Main German Government Party considers Basic Income as alternative to social welfare

Disillusionment with the current welfare regime in Germany is real and growing. Interestingly, the solution being proposed by a growing bloc of Christian Democrats (Angela Merkel's party and major part of the current German Government Coalition) is that Germany should move to a Basic Income system. The group within the Christian Democrats proposing this move are led by Dieter Althaus, former premier of the German state of Thuringia. This recent article in City Journal tells an interesting story.

The full text is reproduced below.

A Basic Income for All?

by Cameron Abadi
German free marketeers turn to an innovative idea.
City Journal Spring 2010
Europeans may find it impossible to imagine dismantling their welfare states, but they are increasingly confronting the possibility that a shake-up is overdue. For some countries, like Greece and Spain, fiscal woes are forcing the issue. In Germany, by contrast, the problem is less urgent but more profound. There, the welfare state is undergoing a crisis not of liquidity but of legitimacy.

Germans are attached to a social system that provides for the indigent, but they’re increasingly confounded by its scope. When the country wove its substantial safety net, most Germans assumed that reliance on it would be unusual. That assumption has lost its credibility over the last several decades, as high rates of unemployment have persisted. And so, where the welfare state was meant to foster societal cohesion, it has led to a hardening of social divisions; resentment simmers among the middle classes, while the disaffected cultivate a defensive attitude. Everyone agrees that a bargain has been broken, but no one knows quite where the violation has taken place.

In January, Germany’s high court initiated the latest round of finger-pointing, declaring that the nation’s standardized levels of unemployment assistance were calculated in a way that violated recipients’ constitutional right to “dignity”—basically, that the assistance wasn’t generous enough. The head of the free-market Liberal Party countered that any suggestion that the unemployed receive still more money threatened to sink Germany into an era of “late Roman decadence.” And so on.

Only a few policymakers and intellectuals, mostly conservatives, have separated themselves from the rhetorical scuffles to offer a genuine systematic critique. The upshot of their analysis comes as a surprise to many Germans—as it would, no doubt, to many Americans. According to a growing bloc of Christian Democrats—under the leadership of Dieter Althaus, former premier of the German state of Thuringia—the problem isn’t that the state is providing insufficient incentives to work, but rather that the state is enforcing a duty to work at all. The only way that Germany can honor people’s right to material dignity while freeing the labor market of distortions, they argue, is by means of bedingungsloses Grundeinkommen, or unconditional basic income: a single monthly payment, pegged to levels currently received by the unemployed, guaranteed to every citizen from cradle to grave.

Basic income isn’t a new concept. It’s been debated among scholars and policymakers in a number of Western countries since the 1970s and has even found fertile ground in the United States. It’s a close relation of Milton Friedman’s idea of a negative income tax, and it made it onto President Richard Nixon’s agenda under the portfolio of his advisor Daniel Patrick Moynihan. Its most recent American advocate has been Charles Murray. In his book In Our Hands, Murray suggests that America dispose with unemployment insurance, Medicare, and Social Security, replacing them with a yearly $10,000 grant paid to every adult.

German advocates of such an approach say that the move would save the state money. After all, there would be no bureaucracy to support, no red tape to manage, and no social workers to supervise. Of course, it would also demand a radical realignment of the German economy’s moral guideposts. The current understanding is that there’s no such thing as a free lunch. The unemployed receive assistance, but only on the condition that they actively seek work. People on the dole have to show up at “job centers,” where they can be ordered to appear at interviews or asked to furnish proof that they’ve sent out a given number of job applications. If a German isn’t currently employed, the state assumes the duty to train him for a job, or at least cajole him into finding one.

But the proponents of guaranteed basic income point out that this system is crippled by moral hazard. There are so many exceptions to the duty to pursue work, and so few examples of real sanctions for not doing so, that nobody will be allowed to suffer hunger or homelessness on the state’s watch. More fundamentally, basic-income advocates argue that the duty to pursue work is based on the mistaken assumption that there’s work to be had. A growing number of economists suggest that Germany reconcile itself to the fact that in the postindustrial age, the country will provide ever fewer opportunities for low-skilled workers. In this context, policies in pursuit of full employment make no sense; indeed, the demands currently made on the out-of-work are nothing less than perverse. If the long-term unemployed have no meaningful chance to advance a career, what purpose does it serve for the state to monitor and control their activities?

Furthermore, the advocates of basic income say, the contemporary mind-set has allotted to salaried work an exaggerated role in shaping personal identity. Basic income would allow Germans to combine different avenues of part-time work or pursue types of labor that aren’t normally honored with pay, such as caring for the elderly. (This is an important difference between Murray’s concept and the German one: Murray sees his yearly $10,000 grant as a spur to work; the German variation pivots on the belief that many Germans ought to be taking up pursuits outside the classic economic framework.) Also, basic income would encourage citizens to think more like entrepreneurs in pursuing work and allow unfettered labor markets to regain control over wages. It’s no surprise that Germany’s powerful national unions—and their traditional allies in the Social Democratic Party—have argued vociferously against the idea.

For now, it all seems little more than a thought experiment. Chancellor Angela Merkel, head of the Christian Democrats, seems inclined to raise the rates of handouts in response to the recent high-court decision, rather than consider more wholesale change. But disillusionment with the current welfare regime is real and mounting. If Merkel wants to understand German frustrations, she should pay careful attention to what the mavericks in her own party have to say. And she should do so soon: it’s not clear how much longer the center will hold.

Cameron Abadi is the Germany correspondent for GlobalPost.