THE GERMAN SOCIAL Democratic Party (SPD) is now in a historic crisis, one that threatens its very existence as a part of the international progressive movement. Under the leadership of its chairman, Gerhard Schröder, who also heads the national coalition government with the Greens, the party has undertaken a series of neoliberal reforms that represent a sharp blow to its core constituency: Germany’s workers and the poor.
By dismantling elements of one of the party’s greatest achievements, the welfare state, and backing the interests of capital against its once powerful trade union allies, the SPD has placed itself squarely on a political path away from its professed goal of achieving “democratic socialism.”
The political transformation has been a long time in the making, but the “party of freedom, justice, and solidarity” now seems to have become a very different kind of animal. (1) In response, tens of thousands of members and millions of voters have turned their backs on the SPD, while many party loyalists scratch their heads in bewilderment.
This is not, of course, the first time in the party’s 140-year history that the SPD has reversed course on basic principles. At the outbreak of the First World War it abandoned socialist internationalism to rally behind the German government. In 1918, following the overthrow of the monarchy, the SPD-led “revolutionary” government drew back from the most radical portion of its program: the socialization of the economy.
In 1958, at its congress in Bad Godesberg, the party abandoned its formerly Marxist focus on class struggle, its rejection of the market economy, and its objections to West Germany’s participation in the western alliance. Instead it envisioned “democratic socialism” as the achievement of freedom, justice, and solidarity through the democratization of society and economic reform.
The SPD had, in fact, always been a party of reform. For two decades after 1945, however, it was unable to win power on the national level. Although its critique of capitalism in war-ravaged Germany was widely shared, even among many in the politically dominant but more conservative Christian Democratic Union (CDU), the SPD’s ideology, in the complex context of the Cold War, prevented it from winning much support outside of the working class.
As a result the CDU, and its Bavarian sister party the Christian Social Union (CSU), controlled the government. It was they who created the “social-market” economy as an alternative to “laissez-faire” and built the framework of the postwar welfare state. Godesberg made it possible for the SPD to broaden its political support and challenge the conservatives for power. In 1969, in coalition with the Free Democrats (FDP), a small liberal swing party, it took control of the government. The SPD was then in a position to push for “more democracy” and a more thoroughgoing redistribution of wealth.
Under Chancellor Willy Brandt, and after 1973 to a lesser extent under his successor Helmut Schmidt, the SPD expanded workers’ rights to organize factory councils and to “co-determine” the operation of large firms. Using Keynesian investment strategies, the state expanded investments in public infrastructure, education and a dense network of social benefits that included comprehensive health, unemployment, and accident insurance programs, generous pensions, and substantial state support for families with children.
This system rested upon an economy characterized by virtually full employment and rising real wages. Under the Social Democrats, Germany remained a hierarchical capitalist society; but social polarization, especially in contrast to other, more laissez-faire oriented, democracies like the United States, was much reduced.
By the mid-1970s, reform had done much to “tame” the capitalist order. The construction of this capitalist welfare state could only occur, of course, in a context of sustained and ample economic growth. Even before Brandt’s re-election in 1972, however, there were signs that the postwar boom was ending, in Germany as well as in the entire industrialized west.
By the mid-’70s, under Helmut Schmidt, the government faced rising inflation, steadily increasing unemployment, and large budget deficits. From 1974 until 1982 unemployment increased from 4.7% to 8.2%, and real wages fell in 1981 for the first time in three decades.
Schmidt attempted to redress these developments by, among other things, combining spending limitations with large-scale public investments in infrastructure as well as tax reductions and investment credits for business. These programs may have slowed the growth of unemployment, but they did not reduce it. By the time Schmidt fell from power in 1982, the state was in serious financial difficulty. (2)
The new CDU-FDP coalition government that followed aimed to stimulate growth and employment by deregulating the economy, lowering taxes on business, and reducing the cost of labor. At the same time, the state supported investment in the rapidly-changing communications sector.
For sixteen years under Helmut Kohl’s leadership the CDU-FDP coalition pursued this strategy with mixed results. The state converted the post and rail systems into private enterprises (in which it remained a major investor and regulator), reduced taxes on the business sector, and chipped away at public benefits like unemployment insurance for workers involved in strikes.
