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 many countries.

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 rising relentlessly.

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.