base or benchmark wages would be a first step. A rich country like Germany cannot afford poverty, especially child poverty!

The growing polarization between top and bottom is massively promoted by tax policy. In 1960 the mass taxes paid by private households still amounted to 37.5 percent of tax revenue. By 2004 their share had more than doubled to 77 percent. The burden on working income persists despite many reforms on a high level. On the other hand, the direct taxes on profits- and assets income continuously fell from 20 percent in 1960 to less than six percent. The average effective taxation of corporations has fallen since 1960 from 34 percent to around eight percent. The public redistribution intensifies the negative effects of the primary distribution between labor and capital.

After three reductions the top tax rate is far below the international average. Mr. Ackermann of Deutsche Bank was rightly reprimanded for laying off 2500 while profits rose 25%. Why isn’t the top tax rate higher? Why isn’t there a luxury tax as in other countries?

On the national and European planes, we need a new balance between capital- and labor income. Unfortunately the opposite is happening. The constant lowering of capital taxation in Germany fans the European tax lowering competition. The public infrastructure deteriorates from schools and universities to hospitals. New instruments like a taxation of international financial transactions, drying up of tax havens and a future-oriented capital taxation stimulating real economic investments are necessary. The turn is overdue. Only more justice in distributing prosperity leads to more employment because “cars do not buy cars” (Henry Ford).

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