The Kohl government did not carry out more sweeping reforms, however, in part because Germany’s trade unions re-mained powerful (and actually succeeded in reducing the work week from 40 to 38.5 hours in 1984), but also because a substantial portion of the CDU backed the social state. (3)
While Germany’s economy experienced declining inflation and more growth in the 1980s, unemployment actually rose as firms rationalized production and introduced new methods of product storage and delivery. Unemployment peaked at 9.3% in 1985 but remained high thereafter.
By 1989 it appeared that the Kohl government’s chances of winning the upcoming parliamentary elections were slim, but the collapse of East Germany and its subsequent annexation by the West saved the day. Kohl rode the wave of unification euphoria with skill.
Those who believed that rapid unification could have negative political and economic consequences for East and West Germany, such as his Social Democratic opponent in the election, Oscar Lafontaine, made little headway. Promising “blooming landscapes” in the East similar to the West’s “economic miracle” of the fifties, Kohl easily won re-election in 1990. (4)
For the next eight years the Kohl government oversaw the deindustrialization of the East and its conversion into a kind of German Mezzogiorno, with the region and its people largely dependent on state handouts and investment for survival.
Contrary to the government’s expectations, tens of thousands of young, educated easterners continued to move westward as firms closed and opportunity disappeared. Millions of those who stayed behind depended on unemployment insurance and, after that dried up, welfare payments to put food on the table and pay the rent.
To cover these costs, clean up the rubble left behind by communism, and make new investments to promote economic development, between 1991 and 2003 the state transferred over 1.25 trillion Euros ($1.5 trillion) from west to east, raised taxes, and stripped west German cities and towns of much needed resources. (5)
This policy, however, failed to revive the eastern economy while simultaneously weakening that of the west. Nationwide unemployment rose to 11.4% in 1997 (19.5% in the East), real wages fell 7% compared to 1992, and rising government debt threatened the social security system.
In the 1998 parliamentary elections most German voters were ready to say goodbye to the “second Bismarck” and his center-right coalition. A majority supported the SPD and the Greens, who formed a coalition government promising to bring Germany “innovation and justice” by reforming the tax, retirement, and education systems as well as the laws regulating the labor market.
Chancellor Schröder is a powerful personality, savvy politician, and capable speaker. Raised by a single, working-class mother, he initially became an ironware salesman but, with much determination, eventually acquired a law degree. After joining the SPD in 1963, he rose to head its youth organization in the late 1970s, won election to the Bundestag in 1980, and ten years later became Minister President of the state of Lower Saxony.
Over the years, Schröder’s politics have shifted from a Marxist perspective to a kind of Clintonian “pragmatism” that incorporates neoliberal means to achieve ends so vague that virtually any party can adhere to them. The purpose of these policies is to position the party in the political center.
On the one hand Schröder aims to satisfy the demands of capital to reduce labor costs. On the other he hopes to convince the people that there is no other choice and that the SPD is working to save the core of the system. This argument has not resonated well; the combination of reactionary means and vague ends has driven many SPD supporters to leave the party and alienated it from the voters.
Under pressure from the SPD left, Schröder criticized neoliberal economic policies during the 1998 campaign. Once in office, however, he joined Britain’s “New Labor” leader, Tony Blair, in calling for a “modernized” economic policy that rejected Keynesianism for a more market-oriented, competitive approach to the “objective conditions” of globalization. (6)
Schröder’s theoretical outlook was clear, but he had little to offer to resolve Germany’s ongoing crisis. Instead the government muddled through for four years. Initially, a modest economic upturn reduced unemployment slightly and allowed real wages to regain some lost ground, but by 2001 the economy slumped again.
Growth declined from 2.9% in 2000 to zero in 2003. Unemployment last October reached 10% (4.4 million people) and declining revenues forced the government to borrow additional billions to cover its costs. (7) Schröder’s reelection in 2002 was a narrow victory based, not on the success of his domestic policy, but rather on his effective reaction to a major flood in eastern Germany and, most importantly, his decision to keep the country out of the Iraq War.
