German writer and literary critic Goethe
Watsky he was actually from Berlin and
in the Year 1931 he wrote the people
understand most things wrong but they
feel most things correctly and I think
many of us today ask how is it possible
that 61 million Americans have voted for
a president donald trump who polarizes
society who has been openly against
immigration and against immigrants and
been very negative what’s women how come
11 million French people actually have
voted for a party and a candidate who is
very center for big against foreigners
how come the majority of British
citizens had actually decided that they
want to leave the European Union and you
can go on and on and on in most Western
countries we ask ourselves including in
Germany how come so many people are
politically dissatisfied and vote for
extreme parties or don’t vote at all
what is really behind it what do they
really perceive what are the facts that
they may get wrong or maybe others
people gets wrong or in particular what
do they feel before I get to that
question my concern is that we live in a
very unusual time where which I would
describe as a time of the three piece of
populism of protectionism and of
paralysis so lack of change lack of
reform lack of adjustment particular on
behalf of politicians and political
parties and populism is not really
something for or against specific issues
it’s about polarizing it’s being against
something and it’s about being exposing
other people and trying to say we are
different
it’s against immigration it’s often
against women it’s often against
minorities it’s often against weaker
people poor people people who are
different from us
and we see that in every walk of life we
see that it comes with a very strong
nationalism that we see in countries
people blaming foreigners blaming the
euro blaming Europe blaming the US or
Asia or China for their own own mistakes
that they commit domestically it’s
against other people and we see the
second element protectionism this
populism of course is closely linked to
that that means we have to look out for
ourselves and we have to close our
borders we have to kind of separate
ourselves from others and it’s in every
area of our life in also of our economic
life in terms of trade in terms of
financial markets and capital and also
people moving across borders and it’s
about paralysis that what we see in our
time is that even though there is a lot
of wealth and a lot of welfare there’s
really a lack of reform there’s really
paralysis in many political systems of
the West that they’re not able to cope
with this populism and the protectionism
to really ask what can we do the big
miracle and I’m coming back to the quote
of two hearts keys we have an incredible
amount of welfare and wealth in our
societies never before in history have
so many people have such a high life
expectancy such a high life standard of
living and at the same time if you ask
people so how do you feel about society
more than half and in some cases like
Germany like the u.s. seventy percent of
the people tell you we feel that social
inequality in our countries is too high
so how come that on the one hand they’re
doing incredibly well have jobs have
have income health something that our
parents grandparents great-grandparents
never had at the same time say we feel
social inequalities to hide we don’t
feel satisfied with how our society
functions and oftentimes the elites say
well you know they just understand
things wrong they just get the facts
wrong we just you know they’re
manipulated by people by politicians
even by academics but are they really
wrong and if you look at the facts we
see a very different picture 40% of
workers in countries like the United
States or Germany
today have lower real wages than they
had 20 years ago so they have a lower
purchasing power with what they can do
40% of Americans 40% of Germans and in
many other countries of the West as well
had no savings have nothing when their
children need something we want to
participate in a school trip when they
need a new fridge
they’d have no money to spend on it when
they come to old age and they retire
they have nothing to rely on except in
some cases some social transfers so 40%
basically are highly dependent on others
on the state to provide for them we see
that poverty rates and many Western
countries have increased and we see that
a lot of people feel very insecure and
this ideal that many of us have and our
parents and grandparents was always
everywhere in the West we wanted our
children are better off than we are
today we want to make a better life for
our children and grandchildren many
people today realize that no longer
works because more and more people on a
typical employment or no employment at
all even if they find jobs that work to
very low wages which are far too low to
make a living so they need additional
money from the government or cannot
provide for old age they have precarious
job arrangements so they can lose their
job any moment any time very quickly if
the employer decides so so we see also
there that people are worried about
their future about their jobs what will
become of my job my opportunity to
create my own life take responsibility
in my own hand so if we look at the
facts the people are actually not that
wrong because social inequality has
increased tremendously now you can say
so what and from many perspectives some
people say look that’s how a market
economy works it creates winners and
losers is that fair
well you know every one of us has a
different understanding of what is fair
or just or unjust I as an economist I’m
interested in the cost and the economic
cost and the objective cost how that
influences many dimensions economic
political and social and he’s seen many
academic studies showing now that
higher inequality within a society
creates less economic growth less
welfare less the pool of something that
can then be distributed so it makes a
lot of people all people worse off we
see it in many other areas people with
low income have a substantially worse
health than people with a high income
three times higher is the probability of
men dying before the age of 65 if they
have a low income compared to when they
have a high income we see it in terms of
poverty rates and poverty in the Western
world is not in most countries at least
that they don’t have housing or food on
health care it’s about social
participation they have such low income
that they cannot participate in
activities going here to an event like
this going to the movie theater saying
