INTERNATIONAL QUARTERLY EDITION · [Limberg Box Patch : TrimBox [0] BleedBox [3] MediaBox [10] Patch : Page 4] Quarterly_3-2013_komplett.pdf. Allmendinger: It is true that precarious

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Gonzalo MartnerGlobal Dilemmas and Chilean SocialismThomas MeyerMaster and ServantA Conversation with Jutta AllmendingerGood Work means far more thanPaid EmploymentSergio GrassiChina and Africa, the »Growth Continent«

3 2013Journal of Social Democracy€ 3,80

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Quarterly_3-2013_komplett.pdf[Limberg Box Patch : TrimBox [0] BleedBox [3] MediaBox [10] Patch : Page 1]

1 Editorial

A Conversation with Jutta Allmendinger2 Good Work means far more than Paid Employment

Detlef Wetzel6 Precarious Employment Undermines

the Foundations of Society

Cornelia Heintze10 The German System of Care and Social Support for the Elderly –

as Refracted through the Scandinavian Model

Franz Walter14 The Fire is dying

Gonzalo Martner17 Beyond Pragmatism but not quite to Utopia:

Global Dilemmas and Chilean Socialism

Thomas Meyer21 Intermezzo: Master and Servant

Alfred Pfaller23 The Euro Crisis: When Economies Grow Beyond

their Means

Sergio Grassi27 China and Africa, the »Growth Continent«

C O N T E N T S



E D I T O R I A L

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Europe is on the verge of using up the stocks of consensusand social capital that it took such pains to accumulate.

The Treaties of Rome held out the promise that living stan-dards across the continent would one day approximate to acommon level. What we are witnessing instead is a wideninggap between living conditions in parts of Southern Europe,which are approaching sheer destitution, and the comfortablestandards of Northern regions, which have scarcely declinedat all. Northern countries have appropriated countless billionsin bailout money for the banks and government budgets of the South, but thesefunds have brought few benefits to Southern populations facing dire poverty.Taking a shortcut past impoverished Southern Europeans, those funds passthrough the hands of ailing banks in the South and thence back into the coffersof banks in the North, helping to stabilize the situation there. It is no wonder thatthe people suffering most in the crisis countries cannot discern anywhere inEurope the slightest hint of that solidarity which was once invoked as the heartand soul of the project of European unification. At any rate none of the fundsare reaching the needy. Meanwhile, taxpayers in the North have to provide (pre-sumably risky) loan guarantees on a scale of billions of euros to keep the circu-lation of financial bailout funds flowing. True solidarity looks very different, aswould a policy seriously designed to encourage it. It is high time to initiate achange of course in European policies, because by clinging to the current failedcourse, based as it is on the harshest forms of austerity, we are daily allowing thecracks in Europe’s foundation to grow deeper.

As usual, some of the essays in this volume are devoted to European topics.Other articles try to pin down the relationship between »good work« anddemocracy, which also defines one of the major issues in the German electoralcampaign.Yet the ideas of the latter articles implicitly raise much broader issues,since good work is part and parcel of a dignified human existence everywherein the world. We also ask whether China’s recent engagement in Africa is one ofthe driving forces behind the upsurge of a continent once written off as a hopelesscase, or whether China is merely pursuing old, presumably discredited colonialpolicies by different means. Finally, this year the Social Democratic Party of Ger-many will be offering us a rare spectacle in the world today: the sesquicentennialcelebration of the Party’s founding. The festivities should provide an occasionfor deeper reflection on the question of whether the SPD’s longstanding pro-grammatic commitment to changing the world remains a source of strengthfor the Party or whether it is now just a burden. Today, one has to ask where theenergies will come from to carry on the struggle against inequality and the colo-nization of the life-world by markets.

Thomas MeyerEditor-in-Chief and Co-Publisher



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NG/FH: What exactly does »good work«mean in advanced industrial and servicesocieties like our own? Would it be possi-ble to refashion all of the working condi-tions in this country on the model of goodwork? And is good work attainable foreveryone within a reasonable time-frame?

Jutta Allmendinger: Questions about goodwork usually have paid employment inmind. I would like to take a broader ap-proach. As far as I am concerned, the mostimportant requirement for good work isthe successful linking of paid and unpaidwork. Only in the light of an entire lifetimecan one say what good,gainful employmentis. How do high pay, job tenure, and a pleas-ant work environment benefit me, if theycompel me to give up partnership, children,and closeness to parents and friends, aswell as culture and community? For megood work means being active withoutcompletely surrendering to paid employ-ment. On the other hand, good, gainfulemployment includes socially insured em-ployment contracts, a living wage, enoughsecurity to plan ahead, a healthy work en-vironment, and a schedule that can be ad-justed over the course of one’s lifetime.

All employment relationships shouldinclude social insurance, a minimum wage,and enough job security so that the em-ployee can plan ahead. But even if that werethe case, there would be wide disparitiesamong the various types of paid employ-

ment. Different kinds of qualificationswould be required; social status, income,and opportunities for promotion wouldvary; and employees would not all enjoythe same level of autonomy.And, of course,not all jobs offer the same opportunitiesfor formal consultation with, and input by,employees that one finds in the Germansystem of co-determination. The decisivepoint for me is that we should make sureour employees are protected against a pre-cipitous drop in their living standards. Thatcan be accomplished quickly if entrepre-neurs and politicians have the will to do it.

NG/FH: Right now there are almost tenmillion people in Germany working onterminal contracts, doing temporary workor »mini-jobs.« A growing number of em-ployment contracts permit de facto »wage-dumping,« in which wages in one or morefirms are slashed in an effort to undercutcompetitors’ prices, causing a race to thebottom. Eight million people are now wor-king in the low-wage sector. So it makessense to say that the world of work is gettingmore and more precarious.What would aneffective employment policy have to ac-complish in order to approach the goal ofgood work for all as quickly as possible?What can lawmakers do to counter thetrend toward precarious work, and thusthe social cleavage between uncertain, low-wage jobs and »regular« employment withbenefits, job protection, and decent wages?

A Conversation with Jutta Allmendinger

Good Work means far more than Paid Employment

Jutta Allmendinger is a sociologist and President of Berlin’s Science Center forSocial Research. In her previous scholarship she has focused primarily on the waysin which education, the labor market, and the social welfare state have influencedthe course of human lives. She has also done considerable research on genderinequality. For some time now she has devoted her research efforts to the sociologyof education. In this conversation with NG/FH she explains, among other things,what she means by the term »good work« and how we might resist the trend to-ward ever more precarious work. Thomas Meyer conducted the interview.



Allmendinger: It is true that precariousemployment in Germany has been ex-panding over the years. But the picture is abit more ambiguous when, in this contextas well, one thinks of work in broaderterms. Today more women are employedand have their own incomes. Yes, many ofthese women work part-time; many arejust marginally employed and receive a verylow wage. But many women often used tohave a precarious existence when they werehousewives, too. They usually dependedon their husbands’ income, so they facedutter destitution if they lost that income.

But let’s go back to your question. Tofight precarious employment one has tostart early, even in the schools. The pro-portion of poorly educated people has tobe reduced by improving pre-school andschool education, and by that I have inmind something more than just traininggeared to paid employment. Human beingscan only take their place in society and theworld of work when they have a decenteducation. Here I would refer to the reportof the Progress Forum issued by the Fried-rich Ebert Foundation, which puts the ca-pabilities approach at the center of its visionof a good life.

Furthermore, without a minimum wagethere is no way to have good work. But totarget our efforts against the low-wage sec-tor accurately,we have to distinguish amongthe various forms of precarious work, sinceeach of them calls for a different response.For example, more and more temporaryemployment contracts are being signed; infact, by now they make up about half of allcontracts for new positions. That situationis precarious for many employees becauseit entails dependence and uncertainty. Moreand more people fail to make the leap intolong-term, secure employment, since eventhe share of temporary employees in thetotal job numbers, now about a tenth, ishigher today than it used to be.

There is a way to slow or even reversethis trend. It should be possible to place

some restrictions on the number of time-limited contracts a person can be tendereduntil he or she finally receives a full-timejob offer.But in recent years the very oppo-site has been happening, as more and morecontracts are relatively short-term, evenwhen there is no good reason to make themso. Terminal contracts are easier to put upwith if employees can feel confident thatthey will soon find a secure job again, andreceive transfer payments in the interim tocover their needs.The proper catchword inthis case is »future prospects that one cancount on.« Where temporary work is con-cerned – another form of precarious em-ployment – some progress has been madeby extending negotiated contractual agree-ments to cover temporary employees aswell. I do see major problems with contractsthat outsource work to subcontractorspaying low wages. Here lawmakers andunion/management negotiating partnersneed to work out some clear rules andset limits. To sum up, both preventive andtherapeutic approaches are possible andnecessary.We have to prevent people fromslipping into the low-wage sector as wellas easing their way back out of it.

NG/FH: Does public-sector employmentserve as a kind of ideal for what good,secure work should look like?

Allmendinger: It is true that public servicejobs usually do not have time-limited con-tracts. Moreover, as compared to the pri-vate sector the gaps between different wageand salary levels are much narrower. Inthis respect the public sector does serveas an ideal. Still, we should remember thatit is not as deeply influenced by the busi-ness cycle and international competitionas many areas of the private economy are.

Yet even the public sector is far fromhaving achieved everything that the idealof good work implies. Public employeesare offered too few opportunities for con-tinuing education, and it is rare to find

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women in leadership positions. Moreover,it is often hard to justify the differentialtreatment accorded civil servants versusordinary white-collar employees withoutcivil service rank. In many divisions of thepublic sector one could eliminate or limitthe transition to civil servant status.

NG/FH: Recent research findings have re-vealed the dark side of a laboring societythat keeps going round the clock: mentalillnesses, lost time due to exhaustion, dailystruggles by employees to be listened to

and recognized for their accomplishmentsat work, etc. The majority of employees ex-perience working conditions that lead topremature deterioration in their health.What can be done about all this? Who isresponsible: employers, labor unions, law-makers?

Allmendinger: For much too long we haveducked the question of how we are goingto reinvent a world of work in which moreand more people capable of earning a liv-ing are actually employed. Old-style laborrelations, which were once considerednormal, cannot be applied arbitrarily toevery single person. Once, virtually everymale was gainfully employed, while womentook care of everything in the household.Today we are witnessing an intensificationof work for both sexes. Men can no longerassume that someone else will take care ofall the tasks that arise outside of their on-the-job responsibilities; hence, they willhave to take up some of the slack. As aresult, their aggregate work time increases.But matters are much more serious in thecase of women. In addition to the increas-ing burden of paid work, they still have todo a lot of unpaid labor, including house-work and childcare.

That is the reason why I am in favor ofa reduction in the number of hours nor-mally devoted to paid work, measured overan entire lifetime. Even if we manage toopen more full-day schools and good day-care and learning centers for children,which are all urgently necessary steps, agood life is still unattainable when bothparents work at full-time paid jobs. Thereis not enough time left for relationships,children, and parents, and it is almost im-possible to continue one’s education and/or training. If a rebalancing of working

hours between men and women wereachieved, there would be no need to worryabout the aggregate labor volume, sinceit will remain stable. Productivity mighteven increase, since it would be possible tomake better use of women’s good educa-tion, while deemphasizing men’s cultureof »showing up for work« and staying onthe job. It is up to civil society to grapplewith these fundamental issues, whereasimplementing solutions is a matter forbusiness firms, union-management nego-tiating partners, and the government.

