What Germany Needs

Germany needs new leaders; but more importantly potent ideologies.  

Germany is an exceptional case in analysing the impact of political ideology. German governments’ predominant political inclination has been shifting back and forth between socialist and conservative. Policy and party polarization between the leftist Social Democratic Party and the conservative Christian Democratic Party are believed to be disappearing.

A key feature in German politics is that government ideology has not exactly played a crucial role in German economic policy at the federal level. It is evident that left-wing governments have been negatively related to economic freedom in West German states. Alternatively, the right-wing governments have had a positive influence on economic freedom in West Germany.

Economic freedom across West German has been influenced by state governments’ ideology, more so, economic liberalisation in East German States. This somewhat contradicts the background of policy convergence at federal viewpoint.  A strong relationship has also emerged over time, among political preferences, economic freedom, and government ideology in Germany.       The variation in political preferences both within and across German states may have played a role in influencing policy convergence at federal level. The explanation behind this phenomenon is that politicians are both election-motivated and ideology-induced. As such, they provide a moderate ground to satisfy the whole German electorate.

Government ideology is not associated with East Germany’s economic freedom. First, economic reconstruction following the collapse of communism has been difficult. Parties could not be established on existing traditions in the former East German states. Second, East Germany suffered emigration of young and highly skilled citizens – meaning higher unemployment and hence low economic freedom. Third, Socialists have been electorally successfully compared to the Social Democrats e.g. the 2009 federal election in Berlin. Consequently, the ideological split between the South and East Germany is expected to persist.

Germany’s low economic growth in the mid-1990s, and many other indicators of performance can be explained through economic freedom and its elemental reasons. One factor is the high costs resulting from integration of formerly communist East German economy into Federal Republic since 1990’s reunification. Second is the increasing cost of Germany’s warfare programs, social security and associated regulations that may be eating into incentives for entrepreneurship and work. Lastly, the economy’s orientation towards exports rather than domestic consumption and investment. German governments are reluctant to advance economic reforms such as cut-backs in labour market protections and warfare programs.

Government ideology has, however, influenced the government budget constituents. The spending is in line with the preferences established by the governing parties’ constituencies. Particularly, market-oriented governments have, in overall, promoted economic privatization, liberalization, and product market deregulation. Also, advocates of market-oriented policies favour leveraging government expenditures on public investment including roads rather than income redistribution. Since the Laender governments possess limited authority in economic policing, German’s economic freedom indices need to be adjusted to institutional characteristics. Because the Laender are non-autonomous in setting tax rates, the limited authority in the face of fiscal policy primarily affects the state’s revenue. The significance of leaders in influencing the country’s policies has also been true, with political and economic aspects alike. Leaders influence their country’s foreign policy orientation, and leadership dynamics affect conflict, democratization, economic policy and outcomes. New political-economic ideologies are needed to reform the economy.

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