Fratzscher's Distribution Issues / Social Inequality: The Fairy Tale of the Voluntary Choice of Assets
A column by Marcel Fratzscher
The safety nets of a strong welfare state are not to blame for people not building up reserves. Germany has a completely different problem.
[This article published on August 30, 2019 is translatedf from the German on the Internet, https://www.zeit.de/wirtschaft/2019-08/soziale-ungleichheit-vermoegen-steuer-armut-reichtum-skandinavien.]
In the current debate on wealth tax, it is often said that our strong welfare state is responsible for the high inequality of private wealth. The reference is often made to the Nordic countries, which usually also have a high level of inequality. This is because people who are socially secure have less to provide for themselves and therefore choose to accumulate little or no wealth - at least that is the argumentation. But is the fact that 40 percent of people in Germany have practically no assets really their free choice and the consequence of a strong welfare state?
The Nordic countries are well suited for a comparison with Germany. The social contract there is very similar to our social market economy, with an emphasis on equal opportunities, participation and solidarity. Scandinavia is not only economically successful, but its citizens have the highest life satisfaction in the world.
And indeed, Denmark, Finland, Sweden and Norway have a similarly high proportion of inhabitants compared to us who have little private net wealth, for example real estate, financial assets or savings (less liabilities). However, this is where the similarities between Germany and the Nordic countries stop, as figures from the OECD impressively show.
In the Nordic countries, people without net wealth belong to a completely different social group than in Germany. These are often people who have significant gross assets but at the same time also have high levels of debt. In Norway, for example, a young family with two very well educated parents who buy their own home may have higher debts than assets, at least for a while - i.e. negative net assets on balance. And this may indeed be a free, conscious and also sensible decision by this family, if it lasts only for a while and is the basis for asset accumulation.
This is where the decisive difference to Germany lies: in our country, the 40 percent without net assets are mostly families or single people with low incomes, low qualifications and little chance of social and economic advancement. These are mostly people who can hardly hope to acquire assets through inheritance or gifts, for example. In the Nordic countries, people without net wealth are much more likely to have medium or high incomes, are better educated and have better chances of inheriting something.
More people in Germany are at risk of income poverty
In addition, the welfare state in Germany is by far not as efficient as in the Nordic countries. In Germany, more than twice as many people are at risk of income poverty - this is especially true for children and other groups such as single parents (mostly mothers).
Fratzscher's distribution issues
The welfare state in the Nordic countries attaches great importance to equal opportunities. The inequality of so-called market income (before taxes and transfers, i.e. before redistribution) is much lower there. In Germany, in particular, people from low-income and educationally disadvantaged families have far fewer opportunities for advancement. The German welfare state is rather "deactivating". It attempts to level out in retrospect the major inequalities in the labour market (Germany has a much larger low-wage sector than comparable countries, for example) and in the education system by redistribution.
The pension systems of the Nordic countries also usually guarantee better security, especially for people with low incomes and few assets. Germany, for example, is one of the few industrialised countries in which the statutory pension insurance system does not improve the situation of people with low incomes, but actually makes it worse for them due to lower life expectancy.
All this means two things: firstly, unlike in the Nordic countries, most people in Germany do not make the decision to build up little or no assets. Instead, they have no choice, because low incomes and few opportunities for advancement mean that they need their entire monthly income to support their family. Secondly, the German welfare state is far less successful in providing people with adequate social security. The Nordic countries make much better use of their welfare state to promote equal opportunities and social mobility, thus giving their citizens more freedom in terms of life choices and asset accumulation.
frechernono #1 - 5 months ago
Germany is simply a chimera of the American system and the Scandinavian system. Under Schröder and Merkel we have clearly developed towards the USA. Entrepreneurs and their higher employees are pleased. But society and the environment have less of it.
In the medium term, Germany will have to make a decision: Entrepreneurial paradise like the USA and Great Britain, but an increasingly dysfunctional society or a little less faith in the market and instead a higher life satisfaction for the broad masses.
Unconditional Basic Income: "I'm hardworking, you're lazy"
Money without working for it. This idea is old and still controversial today. It relaxes our tense relationship to work and income, says economist Philip Kovce.
Interview: Maria Mast
[This interview published on July 29, 2019 is translated from the German on the Internet, https://www.zeit.de/arbeit/2019-07/bedingungsloses-grundeinkommen-philip-kovce-oekonom-vertrauen/komplettansicht.]
Unconditional basic income: The less I have to worry about my own income, the better I can work for others of my own free will.
"The less I have to worry about my own income, the better I can work for others of my own free will," says economist Philip Kovce.