NG/FH: How should family and labor mar-ket policies be integrated so as to over-come gender inequality and gender bias inthe workplace and offer all members of so-ciety a better chance to improve their lives?

Allmendinger: I would like to take educa-tional and social policies as a package deal.At the top of my list would be an effort toreduce the large income differentials be-tween men and women that are due to thedisparity in the amount of time they work.This is where we need to reallocate wor-king time between the sexes, both in theworkplace and in the household. The gen-der income gap is certainly more impor-

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» Today we are witnessing an intensification of work for both sexes. That isthe reason why I am in favor of a reduction in the number of hours normallydevoted to paid work, measured over an entire lifetime.«



tant than the gender wage gap; that is, diffe-rentials in monthly income loom largerthan differentials in the hourly wages earn-ed by men and women, respectively. It ismainly the gender income gap that leads tooften meager old-age pensions for women.It is irresponsible to change the alimonylaw so that women are on their own threeyears after a divorce, without previouslyestablishing the proper balance betweenwork and family and adjusting the worktime of men and women accordingly.

NG/FH: Considering reports of success inemployment policy as well as the actualrecord, does it still make any sense to dealwith mere employment figures? And if not,what should replace them?

Allmendinger: No, but it has never reallymade sense. As we know, statistics are al-ways being collected about employed andunemployed people, which are then ana-lyzed and reported. But people who arenot gainfully employed and who do not re-port to the official job-placement agenciesshould also be included in these surveys.In addition, we need a form of reportingthat takes work time into account morethan has been the case previously. Thatis so because, when we try to evaluate therecord of employment policies, it makes adifference whether or not the number ofhours worked rises in tandem with an in-crease in employment numbers. Besides,we need to take a closer look at the natureof employer/employee relationships andthe changes they are undergoing, as wellas the wage gap. All these statistics areavailable of course, but the feature reportsdone by the media usually focus only onthe numbers of the unemployed, althoughthey sometimes also report on the numberof employed people required to pay intothe social insurance system.

NG/FH: The current conservative-liberalgovernment is exacerbating the divisions

in labor markets. They tolerate and indeedsometimes actively promote the increasein »atypical« work arrangements that aregradually eroding normal employmentcontracts, in which employees are requiredto contribute to social insurance.What arethe main points of the alternative, goodwork strategy that will be a part of thisyear’s electoral choices?

Allmendinger: Agenda 2010 and the mo-derate wage policy that accompanied ithave done quite a bit of good, despite thecriticisms that have been leveled at certainaspects of it. In large measure, the positivelabor market figures we are seeing can beattributed to this great,courageous reform.Yet because economic science has not yetfigured out how to correlate the increase in

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employment with specific elements of thereform, it is difficult to prove that this orthat aspect of the reforms caused improve-ment in the overall employment picture.The negotiating partners from manage-ment and labor as well as the conservative-liberal government have begun to addresssome crucial issues, especially making wageagreements binding for temporary employ-ment. But a great deal remains to be done,including the adoption of an across-the-

board minimum wage and reforms of taxand social insurance laws so they offer fewerincentives to create mini-jobs. Also, therule that allows married couples to gain taxadvantages by filing joint returns shouldbe revised, since it has not kept up with thetimes. In this way billions could be in-vested in preventive labor market policies,meaning especially early intervention toimprove the education of children whocome from socially vulnerable families.

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Under the aegis of the »initiative on newquality in work«, a study carried out in

2004-2005 was supposed to clarify what»good work« is.A representative sample ofemployed individuals was surveyed, whichyielded the following definition of goodwork:

»From the viewpoint of the employee,good work means having a stable, reliableincome, long-term employment, and the

chance to use and develop one’s creativityand skills on the job, build social relation-ships and gain recognition.Work is judgedin a positive light when there are enoughresources available, for example, to offeropportunities for training, development,and influence, and when the employee hasa good relationship with his/her superiorsand colleagues. Another important factoris that standards of performance on the jobshould not be so high as to make the em-ployee feel excessively pressured.«

Human beings need good work, under-stood in this sense, in order to have goodlives. Good work offers opportunities forself-actualization. It reinforces self-esteemand forms the basis for psychological andphysical health. But above all good workprovides the security that people need to

Detlef Wetzel

Precarious Employment Underminesthe Foundations of Society»Good work« is a prerequisite for democracy

It has been claimed that the »cheap strategy« adopted in the wake of Agenda 2010has swelled the ranks of the employed. In reality the labor volume in Germanyhas barely inched up, which offers evidence that secure, full-time positions havebeen converted into a lot of small, precarious »cheap« jobs. »Good work« is notonly indispensable for the prospects and self-esteem of jobholders; it is equally vitalin enabling the polity to function smoothly. Ultimately, good work serves as theengine that drives business competitiveness and enables firms to innovate.

Detlef Wetzel

(*1952) is Vice-Chairman of theIG Metall union. His last book wasentitled Mehr Gerechtigkeit wagen.

Der Weg eines Gewerkschafters (TakingRisks for Justice: a Union Man’s Way).

[email protected]



plan ahead with confidence. Conversely,when good work is neglected, the foun-dations for a good life are shaken.

Good work facilitates social progressand sets the stage for a solidarity-basedsystem in the »laboring« societies of ourera. For a long time Germany was a countrywith relatively slight social inequality anda high level of job security. The distri-bution of income was stable, while all strataof the population benefited from economicgrowth. Those factors reduced strains ongovernment budgets, especially those forsocial services. Incomes did not have to be»supplemented,« and employees earnedthe right to an old age pension that wassufficient for a good life.

Individuals gain social recognition by»doing their share« – working to meet theirown needs in addition to paying taxesto help finance programs that serve thecommon interest. But good work is also anecessity if a person is confidently goingto seize the opportunities to participate inactivities offered by his/her workplace andindeed by society as a whole. Recipients oftransfer payments often see themselves as»boarders« in society. In consequence theylose their self-esteem and rarely take ad-vantage of opportunities for social partici-pation. In other words, when the socialfoundations provided by good work arestressed, human beings are marginalized,while social cohesion and the democraticpolity are undermined.

Good work is the basis of our economy.In Germany prosperity is based on thelabor of millions of highly qualified peoplemanufacturing products that no one elsecan make. At bottom, »made in Germany«has been a success story because firms andworkers competed to innovate: to make abetter product, provide the greatest benefitto customers, or to maximize productivity.The secret of this success story was, at leastin part, the practice of rewarding thosewho upgraded their skills by promotingthem within the firm. Incentives were of-

fered to encourage employees to enhancetheir qualifications. Conversely: when theupgrading of professional qualificationsno longer pays off in higher wages and moresecurity, and when we abandon the effortto create jobs that require the most exact-ing standards of training, we are vitiatingone of the key factors that have made Ger-many such a success. We will not win thecompetition with other countries by of-fering low wages and poor working condi-tions. Those who make things on the cheapalways run into a competitor somewherethat can make them even more cheaply.

The grand illusion

How do things stand in our society wheregood work is concerned? By the end of lastyear (2012) nearly 42 million Germans hada job, more than ever before.At first glanceit might seem as though the plans that in-spired the country’s labor market reforms,especially Agenda 2010, had been a re-sounding success. The philosophy behindthe reforms was simple enough: labor mar-kets supposedly had been greatly over-regulated, which had slowed down occu-pational dynamics and jeopardized inter-national competitiveness. The proper re-sponse was then to break down those rigid,inert structures in order to combat un-employment via enhanced flexibility andlower wages. Accordingly, markets for tem-porary labor were deregulated, while thelow-wage sector was expanded.Also, whilethe unemployed were still permitted toturn down »unreasonable« job offers, thecriteria for what counted as unreasonablewere tightened.

A second look at these reforms showsthat they have been responsible for the de-cline in the quality and value of work. Thelow-wage sector has grown at a breakneckpace in just a few years, reaching 24 % of allemployment by this time. The proportionof »working poor« in the entire employed

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population has grown faster in Germanythan in any other European country. Par-allel to the spread of working poverty, therehas been a dramatic increase in Germanyin the numbers of those who are »atypically«employed. Thus, the number of temporaryemployees has climbed from some 300,000in 2000 to almost a million in 2012. Thoseshifts have had far-reaching consequencesboth for purchasing power and social wel-fare budgets. As of today more than 700million euros have to be paid annually tosupplement the incomes of temporaryworkers who cannot make ends meet fromtheir wages alone. These trends affect morethan just the low-skilled workers. Almost70 % of low-wage workers have completedsome kind of professional training, while10 % even have a university degree. It isunlikely that people in this position willever find a regular job, let alone goodwork. Two-thirds of all low-wage workersnever find permanent employment. Herewe can only hint at the dismal long-termoutlook for future old-age pensions.

Even a third glance at the labor marketoffers no evidence that the reforms havebeen responsible for enhanced job cre-ation and relatively low unemployment.The mere fact that Agenda 2010 precededemployment growth does not prove any-thing. If we look at the number of hoursworked, we notice that they have hardlyincreased at all since Agenda 2010 wasenacted. In 2012 Germans worked a totalof 58.1 million hours, which is only 3 %more than in 2010. This statistic tells usthat secure, full-time positions have beenconverted into many small, precariouscheap jobs. In short, it would be misleadingto talk about any real qualitative improve-ment during this period. Indeed, thingswould surely have gotten worse had it notbeen for some other events that transpiredduring the last ten years. Without goinginto too much detail, I would like to men-tion a couple of these. One has to do withthe dynamics of the business cycle. The

end of 2005 marked the onset of a longupturn associated with an expansionaryphase of the business cycle worldwide.When demand for cars in China and otheremerging markets picks up and jobs arecreated, that has nothing to do with labormarket reforms. The second event was astrategy devised primarily by labor unionsand employers to deal with the great crisisof the financial markets in 2008 and 2009.Employees traded greater flexibility inworking hours for the opportunity to re-main with the firm that employed themeven during the downturn. As a result, un-employment rose only slightly. In tandemwith certain other measures like the »cashfor clunkers« program, this agreement pre-vented the collapse of the domestic market.It also meant that businesses could imme-diately call upon their usual well-trainedpersonnel once the crisis came to an end.And there is one more event worth men-tioning: the introduction of the euro hascontributed in no small measure to thestrengthening of Germany’s export-orien-ted economy. What would Agenda 2010accomplish if the euro were to be discardedtomorrow and Germany had to reintro-duce the D Mark, now worth some 40 %more than before? There would be twomillion more unemployed, because theexport market would have collapsed.

In conclusion, the reforms we have beenconsidering have significantly worsenedthe quality of labor in Germany, whiledoing nothing to improve the situationquantitatively.

If labor market reforms have beenprimarily responsible for the decline ofgood work in Germany, then that is wherewe have to start if we are going to changeanything. But before I sketch out whatneeds to be done, a few words should besaid about what the labor union IG Metallhas tried in labor-relations and wage po-licy to enable people to find good work.For IG Metall, secure and fair work hasbeen topic number one in the last few years

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– and will surely remain so – wheneverworking conditions, wages scales, and socialpolicy are on the union’s agenda.

