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After the Fall: What Went Wrong

Mises Daily: Friday, November 05, 1999 by

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Reinhardt Stiebler (email: reinhard.stiebler@nur.adtranz.de) is president and co-founder of the Liberale Akademie Berlin. This Fall, Stiebler presented a paper on Adolphe Thiers at the Austrian Economics Workshop at the Mises Institute in Auburn, Alabama. He was interviewed following the seminar.



Mises.org: What is your assessment of the aftermath of German unification?

Stiebler: Currently, the government subsidizes rebuilding in the East at a rate of $70 billion per year. This is a huge expense. The idea behind it is that we don't want to have two separate economies–the rich West and the poor East–because this would create social unrest. In truth, the wealth disparities are a fact of reality that no amount of subsidies can erase.

Nonetheless, after unification, it was agreed that workers in the East should soon receive the same amount in wages as those in the West, with the problem that their productivity is much less. They are 10 percent as productive but receive wages nearly 80 percent of the West. This creates enormous dislocations. The Eastern part of Germany is now one of the most expensive places to invest in the whole of Europe.

These subsidies from the central government were intended to redistribute wealth, but not much of it actually stays there. During privatization, the big Western companies took up most of the share of Eastern industries, so it is channeled back to big Western enterprises. So, the final result is that the wealth redistribution actually runs from taxpayers in the West to established corporations in the West.

Mises.org: Is there any discussion of reducing the subsidy?

Stiebler: Nobody wants to talk about it. The argument about, or rather fear of, social unrest is very strong. We have wasted $350 billion in this effort. The sad part for the East is that they now have a new form of socialism. In the West, more than half our GDP goes to the government. This tax structure was exported to the East. So actually, instead of full communism in the East and partial socialism in the West, we split the difference so that everyone lives under one unified socialist plan.

We had a Chinese trainee in our company, and I asked him how much in taxes he pays. He replied that he pays 15 percent. From this point of view, then, Communist China is more free market than supposedly capitalist Germany. I pointed this out to him, and he laughed and agreed.

Mises.org: It is remarkable to think of the opportunity that was missed.

Stiebler: Right. Integration was a political move by Chancellor Kohl, and implemented based on political instead of economic considerations. He arbitrarily fixed the exchange rate between the East and West German mark at one to one. On the black market, the exchange rate was one to five. With this, he transferred wealth to the East that had been acquired in a more or less capitalist system after the war, as if the East had not been subject to all- round socialism. They wanted to cancel out this dark history even though it is part of reality.

What these workers lacked in productivity they made up for in education. If, after the fall of the Berlin Wall, Chancellor Kohl had really privatized and allowed the free market to flourish, the East German worker, with low wages and low productivity but high education, would have had an comparative advantage to a worker in the West. And after a short time, workers would have received higher wages in accordance with what they produced. Economic growth would have been very fast. All of this would have been possible with a massive private capital inflow.

Now the capital inflow is financed by the state and it is both inefficient and redistributionist. If the East had taken the proper path, instead of people leaving the East to get to the West, the flow of labor would have run the reverse. People from the West would have been clamoring to the East. It was a missed opportunity.

As it stands now, sometimes the public preference in the East is actually more liberally minded than in the West. For example, consider closing time for businesses. In the West, we have strict laws saying that everything must close at 8:00pm. The weekends are even worse; nothing can be open on Sunday, for example.

In most parts of the East, however, they have implemented exceptions to the law. Some areas have been called "tourist resorts," which means that shops can open and close anytime they want. Suddenly, the trade unions became very religious, claiming that bustling enterprises were stealing time needed for spiritual reflection.

The debate on closing times in Germany is entirely misguided. The only question discussed is whether longer hours and more liberality would contribute to the GNP or not. The issue of consumer sovereignty and property rights is never even mentioned.

Mises.org: Are the unions a large problem?

Stiebler: The trade union for the metal workers is largest trade union in the world, with 1.7 million members. We have a federation of trade unions that represents close to 30 percent of the workforce. The big problem is that it has a monopoly in negotiation with business. The unions are able to dictate policy to the entire country. You must obey even if there are no unions in your shop.

As a result, they are able to hold the whole of industry, as well as the consuming public, hostages. Indeed, the entire labor market in Germany is heavily regulated, with mandatory vacations, high unemployment benefits, strict rules concerning hiring and firing, and much worse.

Mises.org: With such regulations, how can you explain German prosperity?

