Concept for Policies to Overcome Weak Growth and to Fight Unemployment

I.

After improvements in important basic conditions (wage and interest rate developments, trade balance) and the slight rise in production in the first quarter of 1982, the economic situation and the preconditions for a rapid upswing have been worsening once again since the end of spring:

— Unexpectedly strong decline in foreign demand with stagnating and, as of late, declining domestic demand
— Worsening of the business climate and of future expectations for the economy (test by IFO, Institute for Economic Research)
— Cuts in industrial production
— Rise in unemployment and increased insolvencies

Interest rates have started dropping once again after a temporary interruption; the rates continue to remain relatively high, however, despite the generally adequate monetary policies of the German Central Bank [Bundesbank].

This renewed worsening of the situation is partly a response to processes in the international sphere (continuing weakness of the global economy, uncertain economic and interest-rate developments in the United States, U.S.-European controversies). The global economy as a whole is evidently experiencing a persistent stabilization- and adaptation-crisis. Inflation rates are still very high and unemployment is continuing to rise, serving to prolong the period of weak growth in North America and Europe considerably. By now, Japan has also been drawn into it.

Weak growth worldwide, however, should not obscure the fact that the current global economic difficulties are the sum of misguided developments in individual countries and that an essential part of the causes of our domestic economic problems can also be found in our own country.

A primary reason for the instability of the German economy over the last few years can undoubtedly be found in the widespread and still growing skepticism in our own country. The stagnation that has persisted for more than two years, the structural problems that are always emerging anew, the growing unemployment, the large number of insolvencies, the growing awareness of international dependence on interest rates, and last but not least, the conflicts and lack of clarity surrounding the future course of economic, financial, and social policies have led to resignation and pessimism as regards the future in broad sections of the German economy. This obvious lack of economic and political confidence might also be a major reason why—contrary to all previous experience—the strong expansion of foreign demand last year did not lead to an upward trend in the domestic economy,

[…]

The necessary overall program for policies to overcome weak growth and to fight unemployment should especially include the following action areas (which are connected through their specific contextual relationship):

A. Growth and Work-Related Budget Policies

Guidelines:

— The maintaining and securing of the middle-term framework of expenditures for the federal budget

— Multifaceted reinforcement of growth- and employment-promoting expenditures (without follow-up costs, if possible) while continuing to cut consumptive expenditures (restructuring)
— Balancing of unforeseen, unavoidable additional spending through saving in other budget areas
— Compensating for revenue shortfalls that, despite careful tax assessments, result from the unusually long duration of cyclical fluctuations, to some extent also through higher net borrowing
— Acknowledgement of the political leadership role of the federal government vis-à-vis the federal states [Länder] and municipalities in the processes of consolidation and restructuring, but without any new hybrid-financing.

[…]

B. Investment and Performance-Enhancing Tax Policies

The tax burden expected in the present, and even more in the future, doubtless plays an incredibly important role in investment decisions. At least as important, however, are the investor’s expectations regarding future wage, worktime, social, environmental, legal, and economic and financial policies. This being the case, the effect of isolated tax measures should not be overestimated.

Guidelines:

— Avoid a rise in the macroeconomic tax burden ratio; do not resort to parafiscal regulations (penny charges)
— Structure the tax system to be more performance- and investment-friendly by eliminating or reducing the following structural programs (making concerted investment incentives less urgent):

[…]

— Widespread compensation of tax revenue shortfall (in connection with solving the aforementioned structural tax problems) by increasing, in particular, the value added tax, but not for the return of the secret tax increases (“inflation-induced progression effect”), which is necessary anyway
— Speedy determination of the context of tax measures, but step-by-step implementation within the framework of a pre-announced schedule.

[…]

C. Consolidation of Social Safety and Employment-Promoting Social and Labor Market Policies

Guidelines:

— Long-term consolidation of the social safety systems without raising contributions or introducing charges
— Stronger consideration of the principles of private pensions/savings and co-payment, as well as subsidiarity (decentralized care as far as possible and reinforcement of self-help by the family, such as in care for the elderly) in all areas of social policy
— Facilitation of flexible work time, but no state-ordered or state-subsidized reduction in working hours
– Generally no further restrictions in freedom of movement of companies, and review of existing legal regulations with an eye toward their impact on employment.

[…]

D. Policies to Promote the Market Economy, Competition, and Economic Autonomy

The capacity of the economy to perform and innovate is largely determined by the functionality of competition and the diversity of business initiatives. The creativity, entrepreneurial daring, and adaptability of small and medium-sized businesses make them indispensable agents of economic and social progress. For these reasons, special attention must be paid in the coming years to promoting economic autonomy and making venture capital available.

Guidelines:

— Reduce unnecessary regulation and bureaucracy in all areas of the economy and shift more services previously bid for publicly to the private sector; maintain tight limitations on the postal service monopoly (no expansion into the terminal market).
— Despite the difficult economic and labor market situation, no easing of competition policies and no granting of maintenance subsidies. Continuation of the struggle against corporate concentration in order to avoid other financial rescue-cases like AEG.
— Improved material and non-material support for economic autonomy, especially for new commercial businesses.
— Reorientation of property policy through relatively strong promotion of participation in productive capital.

[…]