Our vision of »better rather thancheaper« reflects a similar concern for im-proving policies on working conditions inthe individual firm. The decisive factor incompetition is the ability of a given enter-prise to innovate. What factors lead em-ployees to innovate? They do so only whenabilities, communication, individual free-dom, and opportunities for participationall encourage them to do so. Furthermore,they will innovate when the work asked ofthem is feasible over the long haul and doesnot entail any damage to their health. Forthose reasons, the wrong way to stimulateinnovation is to demand workload compres-sion and wage stagnation, as the »cheapersolutions« scheme does. But »better strate-gies« such as using materials more effi-ciently do help to create new jobs in indus-try and ensure that there will be good workin Germany. This is the point at whichour works councils and union workplacerepresentatives can get actively involved.Drawing on their own ideas and supportedby scientific know-how, they will be ableto offer management policy alternativesto the currently popular cost-cutting ap-proach. They also can call to account thefirm’s top managers when the latter neglectinnovations and investments that wouldhelp make the enterprise a better place todo business in the long run.

In respect to wage policy, we have intro-duced the principle of equal pay scales fortemporary work, backed by binding wageagreements. Furthermore, we have expan-ded co-determination on works councils.In these respects the situation of many tem-porary employees has noticeably improved.Wage contracts have also insured that trai-nees will be hired, which brings a bit moresecurity into the life-planning of youngerpeople. Having done all this, IG Metallis now turning its attention to anothertroubling trend: the outsourcing of work

to subcontractors who pay lower wages.Of course labor unions cannot elim-

inate every misguided development bythemselves. It will take political decisionsto create new arrangements in the labormarket. But isolated measures will not begood enough. Given the dimensions of theproblem, it will take a synergy of manydifferent initiatives to make headway. It isimpossible to give a detailed account ofthem all here, but I would still like to offera brief outline of the crucial policies thatought to be implemented.

Germany needs a minimum wage.Research on minimum wages shows thatthey do no harm and increase the wages ofwomen in particular.

Because we are facing a loomingshortage of skilled personnel, we need anew model of good work. Moreover, weshould launch an offensive to improveworker qualifications.

We need to regulate temporary workaccording to the principle of »equal work-equal pay-equal rights.«

The misuse of labour outsourcingmust be stopped.

We need to stabilize the system ofcollective bargaining by making it easierto declare that agreements are generallybinding on an entire branch of industry.This is the only way to prevent some firmsfrom opting out of the entire system ofcollective bargaining by leaving (or neverjoining) the employers’ associations. Fur-thermore, the law requiring adherence towage agreements must be strengthened.

Finally, we need to institute a collec-tive legal right, granted to recognized asso-ciations, to file lawsuits in cases where wageagreements have not been honored andthe law thus has been violated. In addition,the rights of individual employees to file acomplaint should be strengthened.

Good, secure, and fair work is not mere-ly possible. It is also urgently necessary notonly for the individual, but also for oursociety and economy.

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When it comes to the care,nurture,andeveryday support of elderly people,

the Scandinavian countries rely on theinfrastructure of local government, cost-sharing, and nearly free access. There thedominant pattern features professional caretailored to the individual person’s needsplus a low threshold of access.Private care-givers and care by relatives play a sub-ordinate role.

The German system of care follows aphilosophy that contrasts markedly withthe Scandinavian model. Instead of relyingon high-quality, publicly financed services,it seeks to privatize costs as much as pos-sible. This is done in two ways. First, insur-ance coverage for care of the elderly is onlypartial; a portion of the costs incurred arenot covered by insurance at all and mustbe assumed by the individual. Second,relatives of the elderly person are expectedto bear the main burden. Even then, theofficial definition of a person who needscare is quite narrowly framed. His or her

physical needs are the top priority,whereassocial and mental needs are often neglectedor even excluded from the definition. TheGerman system does indeed meet its goalof holding down public expenditures, butit pays a high price for doing so. Olderpeople are not kept as healthy as they arein Scandinavia. Moreover, many ordinarycitizens as well as employees in long-termcare facilities are highly dissatisfied withthe status quo. The former are unhappywith the options they are given, while thelatter complain of the often-poor workingconditions. Politicians have so far failedto make the necessary course correctionsto find a way out of the vicious circle. Norhave they planned ahead for the time whenthe family, the mainstay of the nation’s cur-rent caregiving system, will have to relin-quish its former role, simply because therewill be fewer and fewer family membersaround to assume the burdens. The Scan-dinavian model has a great deal to teachpublic officials who are interested in mak-ing more than cosmetic improvements.

How Germany cares forits senior citizens

In Germany 80 % of those who need carebelong to the over-65 generation. The lawrequires everyone to have some sort of

Cornelia Heintze

Not Built to LastThe German System of Care and Social Support for the Elderly –as Refracted through the Scandinavian Model

More than most other countries in the OECD, Germany is facing the problems ofan aging society. Besides the financial commitment, the need for skilled personnelis increasing as well. To cope with these trends, changes in the system of care willhave to be made. Caregiving professions in this country will have to be upgradedand made more attractive by offering more appropriate wages, introducingmodern models of care, and improving the institutions that care for the elderly.A look at Scandinavia may prove instructive.

Cornelia Heintze

is a retired city treasurer. She publishesinterdisciplinary comparative research

on the state and social welfare.

[email protected]



health insurance, usually through a so-called sickness fund, but also at times in-dividually, via private policies. In eithercase, they automatically have long-termcare insurance as well, which entitles themto both in-home and institutional services,as long as they are officially classified asneeding care. But in order to be so classi-fied, they must pass through a rigid systemof evaluation geared to identifying phys-ical deficiencies. For example, someonewho qualifies for care level I would needon average at least 90 minutes a day, everyday of the week, for basic care and house-hold chores. Of that time, at least 45 mi-nutes would have to be devoted to the basiccare side: washing, bathing, going to bed,etc. Anyone whose ability to function indaily life is limited, but who does not needcare in the medical sense, tends to fallthrough the grid of Germany’s narrownotion of »needing care.« In Scandinaviathe evaluation of candidates for elder care,run by local governments, follows a dif-ferent philosophy. There the idea of theassessment is to make sure that older peoplereceive all the services they need to stayhealthy and lead as independent a life aspossible, whether these involve medicalcare, assistance with the tasks of daily life,or social support. Thus, the level of helpruns the gamut from a package of servicesthat only requires a few hours a week allthe way up to round-the-clock care. Thisdifferent approach explains why the pro-portion of the over-65 generation (in Nor-way over 67) who receive in-home services(personal care, home help, practical assis-tance) in Scandinavia is much higher thanin Germany (as the table shows), eventhough the proportion of elderly peoplewho are chronically ill there is consider-ably lower than it is in the Federal Repub-lic. According to data on health structuresfurnished by Eurostat, German women whoturned 65 in 2011 will spend only one-thirdof their remaining years in good health. Bycontrast Danish women of a comparable

age will enjoy good health for two-thirdsand Norwegian women almost three-quar-ters of their remaining years. The statisticsfor men show similar outcomes. Amongother things, preventive medicine offeredduring in-home visits with Danish seniorcitizens helps to keep them so healthy.Those visits have been uniformly regu-lated since 2003 as part of the obligationsthat local governments are required to ful-fill. Every Danish resident who has reachedthe age of 75 and lives alone without anyoutside assistance is offered preventivehome visits at least twice a year. Citizenscan accept or decline the offers, but roughlya third of the potential beneficiaries doaccept.

Caregiving services in all the Scandi-navian countries are basically free, or,if seniors entitled to services prefer, theycan get vouchers and use them to pay forprivate services. To be sure, fees are alsoimposed for certain services in Finlandand Iceland.When a caregiver has to live ina senior citizen’s home, there is a twofoldarrangement: the state pays the costs ofcare, while the resident of the house coversroom and board. If his or her pension is notsufficient to pay those costs, then the localgovernment lends a hand. Relatives haveno legal obligation to provide support.

In Scandinavian countries the staterather than one's own family is consideredto be responsible for long-term care. Buteven there relatives of the elderly do havesome role in caring for them. In Swedenduring the nineties there was even a slightshift toward having relatives assume moreof the burden of care. One reason for thatshift may have been a decline in the qualityof the services being supplied by publicservice-providers, which makes it evidentthat the demand side reacts sensitivelyto changes in what is being supplied. InScandinavian countries those who offerinformal care are well integrated into thesystem run by local government. Informalcaregivers and the local service-providers

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make a contract stipulating the conditionsof service provision and laying out the de-tails of the kind of care being offered. As aquid pro quo the informal caregivers re-ceive financial remuneration that exceedsthe »payment for services« that Germanyoffers to caregivers. The integration of in-formal caregivers into the official systemhas proceeded so far that it may even in-clude substitute jobs. That is, relativeswho care for elderly family members mayalmost become employees of the local go-vernment.

In Germany public service-providershave traditionally played a very limitedrole in the provision of care.Where ambu-latory services are concerned, their shareof all service provision has been constantat under 2 %. In the case of institutionalcare, up through the 1990s there was a pub-lic sector that insured that there would bea reasonable choice among different kindsof service-providers (local, religious-based,private, etc.). Taking the average for all ofGermany, in 1999 11% of the residents re-ceiving long-term institutional care werein public homes; by 2009 that share haddropped to 6.5 %, although the numbersranged from 10 % in Bavaria, Baden-Würt-

temberg, and Thuringia to fewer than 3 %in Berlin, Hamburg, Rhineland Palatinate,Lower Saxony,and Saarland.The for-profitsegment of the market has grown by leapsand bounds. Its share of the care-provisionpie has increased from 35.6 % to 47 % forambulatory services and from 24.8 % to35.7 % in the case of nursing homes. Inother words, care for the elderly in Ger-many is increasingly being commercial-ized. The state does not take over for thefamily as in Scandinavia, rather, the marketdoes.

The rise of private, for-profit entitiesin care-provision correlates closely withthe drift of the entire industry toward thelow-wage sector. It is especially easy topractice so-called »wage dumping« (usinglow wages to slash costs and thereby under-cut competitors’ prices) in this fragmentedindustry, which labor unions have greatdifficulty in organizing. That trend, in turn,serves the presumed goal of keeping pub-lic expenditures low. In the Scandinavianregion the importance of private service-providers has certainly grown, but it hasbeen concentrated in just a few placessuch as the Stockholm metropolitan area.Looking at the larger picture, it is clear

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Germany Denmark Finland Iceland Norway Sweden

People over 65 who receive

professional care at home (%) 3.0 25.6 6.4 20.8 17.3 12.5

People over 65 who receivecare in institutions (%) 4.2 4.8 8.1 10.3 5.8

Full-time equivalent staffper 1000 elderly (65+) 37.6 119.5 198,0

Public expenditures (in euros)per resident over 65 (includes bothmonetary and in-kind support) 1,209 6,357 2,290 10,725 6,832

A Cross-National Comparison of Elder-Care Systems 2009/2010

Source: Heintze, Cornelia (2012): Auf der Highroad – der skandinavischeWeg zu einem zeitgemäßen Pflegesystem(On the High Road: Scandinavia’s Path to a System of Care that Suits the Times), in WISO Diskurs der FriedrichEbert Stiftung (July, 2012), Bonn.



that local governments continue to exer-cise a near-monopoly over institutionalcare. Scandinavian averages indicate thatprivate agencies (2010/2011) have attainedonly a 10 % share of all service-provisionfor the elderly, although they have gainedmore ground where in-home services areconcerned, especially in household assist-ance.

