On the right economic policy for Germany and Saxony

_ Felix Menzel, Chaiman, Recherche Dresden Think Tank. 1 July 2021.*

The direction of economic policy has a signifcant power. This applies to the overall social debate in Germany as well as to the debate in Saxony. This is where libertarian, liberal and social approaches come together.

However, the solution cannot be a lazy compromise. It is therefore important to find a tailor-made solution for each individual problem. However, the economic policy framework must always be immovable. The following applies to our economic policy: “Innovation, freedom and equal opportunities” should stand together at the top of the political demands.

Orientation towards the social market economy.

Market and morality are not opposites. Prosperity can only be earned when hard work, perseverance and reliability correspond with creativity, inventive talent and professional competence. [1] Politicians must create the right framework conditions for these characteristics to develop. If it succeeds, this is the best guarantee for the free development of the companies and their competitiveness in national and international competition.

The prosperity created in Germany in the last 150 years is based on a grown economic and scientific culture [2]. Its core consists of a highly qualified workforce [3], social security [4] and a stable currency. Unfortunately, these success factors are increasingly being forgotten. The development of our social market economy in the tradition of Ludwig Erhard, Wilhelm Röpke and Alfred Müller-Armack towards a climate-controlled economy is to be observed with great concern.

Instead of state economic control, we need free and dynamic companies in their decisions. Then it is also possible to operate a social policy that is capable of acting. The social market economy is not a lazy compromise between socialism and capitalism or any mixture of them. Rather, she wants strong companies to be able to support the weak and those in need. Social market economy therefore means: market economy and social policy.

The social market economy is also committed to free, international trade. Even so, we need to be aware of the vulnerability of the global economy and the risks that it poses. If the dependency on other economies becomes too great, globalization has been pushed too far. The Saxon state government should therefore actively shape the current trend towards the relocation of production sites [5] as a result of the loss of importance of manual activities. In a sense, this is the patriotic minimum of economic policy.

Reducing bureaucracy is currently the most important task of the state

Due to documentation obligations, the large number of duties and taxes as well as constantly new requirements of the European Union (e.g. GDPR), companies have to dedicate a gigantic proportion of their working time to cope with bureaucratic effort. There is no time to devote to the core business.

A comprehensive reduction in bureaucracy is therefore desirable. These include, among other things, the withdrawal of the prepayment of social security contributions [6], the abolition of the receipt requirement for amounts up to 30 euros [7] and visa relief for companies to intensify cooperation with Russia [8].

The newly created plastics levy, which is intended to contribute to the financing of the European Union, is also to be viewed particularly critically. For one thing, it creates unnecessary bureaucracy. On the other hand, it is to be feared that the additional costs will be passed on in full to the consumer.

Instead of constantly inventing new taxes, laws and regulations, the primary task of the legislature should be to clear out the chaos of regulations. The Netherlands, among others, can serve as a model. By reducing the building code to the bare essentials, it has been possible to keep the rise in construction costs per rental apartment moderate. While the average construction costs in Germany soared by more than 33 percent between 2007 and 2017, it was only six percent for our Dutch neighbours due to the reform efforts. [9]

A strengthening of the middle class

In 2020, government subsidies and tax breaks reached a new high. The Kiel Institute for the World Economy estimates it at 207 billion euros. For comparison: in 2007 this value was still 141.2 billion euros. The majority of this will benefit large corporations. Meanwhile, small and medium-sized enterprises receive only minor financial aid. [10] That undermines the necessary equality of opportunity.

