Globalization, Europe and
Liberal Politics in Germany
Speech delivered by Siegfried
Herzog, former head of the Asia desk of the Friedrich Naumann
Foundation, at an informative meeting with the FNF Alumni Group,
Makati City, 22 June 2005
Our Topic is “Globalization, Europe and
Liberal Politics in Germany.” That’s a very wide range
of subjects. I would like to approach this as the Zen Buddhist master
approaches a hot dog stand, and the Buddhist says to the hot dog
vendor: Make me one with everything.
I do believe that these issues are indeed intrinsically connected,
and I would like to propose four theses:
• Globalization works
• Europe needs to work better
• Germany doesn’t work at all right now
• We need liberal policies to make it all work again.
Let’s start with Globalization: Everybody talks about it,
but with widely differing meanings. I propose a simple definition:
It is the opportunity for people all over the globe to interact
directly. Interaction can be economic, social, political, cultural
etc. Note that this interaction is voluntary and driven by sinking
costs of interaction: cheaper transport, communication and cooperation
due to technological change like information technology, organizational
change like the introduction of container shipping, and an improved
legal framework, e.g., through the establishment of the WTO.
The process is not new; it has been going on for centuries. 2000
years ago, a trade network extended from the British Isles through
the Roman Empire, down the Red Sea, to Southern India, then to the
straits of Malacca and up to China. And even at that time, people
worried about globalization. The historian Tacitus worried about
the amount of gold flowing out to the East to finance luxuries that
Roman women wanted. So we see the figure of the Globalization critic
appearing 2000 years ago too. Globalization has clearly worked for
a long time, with different waves of intensity. It works economically
because it spurs competition, thus lowering prices, improving quality
and spurring innovation.
This is born out by historical experience. The current wave of
globalization started after WWII when the Americans built an open
world market. This allowed Japan and Germany to export themselves
out of destruction. In the late 60s, Taiwan, South Korea, Singapore
and Hong Kong came up through integration in the world market, then
the ASEAN region, then China, now India, to name a few Asian examples.
The annual report on the Economic Freedom of the World to which
the Friedrich Naumann Foundation contributes measures economic freedom
in 120 countries and then correlates this measure to other indices
of progress. This gives empirical proof that more economic freedom
is closely related to economic growth and human development.
Globalization has also helped end the Cold War: The rising difference
in prosperity belied Marxist predictions, and political globalization
opened previously closed societies slowly but steadily. The EDSA
revolution in the Philippines then gave people an idea how to topple
regimes peacefully, and that is what happened. So Globalization
has worked well in many ways.
Europe has taken the idea one step further and integrated economically
and politically, going from common market to single market with
a common currency to a process of ever closer political union. It
was propelled by a desire to end once and for all the destructive
conflicts that had plagued Europe, and, after the fall of the Soviet
bloc, to tie the reunified Germany tightly to its neighbors. The
EU has also acted as a catalyst for rapid change in Eastern Europe,
the prospect of EU membership acting as an incentive to reform in
But now Europe is in crisis. The enlargement brought new members
that have conducted far-reaching liberal reforms, bringing more
competition for investment and jobs. They affect the decision-making
process and the distribution of funds. All that upsets the balance
and old Europe finds it hard to adjust. France is hit in particular.
France saw the EU as an extension of French influence worldwide,
financed by a politically docile Germany. The debate about the Iraq
War showed that even joint French and German efforts could not unite
Europe but rather divided it, as many new members were unwilling
to get drawn into a conflict with the US. So proponents of a joint
foreign policy were frustrated.
On the other hand, Europe needs to become less bureaucratic and
more competitive in order to keep up with globalization. As this
affects especially the enormous agricultural subsidies that make
up almost half the EU budget, France especially is dead set against
it. Some want the EU to become a fortress to protect overly generous
welfare systems and rigid labor markets, while others see this as
a recipe for disaster. This is the big debate, and it sank the EU
constitution that failed to satisfy either camp. It also became
a victim of the tendencies of politicians to blame every painful
reform on Brussels, when they themselves had made the decisions
but were unwilling to be honest with the electorate. National populism
thus is at the heart of Europe’s problems. That we now added
a budget row is extremely troubling for the future of the EU.
Germany is even more in a rut and needs to reform. An ageing population
makes our pay-as-you-go social security system unsustainable, and
we need to move towards a capital-based approach. Our labor market
is far too rigid to respond to a changing economy and to absorb
a growing number of immigrants. Growth is stagnant, unemployment
Our social-democratic-green government failed to address these
issues before coming to power, unlike the Democrats under Clinton
or Labor under Tony Blair. As a result, they first pursued the status
quo, even adding some socialist laws, then changing course under
the pressure of the crisis and moving towards social security reform
and labor market deregulation – too little, too late. Hence
proponents of reform were not satisfied, while their core constituency
was aghast and furious, feeling betrayed. As a result, we might
get a new party on the left at the expense of the Social Democrats.
What now? It is clear to most economic analysts that the country
urgently needs liberal reforms to open labor markets, move towards
capital-based social security, inject competition in the health
sector, reform education by emphasizing quality and radically reform
the tax system.
At present, the Christian Democrats (CDU) and the Liberals, who
want to govern in a coalition, looked poised to win. Here the role
of the Free Democratic Party (FDP), the Liberals, will be crucial.
It has used the time in opposition to draw up a comprehensive and
radical program much praised by experts. A vote for the Liberals
is thus a vote for reform.
CDU is led by Angela Merkel, the first woman aspiring to the chancellorship.
She has been consistently underrated, but moved to the top with
a mixture of cunning and determination. She grew up in East Germany
and has kept a strong dislike for socialism and an instinctive preference
for individual freedom. She is also tech-savvy, uses texting to
clandestinely steer discussions. She has been able to outmaneuver
all her opponents. She will want a strong FDP to discipline the
men in her own party.
This also has implications for Europe. A stagnant Germany is a
drag on Europe; a vibrant one will help Europe immensely. Within
the EU, a new government will dramatically change the balance of
power. Already, the Liberals and the Christian Democrats have sided
with Tony Blair to demand reform of agricultural subsidies. Thus,
a change in Germany might help push Europe into a more liberal,
less statist direction – and that might help people to relate
to Europe again. That’s important for the EU as well as the
WTO, where agriculture is a persistent stumbling bloc for more trade
liberalization. The EU farm policies harm developing countries in
many ways. Reforming these is thus in all of our interests. In a
recent speech, Sen. Franklin Drilon issued a clear call to rich
nations the other day: “Give us trade, not aid!”
We liberals fully agree with that. It is an issue that binds us
together. As you can see, we have come full circle again to our
starting point of globalization and our joint stake in it.