Positive Reforms Policies in Germany - Essay Example

Why Policies in Germany are Difficult to Bring Positive Reforms Introduction The German economy has suffered a lot of problems in the last few decades. Beginning from the early 1990s, the economy has suffered a sluggish economy growth as well as rising unemployment rates. Its performance has been so low compared to its peers within the European Union countries and especially those in West Europe that it has come to be known to be the “sick man of Europe”. What has baffled many is why Germany, even with all the reforms and policies that have been put in place, seems to continue problem. There are a number of factors that have been identified as to way German policies seem to be inadequate with regard to reforming the economy. These are as follows; Politics Political competition between the right and the left has been one of the major reasons why German policies seem to be ineffective. This political competition between the left and right do not look to help the common citizen. As Lehndorff (2012) says, good policies may be rejected based on partisan issues and this is a problem. In this regard, politicians may resist a policy not because it is not a good one, but because it is has been imitated by their opponents. Although this kind of political competition is also there in other countries, other countries like UK have political systems that make it possible for good policies to be supported from both sides of the political divide, as long as they seem to solve socioeconomic issues that affect the masses. In German however, the political competition makes it hard for the political class to work in unison to develop good policies that will help the masses to be better and to gain advantage. Even in cases where both sides of the political divide are able to agree on a policy, the policy is likely t end up either not solving any problems or they solve one problem while creating many power or many others. German policies seem to look into the short term and fail to look into the long term. It has been the trend to make policies that serve the present and ignore the future. Yet, with regard to macroeconomics, the most effective policies are the ones that look into the future even if in the present they may not seem to bear any fruits (Pritchard, 2014). This however does not seem to ring any bells in the German policy makers who look to have a quick fix on the economy. It is necessary to note that macroeconomic issues such as unemployment rates, dangerous inflation rates and decrease in GDP are issues that develop over long periods of time. They can develop over a period of even up to three decades and it is necessary for the nation to always have a plan that looks to solve the issues not in one night, or even one year, but in a very long time. In Germany, reforms such as the Hartz reforms are always geared to solve the problems in a short while. Of course, when there is an immediate need to be attended to such as when many people have a problem with placing food on their dinner table, it may be necessary for a quick fix to be reached. However, as (William, 2009) says, these quick fixes must be coupled with long term solutions which will make sure that the problem will have been covered both in the present and in the future. When there is a disconnection between the present and the future, problems that are solved today are likely to come back tomorrow, in bigger and more serious case. This is what has been seen to happen in Germany. Most policies are good short term solutions and in this case they are lauded by most economists, who do not look at the long term aspect of such a solution. This disconnection between the future and the present has been seen in the German case and therefore the macroeconomic issues keep resurfacing even when they are seemingly solved. It is also necessary to note that unhealthy political completion has another impact that makes it difficult polices to translate into long term solution. As has been identified already, policies that are geared towards solving macroeconomic issues are supposed to be implemented over long periods of time, such as over thirty years. Over such a period, many governments will have come to power and left. This also means that the power keeps shifting from one political side to the other. When the political completion is so high that one side never looks at the policies made by the opposite side of the political divide in a serious way, this power alternation may mean that when the current government puts up some policies, these policies may fail as soon as the next government comes into power as long as the new government is formed by the opposite side. This has been identified to the case in the German case where political competition continues to be a major barrier that prevents them from any positive long term impacts on the economy. The need to destroy this barrier and make sure that both sides are working towards helping the economy to improve is therefore eminent in Germany. In the presence of such political competition, policies can only thrive when initiated by the political centre. A good example of this is the Hartz reforms which were initiated by Gerhard Schröder who is a political centre left. This lack of bipartisan approach to reforms can be argued to be the reason for the public opposing most reforms that come up. For instance, the Hartz reforms, especially Hartz IV have been opposed so much in Germany by the public. Various public demonstrations have been seen to be carried out in German cities. It is necessary to note that most laymen are not likely to have an understanding of how macroeconomic principles work. In most cases, the agenda is set by politicians through the mass media. If a section of the political class opposes a government policy and publicly talks about its disadvantages, the public is likely to oppose it. This is especially to with regard to a policy such as the Hartz reforms which on the surface seems to place the average person on the disadvantage. It has been argued that the main problem with the Hartz reforms is that the public, or rather the lay people do not understand how macroeconomics work and that this leads to them not only misunderstanding such a policy, but also having bad faith towards it. On the other hand, some argue that it is a matter of economists