There is significant popular agression on the re-elected German chancellor Gerhard Schroder in his country and international political arena because of unemployment, low growth rate & high taxation problems. Being the chancellor of Germany, a country characterized by its conservastist welfare regime, Schroder is in a very hard situation. To explain his and Social Democrats’ situation, let us briefly look at the followed social policies of Germany until the post-war period.

The principles set by Keynes, such as full employment and the state’s social role were to be strictly followed by Germany in the post-war era. Those times were the times in which Germany was called a “social insurance state” and emphasis on family and other communal groups in delivering social services were very high. And the basic principle was “securing one’s achieved life standartd in case of old age, unemployment and sickness”. This was financed through equal contributions from employers and employees rather than general taxation.

Germany in 70’s, followed these policies in spite of the trendy critiques for the “Keynesian welfare state” We see a decrease in social spending prior to unification process, a trend to increase after unification and than a decrease up until today, generally.

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After Schroder came back to office in September 22nd, “today half of the people who voted for him wish they hadn’t. Were the election held again, the opposition Christian Democrats would get 50 percent of the vote, the Social Democrats 28. ” says Stefan Theil from Newsweek International. One of the reason behind this is after promising not to raise taxes in his campaign before the elections, Social Democrats had raised taxes on citizens and business. So called “job killing” labor regulations not only had not been revised but also new laws were passed that will likely destroy more jobs than they create by Schroder. What more has to happen before the government announces a fundamental reform instead of just another tax increase? ” asks Helmut Panke, CEO of Munich based carmaker BMW.

Firms are constrained to strict rules limiting part time and temporary employees by Schroder government. They must pay additional 21% of wages to government to finanace social security benefis. Slowing economic growth and thus rising unmployment rate leads to a collapse of tax revenues and enormous increase in welfare spending. This creates gaps in budgets in federal and local level as well as in public-health and pension funds. The way that government tries to solve this problem is a mix of tax rises, spending cuts, increased welfare contributions and new borrowing, which are not the permanent remedies for Germany’s illnesses.

The commisson on healt and pension reform was created by the government to solve the problems on this “welfare state crysis” to satisfy the complaints about its lack of commitment to radical structural reform on this issue. The new body is to be chaired by Bret Rurup, one of Schroder’s five wise men. This instance shows us that Schroder is aware of the problem and accepts the problem. The government is rushing through emergency measures to shore up the health system’s finances, including a freeze in hospital budgets and doctors’ fees and and cuts in medicine prices. But he is then will be trying to face up the powerful lobbies in the medical profession to push up long term reforms.

Some writers like John B. Judis, argue that Schroder’s problems stem from his initial indecision. After he came to office in the beginning, he planned to increase taxes on corporations, then proposed cutting social spending. These made business and labor mad, succesively. So lost support from both sides. Then he chosed a “Third Way strategy” put in use by Clinton and Blair.

In the summer of 1999, he signed a joint decleration with Tony Blair, and committed his government a Third Way strategy, which he calls “neue Mitte” (new center). But what he missed was the Third Way was purely Anglo- American suitable strategy. It was a product of Reagan-Thatcher reforms of the 1980’s. Conservatism in these countries, has transformed the domestic political and economic landscape. So the New Centrism trying to reconcile market economics with liberal ideals has been succesful. But Germany is not prepared politicly, economicly and psychologicly even for the mild reforms of Schroder.

In spite of the critiques about Schroder, former Christian Democrat chancellor Helmut Kohl had done the same thing and cut social spandigs after the integration of the East Germany to German social system. So one can think that the changes in Germany’s social policies are cauced by something else being related to governing figures. The ideal standards of the Keynesian welfare state has never been achieved even in the golden era of post-war capitalism. State social policy in Germany is becoming less aimed at securing the living standarts of former wage earners and increasingly oriented towards meeting the needs of families, which is another important aspect of social state.

If we look more further back in history, one can say that the breakdown of German economy can be traced after to the postwar economic success. During 70’s Germany was the most productive nation in the world, and had a 0.9% of unemployment rate. 90’s were the era of workers’making higher wages, working fewer hours and enjoying many social benefits for Germany. But the unemployment rate had rised up to 8%. Some can say that unification is responsible for the growing unemployment rate, but this partly true because it averaged more than 9% between 1982 and 1987 in West Germany. Between 1991 and 1998, Germany lost 2.6 million jobs whereas US created 13 million. The rate of employeable citizens’ rate has also declined in Germany compared to US and other European countries.

So what is the reason behind the transformation of German economy and social state? There are different explanations for this:

Institutional analysis had focused on political institutions and veto players, federalism and bicameral parliamentary system or public survey datas but both show a high support for the welfare state.

Structural explanations were also made for the decrease in the transformation of social policy understanding of Germany. Ageing society, the process of Europen integration or globalization might be the causes for policy change as well as the increased power of capital. But capital, which seems to be more responsible, may not be responsible for the policy change for families. But the reasons above might have effected policy change by contibuting instabilities in instutional equlibrium.

Some constructivists say that whether new ideas are politicly successful or not depends on their acception or rejections by political elites so they are some kind of causal beliefs. So the analysis of political disourse may be the manipulations of party spokespersons.

Globalisation was perceived by Social Democrats in 70’s as a challenge for the domestic economies, so they were protectionalists. But today globalisation and gaining a advantegeous place in world economic system is seen necessary. So the social security system is o be seen as reducing international competitiveness.

The policy change can be evaluated by using previous normative and institutional settings rather than economic performance and ideological prefeences as baseline. The transformation is a result of many incremental changes accumulated past over passing years.


* Newsweek International, Dec 9, 2002 , The Angry Republic, Stefan Theil

* The Economist (US), Nov 16, 2002, Gerhard Schroder’s Rocky New Start; German Politics

* The New Repuclic, Nov 29, 1999, Germany Dispatch: Middle of Nowhere, Jonh B. Judis

* West European Politics, Oct 2002, A dual transformation of the German welfare state?, Martin Seeleib-Kaiser


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