"I'm hardworking, you're lazy"
An income without working for it, for each individual and without any obligations attached to it. This is the idea of the unconditional basic income. In November 2018, then SPD leader Andrea Nahles rekindled the debate with comprehensive demands for reform under Hartz IV. The economist and philosopher Philip Kovce has published an anthology dealing with the history of the idea.
ZEIT ONLINE: For years there has been a dispute about the unconditional basic income. They write that the idea is provocative. Why?
Philip Kovce is an economist and philosopher. He conducts research at the Basel Philosophicum and at the Senior Professorship for Economics and Philosophy at the University of Witten/Herdecke. Recently the anthology "Unconditional Basic Income. Grundlagentexte", which he edited together with Birger P. Priddat at Suhrkamp Verlag.
Philip Kovce is an economist and philosopher. He is a researcher at the Basel Philosophicum and at the University of Witten-Herdecke. Recently the anthology "Unconditional Basic Income. Grundlagentexte", which he edited together with Birger P. Priddat at Suhrkamp Verlag. © Ralph Boes
Philip Kovce: The unconditional basic income is provocative because it is unconditional. Unlike Hartz IV, for example, it is not a social benefit that is linked to need and good conduct. Rather, it is a basic right that strengthens the freedom of the individual. Whoever wants to introduce it must not only value his own freedom, but above all the freedom of others.
ZEIT ONLINE: That seems to be exactly what we find difficult. Studies show again and again that people believe that they would continue to work even with basic income, but others do not.
Kovce: Yes, it is a paradox. The insinuation is: I am busy, you are lazy. I know what matters, the others do not. This divided view of humanity is absurd in that democracy and a market economy have long since been resting on different foundations. Democracy thrives on trust in the maturity of others, a market economy thrives on trust in the ability of others. The basic income would secure the basis for this cooperation.
"The less I have to worry about my own income, the better I can work for others of my own free will."
Says economist and philosopher Philip Kovce.
ZEIT ONLINE: But doesn't the basic income contradict the principle that everyone should look after themselves before using the services of others?
Kovce: In modern societies based on the division of labour, we have no choice but to constantly claim benefits from others. Nobody works for themselves any more, everyone is working for others these days. Nevertheless, we often pretend to be archaic self-sufficient people on a wild chase after banknotes made of edible paper.
ZEIT ONLINE: And an unconditional basic income would change that?
Kovce: It would counteract that, yes. Basically, a basic income would ease our tense relationship to work and income. The less I have to worry about my own income, the better I can work for others of my own free will.
Compulsory work is a motivation killer
ZEIT ONLINE: Opponents of the unconditional basic income fear that many people would no longer work if they received a basic income and that it would not be financially viable.
Kovce: Compulsory work is a motivation killer, not voluntary work. And it is not the unconditional nature of the basic income that will cost us dear, but the financing of a social bureaucracy that is economically and morally long outdated. It dates back to the age of industrialisation and actually sees itself as a reformatory for allegedly lazy and stupid people whom it observes and sanctions. See Hartz IV.
ZEIT ONLINE: In the anthology that you have just published with a colleague, you deal with the history of the basic income idea. Where does it come from?
Kovce: The basic income was already hinted at over 500 years ago in the novel Utopia by the British humanist Thomas Morus. Instead of executing thieves - as was customary at the time - Morus wanted to counteract the causes of theft, i.e. eliminate poverty and misery. As a result, the basic income is repeatedly discussed at striking historical junctures: During the American and French revolutions, during the 1848 revolutions, before and after the two world wars, around the fall of the wall. Since the Swiss referendum in 2016 at the latest, the Basic Income has been the subject of worldwide discussion and is becoming increasingly popular.
"If we grant others the freedom we claim for ourselves, we will no longer stand in the way of an unconditional basic income".
ZEIT ONLINE: How can this be seen?
Kovce: The fact that the basic income is really taken seriously politically nowadays. No wonder: While the idea has been a niche idea in intellectual circles for many years, half of the Germans now support it.
ZEIT ONLINE: Why is the idea of a basic income so popular right now?
Kovce: Digitisation and individualisation are playing their part in making the basic income increasingly popular. Digitalisation means that people are needed less and less as machines, as small cogs in a big wheel. Individualisation means that people are always needed more as personalities, as individualities. In this context, the Basic Income appears as a humanistic response to technological progress.
ZEIT ONLINE: Why has the basic income not been implemented so far?
Kovce: Because we still shy away from the last step. Only when we really grant others the freedom that we have long since claimed for ourselves will we no longer stand in the way of the unconditional basic income.