The aging of society coupled with dwin-dling opportunities to shift the burden ofcare to families in a one-sided fashion havecombined to make employment in thecaregiving industries a much bigger factorin overall employment than before. Thenumber of people employed in Germanyin either ambulatory care-provision or in-patient institutions rose from 624,700 in1999 to 890,300 in 2009. Yet this employ-ment growth was driven almost exclusivelyby an increase in part-time jobs. In 199943 % of employees in caregiving agenciesor firms still worked full time; by 2009 thatfigure had fallen to just 31%. In the Scan-dinavian region there are far more jobs inthis field (see the table), because of systemicdifferences in approach as well as the morefavorable staffing ratios (i.e., more staffper patient or resident). In Norway in 1994there were .36, and in 2011 .59 full-timeequivalent staff for every nursing homeresident.

Germany ranks just behind Japan andjust ahead of Italy in having the highestproportion of elderly people; the over-65generation constitutes easily one fifth ofthe population there. However, public ex-penditures reveal a quite different andeven contrary picture. In comparison withcountries that have a qualitatively superiorsystem of care (which include, besides theScandinavian countries, the Netherlandsand Belgium), Germany has a financinggap approaching 100 billion euros. Yet it isnot only the level of financing that distin-guishes Germany from the Scandinaviancountries, but also the direction in whichit is heading. In the Nordic zone, public

expenditures grew at a rate faster than theproportion of elderly people in the entirepopulation, while in Germany it was just theopposite.As a result,Germany did not catchup, but actually fell further and further be-hind (to gauge current financing discrep-ancies see the table below). If the data areadjusted to reflect differences in per capitaeconomic power, there are still »surplus«expenditures per over-65 resident rangingfrom around 1,300 euros in the case ofFinland to 5,000 euros for Norway. Unlesspoliticians are willing to reduce this mas-sive public underfinancing, care for theelderly will remain a major part of Ger-many’s low-wage service economy, and willcontinue to put employees in the sector atrisk of falling into poverty.

Care for the elderly as judgedby the general population andservice-providing employees

Considering the deficiencies that plaguelong-term care in Germany, it should comeas no surprise that the populace giveslow marks to its own system of care. Forexample, an EU-wide opinion survey donea few years ago (Eurobarometer 2007) re-gistered negative evaluations that werealmost as bad as the ones typically foundin Eastern and Southern European coun-tries. The German public expressed its dis-satisfaction not only with the high cost ofcare, but also with its quality. 55 % of theGerman respondents (versus only 4 % ofDanish ones) reported that they could notafford to pay for in-home care services. Inthe case of institutional care in a nursinghome, 75 % of Germans – and only 13 %of Danes – said that they could not affordit. Quality too was judged to be rather low.It is striking that the countries with thebest evaluations were the ones in whichcare for the elderly is a public trust andwhere informal care plays only a limitedrole.

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Things do not get any better when onelooks at how (dis)satisfied caregivers arewith working conditions in their field.In one comparison of eleven Europeancountries (the »Nurses Early Exit Study«done in 2005) job satisfaction was highestin Norway (85 % of respondents expressedoverall satisfaction versus only 46 % in Ger-

many). In Germany one finds the cleavagethat is typical of market-dominated de-velopments. A quarter of nursing homesregistered satisfaction scores of one thirdor less, while another quarter at the otherend of the spectrum achieved satisfactionscores of over 60 %.

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150years of history: a party can takejustifiable pride in that.After all,

it was in no way preordained that anyparty would endure for so long. Germanyof course has gone through enormous up-heavals during this past century and a half.It has experienced several regime changesand far-reaching social transformations,suffered through depressions and infla-tions, and witnessed migratory movements,treks by refugees expelled from their for-mer homes, and influxes of new migrants.Speaking more generally, during that timeperiod Germany developed from a pre-dominantly agrarian country into a knowl-edge-based society. But none of this sufficed

to knock the Social Democrats out of thegame.

There always has been fertilizer aplentyto keep the party flourishing. For over 100years the socialists endured a (for themanyway) characteristic tension betweenthe inadequacies of their current realityand the utopian ideal of a better future: inshort, between is and ought. This tension,with its anticipation of what did not yetexist, provided reasons and inducementsfor engagement in leftist causes. In otherwords, the original impetus of social de-mocracy was reinforced by the initialdestitution of the industrial underclass.The holy and just anger of the pioneers ofthe workers' movement drew its motiveforce from the humiliation of the class ofwage laborers in its formative phases. Fury,outrage, hatred – and not necessarily char-ity or a good heart – formed the soil ofsocialist solidarity. Furthermore, the expe-rience of suffering defined the goals ofsocial democratic solidarity: to eliminatethe causes of poverty and abolish the social

Franz Walter

The Fire is dying

At one time the experiences of downward mobility and humiliation providedfertile ground for the workers’ movement. But today most Social Democrats havenever had to endure social exclusion – well, at least not the party officials. Ourauthor believes that the SPD has become a party mainly of retirees and employeeswith secure jobs; hence, its role as the tribune of the disenfranchised is merely apose. So it would be in vain to expect any answers from Social Democrats to theharsh new conflicts that neo-capitalism has unleashed.

Franz Walter

(*1956) is a Professor of PoliticalScience and head of the Institute for

Democracy Research at the Universityof Göttingen.

[email protected]



conditions that gave rise to subalternityamong the class of manual laborers, and todo so gradually, tenaciously, with superiorstaying power. One after another the socialevils were tempered; Social Democratsmanaged to win a series of partial victories.The initial conditions that had once giventhem verve and passion on their long his-torical journey began to fade away.

In short: during this process the SocialDemocrats could not continue to be whatthey once had been in their early days, be-cause their efforts had begun to pay off. Inthe course of the movement for emancipa-tion, the activists in the party climbed afew rungs higher on the ladder due to theirown accomplishments. They did not makeit all the way to the top, but they advancedquite far. Considering the progress theyachieved, especially during the era of theFederal Republic, Social-Democratic ac-tivists did not have to feel like outcasts whohad nothing to lose but their chains. As aresult, they soon stopped propagandizingin favor of militant class struggle, and be-gan to advocate reconciliation rather thandivisiveness, inclusion as partners insteadof antagonistic exclusion.

But someone who is reconciled, inte-grated, and pacified can hardly be expectedto mount the barricades swinging a redbanner and loudly proclaiming his rage.And he doesn’t do that. He preaches mod-eration, not conflict. He seeks accommo-dation and avoids polarization. Basically,that has become the deepest concern andgoal of the party: to change things in sucha way that there would no longer be anyreason for the lower classes to feel outrage,bitterness, and agitation.As that goal cameever closer to fulfillment in the 1960s and1970s, social democracy changed. Its flamestarted to die down, because flammablematerial – social exclusion and politicalostracism that had been personally ex-perienced – was hard to find anymorethanks to August Bebel and Willy Brandt.The soil that bore the fruit of collective

solidarity had lost its fertility.It was especially in the 1970s, the sup-

posed »red decade«, that many things cameto an end, not least the proud history of theold-style social democracy of the factoryera. Places that for over 100 years had beenboth centers of economic progress andsimultaneously bastions of social democ-racy became social backwaters inhabitedby people who have been left behind orhad dropped out. Some firms that enjoyeda rich tradition in Germany’s century-longindustrial history disappeared from theradar screen. In the process entire catego-ries of work and the teams that performedit simply evaporated. The »quintessentialworker« visually apotheosized by socialisticonography – the athletic, muscular in-dustrial worker with a reliably union-based,socialist outlook – exited stage right, atfirst gradually, but still inexorably. Theworking class split in two. On one sidewere the winners who knew how to takeadvantage of the educational reforms thatSocial Democrats had pushed through toenhance their opportunities for social mo-bility.On the other side were the new losers,who had either not been involved in theseeducational efforts, or else had tried themand failed. If one considers typical in-dividual biographies, the socially mobilewinners moved on, leaving behind the fail-ed losers in the old working-class bo-roughs. Their departure drained the wor-kers’ quarters of political sensibility andorganizational support. What remained inthese once homogeneous working-classboroughs was apathy rather than the self-confidence and sense of belonging thatworkers used to display so ostentatiously.The class basis of socialism, built on ma-nual labor, started to fall apart, as somemoved up while others were headed down.

From coal dust to transparencies

At first Social Democrats were in denial

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about how much they had changed in thecourse of these processes. At bottom theywere no longer the party of organized in-dustrial labor which, for over 100 years,had been a class entrusted with a historicmission: to act as the »subject« of eman-cipation and liberation. Once social de-mocrats could no longer fulfill that mis-sion and could not foresee the directionthe future would take, the movement’soptimism waned and an element of mis-anthropy crept into the party. The coreclientele of the SPD no longer consistedof coal miners, bricklayers, and printers.The party's heartbeat was no longer in theRuhr, or in the ports and on the docks. Theorganization no longer smelled of coaldust and machine grease; rather, it had theodor of the office, the classroom, and thetransparency sheets used in overhead pro-jectors. Social democrats had evolved intoparties of the civil service, not just in Ger-many, but from Oslo to Paris, from Lon-don to Berlin. Then in the first decade ofthis century, when reasons for anger re-curred, the Social Democrats could nolonger be the tribunes of outraged emo-tions and insurrectionary actions, becausethey were not included among the firstvictims of neo-capitalism’s rigors. As par-ties of government they were co-conspir-ators in enacting or tolerating new socialinequalities. Social democratic actors werenot comfortable with this role reversal thathad come about because of their successfulself-emancipation. For years, then, they re-fused to acknowledge the transformationthat their party had undergone. Duringelectoral campaigns they especially en-joyed assuming the mantle of tribunes ofthe disenfranchised once again, althoughof course in their capacity as governingparties they acted quite differently, therebyevoking disillusionment on the part of themembers of the »new bottom« after eachelection cycle.

In the meantime social democracy hascompleted its sociological and ideological

transformation, although as usual it hasdone so with inhibitions and accompaniedby sentimental backward glances. For ex-ample, following New Labour’s defeat in2011, there emerged a new and initiallywell-regarded political movement called»Blue Labour.« The goal of its adherentswas to reactivate the »family history« ofthe Labour Party, abandoned during TonyBlair’s tenure, as a part of the labor move-ment with its own culture, stable affilia-tion, communal ties, and a cooperativelyorganized infrastructure to provide formembers’needs.Blue Labour attacked Blair,Peter Mandelson, and Gordon Brown forkowtowing before global capitalism, and putits hopes in the language, identity, and homeof the little people. According to JohnRutherford, the most influential idea manfor Blue Labour aside from Maurice Glas-man, the Labour Party »should be the cre-ator of meaning for people, the communalpoet, capable of transmuting the sharedvalues of everyday life into new forms oflife.« But at the same time Glasman wascriticizing the labor unions vehemently forrepresenting the interests even of unskilled,»sloppy« workers. And he pleaded for jobsthat only British citizens, not immigrants,would have a right to hold.