Standing up to the United States was enormously popular, but over the long haul the Chancellor knows that his success depends on turning the economy around. Thus, in March of 2003, without prior debate within the party, he presented his Agenda 2010, which identified six challenges for Germany to meet in order for the country to be “fit for the future.”
These include the stagnant economy, high unemployment, a financially-strained social insurance system, a growing population of retirees whose pensions are supported by proportionally fewer workers, falling government revenues, and a lack of investment in education and research due to the state’s unexpectedly high social expenditures. (8)
Schröder responded to these challenges with an array of proposed reforms such as tax reductions for all income brackets, cuts in various public subsidies, deregulation of the labor market for most “craftsmen,” and a shortening of the time that one can receive unemployment benefits from 18 to 12 months.
These changes, plus new rules making it easier for small firms to fire employees, a very substantial reduction in the level of welfare payments, and tougher requirements for the long-time unemployed to take any job offered, clearly aim to increase the “flexibility” of the labor force.
At the same time the government also suggested channeling substantial resources into training programs for young, unskilled workers and new small businesses. It reassigned the task of finding work for the unemployed from the local authorities to a revamped Federal Labor Department, and it granted city and regional governments extensive debt reduction and new credits to stimulate economic activity (e.g. public housing construction).
Lastly, and perhaps most controversially, the state began to “restructure” the extremely complex social insurance system. To cover rising deficits, but also to drive labor costs down for business, it shifted more of the social security burden onto workers. It pushed the earliest possible retirement age back from 60 to 63, reduced pensions, and urged people to look to the private market for supplements.
In the national health system, which insures 90% of the population (all wage earners and the poor), the government introduced co-payments for medical treatment of all kinds (excluding children), added new charges for dental coverage, and dropped the provision of eyeglasses.
While the maximum 10 Euro co-payment for many workers may be modest, a payment of any amount for the poor and disabled is a substantial burden. The payments have raised the ire of the public, which resents having to pay, and of the doctors, who resent having to collect the money for the insurance agencies.
Many of these changes required approval by both the Red-Green-controlled Bundestag and the opposition-controlled upper house, the Bundesrat. During the fall of 2003, Schröder’s government found itself battling not only disgruntled Socialists and Greens unhappy with various elements of the reform package, but also with an opposition determined to extract concessions in preparation for upcoming state elections in 2004.
In mid-December, after months of grandstanding on both sides, a final round of negotiations with the opposition resulted in an agreement in which the government achieved most of its goals. The opposition had not, in fact, opposed the reforms as such. Instead, it mainly raised questions about their extent (e.g. of tax and public subsidy reductions) and how they would be financed. The final package is widely regarded as a first step toward “more individual responsibility” to be realized through future alterations in the tax and social insurance systems. (9)
Schröder’s tenacity has won him respect in some pro-business circles for “breaking the log jam” holding up the changes necessary to make Germany more competitive, but he has failed to win over most of his own party. (10)
His decision to introduce the Agenda 2010 from the top down and his repeated threats to resign and topple the government if the party did not get behind his program have isolated him and his allies in the leadership from much of the SPD’s base. Over 38,000 members left in 2003, reducing total party membership to 650,000 and accelerating a trend that began in 1990 when it stood at 950,000. (11)
Many of those who have stuck with the party have made their unhappiness with the Agenda 2010 increasingly clear. At the Party Congress in Bochum last November, delegates re-elected Schröder as Chairman with 81% of the vote, 8% less than in 2001.