In Saxony, according to the Ifo Institute in Dresden, small companies with ten to 19 employees are responsible for the greatest economic dynamism. These so-called “gazelles”, which are mainly at home in the manufacturing and services sectors, create half of the newly created jobs, although they only provide eight percent of the companies. A wise economic policy should relieve these companies and help them cope with their growth. [11]

In addition, following measures policy are required:

  • A simplification of the framework conditions for business start-ups and business successions in the skilled trades. [12]
  • A further increase in the turnover limit for small businesses from currently 22,000 euros to 35,000 euros, following the example of Austria. [13]
  • A simplification of legally secure investments in small and medium-sized companies. [14]

Securing the infrastructure is a matter for the state

Germany lives from its substance. Roads fall into disrepair. Large projects are not making progress. Many schools urgently need to be modernized and the expansion of the Internet is stuck in many places.

Most economists agree that there is an investment backlog in the three-digit billion range. The Institut der deutschen Wirtschaft (IW) therefore calls for a total of 450 billion euros to be invested in the infrastructure over the next ten years in order to “achieve what is required”. [15] A study by the University of Leipzig sees an investment requirement of 7.73 billion euros by 2022 for Saxony’s municipalities alone. In addition, 1.63 billion euros would come for urgently needed maintenance. That is a significant increase compared to previous years. According to the authors of the study, investments should focus on roads, schools and broadband expansion. [16]

The rail must also be given special consideration. In Saxony, 527 kilometers of railways have been shut down since German unification (Germany in total: 6,500 km). [17] That was a serious mistake on the part of the CDU. Switzerland, China, the USA, Russia and Australia have twice as high a share of goods transport by rail as we do. In order to relieve our motorways (A4, A13, A14, A72, A38), there is an urgent need to significantly improve transport by rail.

In addition, a rethinking is necessary at the Deutsche Bahn AG: The state-owned company is now active in over 130 countries and generates 50 percent of its sales with non-rail business. It is not clear to us why the Deutsche Bahn should be allowed to run double-decker buses in London – especially since the international business has so far only resulted in losses. [18] Here the priorities need to be rearranged: good quality transport of goods and people in Germany should come first.

For Saxony, this means that previously neglected cities such as Chemnitz and Görlitz need fast train connections. In addition, buses and trains have to be preserved in rural areas despite the population decline. [19]

Rely on dual training to secure skilled workers

Saxony’s economy is characterized by small and medium-sized companies (SMEs). In total, around 150,000 companies in the Free State of Saxony are SMEs. [20] The middle class is thus a mainstay of the Saxon economy. Due to an aging population, business successors are particularly in demand. The vacant apprenticeship positions are another problem for many companies. Neither the one nor the other problem can be solved by massive immigration.

Rather, poorly trained school leavers, bloated administration, non-practical courses, and the over-academicization of the economy are depriving urgently needed skilled workers. Surveys have shown that most students want to work in the public sector (40 percent). [21] According to the job survey by the Institute for Employment Research (IAB), however, for years around 60 percent of vacancies have been in jobs for which a training qualification is required. That is why technical high school are needed. For comparison: academics are only in demand for 16.2 percent of the vacancies. [22]

The answer must therefore be to continue writing the success story of dual training until the good end. That means training the apprentice to become a skilled worker. To qualify the skilled worker as a master craftsman or technician. To pave the way for the master craftsman or the technician to found a company or a company successor. The basic prerequisite for this is targeted support for basic, advanced and advanced training. [23]

Small and medium-sized businesses need cash

In May 2020, the Saxon state government under CDU Prime Minister Michael Kretschmer recommended that cashless payments be made in restaurants as far as possible. In Chemnitz buses, too, one can no longer buy your ticket with cash since mid-November 2020, but have to use a card or smartphone. This is a problem for many older citizens in particular.

Society must take decisive action against this. Small and medium-sized companies in particular need cash! Hygienic reasons for abolishing cash have no scientific basis. In reality it is about the control of the citizens. Those who can only pay digitally are exposed to complete financial surveillance. Cash is thus an expression of lived freedom and also offers protection from the state’s encroachment. [26]

An average cash transaction also only incurs very low costs of 0.24 euros. For comparison: With EC cards it is 0.33 euros per transaction, with direct debits 0.34 euros and with credit cards even up to 1.03 euros, confirms a study by the Deutsche Bundesbank. [27]

Special attention on economically weak regions

Rural areas have been neglected by the mainstream parties since German reunification 30 years ago. While Poland set up numerous special economic zones to stimulate peripheral regions, this opportunity in Saxony remained untapped.