Renewal will not come from youth

Social democrats in search of guidelinesfor the second decade of the 21st centuryshould eschew romantic visions of theworkers’ culture of the 19th century as wellas left-wing populist ideas of national pro-tectionism. Neither alternative is realisticor even desirable. In 2013 the Social Demo-cratic party can no longer play the »oldSPD«. In respect to its social composition,programs, and personnel, the party haschanged too much and endured too muchpain to make an about-face. The trans-mogrified SPD is now a moderate, left-liberal, fairly cosmopolitan party of the

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moderate, half-leftist middle of Germansociety. The party has become the politicalagent of well-integrated workers as well asretirees and pensioners. The SPD is not ableor even willing to embrace a robustly anti-capitalist strategy or to wage a hardnosedbattle against the bourgeois elites of global-ization, even though that would be vastlymore meaningful than petit bourgeoisrhetoric about taxing the rich.And in lightof its current demographics, it should notpretend that it can play the anti-capitalistcard again whenever it feels the need.

After all, nearly half of all SPD votersin Germany are not gainfully employed.

That contrasts starkly with the demo-graphic profile of libertarian-ecologicalparties, in which almost four-fifths of votersare actively working. The Social-Demo-cratic catch-all party of earlier days seemsunable to renew itself by attracting newsupporters from successor generations.What sort of a prospectus could social de-mocrats offer to new cohorts confrontingnew situations and facing novel problemsin unprecedented conflict zones? SocialDemocrats don't know.What is worse, onegets the impression that – at least in thiscountry – no one bothers to think seri-ously about it.

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The 19th-century utopian vision of univer-sal human emancipation, to be achieved

through the proletariat’s seizure of power,proved to be a dubious political projectonce it was put into practice. In some ofthe world’s peripheral regions it led todictatorship accompanied by extreme statecentralization. The social-democratic alter-native (in the words of former German eco-nomics minister, Karl Schiller: »as muchmarket as possible, as much state as neces-sary«) had the merit of reinforcing thepriority of democracy and paving the wayfor the 20th-century welfare state in the in-dustrialized world and even in some coun-tries of the global periphery. But the 1970smarked the beginning of an evolution inthe West toward post-industrial society.

Economic and social policies went theirseparate ways, a divorce that became evi-dent in a variety of phenomena: marketliberalization, the opening of markets toforeign competitors; the economic dyna-mism of East Asia’s emerging nations; theshift of manufacturing to low-wage coun-tries, and the growing dominance of thefinancial sector in the wider capitalist eco-

Gonzalo Martner

Beyond Pragmatism but not quite to Utopia:Global Dilemmas and Chilean Socialism

Long a major player in Chilean politics, socialism was finally recognized as alegitimate governing power in 1990 in the aftermath of a protracted struggle. Yetsince then it has started to lose its way – and its moorings in Chilean society. Ourauthor, himself a key figure in Latin American political debates, analyzes thecauses and history of this loss of identity. He also wonders about socialism’s futureagainst the backdrop of a civil society that is getting increasingly radicalized.

Gonzalo Martner

(*1957) is a Professor of Economicsand a former Secretary General of theChilean Socialist Party. Currently he is headof the Department of Managementand Public Policy at the University ofSantiago de Chile.

[email protected]



nomy. Conjoined with accelerated techno-logical change, the divorce of economicand social policy shredded a variety of post-war social welfare agreements in the inter-est of greater economic competitiveness.The emerging nations, especially China,posed a stiff challenge to the balance ofsocial and economic policy struck duringthe postwar era because of their low-wageeconomies and barebones social and en-vironmental regulations. In this respectthey undermined the foundations of thesocial consensus that had shaped the post-war epoch for many years.

These trends signaled the beginning ofnovel experiments in neo-liberal economichegemony under Pinochet in Chile, That-cher in Great Britain and Reagan in theUnited States. Led by the British New La-bour PM Tony Blair, even some elements ofthe socialist and social-democratic main-stream moved toward a critique of the wel-fare state and a strategy of adapting to theglobalized economy. Following the logic ofindividual autonomy and labor flexibility,Blair stressed the formation of humancapital, rejected corporatist social arrange-ments, and abandoned industrial policy aswell as rigorous social standards. Therewere some clear losers as a result of theneo-liberal wave. The positions of wageearners, unskilled workers, young people,and women (who were just then enteringthe work force in great numbers) grewmore precarious. At the same time therewas a retreat from redistributive policies,coupled with measures to favor incomefrom capital assets; indeed in some casesthere was a rollback of the welfare statein the face of powerful demographic andfamilial transformations. Nevertheless, the»Nordic model« stands out amid this gen-eral retreat for having carried out reformscapable of shoring up the financial andeconomic foundations of the welfare state.In the midst of global turbulence, the Scan-dinavian countries along with a few otherEuropean nations have managed to main-

tain stable economies while retaining thehighest redistributive capabilities in thecontemporary world.

At the beginning of the 21st century,after the phases of military dictatorshipand the neo-liberal wave had passed, anunprecedented number of progressive,democratic governments came to powerin Latin America. Though they differed inleadership style – some were populist andpersonalist – they managed partially to re-verse the growing inequities in the distri-bution of wealth as well as the privatizationof natural resources. Those policies ena-bled much of the Latin American continentto weather the current global economiccrisis in better shape than it had been at anyother time in its history after undergoingsimilar economic downturns. They alsoenabled the continent’s countries to bene-fit from more rapid economic growth and,in some cases, from greater equality as well.

In effect, the liberalization of financialmarkets in the United States created theconditions for the outbreak of the globalfinancial crisis of 2007/2008, the worstsince 1929, which in turn served to de-legitimize the idea that markets could beself-regulating. The crisis also created con-ditions that made it easier to rethink andreinvigorate the social-democratic alter-native. The latter could be understood as ascheme for rearranging the relationshipsamong the democratic state, civil society,and regulated markets on the local, nation-al, and global scale so as to establish a ra-tional and more truly egalitarian, eco-logically sound social system, as measuredagainst the harshness of globalized capi-talism. Accordingly, the principles of arenewed social democracy would include:defending diversity, promoting equality ofopportunity in some settings and equalityof outcome in others, while also castingdoubt on the benefits of short-term gainsin productivity. These commitments pre-suppose a new agreement between organ-ized labor and a variety of social move-

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ments, all of which will have to defend notonly their respective ways of life, but alsonew models of production and consump-tion, as well as gender equality. They willhave to fight discrimination against women,ethnic groups, and sexual minorities, aswell as xenophobia. The objective of allthese battles will be to broaden the con-ception of a good life (bien vivir) so that itmeans something more than performingsubsistence labor and stultifying routines.A good life must offer room for humanself-realization, the value of the natural en-vironment, cultural rootedness, and open-ness to other cultures. None of this will beachievable without greater emphasis onglobal and regional cooperation. However,we should never forget that these processesof change must first take root at the localand nation-state levels, where they will bemodified in light of the unique history andcircumstances of each locale.

What became ofChilean socialism?

Contemporary Chilean socialism is a poli-tical force that emerged in the context ofthe crisis of the 1930s. In an earlier age,the »society of equality«, founded in 1850by Santiago Arcos and Francisco Bilbao,anticipated some of the themes of social-ism. The same can be said for cooperativeassociations and »societies of resistance«and, later still, for nascent labor unionsand parties of the left, symbolized by thefigure of Luis Emilio Recabarren (1876-1924), one of the founders of Chile’s labormovement.

Socialism in Chile emerged both tocombat the country’s traditional oligarchicorder and to offer a libertarian alternativeto Stalinism. After helping to govern Chilein the years between 1939 and 1941 as par-ticipants in the Popular Front, socialistsbriefly joined the government of CarlosIbáñez in 1952, ignoring the advice of Sal-

vador Allende. The latter, the historic leaderof Chilean socialism in the 20th century,eventually led a broad coalition of the leftfrom 1958 on. He played a leading role insupporting industrialization policies, na-tionalizing the copper industry, and pro-moting agrarian reform, all of which de-fined socialism’s political agenda duringthe second half of the 20th century.Chileansocialism did not take its cues from theSoviet model, although the latter did be-come one of its stronger influences after1973. The socialist party program of 1947expressed doubts about Soviet-style com-munism in much the same vein that one ofits leaders, Eugenio Gonzáles, did a fewyears later, in 1953:

»Violent means applied by the state,and certainly violence raised to the levelof an entire system, are incompatible withthe essence of socialism ... In light of itsobjectives, which envision a radical changein the structure of capitalist society, so-cialism is revolutionary, but it cannot bedictatorial in its methods ...Socialism canonly attain its goals by using democraticmeans; otherwise, the goals themselveswill be distorted. The idea is not to putthe state in charge of the economy butrather to socialize – i.e., humanize – theeconomy.«

In a speech he delivered in front of theCongreso de la República in 1971, Allendetoo emphasized the constraints on socialisttransformation: »We know that changingthe capitalist system while respecting legal-ity, institutions, and political liberty re-quires us to keep our economic, social, andpolitical actions within certain limits.« Thetransformation inaugurated by Allende in1973 was tragically interrupted by a mili-tary coup d’état. Thereafter General Pino-chet’s violence-plagued, 17-year dictator-ship imposed an economic model basedon radical free-market ideology that re-stored the power of the ruling oligarchyand partially denied Chile’s citizens thepowers of popular sovereignty.

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In 1973 socialism in Chile fell apart,as one of its wings went into exile in theGerman Democratic Republic and allieditself with the Soviet bloc. Only after thefall of the Berlin Wall in 1989 did the frag-mented elements of the party reunite, re-deeming and renovating the banners ofdemocratic socialism, including the mes-sages of liberty and unwavering respectfor human rights. Following those princi-ples it joined the so-called government ofconcertación (»coalition of pro-democracyparties«) consisting of Christian Democ-rats, Social Democrats, and Socialists. So-cialism thus once again became a party ofgovernment between 1990 and 2010, nowas part of a majority coalition of the center-left. Between 2000 and 2010 two of its mem-bers held the office of President of the Re-public, Ricardo Lagos and Michelle Bache-let. But in the wake of socialism’s defeatin 2010, its record of accomplishmentsand shortcomings, as well as its futureprospects, remain controversial.

Almost by definition it is tricky to re-concile a political program that pledges atransition to democracy with the actualpractice of governance, especially when theparty leading the transition is part of abroad coalition representing contradictoryinterests. The coalition was able to claimcredit for impressive achievements in eco-nomic growth, but was less successful insubstantially reducing inequality or in pro-tecting natural resources and the environ-ment. Ultimately, it was able to redeem onlya portion of the hopes for freedom andequality embodied in Chilean socialism.As a political force the latter achieved gov-ernmental legitimacy after 1990, but at thesame time it began to lose its traditionalrootedness in society as well as its ability topropose solutions to and measures againstinequality. In effect, socialism suffered aloss of identity, making one-sided allianceswith centrist parties and pragmaticallysacrificing central features of its own pro-gram, including any frontal attack on in-

equality, as the price of access to politicalpower.