Stiebler: Very easily. We are feeding ourselves from the reforms that were implemented by Ludwig Erhard after 1945. He abolished nearly every price regulation and implemented something very close to a complete market economy. After 1956, more and more rules regulating economic life were introduced. But we are still living off the impulse given in these early years. We are slowly strangling the source of prosperity. We desperately need liberalization in the labor and capital markets if we expect to continue as a prosperous society.

Mises.org: Is Erhard regarded as a hero today?

Stiebler: Sometimes he is cited, but generally people do not talk about him. The German economic miracle is taken for granted. People are more interested in redistributing, rather than creating, wealth.

Mises.org: More generally, how stands the liberal movement in Germany?

Stiebler: There are very few radical liberals, or what Americans call libertarians or Austro-libertarians, in Germany. We do have a Liberal Party, also known as the Free Democratic Party. For the last 40 years, it has captured 5 to 10 percent of the electorate, and has wielded the decisive vote for giving a majority to the Christian Democrats or the Social Democrats. In principle, then, the party has been powerful. But, at the same time, it is completely discredited because it has taken every stance from free-market policies to social-democratic policies.

To be called a "liberal" in Germany means that you are a member of this party, which has monopolized opinion on the limits of economic freedom. Today it is very difficult to speak of true liberals in the Austrian sense or any other meaningful economic sense. I know of 20 to 50 people in Germany who even know who Ludwig von Mises was. It is that bad. In founding the Liberale Akademie Berlin, we wanted to open up the marketplace of ideas, and publish works that pushed out the boundaries of opinion.

There are some followers of Max Stirner in Germany, the author of The Ego and Its Own, first published in 1844. He is usually thought of as an individualist anarchist, and he had been quite influential in the liberal movement in the nineteenth century. Most early Germans liberals and free traders like John Prince-Smith, who originally came from Scotland, and John Henry Mackay, were originally influenced by Stirner. Actually one of the larger books by Marx and Engels, The German Ideology, was written against this book by Stirner. They tried, but failed, to refute him in 300 pages. History, unfortunately, has buried Stirner.

But I'm getting off the subject. Today, there are very few people who work, research, and write from the point of view of radical liberalism. In fact, I think I know most of them. We organize a forum every year. We are small, and there is a very long way to go, but we are growing. The question always arises: should we found a party? I am personally against it. You cannot convincingly argue against government intervention while trying to achieve political power. The contradictions are evident to everyone.

Mises.org: You also run the risk of having your credibility judged by how many votes you receive.

Stiebler: That's true. Of course the idea is tempting. The state makes it so, since in Germany, you receive government subsidies according to how many votes you get. Of course this favors the big parties and the political status quo. State-financed elections work hand-in-hand with statism. It also biases the political positions of parties, which tend not to bite the hand that feeds them. As a political party, it would be easier to gain access to media, since reporters are always interested in political parties, much more so than a private think tank. Moreover, life in Germany is far more politicized than in the United States: everyone assumes that all political questions are to be settled within political circles. Even the idea of providing private solutions to a problem is virtually unknown. This is a pity.

Mises.org: What is the Liberale Akademie Berlin, doing to change that?

Stiebler: Our first step is to build the foundations of a library of liberty, through translating and publishing important works. Our first book was The Adventures of Jonathan Gullible by Kenneth Schoolland, a very nice book for younger people. Our second project is What Has Government Done to Our Money by Murray Rothbard. I translated it, together with Carsten Hülsmann. Then we plan to republish the German-language books by Hans- Hermann Hoppe. Finally, we are translating and publishing a Bastiat reader, Hazlitt's Economics in One Lesson, and much more, including a scholarly and popular journal.

I have high hopes for the book on German Liberalism by the great historian of liberty, Ralph Raico. If the marketing is handled properly, this book could revive interest in liberalism in Germany. It is partly because of this book that we are organizing a scholarly forum with the title "Liberty: A German Idea." We are breaking new ground with this theme.

The United States has a libertarian tradition which is more widely understood. Not so in Germany, where the Enlightenment was not so much an era when the idea of liberty was advanced but rather a time of Enlightened Absolutism. The idea was that we should have a brilliant leader and a highly educated bureaucratic class that would govern society with no egoistic intentions. This thinking, which survives to this day, eventually led to the political economy of the Third Reich.

What we are trying to reclaim is a different tradition, that associated with a 19th century radical liberalism of Eugen Richter, the leading opponent of Bismarck. This tradition is proper foil to national socialism. It heralds decentralized government, individual liberty, enterprise, and the free development of culture and society. To resurface this tradition, and propagate this among every strata of German society, is a huge task, but one we are completely committed to advancing at every level.