So that regions close to the border and industrial weak regions are not left behind, it is important to declare them to be special economic zones. Against the background of the hasty and haphazard coal phase-out, a new concept is also needed. For this reason, the Dresden Chamber of Crafts proposes the establishment of special economic zones. [28]

In addition to special economic zones, one should also be open to other approaches to strengthening rural areas. For example, the idea of a regionally differentiated income tax that works with tax discounts in the event of infrastructure deficits is interesting. Companies that settle in structurally weak regions would then have a tax advantage. [29] On the other hand, companies that benefit from agglomeration advantages in large cities would have to pay higher taxes than those in rural areas.

For many companies in rural areas in Saxony, the problem of border crime is an additional issue. In order to provide support here, investments by companies in security technology should be comprehensively funded with ten million euros per year. [30]

The Russia sanctions are poison for the Saxon economy

According to the Eastern Committee of the German Economy, trade with Russia has literally collapsed in recent years. The eastern German federal states are particularly affected. The total trading volume here fell by 6.9 billion euros or 39.6 percent. In terms of the exchange of goods, Saxony even saw a decline of 70.8 percent. [31]

Responsibility for this is borne by the CDU, which is also ruling in Saxony and adheres to the Russia sanctions. The occasional criticism of this policy by Prime Minister Michael Kretschmer is only a smoke candle and should therefore be seen as a voter deception. [32] For example, the CDU in the Saxon state parliament has rejected all of the AfD’s proposals to improve relations with Russia.

Specifically, the following measures should be taken:

  • Reactivating visa negotiations [33], as many Saxon exporters criticize the immense scope of the required visa documents and the high visa fees. Every fifth company loses orders due to visa problems. That needs to change.
  • Lifting the sanctions against Russia and send signals of detente. [34]
  • Using the Germany year in Russia 2020/21 to intensify economic and cultural relations. [35]

Nord Stream 2 must also be completed and put into operation. It is irresponsible to put this at risk due to unproven claims in the Navalny case, as Saxony’s Energy Minister Wolfram Günther (Greens) is doing.

The automotive industry is indispensable for Saxony

Car companies are among the largest employers in the Free State of Saxony and pay above-average wages. A strong automotive industry is therefore crucial for the prosperity in Saxony. This is all the more true as the 780 or so suppliers and entire regions depend on the success of this industry.

Market-based competition between drive technologies is therefore important. It is a serious mistake by the federal and state government to only prefer e-mobility. This policy has already resulted in the loss of many jobs. [36]

The planned economic ambition with which the CDU wants to help the e-car break through will only lead to a gigantic destruction of taxpayers’ money. In total there are now more than 100 funding programs for e-mobility. The possibility of simultaneous double funding by the federal government and the federal states is particularly absurd. This must be done first of all. In addition, there is an exemption from vehicle tax for ten years as a purchase incentive. We also consider this market intervention to be wrong.

The planned economic ambition with which the CDU wants to help the e-car break through leads solely to a gigantic waste of tax money. In total there are now more than 100 funding programs for e-mobility. The possibility of simultaneous double funding by the federal government and the federal states is particularly absurd. This must be done first of all. In addition, there is an exemption from vehicle tax for ten years as a purchase incentive. This market intervention is also wrong.

The immense subsidization of e-mobility does little to change the disadvantages of this technology that failed more than 100 years ago: The ranges of the vehicles are small and, at the latest, when it comes to disposal, the ecological balance is often worse than with combustion engines.