By contrast, civil society, especially theyounger generation, has advanced moreradical demands for a democracy able andwilling to provide essential public goods.But at the same time civil society has en-hanced its ability to mobilize its own sup-porters without outside assistance. Thisrecent evolution has thrust the traditionalparty-oriented version of socialism intocrisis, causing a series of splits in the move-ment. Only the future will tell whetherChilean socialism will be able to regain itstransformational power. For that to happen,the movement would have to craft a set ofalliances consistent with the programmaticaspirations of today’s society.Those includethe recovery by the state of its formerproperty rights in natural resources andthe associated rents; investment in pro-ductive development and social security;collective bargaining and the right to strike;the advancement of rights that ought to beuniversal such as free public education, ahigh-quality public health system, genderequality, the right to abortion, recognitionof the rights of indigenous peoples, same-sex marriage, environmental protection,and support for local development as analternative to further social segregation inurban areas. It will not be possible to ful-fill these programmatic aspirations with-out rebuilding institutions and drafting anew constitution that would fully embodythe principle of popular sovereignty andChilean civic culture as it exists in the be-ginning of the 21st century.

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The »Strange Non-death of Neo-liber-alism« (to cite the title of a new book

by Colin Crouch) merits a more thoroughdebate than we have given it so far. One getsthe impression that actors on both sides ofthe great line of demarcation between thepolitical camps are afraid to engage withone another. The »markets first« fans maythink it ill-advised to lay their cards on thetable so openly, while their political criticsmay fear that they would not be able tocarry through their plan to let democ-racy trump economic constraints and glo-balization. Consequently, after the violentmoral tempest of recent days has blownover, things in the financial markets havestayed pretty much as they were. There isan aura of virtual reality that surrounds»the critique of capitalism,« a tone thatoscillates between half-heartedness andmere play-acting.This observation is espe-cially true of apparently leftist attacks onthe culture and spirit of capitalism such asthose suddenly launched by the heroes ofbourgeois feature pages like Frank Schirr-macher of the Frankurter Allgemeine Zei-tung. Schirrmacher is the chief editor andintellectual star of the culture section ofthe conservative FAZ, a newspaper withan economics page that has long been atthe cutting edge of neo-liberalism in Ger-many.

From the very beginning the kind ofcritique these authors present seems in-hibited by their evident wish to excludefrom the sphere of debate the underlyingeconomic dimensions of the cultural de-fects of capitalism that they have found sooffensive. They seem particularly reluctantto shine a light on the powers that sustaincapitalism or the politicians that stand be-hind it; those matters remain obscure –and are supposed to stay that way. Theywould much rather talk about attitudes

and algorithms than about interests andactors.

So is there any truth to the objectionthat all the criticism we have been hearingfrom the media since 2008 has served noother purpose than to re-immunize thecapitalist system against its own foibles? Isit fair to say that such immunization worksbest when moral outrage reaches a pitchthat matches the extent of the real crisis ofthe system – but only so that nothing reallychanges once passions have cooled?

In all these debates there are two thingsin particular that have remained almostentirely unarticulated. The first is the neo-liberal presumption that the common goodis best served when markets hold swayover democracy. Neo-liberals argue thatthe logic of prices is incorruptible; likewise,they see individual contracts entered intoby market participants as the purest ex-pression of freedom of choice. By contrast,they add, the logic of democracy rests oncoercion and leads us into a morass of per-petual elections, which are always associ-ated with campaign »donations.« The endresult is economic irrationalism, intolerableaccumulation of debt, and incentives thatperversely influence the behavior of mostcitizens. In the final analysis it always turnsout to be the high performers, the creatorsof wealth, who have to pay the bills. Forall these reasons – so continues the tacitassumption – it would be a serious mistaketo entrust the core of the economy to the

Thomas Meyer

Intermezzo: Master and Servant

Thomas Meyer

(*1943) is Professor emeritus of PoliticalScience at the University of Dortmundand editor-in-chief of the journal Neue Gesell-schaft/Frankfurter Hefte. His most recentbooks, published by VS Press, include:Social Democracy: an Introduction andWhat is Fundamentalism?



inevitably arbitrary whims and greedinessof fickle democratic moods. Some wouldsay that Greece’s current woes amount toan ongoing experiment providing livingproof that the neo-liberals are right. How-ever, one rarely finds these ideas expressedforthrightly in neo-liberal literature, exceptperhaps when their advocates are talkingabout open global markets and their effecton unconsolidated democracies. For themost part they prefer to conceal their realopinions behind praise of the salubriousimpact of ratings agencies and the »voice«of the markets. German Chancellor AngelaMerkel is one of the few who let the cat outof the bag, with a disarming flutter of hereyelids one might add, when she chose»market-conforming democracy« as herbattle cry. The market is cast as the masterwith democracy as its servant. It is notlikely that she will grant us another suchglance into the depths of a neo-liberal mindanytime soon. Of course, classical libe-ralism already foreshadowed the techniqueof principled self-immunization againstreal-world experiences that is imbedded inthe dogmas of neo-liberalism. From theEconomist Friedrich Hayek to the CDUCharter one finds the same unshakeablenorms. The market is regarded not only asthe best means for coordinating economicdecisions – a kind of harmony machine onautopilot – but also as the »constitution ofliberty« just like Germany’s Basic Law it-self. In this sense the market is treated notsimply as a means to an end, but as anend in itself, with a status at least on a parwith democracy, as the Chancellor’s wordsclearly indicate. Looked at in this light,Merkel’s statement is not outrageous; it isjust logical. Even if economic crises becometruly grave, destroying the lives, liveli-hoods, and prospects of countless people,the market qua constitution of liberty cannever fail.

Yet there is also something left unsaidin the left-wing critique. It is the presumedMephistophelean knowledge of an unfair

bargain: »It’s a rule among ghosts and dev-ils. They have to go out the way they camein. Going in, we’re masters. Going out, we’reservants.« Or, to put it in prose, anyonewho says »market« also has to say »crisis.«The tacit sense of resignation behind thisknowledge has a definite historical origin.Once the planned economy turned out tobe the constitution of unfreedom, we chosethe market, and now we are its servants inmany situations. There is a grain of truthin this. The market is superior in coordi-nating actions in decentralized settingsand affords the broadest leeway for all theactors involved in it – entrepreneurs, em-ployees, labor unions, civil societies, andthe state – to act as they see fit. But onceyou have conceded the market’s mastery,then you have ruled out the possibility ofonce again directing the entire economyand society toward precisely defined goalsfrom some central point, even if the needshould arise.

But Mephistopheles’ words are toosweeping for the case before us. They over-look the fact that the market is nothing buta social construction with thousands ofadjustment screws and numerous actors.The principle has to be clearly articulated:markets may well be bad masters, but underthe right circumstances they can be goodservants. Once that much is established,the door is open for value-oriented, demo-cratic pragmatism. It now becomes possibleto create frameworks, draw boundaries,intervene in markets and change the rulesof the game, perform oversight, and re-distribute the power of the actors, all withan eye to making sure that markets pro-vide the benefits that the community ex-pects them to. It is never easy to specify theexact boundary lines between the realm ofmastery and that of servitude, and in anycase those lines are constantly shifting.Still, the principal deficiencies in financecapitalism are obvious today, as are the re-medies for them. Thus, it is not so difficultto see the direction we must travel over the

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long run in order to recover the power ofdemocratic control over the economy. Thecrucial adjustment screws have alreadybeen located, and we know that we mustextend the limits of regulatory authority tomatch the reach and power of marketsthemselves. The courage must be found tosay without trepidation what needs to bedone to re-imbed markets, even far beyondthe borders of the nation-state. That in-sight itself becomes a crucial productiveforce that expands democracy’s room formaneuver and increases the pressure on

markets to act in the public interest. Ofcourse, even if grand catastrophes becomeless likely to happen in the future, therewill always be a need for course correctionsat the micro level. But we can live with thatas long as the social welfare state remainsintact. Nevertheless, if things are really,seriously going to change, the deficienciesof markets and the instruments requiredto repair them must always be clearlyidentified and named, rather than beingobfuscated by mock attacks on the spirit ofcapitalism and the »system.«

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In the wake of the global financial andeconomic crisis that erupted in 2008,

the budget deficits of several Southernand Eastern European nations grew tosuch alarming levels that drastic counter-measures came to be regarded as inevitable.Private investors demanded high interestpremiums for new loans, which dramati-cally accelerated the dynamic of indebted-ness. International agencies such as theIMF and the EU were willing to help, butin return they insisted that deficits shouldbe trimmed, primarily by significant cutsin government spending. The austeritypolicies imposed by these lenders havebeen stoutly resisted by the affected popu-lations, and have even been criticized bysome economists as counterproductive.But there is no painless alternative on thehorizon.

The current crisis on Europe’s peri-phery, which has gripped Cyprus and mayaffect other countries as well, is somethingmore than an especially deep trough in thebusiness cycle. Relying on traditional eco-nomic remedies alone, it will not be pos-sible to induce a boom powerful enough toend the crisis and produce the tax revenuesneeded to fill government coffers. Instead,one model of economic growth likely hasreached the end of its tether. On this model,

Alfred Pfaller

The Euro Crisis: When Economies Grow Beyondtheir Means

The European countries now mired in crisis have been following a wrongheadedmodel of growth for some time, one associated with exuberant, irrational optimism.That model appears to have reached the end of its tether. Our author analyzes thetrue causes of the crisis, pleading for a different »business model,« while appealingto European solidarity. Finance capital definitely has an interest in the contractionor dissolution of the monetary union, and that is something Europe should resist.

Alfred Pfaller

(*1942) is a sociologist and economist. He waseditor-in-chief of the journal InternationalePolitik und Gesellschaft, after which he becamethe Friedrich Ebert Foundation’s representativein Romania and Moldava.Today, he works as a freelance consultanton questions of social [email protected]



growth depended primarily on the produc-tion of goods and services for the domesticmarket (»non-tradables«), and was fueledmainly by the construction economy. In-come growth, stoked by the non-tradablesboom, caused demand for imports to ex-pand at a much faster clip than exports wereincreasing. All this was driven principallyby foreign capital, which speculated onrising real estate values and hoped to profitfrom the resulting growth in domestic de-mand for the goods that define a modernstandard of living. Banks earned moneyby lending to consumers, a practice thatfurther sparked demand and reinforcedthe perception that an economic miraclewas underway.

Economic growth spurred on by easycredit thus offered many citizens of thecountries on Europe’s periphery a standardof consumption unwarranted by the per-formance of their economies in competi-tive markets. At the same time it providedstate bureaucracies with the opportunityto spend far beyond their means, althoughnot all of them seized that opportunity. Forexample, the Spanish state conducted itsbudgetary affairs responsibly until the crisiseroded its finances along with those of thebanks, which the government (rightly orwrongly) then felt compelled to bail out toavert their complete collapse. In Greecethings were different. There, easy creditput the seal of approval on economic mis-management and favoritism by the state.

The true foundation of this economicmodel was an exuberant, irrational opti-mism attuned to short-term expectations(which reality always seemed to fulfill) andinclined to dismiss any skepticism aboutlong-term prospects. When this optimismyielded to a more sober assessment of eco-nomic circumstances, the breakneck growthto which it had given rise came to an end.And the hangover from its demise has beenso painful that it is hard to imagine anyrenewed boom in real estate, construction,and credit in the crisis countries.

If the economies of these beleaguerednations are ever to start growing again, adifferent foundation will have to be found,a new »business model« as it were. Futuregrowth will have to build on the capacityto earn increasing sales revenues in inter-nationally competitive markets. For that tohappen, a comprehensive and persistentnational initiative will be needed to createthe conditions for sustainable market suc-cess. Such an initiative would operate onseveral levels: It would bring about chan-ges in entrepreneurial behavior, system-atic improvements in the knowledge basecrucial to production, the financing ofprojects that will pay off only in the longrun, as well as reliable support for produc-tive business initiatives, and perhaps alsofor physical infrastructure – that favoredchild of European development aid.