who develop these policies being unable to understand real people and handling their actions on economic theories instead of considering the realty and considering how the reaction by the people can have an impact on the efficacy of the policy. This has been seen in Germany especially with regard to the Hartz reforms. The lack of understanding by the public can be a big issue and this can lead to the reforms being ineffective. This is because with regard to macroeconomics theories, they do not necessarily automatically translate into reality because in most cases, these theories can be self-fulfilling, depending on the sentiments of the public. If for instance the German public was convinced that the Hartz reforms were good enough for them and that they would help in solving the many problems that they have, this could lead to the Hartz reforms being more efficacious. The fact that the German public is able to take advantage of the democratic space to air their grievances may also be working against them. This is because of the identified issue of the self-fulfilling nature of economic theories; if the public does not have faith in a policy made by the government, it will not be successful. If the public has faith in such a policy, the policy is going to be successful. It is however not prudent to see this as a problem by the public alone. Economists also have their fair share of the problem. They have to understand that the policies that they help to formulate must have a way to appeal to the public and therefore have a better chance to succeed. The other problem is the formulation of polices that solve one problems but create a bigger problem. For instance, the Hartz reforms have increased rates of employment but the kinds of employment that most people, especially young people are getting are not gainful and these people have to still continue depending on state welfare in order to survive (Knight, 2013). They earn an average of 382 Euros per month. The other problem is the welfare state issue where these Hartz reforms have created the impression that every person has the right to get help from the sate even when the citizen could be able to work harder and get his own sufficient income. This creates a burden to the tax payer (Gooby, 2007). The Hartz reforms created a system that allows anyone to get aid from the government without means-testing them to know that they are really eligible. This is a very dangerous way to look at socioeconomic problems because it can promote a culture of laziness and lack of responsibility among the citizens. Although it is necessary for any governed to support the citizens who are disadvantaged and who do not have enough. It is necessary to have a filtering mechanism to ensure that only the deserving gets this kind of help. Failure to this can lead to many issues with many lazy citizens taking advantage of the welfare system. This has a twofold negative impact on the economy. Welfare systems are good and necessary in most cases. In a country like Germany which has some of the highest number of unemployment compared to its peers among the developed nations, it is necessary to have such welfare systems to support those who may be marginalized. The Hartz reforms for instance managed to reduce the employment rate but at the same time increased the gap between the poor and the richest people thus leading to a decline of the middle class. This decline of the middle class is a suicide recipe for any economy and this is what has affected Germany for a long time, even to the point of the country being referred to as the sick man of Europe. This was indicated in a report by OECD that showed that among the European Nations members, Germany was the only country that increased the wage gap between poor and rich (Knight, 2013). This shows that while the Hartz reforms were successful in creating employment and thus reducing the employment rate, they also created an even bigger problem which may need another policy or reform. If subsequent reforms take the same path, it is no doubt that Germany economy will only continue to get worse and not better. Some economists and experts look only at the achievement of such reforms or policies such as the Hartz reforms in the short terms but ignore the long term. Yet, macroeconomic issues are always very big both in terms of timeframe and impact on economy, and are also very complex in that looking at just one area never gives the complete picture. In this regard, such reforms as Hartz reforms must be jugged in two main ways. To begin with, they must be judged from a timeframe point of view. Their success must not only be considered only from the present, but also in terms of what they will mean in 20, 30 50 or even 100 years to come. Judged from this angle, it becomes very clear that these reforms did not serve a positive purpose to the German economy. Conclusion It is very clear that the German economic is suffering for various issues. The policies that have been developed to solve these issues seem not to solve the issues in a comprehensive manner. It is necessary for policies that look at the long term issues to be formulated. A better working formula for both sides of the political divide may also go a long way to help solve this issue. Most importantly, there is a need to make sure that the gap between policy makers and the general lay people is closed, with regard to the way they understand the economy and macroeconomic issues. Reference list: Gooby, T. (2007). Welfare States under Pressure. New York, NY: SAGE. Knight, B. (2013, January 01). Hartz reforms: how a benefits shakeup changed Germany. Retrieved March 31, 2015, from The Guardian: http://www.theguardian.com/commentisfree/2013/jan/01/germany-hartz-reforms-inequality Lehndorff, S. (2012). A triumph of failed ideas: European models of capitalism in the crisis . London, UK: ETUI. Pritchard, P. (2014, October 08). German model is ruinous for Germany, and deadly for Europe. Retrieved March 31, 2015, from The telegraph: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11150306/German-model-is-ruinous-for-Germany-and-deadly-for-Europe.html William. (2009). The Political Economy of Reform Lessons from Pensions, Product Markets and Labour Markets in Ten OECD Countries: Lessons from Pensions, Product Markets and Labour Markets in Ten OECD Countries. Paris, FR: OECD Publishing. Read More