For this reason, it is necessary to exclude deadlines for the elimination of diesel and internal combustion engines. [37]

Preferring regional value creation and short supply chains

70 percent of Germans would like more regional products. [38] In the case of highly complex industrial goods, this is of course only possible to a limited extent. Particularly with regard to the Saxon agriculture and food industry, one should take the wishes of the customers very seriously and create the right framework conditions for regional production and added value creation.

There are many reasons for this misery: The local food producers are being restricted by ever stricter environmental regulations, e.g. the new fertilizer ordinance. Meanwhile, agriculture in other countries is enabled by the EU agricultural subsidies to be able to offer certain products at bargain prices.

In order to shorten supply chains, the AfD commissioned the Saxon state government in September 2020 to examine which products and preliminary products previously produced abroad could be increasingly manufactured in the Free State of Saxony through the new possibilities of digitization and robotization. Particularly in the case of basic goods, e.g. medical products, the relocation back to Germany is urgently required to improve availability in crisis situations. In addition, one can generally quickly take advantage of the opportunities offered by the reshoring trend [39] and at the same time actively support Saxon companies if there are temporary disruptions in supply chains. [40]

Notes

[1] Franz Kromka F. (2008). Markt und Moral. Neuentdeckung der Gründerväter. Grevenbroich.

[2] Abelshauser W. (2012). Ricardo neu gedacht. Komparative institutionelle Vorteile von Wirtschaftskulturen. Kulturen der Weltwirtschaft. Göttingen.

[3] What is meant here is both the art of engineering and the dual training that has been established since 1887.

[4] At this point it is worth remembering Bismarck’s social laws.

[5] In the professional world, this is referred to as reshoring.

[6] Saxonian State Parliament. Document nr. 7/2779.

[7] Saxonian State Parliament. Document nr. 7/2195.

[8] Saxonian State Parliament. Document nr. 7/3848.

[9] IW Köln (2018). Niedrige Baukosten. Vorbild Niederlande. URL: https://www.iwkoeln.de/studien/iw-kurzberichte/beitrag/pekka-sagner-michael-voigtlaender-vorbild-niederlande.html

[10] IfW Kiel (2020). Kieler Subventionsbericht 2020: Subventionen auf dem Vormarsch. URL: https://www.ifw-kiel.de/fileadmin/Dateiverwaltung/IfW-Publications/-ifw/Kieler_Beitraege_zur_Wirtschaftspolitik/wipo_29.pdf

[11] Ochsner C., Ragnitz J. (2018). Mit Gazellen gegen Arbeitsplatzverluste? Eine Analyse schnell wachsender Unternehmen in Ostdeutschland. ifo.

[12] Saxonian State Parliament. Document nr. 6/15043

[13] See German regulation: § 19 UStG, regulation in Austria: § 6 Abs. 1 Z 27 UStG. Austria also allows small businesses to exceed the turnover limit by up to 15 percent once every five years.

[14] E.g., via crowd investing.

[15] IW Köln (202). Ein Deutschlandfonds mit 450 Milliarden Euro macht unser Land fit für die Zukunft. URL: https://www.iwkoeln.de/presse/in-den-medien/beitrag/michael-huether-ein-deutschlandfonds-mit-450-milliarden-euro-macht-unser-land-fit-fuer-die-zukunft.html

[16] Sydow J., Hesse M. (2018). Kommunaler Investitionsbedarf im Freistaat Sachsen. Kommunalbefragung 2018. Universität Leipzig. URL: https://www.wifa.uni-leipzig.de/index.php?eID=tx_nawsecuredl&u=0&g=0&t=1604497300&hash=190c4caa4932d04002ea4cc088ad8cbbc794cc47&file=fileadmin/user_upload/pfpm/KIS/KIS_Analyse/010_KOMKIS_Analyse_-_Kommunaler_Investitionsbedarf_im_Freistaat_Sachsen_-_Kommunalbefragung_2018.pdf

[17] MDR (2019). Ein Fünftel des deutschen Schienennetzes stillgelegt. URL: https://www.mdr.de/nachrichten/politik/inland/stilllegung-bahnstrecken-deutschland-100.html

[18] Luik A. (2019). Schaden in der Oberleitung. Das geplante Desaster der Deutschen Bahn. Frankfurt/Main.