This sort of comprehensive, sustaineddevelopment initiative would be desirableand well worth supporting.But in the coun-tries currently affected by the crisis it is notlikely that anything of the kind would beimplemented. At least in some of them itwould signify a radical departure from apolitical culture that has been entrenchedfor decades, one that in many ways dis-courages economic efficiency and insteadaccords a privileged status to nepotismand crony networks.

Moreover, economic stimulus under-stood simply as a means of inducing theboom phase of the business cycle is un-likely to achieve much until a new coursehas been set that will point the economytoward a different, competitiveness-basedmodel of growth. That realization alsosuggests skepticism about the effectivenessof anti-cyclical budget reorganizations thatpostpone spending cuts until such time asthe economy starts to grow again. Thus,the crisis-ridden countries of Europe nowfind themselves back in a situation thatmatches closely the »true« state of theireconomic performance. Like hallucinatingdrug users, they had long been able to

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avoid facing up to their true plight thanksto the »non-tradables« boom,which – how-ever crazy from the standpoint of the realeconomy – was continually stoked by fi-nancial speculators. These countries needto make the transition to a different modelof growth quickly; otherwise they will haveto get used to a harsh new reality that willultimately entail a markedly lower standardof living for most of their populations.Government budgets, too, would have toadjust to a reduced revenue stream.

European Self-Interest ...

The European Union and, more broadly,the »international community« felt com-pelled to step in and help with low-interestloans because they could foresee the onsetof another devastating financial and eco-nomic crisis should the deficit-plaguedcountries become unable to service theirdebts. In that case – this was and is theconcern – big banks might be drawn intothe maelstrom, and that would be a threatto the functioning of the entire Europeanand international financial systems, just asit had been in the great crisis of 2008-09.Even if it were possible to cope with the in-solvency of a small country like Greece,the worry persisted that the panic whichwould subsequently grip the markets mightjeopardize other, far larger countries. Therewas a consensus among nearly all respon-sible parties and observers that such a thinghad to be avoided at all costs, even thoughthere was – and still is – much less agree-ment about how to avoid it. In short, themain goal was not so much to save this orthat country or even to shore up the euro,but rather to prevent a systemic collapsethat would drag all Europe down with it.

And yet – contrary to a widely acceptedfiction – the euro would not have to takethe fall even if budgetary reorganizationsfailed to meet their objectives. One has todistinguish between the acceptance of a

currency and the creditworthiness of theindividual debtors who make use of thatcurrency. A currency becomes unattractivefor investors when major debtors in a givencurrency zone (and governments wouldsurely be included among these) lose theircreditworthiness and when people beginto suspect that the currency itself might bedevalued.

If the crisis countries had had their owncurrencies, these would surely have comeunder powerful devaluation pressure, re-inforced by speculation. Once the non-tradables bubble burst, investors – who ofcourse helped to create the bubble – natu-rally have sought to feather their own nestsas much as they could.But in the euro zonethere are plenty of ways to feather a nest, sothere was never any large-scale flight fromthe currency, but rather a reshuffling insidethe euro zone. Borrowers in the zone withunimpeachable creditworthiness (such asGermany) are in demand like never before.To imagine a parallel case, if New York Cityshould ever go bankrupt, that would not bea sound reason for a run on the dollar.

In other words, the continued exist-ence of the monetary union is in no wayjeopardized by capital’s quest for security.However, finance capital has a latent (andat times even manifest) interest in shrink-ing or even dissolving the monetary union.Such an event would reopen the »casino«that had been closed by the adoption ofthe European Monetary Union. Europecannot have an interest in anything of thesort. Newly rekindled currency speculationwould threaten to become a permanentdisruptive factor constantly soaking upenergy in economic policymaking anddistracting attention from the real task,which is to enhance the welfare of societyas a whole.

... and European solidarity

So far solidarity with Cyprus, Ireland, Por-

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tugal, etc. has not been a top priority inEurope’s dealings with the »euro crisis.«Instead, the current strategy has been toshift – in a really brutal manner – the costsof crisis management onto the people wholive in the debt-ridden nations. The »nobailout« clause incorporated into the treatyestablishing the European Monetary Unionhas been applied to the populations of thosecountries in full measure. Yet there is amore solidarity-based way of handling thecrisis, which after all affects not just spe-cific European states, but the whole globalfinancial system.And we should not forgetthat the latter played a major role in pre-cipitating the crisis in the first place.

The key term here is growth – growthbased on competitiveness. And the Euro-pean Union can do much to stimulate it. Inrough outline, the pattern to be followedwould look like this: the EU would con-clude »development agreements« with thecrisis countries that would tie course cor-rections in economic policy (in respect toincentives and the allocation of public re-sources) to European investments in infra-structure projects relevant to development(keyword, »Marshall Plan«).

This would be a project with a longtime-horizon. However, growth-optimizingEuropean investments immediately wouldbegin to counteract the process of eco-nomic shrinkage that was triggered by thecollapse of the non-tradables boom as wellas the austerity policies imposed in theservice of budget reorganization. In thisway one would not have to postpone thereductions in national budget deficits. Onthe contrary, infrastructure investmentsmade by European institutions would stim-ulate an economic upswing that wouldrelieve the pressure on national budgets.The crisis of indebtedness thus would beaddressed sooner rather than later. But in-stead of trimming revenue and expendi-tures to fit what these countries can cur-rently afford, the favored political strategywould be to make every effort to improve

their economic performance, thereby ex-panding the framework within which reve-nue and expenditure decisions are reached.The exit route from the cul-de-sac of aneconomy based on non-tradables wouldnot simply involve a return to more modestcircumstances; rather, it would blaze a new,better path to greater welfare.

Real solidarity would amount to this:The prosperity of all Europeans must begiven institutional form as a shared obli-gation, not as a verbal declaration. Also,one has to take a different view of the mis-fortune that has afflicted parts of Europe’speriphery as an unavoidable result of thecollapse of the non-tradables boom. It isactually a misfortune shared by Europe asa whole. If things are left to continue asthey are for »pragmatic« reasons and weabandon the idea that there ought to be amore or less uniform level of developmentall across Europe, then we can expect in-creasing migration of Southern- and Eas-tern-European labor into Europe’s growthzones. Of course, no one wants that, but noone will be able to stop it.

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The International Monetary Fund isforecasting steady growth, averaging

about 5 %, in Africa this year. In thisrespect the one-time crisis continent nowranks among the world’s most robustgrowth areas. Given Africa’s rosy pros-pects, economic analysts from the consul-ting firm McKinsey are now talking about»lion countries« that can hold their ownwith the tiger nations of Asia. In additionto this rapid growth, the formation of anAfrican middle class, which already num-bers some 150 million people, has beencited as one of the strongest indicators ofAfrican progress. The African Develop-ment Bank (AfDB) notes in a recent re-port that the continent is experiencing itsmost dynamic period of growth. Untilnow, however, that dynamism has reliedmostly on the extraction and sale of rawmaterials. Profits have been pocketed by atiny elite and have created too few jobs tofree great swaths of the population frompoverty. The AfDB report observes that»inclusive development« in Africa wouldhave to lead to more jobs. The authors addthat the sector with the greatest potentialfor development and reform is agriculture,which employs 60 % of the populationand generates 30 % of the continent’s grossdomestic product. Africa’s economy isgrowing; but there is still controversy aboutwhether growth will be accompanied bystructural transformations in the eco-

nomy, especially industrialization and thecreation of enough new jobs.

Is China really the engine ofgrowth and a boon to Africa?

Controversy also swirls around China’srole in the development of the Africancontinent. By now the People’s Republichas become Africa’s largest trading partnerand investor, so it is inevitably an impor-tant player there. Nevertheless, in the Westcritics have consistently charged that Chinais interested only in securing African rawmaterials for its own economy and has littleinterest in the region’s development. Yetthe European accounting firm KPMG callsheightened cooperation between Chinaand Africa one of the main motive forcesbehind the growth spurt we are currentlywitnessing. In the opinion of the Zambia-born American economist Dambisa Moyo,China’s purchases of raw materials inAfrica have stimulated trade, investment,

Sergio Grassi

China and Africa, the »Growth Continent«

Nowadays Africa is portrayed by the media less as a crisis continent than as aregion ripe for economic growth. Cooperation with China is usually seen as thedriving force behind this trend. Raw materials purchases by the People’s Republicas well as its countless infrastructure projects have attracted most of the inter-national attention. But from the Chinese point of view the main issue is not somuch securing raw materials as it is the opening-up of new outlets for its products.The question of whether China's expansion in Africa is advantageous forthe continent’s development has occasioned lively debates both there and in theWest.

Sergio Grassi

(*1979) is a desk officer in the Africadepartment of the Friedrich Ebert Foundation.He is responsible for the countries of Zimbabwe,Mozambique, Namibia, and Angola. Previousto his current assignment he worked for theFriedrich Ebert Foundation in Beijing.

[email protected]



and rapid growth. At the same time Chi-nese investments are improving the livesof Africans. Similarly, the Kenyan poli-tical commentator James Shikwati stres-ses that China’s deeper engagement hasbrought new dynamism into Africa, there-by sparking competition among inter-national donors and investors. In thisrespect China represents a genuine alter-native to Western development aid. Thelatter, he claims, has achieved very little,while corrupting African governments andforcing the continent’s countries intolong-term dependency. Furthermore, hecharges, development aid frequently servesto put a more attractive face on the West’sgeopolitical and business interests than iswarranted. By contrast, as Moyo and Shik-wati see it, the Chinese mostly just wantto make business deals; they display littlemissionary zeal to transplant their ownsystem to the African continent. Shikwatiwrites that China’s direct approach hashelped to unmask the whole fiasco ofWestern development aid. But is it reallythe case that China’s expansion has hadsuch positive consequences for Africa’seconomies and societies? And what arethe driving forces behind that expan-sion?

Between ideologicaland economic interests

Although hardly anyone in the West stillthinks that Chinese foreign policy takesits cues from communist ideas, the lattercontinue to be cited by Party officials –especially for internal consumption – asthe starting point for defining China’sexternal relations. Thus, China’s engage-ment in Africa is justified by the Partyleadership to the rank-and-file membersas a contribution to the struggle againstimperialism and hegemonism. To reinforcethat argument, officials point to China’ssupport for various African independence

movements during the Sixties and Seven-ties, when China itself was still a poor, un-derdeveloped country. At the same time,they emphasize what else Africa and Chinaallegedly have in common: a shared historyof colonization by the West’s great powers.The construction of agrarian research insti-tutes, intensive collaboration in the area offood security, and support for Africa’shealth-care systems all reflect a traditionof historically evolved and ideologicallyjustified cooperation. China’s leaders vehe-mently reject Western charges that its po-licies are neo-colonial. Moreover, theycharacterize Western development aidas the prolongation of previous colonialrelationships under a new guise.

