As Ulrich Fritsche highlighted in a recent post quite correctly, there is currently a fierce debate in Germany about a potential “Linksruck” or seismic shift in politics to the left. The bottom line of this debate is that a lot of economic bigwigs in the academic economics profession fret about the fact that standing social policies are being increased or new ones established (such as a new child benefit). In this post, I intend to stray away from a purely economic analysis and will concentrate on a more political dimension of this debate. The reason for this is that – going by current opinion polls – at the end of January 2008 we will see a fifth “grand coalition” government emerge at the state level in Hesse (after already four existing ones in Brandenburg, Saxony, Mecklenburg-Vorpommern, and Schleswig-Holstein plus, of course, the one at the federal level). Grand coalitions in Germany are a direct result of the rise of the Left Party, which you might in European speak also call “unreconstructed communists”. In all cases (with the exception of Schleswig-Holstein), it is their presence in parliament which is blocking majorities for one of the two traditional voting blocks of centre right (Christian Democrats and Liberals) or centre left (Social Democrats and Greens). For as long as neither Liberals nor Greens are willing to join a coalition together with either the Christian or the Social Democrats, the grand coalition is about the only option left to form a government with a functioning parliamentary majority. The interesting thing now is that the Social Democrats – despite in most cases being the junior partner in this kind of arrangement – are also in the stronger bargaining position. For theoretically they could also enter a coalition with the Greens, the Communists (as in Berlin) or a combination of both. By contrast, the Christian Democrats have to win outright majorities for the centre right block in order to govern and push their agenda. The latter means quite naturally that they have to neutralise core themes of the SPD which is in most cases done by simply playing copy cat. Another way would of course be to break-up the alliance between the SPD and the Greens as a voting block, so that the Christian Democrats broaden their spectrum of alternatives (which seems likely to be tried in Hamburg later in the year). As a result, the public debate shifts towards a potentially more leftist agenda and will in most likelihood continue to do so over the coming years. But is that necessarily a bad thing in economic terms? From my perspective, it does not have to be that way. In my two most recent posts I have argued both the case for a national minimum wage (here) and highlighted the potential economic benefits of rising number of childbirths (here). The latter post underpins the fact that properly designed social policies might well come in as a positive for economic performance. In addition, one might also argue that the share of government expenditure in GDP has steadily declined from close to 50% in the mid-1990s to some 45% today and set to decline further on current trends. So you might also argue that some additional public expenditure might be warranted as long as it is going to worthy purposes that also deliver macroeconomic benefits such as childcare or negative income taxes. But we should not deny the danger recently expressed by Wolfgang Clement, the minister for economic affairs in the Schroeder government, in an interview with Sueddeutsche Zeitung that as the Christian Democrats take their cue from the Social Democrats and those in turn from the Left Party, we might be seeing a proper Linksruck in the end. Meaning more government but without any of the economic goodies that might result from thought out social policies.
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