[19] Saxonian State Parliament. Document nr. 6/4855

[20] Publikationen des Freistaates Sachsen (2020). URL: https://publikationen.sachsen.de/bdb/artikel/33600

[21] Zeit (2018). Studierende wollen in den Staatsdienst. URL: https://www.zeit.de/gesellschaft/zeitgeschehen/2018-07/oeffentlicher-dienst-berufswahl-studenten-studie

[22] IAB (2020). Offene Stellen nach Qualifikationsniveau. URL: https://www.iab.de/de/befragungen/stellenangebot/aktuelle-ergebnisse.aspx

[23] As early as 2016, the AfD parliamentary group in the Bavarian state parliament applied for the introduction of a technician bonus (Saxonian State Parliament. Document nr. 6/6607) and an increase in the master’s bonus in 2020 (Saxonian State Parliament. Document nr. 7/1940).

[24] Sparkasse (2020). Coronavirus: Kann ich mich am Geldautomaten anstecken? URL: https://www.sparkasse.de/aktuelles/coronavirus-umgang-bargeld.html

[25] Sparkasse (2020). Die Zukunft des Bezahlens. URL: https://www.sparkasse.de/geld-leichter-verstehen/w/wird-das-bargeld-deutschland-abgeschafft.html

[26] Saxonian State Parliament. Document nr. 6/4854.

[27] Deutsche Bundesbank (2019). Kosten der Bargeldzahlung im Einzelhandel. Studie zur Ermittlung und Bewertung der Kosten, die durch die Bargeldzahlung im Einzelhandel verursacht werden. URL: https://www.bundesbank.de/resource/blob/776464/16e3a025236aa4d52f1b2c0a27e1b852/mL/kosten-der-bargeldzahlung-im-einzelhandel-data.pdf

[28] Weckbrodt H. (2020). Handwerker fordern erneut Sonderwirtschaftszone in der Lausitz. URL: https://oiger.de/2020/05/26/handwerker-fordern-erneut-sonderwirtschaftszone-in-der-lausitz/175064

[29] Recherche D. (2019). Deutschlands Problemzonen. URL: https://recherche-dresden.de/neue-studie-deutschlands-problemzonen/

[30] Saxonian State Parliament. Document nr.6/11601

[31] Sächsische Zeitung (2020). Handel mit Russland geht zurück. URL: https://www.saechsische.de/wirtschaft/eu-sanktionen-nord-stream-2-handel-mit-russland-geht-in-ostdeutschland-staerker-zurueck-5283147.html

[32] MDR (2019). Die Sanktionen gegen Russland haben sich als untauglich erwiesen. URL: https://www.mdr.de/sachsen/interview-kretschmer-russlandsanktionen-sachsen-wirtschaft-100.html

[33] Saxonian State Parliament. Document nr. 6/6503.

[34] Saxonian State Parliament. Document nr. 6/8922.

[35] Saxonian State Parliament. Document nr. 7/3848.

[36] E.g., at Continental in Limbach-Oberfrohna and Mahle in Freiberg.

[37] Saxonian State Parliament. Document nr. 6/10516.

[38] Marktforschung (2018). Ipsos-Handelsmarkenmonitor: Regionale Produkte im Trend. URL: https://www.marktforschung.de/aktuelles/marktforschung/regionale-produkte-im-trend/

[39] This term refers to the possible return of production due to the decline in manual activities.

[40] Saxonian State Parliament. Document nr. 7/3651.

Featured image: Own creation using images from ifo Dresden & Wirtschaftsregion Lausitz. 

*Free translation of the original text “Positionspapier: Zehn Punkte zur Wirtschaftspolitik“, which was written in 2020 on behalf of the AfD parliamentary group in Saxony.

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