Whereas China’s interests under MaoZedong in the Sixties and Seventies wereshaped by the country’s ideological com-petition with the Soviet Union, today it ismainly commercial interests that set thetone, despite all the internal ideologicallegitimation and political rhetoric vis-à-vis the outside world. The opening salvoof China’s economic expansion was thenational »Go Global Strategy« proclaimedby the leadership at the end of the 1990sas a way to secure strategic stocks of rawmaterials and establish joint business ven-tures in foreign countries. But in addition,the many millions of potential Africanconsumers were seen as presenting anopportunity for China to market its ownproducts.

Accordingly, trade with Africa be-tween 2000 and 2012 burgeoned from US$ 10 billion to around $ 200 billion. Lastyear African exports to China amountedto $ 117 billion. Meanwhile, China has be-come the largest market for African goods,although most of these consist of petro-leum and other raw materials. It is espe-cially crucial to focus on Angola in thisregard, since it supplies almost two-thirdsof the crude oil that China imports fromAfrica. China’s share of total African tradeover the past ten years has grown from

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3 % to a bit more than 20 %. While manyAmerican and European companies werewithdrawing money from Africa evenbefore – and certainly during – the out-break of the financial crisis, Chinese state-owned and private firms took advantage offalling prices to make bargain purchases.In this effort they were supported by theChinese leadership, which made a portionof its vast currency reserves available un-der the aegis of the »Go Global Strategy.«However, so far two-thirds of all Chineseinvestments have been allocated to justnine countries: Nigeria, South Africa, Zam-bia, Ethiopia, Tanzania, Congo, Angola,Sudan, and Kenya.

In addition to its economic relation-ships, China is also active in Africa as aprovider of development aid. It is esti-mated that the Chinese have already spentsome $ 75 billion on aid, distributedamong the fifty countries with which thePeople’s Republic maintains diplomaticrelations. Chinese sources also note thatthe country gave a total of $ 10 billion insoft credits – i.e., those that include someoutright grants – to sub-Saharan countriesbetween 2009 and 2012. By way of com-parison, during the same period the WorldBank offered only $ 4.5 billion a year. More-over, China also provides another categoryof multi-year credits on a far grander scale,mainly via the state-owned Import-ExportBank: those that are secured by naturalresources. For example, Angola borrowed$ 14.5 billion, Ghana $ 13 billion, Nigeria $8.5 billion, the Democratic Republic ofthe Congo $ 6.5 billion, and Ethiopia $ 3billion for infrastructure projects, all ofwhich were carried out by Chinese con-struction companies.

Created as a means of supporting Chi-na’s »Go Global Strategy,« the »Forumon China-Africa Cooperation« (FOCAC)takes place every three years and serves asa framework for China’s policy towardAfrica. But FOCAC operates simultane-ously as an ideological platform for Chi-

na’s African narrative. »Cooperation on alevel playing field«; »win-win«; and »devel-oping together« are some of the principlesendorsed by the Chinese side. At the lastFOCAC summit in 2012, then-Presidentof China Hu Jintao promised to double hiscountry’s financial commitments in com-parison with the previous three-year periodand to provide soft credits for infra-structure in the amount of $ 20 billion. Itis certainly true that development in manyAfrican countries continues to be ham-strung by weak infrastructure, in additionto the effects of wars, crises, and diseases.While for many Western donors infra-structure improvement has played secondfiddle to other priorities, China – repre-sented by its construction firms – has assu-med the leading role in this field duringthe past few years. State control over theawarding of credits helps explain why Chi-na enjoys such an advantage over its Wes-tern competitors in infrastructure devel-opment. In many African countries Chi-nese construction companies are alreadyamong the most successful bidders incompetitions for public projects such asroads, bridges, airports, ports, and rail lines.Chinese firms have lower labor costs andface less stringent labor standards. Thatadvantage, plus the experience they haveaccumulated over the past decades, fre-quently enables them build projects morecheaply than their Western and Africancompetitors could. In addition, China of-ten stipulates that a project can only goforward if its African partner gives thecontracts to Chinese construction com-panies.

Another crucial factor in China’s suc-cess is its declaration that it will not inter-fere in the internal politics of the countrieswith which it partners. This makes Chinaattractive to African political elites thatcannot expect much support from theWest on account of their poor governancerecords. Thus, while Chinese infrastruc-ture aid is not overtly tied to political con-

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ditions, it is frequently conditioned uponaccess to markets and raw materials. Thiskind of horse-trading, typical of China’sinvolvement in Africa, is always charac-terized as a »win-win« situation by theChinese side. Whether or not such trans-actions really do benefit both sides – andespecially the people who live in the coun-tries in question – can only be judged on acase-by-case basis. For example, even whenthe purpose of building a given road is tofacilitate access to and removal of rawmaterials, the project will still benefit thepublic and the private economy. Never-theless, many such construction projectsactually involve prestige items such asostentatious presidential palaces and over-sized sports stadiums, which principallybenefit the ruling elite.

Responses to increasingcriticism by Africans

While the Chinese usually dismiss Wes-tern criticisms of their role on the conti-nent as motivated by envy, they take Afri-can complaints seriously, since these un-dermine China’s claim to cooperation ona level playing field. It is therefore inter-esting to see how Chinese decision-ma-kers react to increasing African criticism.For example, at the last FOCAC summitmeeting in Beijing, Jacob Zuma, the presi-dent of South Africa, demanded a changeof course in China's African policy. Zumaurged that China focus less than it cur-rently does on securing natural resourcesand more on shaping a development part-nership that would be sustainable forboth sides. He added that Africa had to becautious in its partnerships with otherstates in light of its experiences with Euro-pe. Other bones of contention include thedisplacement of local industry and tradeby Chinese retailers as well as the inferiorquality of the low-cost products they sell.Against this backdrop there is also in-

creasing resistance on the part of the rele-vant African societies to further Chineseimmigration. Conservative estimates sug-gest that a million Chinese are alreadyliving in Africa.

China’s former president, Hu Jintao,did in fact promise at the summit thatChina would do more than simply expandits financial commitment to upgradinginfrastructure. In particular, he pledgedgreater support for processing industries,agriculture, and medium-sized enterprises.Another trend in state-sponsored Africapolicies has been the creation of specialeconomic zones on the Chinese model. Asearly as 2011 it was announced that 59such zones would be established in Africa.The special economic zones often becomefavored locations for Chinese productionfacilities. It is hard to avoid the suspicionthat these modest changes in China’s poli-cies are ultimately a response to growing(African) criticism.

Moreover, investments in Africa arenot limited to those sponsored by the stateor state-owned Chinese firms. Indeed, thelatter are now overshadowed by the invest-ments made by a variety of entirely privateor partly state-owned companies. Accord-ing to a study issued by the World Bank,the private sector is already making some55 % of all such investments. It is of crucialimportance to the nature of China’s futureengagement in Africa whether this eclipseof state-sponsored by private initiativescontinues or not. This is the case becauselarge state-owned industries invest mainlyin the extraction of raw materials and infra-structure improvements, whereas privateenterprises prefer to invest in processingindustries in such countries as Ethiopia,Nigeria, Zambia, Ghana, and Rwanda. Inthose countries Chinese private invest-ment has created a lot of new jobs, becauseinvestors tend not to bring many Chineseworkers with them. In other places jointventures have been launched. To mentionjust one example, automobiles are now

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being produced in Kenya and Mozam-bique through an African-Chinese co-pro-duction arrangement.

In the spirit of China’s overarchingagenda of exercising soft power, Hu Jintaoalso promised, at the last FOCAC summit,that exchange and training programs wouldbe expanded. African government repre-sentatives and officials will be able to enrollin training programs in China supportedby scholarship funds. In this case, relationsbetween the Chinese Communist Partyand communist parties close to Africangovernments play a significant role. Par-ty cadres from South Africa, Zimbabwe,Ethiopia, Tanzania, and Namibia study atparty schools run by the Chinese Commu-nist Party. Furthermore, over 6000 Africanstudents were enrolled in Chinese univer-sities last year. Meanwhile, China’s state-run media have expanded their presencein Africa: The state news agency Xinhuanow has more bureaus on that continentthan any of its competitors. Early in 2012China Central Television (CCTV) inaugu-rated a new Africa Broadcasting head-quarters in Nairobi. Until now it has beendifficult to discern the implications of thismedia- and soft power-offensive. YoungAfricans still seem to have better rapportwith Western than with Chinese culture.So far China has not been able to offer anyreal alternative to hip-hop, Hollywoodmovies, and European soccer.

Over the last decade China has un-doubtedly made a crucial contribution tojump-starting the engine of growth inmany African nations. At the same time,China’s stronger commitment to Africahas given the continent unparalleled cacheton the international scene. China’s in-creased interest in the region has inducedother countries such as India, Brazil, andTurkey to expand their own engagementin Africa. Consequently, quite a few ob-servers suspect that the supposed »Africantake-off« is a byproduct of the rise ofChina and other upwardly mobile powers.

The badly needed upgrading of Africaninfrastructure by the Chinese state likelywill have a major impact on the continent’sdevelopment. At the same time China’sAfrica policy is exposing the weaknessesof Western development aid, which has notmet this need for infrastructure improve-ment during the past decades.

Uncoordinated capitalist expansionhampers inclusive growth

Although China’s approach has broughthigh growth rates, growth has not beeninclusive. So far investments by Chinesestate-owned companies have been ratherunbalanced, concentrated mostly in themining sector and on infrastructure pro-jects, where they have created relativelyfew jobs and have actually widened thegap between income and wealth in manycountries.There is some danger that asym-metric trade relations and unbalanced in-vestments will cost Africa the opportunityto reform its economic structures per-manently. This is especially the case inautocracies. Dambisa Moyo and JamesShikwati lay most of the blame for eco-nomic mismanagement on local elites,since they were corrupt long before theChinese expanded into Africa, and theirirresponsibility was tolerated by inter-national donors for decades. But they over-look the fact that these very Chinese in-vestors, just like their Western predecessors,have deliberately exploited – and thus in-directly encouraged – the corruption ofAfrican elites. Thus, Chinese investors havegotten involved in countries like Sudan,Angola, and Zimbabwe not so much be-cause they favor one type of regime overanother, but in order to secure exclusiveconcessions with relative ease. China is notout to create a union of autocracies. Itmerely wants to cooperate with partnersthat best serve its own interests by offeringaccess to resources, lucrative constructions

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projects, and marketing outlets. By con-trast, ideology has come to play a some-what subordinate role. Moyo and Shikwatiare thus correct to say that China is notoffering an alternative model of develop-ment; above all, it is putting itself forwardas an alternative economic partner.

It is still too soon to draw conclusionsabout whether China’s more robust en-gagement in Africa is having a positiveimpact on the economy there and espe-cially on the living conditions of Africansthemselves. However, it should be evidentthat there is no longer a unitary Africapolicy coordinated from the center by theChinese leadership, as there was in Mao’stime. Rather, the Chinese presence andinvestments in Africa are defined by often

competing actors from different spheres,including the Party, the government andmilitary, the provinces, state-owned andprivate firms, as well as individuals. All arethere to pursue their own interests or thoseof the organizations they represent, andthese interests are primarily commercial.In light of this plurality of actors, it wouldbe wrong,whether from the Chinese or theWestern perspective, to continue inter-preting China’s policy in Africa as the ex-pression of a single monolithic actor, whoserole can be judged in unequivocal terms.Nevertheless, by now it is possible to ge-neralize about the nature of China’s en-gagement in Africa. Essentially, it is un-coordinated capitalist expansion.

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