Agenda 2010: Redefining German Social Democracy

Article excerpt

In March 2003, Social Democratic Chancellor Gerhard Schroder announced a series of reforms that his government plans to undertake in order to deal with Germany's pressing economic problems. These reform proposals, known as Agenda 2010, include cutting unemployment benefits, making it easier to hire and fire workers, reducing health insurance coverage, and raising the retirement age. The reforms mark a change in the direction of the German Social Democratic Party's (SPD) economic policy. Rather than promoting traditional social democratic values such as collective responsibility, workers' rights, and the expansion of state benefits, Schroder declared that "We will have to curtail the work of the state, encourage more individual responsibility, and require greater individual performance from each person. Every group in the society will have to contribute its share." (1) Despite opposition to these reforms by labor unions and leftist members of the party, Agenda 2010 was approved by nearly 90 percent of SPD party delegates at a special party conference in June 2003. (2) Several of the reforms, including health care and job protection reforms, were passed by the legislature at the end of 2003 and took effect on 1 January 2004.

Agenda 2010 is significant because it redefines both the substance and process of SPD policy making. It reflects a willingness by the SPD to break with labor unions and other organized interests in the society in order to deal with the problem of unemployment. Schroder advocated such reforms during the 1998 campaign, but this is the first time he has provided a more comprehensive reform program. While the program represents only a small step toward economic reform in the country, it signals a more fundamental shift in the party.

Schroder's willingness and ability to move forward with market liberalization and social welfare reforms are surprising for a number of reasons. Germany's model of consensus policy making complicates the passage of major reforms because of the institutionalized role of organized interests in the policy-making process. (3) Reform is further impeded by Germany's federal structure and its two legislative houses, which are currently governed by different party majorities. The SPD itself is fractionalized between members of the old Left, who support more traditional demand-management policies, and supply-side economic reformers. Overcoming these divisions is difficult because the chancellor has limited control over the party organization. (4)

But like other European leftist parties, the SPD faces a number of economic challenges that are forcing it to shift away from its traditional policies and to reform the German economic system and welfare state. (5) Increased global competition in product markets and the liberalization of capital markets are making it more difficult to pursue traditional demand-management and social welfare policies without risking capital flight. These economic pressures are forcing governments to cut non-wage costs and taxes in order to create a climate that is more conducive to business investment. Moreover, demographic changes and increasing unemployment, coupled with the deficit limits imposed by the European Union's Stability and Growth Pact, are making European welfare states unsustainable. Under the Stability and Growth Pact, countries agreed not to exceed a deficit in any one year of more than 3 percent of their gross domestic product (GDP). Countries that exceed these limits can be fined 0.5 percent of their GDP by the European Commission. This limits the ability of governments to use spending to stimulate growth and employment. Germany, which has already breached the deficit limits during the past two years, faces particular difficulties because of the high costs of unification. (6) While European governments, such as the German SPD/Green coalition, still have other policy options to deal with unemployment and low growth, these economic and social changes have limited their policy space. …