Much more telling was the slap they delivered to Olaf Scholz, the party’s powerful General Secretary, who received only 52%. Charged with the unenviable task of adapting the SPD’s program to Schröder’s Agenda, Scholz lacked the skills to push through the new course while simultaneously catering to the party’s “soul.” His suggestions that the SPD drop the term “democratic socialism” from its program and replace the goal of “social justice” with “justice through opportunity” caused a firestorm that symbolized his failure. (12)
The SPD’s situation declined precipitously after the new reforms went into effect on 1 January. Technical bugs in the health reform stoked public unhappiness with the new fees; the Labor Department’s new chief was fired after a scandal, and the Transport Ministry’s total failure to introduce an expensive toll-collection system resulted in billions in lost revenues. (13)
Embarrassed, the “party of equality” leaped from the frying pan into the fire when it announced its intention to promote economic and scientific “innovation” by spurring competition in higher education and providing funds for future “elite universities.” With Germany’s colleges severely underfunded and overcrowded, the focus on providing funds to create elite institutions makes little sense to many citizens concerned about solving basic problems first. (14)
There are certainly important elements of the Agenda with broad support, such as income tax reductions that do not adversely affect key programs and improved services for the unemployed looking for work. What has angered many, however, is that the party’s new course essentially amounts to the implementation of the old pro-business CDU-FDP economic program of the 1980s, only with deeper cuts to the social state.
The policy leaves activists at a loss about the SPD’s goals and how to rally the public behind them. As one Bochum delegate asked, “How do I tell a little old lady that she’ll soon receive less money?” (15) While Schröder counts on an economic upswing to reverse the party’s fortunes, such hopes do little to ease the concerns of the rank-and-file.
Indeed, the SPD’s policies clearly have led to a collapse of public support. In the June 2004 elections to the European parliament it won only 21.4% of the vote (down from 30.7% in 1999), while the Christian Democrats won 44.6% (down from 48.7%). It was the party’s worst electoral defeat since 1945.
On the same day, in elections to the assembly in the eastern state of Thuringia, the party slipped to 14.1% (18.5% in 1999), while the former East German Communist Party (now called the Party of Democratic Socialism, or PDS) won 25.7% (up from 21.3%). This a recurring pattern in the states that once comprised East Germany, while in the west many socialist voters have turned to the Greens, who doubled their share of the EU vote to 12%.
While some former SPD supporters, especially in its traditional bastions such as the industrial Ruhr Valley, simply stayed home rather than vote for the Greens, it is also clear that many voters do not hold the Greens responsible their senior partner’s Agenda. The SPD, the Greens and the PDS have long formed about 40–45% of the German electorate and this situation has not changed. It is the SPD’s share of that voting bloc that has shrunk rapidly. (16)
The party leaders were aware that they faced a difficult election as periodic surveys had clearly illustrated the SPD’s loss of support. For example, while in 1999 almost 60% of voters trusted in the party’s commitment to social justice, a December 2003 survey indicated that only 24% did so. (17)
Even worse, with 14 state elections looming, winter polls indicated that nationally a postwar low of 24% would vote for the SPD. In response, the leadership panicked. On 5 February Schröder and Scholz resigned their posts as Party Chairman and General Secretary, respectively.
Though Schröder’s government remained committed to the Agenda 2010, he hoped that his replacement, the charismatic chief of the SPD Bundestag delegation, Franz Müntefering, would restore confidence among party members and improve communication with the public.
The new General Secretary, Klaus Uwe Benneter, is another former leftist now at home on the SPD’s right wing. Little known among the rank and file and uninspiring, he is a friend of the Chancellor, who apparently is counting on Benneter’s loyalty, reliability and discipline to make him an effective buffer between himself and his party. (18)
Aside from waving his red scarf at party meetings, it is unclear how Müntefering can bridge the gap between the values of most SPD members and the policies of the government. Since late March, just prior to the extraordinary party congress that elected him, he has insisted that there will be no change of course and that his job was to improve the party’s ability to explain its policy. After the European elections he stuck to this position and asserted that there is no better alternative. (19)
Schröder has long repeated this claim. With Germans, on the whole, still relatively well protected from the vagaries of the market, he argues that he does not wish to introduce “American” social conditions. But he warns that, under the CDU, now rapidly distancing itself from its earlier affinity for the social state, things would be much worse. (20)
In October 2003 he told trade unionists that they may not like many of his proposals, but they were necessary to get the economy going. He also reminded his “dear colleagues” that they had little choice. They could talk about finding new political allies, but before looking to the opposition parties for succor, they would do well to review the opposition’s history. Schröder knows that the unions would not like what they would find. In effect, then, he offered them the SPD as the lesser of two evils. (21)
For many SPD members and union activists this “choice” is not only uninspiring, it is infuriating. Some have decided to fight back, if necessary by forming a new party. In the weeks leading up to the SPD’s March congress, dissident trade union and party leaders organized an “Initiative for Work and Social Justice” that called on the government to drop the Agenda 2010 and replace it with a large-scale program of public investments to stimulate domestic demand and employment.
