Capitalism, Social Security and Welfare in Germany- and it’s link to a new pension model in Germany

by Alexander Beard, on Nov 18, 2019 2:23:57 PM

1Germany amongst other countries can look into a successful past. After a need to get started at “ground zero” after WWII, Germany started economic development at a tearing pace. Of course it is correct to say that the “Marshall Plan” helped Germany to stand up. It also helped the US to create a new field for getting their products sold. In Germany one also uses the English expression: “Win-Win-Situation!” A fair deal so to say. And it is also unquestionable to have a new look onto contracts that last for more than seven decades by now. Are these contracts still up to date- do they still bring the advantages expected? Is there a need for any updating? The style to asking these questions is a matter of education, of respect and a matter of increasing success.

What made Germany different to others? Germany implemented neither a communism system (at least not the Western part of Germany  ) nor the pure “laissez faire”. Germany tried to find a way in between the extremes: Social capitalism, “Soziale Marktwirtschaft”, social market economy. Being protected by the US and by other NATO partners, it had been very close to the iron curtain and many times within these 74 years the “Russian fear” touched many hearts – especially of those who had been pushed out of their former homes by Russians as refugees. This generation will never forget and is mainly quite conservative. And there is a strong will from most to treat the Russian bear without aggressiveness, by offering fair deals as well. Some may think it’s blue-eyed, some think it is best reality and a guarantee for continuous peace and freedom.

Social market economy however made the drift between rich and poor less conflicted. All together were interested in a development of the whole country- at least for those who had been willing to sail in. Trade unions and employers’ federations created long term co-existence. Never on the same side of the table for negotiations however both willing to find a deal for win-win. The heads of medium sized or smaller companies had been humble and etic and patriarchal for their employees. Not the kind of managers who only look after themselves and after the size of their wallets.

After 1989 we had huge challenge after the reunification where lots of other topics had been postponed- one of them the pension reforms. However the World as such has changed also aroung Germany. Demography is on different stages of development. China’s weight is now much higher than only 3 decades ago. Their middle class is representing more people than the one in Europe!

German SME’s could be found all over the country: not an increasing concentration to mega cities like in France (Paris), Austria (Vienna) or the UK (London). Many SME’s are situated on the countryside and reacted on growing international markets. What happened within the past 30 years was that the founders, the origin entrepreneurs, retired. The next generation grew up more international and parts of them had been attracted by the finance industry. More money had been able to be made in the finance sector than in “real work”. Education for the children in “educated families” stressed on law and economics with a result that the drift to finance away from real machinery accelerated.

Previous “elite” education with well-balanced areas of history, Latin, Greek, philosophy and mathematics lost its importance. A get-rich-quick-scheme became more and more important. Leaders drove Mercedes and Porsches, had their motor yachts, their women and daughters had their horses. They had been admired because of these attributes neither due to their personal standing nor their etic standpoints.

The cleft between rural areas and cities is increasing – the financial sector made its money in cities like Frankfurt, Munich, Cologne and Berlin, not on the country side. International companies took the advantage and bought many of these worldwide leading market makers. Headquarters had been moved out from rural areas to places with better infrastructure. Many of them moved abroad. International Airports and excellent data connection became more important than technological knowledge. Globalization had its price- especially the young generation moved into city centers. The one staying “at home” soon became the hopeless.

2Germans were not Germans if they did not realize and not reflect on these changes. The country of poets and thinkers is not being lost. Many Germans are hesitating more than others with a purer capitalism. However globalization is not rewarding those who hesitate. Germany is one of the strongest followers of the “Fridays for Future” movement. Children start discussing with their parents about their future. Only a few of them however also change their own type of living- stop to fly to Mallorca at a price of less than € 50 return flight included and parking the SUV at the nearest parking slot to the check-in counter.

Is there still hope? Yes of course! We need to get decision makers in the industry forced by financial stakeholders to become ideals. Ideals in a sense of sustainable behavior, not only telling Sunday speeches but being recognized as archetypes of people with accountability and responsibility. It is not about killing capitalism fast or softly. It is about closing the gap between hopeless and rich. There is a need to take responsibility for long-term survival. It is important to create a collective liability for the welfare of all employees, of a whole society. Germany has learned that social equilibrium is needed also for getting changes implemented into a system alongside with economic growth and ecological sustainability. The Diesel, to give an example, is still an excellent technology for long- distance rides. The production of combustion engines allows thousands of employees to earn their standard of living. Both elements green future and workplaces now need to be changed in balance.

Or let us take another example: All agree that our state pension system is a good system nevertheless not good enough to keeping the standard of living after having moved into retirement. In 1974 employee benefits had for the first time been fitted into a law. Employers had been able to offer benefits on top of paying a salary or wages to their employees. Now unemployment rates on average over the country had been reduced significantly and we are facing a lack of key personnel. The shift from DB to DC EB pensions without any guarantees is the latest development of a new law (BRSG) from January 2018. It will not be accepted that the whole risk for stability in a pension system could be ceded towards the employees only. The system “SPM” (Social Partner Modell: model for social partners => Trade Unions and Employers’ Associations) is not social. It replaces mainly other existing systems offered in larger industries. It is not open for SME’s. This needs to be adopted.

The advantage of the SPM is seen that there will be no costly guarantee given at all. For a single person this might be seen as a high risk whereas for huge numbers and on the long run it is clear that any guarantee will take and cost a margin. With huge numbers and long term it is not needed to buy guarantees as clever asset management will produce higher returns and intelligent systems will be able to flatten volatility. Germans need to change their “Safety first” saving behavior. All members will profit from better returns created with internationally balanced equities and guilds.
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However, we still encounter a majority of company owners with 10 to 200 employees, who will not pay a single Cent into a pension scheme because they are afraid of high cost and additional admin burden. The need is more to inform these companies about existing systems with lowest admin burden and low extra cost than adding a 6th means of EB for the industry! This is our field of experience where we have to convince these “conservative landlords” that it might help them to find new skilled staff.
So we will keep on watching developments – and we will inform our perspective clients within the SME’s about existing efficient solutions. Rome hadn’t been built in a day- so let’s still keep the hope!

Rüdiger Blaich
Country Manager - Germany (AB International Benefits B.V.)

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