In early July the group announced that it plans to run candidates in next May’s state elections in North Rhine Westphalia, an SPD stronghold. The SPD has responded to this pressure by threatening to expel functionaries whose behavior indicates support for the new group. (22)
Among trade unionists, too, frustration with the SPD is widespread. Michael Sommer, head of the Federation of Trade Unions (DGB), has distanced himself from the effort to found a new party, but SPD-union relations are at a historic low point.
In April the unions mobilized over 500,000 people nationwide to demand that the SPD abandon a policy that “damages the mass of the population, makes the rich even richer, and makes the capitalists and their managers even more impudent.” (23) In early June a top leader in both the DGB and the SPD, Ursula Engelen-Kiefer, publicly urged the unions to distance themselves from the party and to seek new political partners, such as the anti-globalization organization, ATTAC.
Recriminations became particularly heated in late June, after Frank Bsirske, head of the service workers’ union, Verdi, described Schröder’s economic policy as a “failure” that contradicted the party’s identity and undermined its electoral support. To calm things down Sommer and Müntefering met and agreed to rein in the pubic insults and to hold further talks. While many union and party leaders wish to avoid a break, it remains unclear on what basis they might continue their cooperation. (24)
The DGB supports more government investment to create jobs and calls for a 35-hour week with no reduction in pay. It demands that all Germans, including the three million now-exempt government officials as well as the independently wealthy, be required to pay into the health insurance system, and it backs reforms to ease the tax burden on workers while increasing taxes on the rich and on capital. (25)
The DGB leaders know that, in the context of the recent EU expansion and increased global competition, these kinds of demands have to be fought for as part of a larger international effort to improve workers’ rights and living standards. With this effort developing slowly, however, the unions continue to focus most of their energy on the domestic level. The DGB’s Sommer insists that to win its support, the SPD needs to do a better job diagnosing problems, talking to its friends, and developing the party’s vision for the future. (26)
Of course, Schröder tries to present a positive vision. He points to a future in which Germany will be a leader in economic innovation, in education and research, and in providing employment opportunities to children raised in a “family friendly” society. At Bochum he even threw a bone to the party faithful by claiming that he opposed the domination of “international capital.” (27)
With the exception of the latter, there is not much particularly “social democratic” about any of these vague goals, which would be rhetorically acceptable to the leaders of virtually all the parties. And when it comes to “international capital,” Schröder’s remark cannot be taken seriously.
On the day after the SPD’s defeat in the June elections the head of the Federation of German Industry, Michael Rogowski, congratulated the Chancellor for announcing his intention to “stay the course.” He well knows that the Agenda is an effort to accommodate Germany to the demands of modern capitalist competition, rather than a socialist challenge to it. (28)
The SPD’s Berlin Program, passed in 1989 and updated in 1998, charges the party leaders with promoting a “counterweight” to the power of global capitalism by organizing regional communities of states and by encouraging union organizing across national borders.
It calls for the expansion of workers’ power in the workplace, for improvements in their social security, and for redistributing work in a highly productive economy in ways that promote full employment. In short, it demands an environmentally sustainable economy with democratic control over the economic power of capital and strong unions. (29)
The Agenda 2010, conceived at the top and forced down the throats of the party at large, makes no effort to adhere to any of these aims. There is no doubt that Germany’s “social-democratic model” is buckling under the strain of capitalist demands for pro-business reforms and the economic weight of reunification.
To provide full employment, protect social security, and carry out an effective and fair redistribution of wealth will require fundamental reforms of the current system. The issue facing the party now is whether it can conceive a package of concrete reforms in keeping with its stated basic principles, or whether it will adhere to a program that caters to the needs of capital. At the moment it appears that the leadership intends to follow the latter road at least until its own constituents throw it out of office.
ATC 112, September–October 2004