that the children on school trips or
doing things that people do among
themselves to be part of society so this
poverty rate has increased substantially
and the social participation has
decreased and it has a very high
political cost then people who have low
income rarely go to votes and if they go
to vote they vote for extreme parties
because that is satisfied and they
really want something different so it’s
also a threat to a functional democracy
so in all areas we see inequality that
we have today has massive cost economic
cost social cost and a political cost so
the big question is so what what what do
we do about it
what what actually can we do and for
that we first of all need to understand
what’s really behind it what’s causing
that inequality and many people argue
well you know it’s it’s a functioning
market economy and as I said before
that’s kind of the ideal view in
particular of economists who say we have
a great market economy it creates a lot
of welfare and yes you have losers and
you have winners and that’s just how it
is but my key argument is when you look
at the facts the key driver behind that
is not globalization it’s not that
markets are functioning so great that
the single most important factor behind
it is the lack of equality of
opportunity very few or many people
today invest in societies don’t have the
to develop their own skills and talents
to bring them into society in the labor
market often times in early age early
childhood education is so poor for many
that at the age of five and six they
lack the necessary skills to really
enter school and take them and benefit
from that so often not often omits from
very early on children don’t have the
same opportunities to access education
develop the talents and abilities and we
see that also in terms of the outcome we
see that people who are born in families
with low income and low education don’t
have a chance to really get where I have
a much worse chances to get a good
education good ability to enter the
labor market and get a good job get good
income and really make something out of
their life so more than half of every
young person’s income today is
determined by two factors by the
education level and the income of their
parents so it’s highly dependent on what
family you are born in what determines
your change your chance your destiny at
least in economic terms in life so we
have low very low mobility across
generations but we also have very low
mobility within generations so people
who are poor and we have a low income
have low skills and have therefore when
they’re young a relatively poor job they
have much harder today to really move up
have a better job have a better income
then they had twenty or thirty or forty
years ago so even there the mobility
does not depend entirely on your skills
on you effort on you will what you want
to make out of your life but very much
in what situation you are so have cross
generations you have within generations
but you also have a huge inequality in
rising inequality in some instances
across groups within society and one
very obvious case is the difference
between men and women in Western
societies the gender pay gap is on
average 21 percent which means for every
one euro a man earns per hour the woman
earns 79 cents
and it’s not because women have lower
education because they don’t women have
a higher probability of getting a
high-school degree they have a higher
probability of going to university they
usually do this in a shorter time period
with a better grade with a lower dropout
rate but it means comforted when it
comes to the labour market they faced
huge discrimination because the state
does not provide for instance childcare
facilities where the children can can be
or which can really help families in
particular women mothers to cope you
have this huge discrimination in the
labor market that women often face a
glass ceiling say I want to have a
career but the very male-dominated
management often makes it impossible so
we see it in all dimensions and groups
across groups in society that some
people a lot of people I’m not talking
about minorities I’m talking about major
artis don’t have the same opportunities
the same equal opportunities at others
and that’s a single most important
driving factor behind that inequality
that we see so some people are able to
benefit from technological change
some people are able to benefit from
globalization others are not there to me
is the key factor now what do we do
about it and you have two camps on the
politically right and politically left
people say yes we recognize inequality
is a problem it has a cost for society
and therefore we need to increase the
welfare state we need to redistribute
more through transfers and services you
have the political people more around
the middle the Liberals in others who
say no inequality is not a problem
because it’s the outcome of functioning
market economy and therefore we don’t
need more transfers or bigger welfare
states well I think they’re both wrong
because if the key driver is a lack of
equality of opportunity you will not
solve that with the bigger welfare
states with the higher transfer payments
you create you solve it by creating
opportunities and giving everyone the
same opportunities to access to develop
their own skills and talents to get
access to the labour market get the
goods good job the safe job where they
can develop and where they can take
three decisions so the big promise and
coming
back to the quote of to howl its key so
what do people feel people feel the
social contract is no longer valid and
for much of the Western world our social
contract has to do with the social
market economy so the idea you have a
functioning market economy and at the
same time you have a social welfare
state and that promise of a social
market economy has been broken that
contract is dysfunctional on the one
hand because we don’t have a functioning
market economy because people don’t have
the same opportunities and if you look
at issues like the Paradise Papers where
some companies some individuals
purposefully get advantages and
basically skirt the rules to take
personal advantage you cannot really
talk about a functioning market economy
you cannot talk about functioning coming
when some people don’t have the ability
to really compete because they cannot
use their skills or because they don’t
have the same voice in the labor market
and we don’t have really a functioning
social welfare state because it fails to
provide people with those opportunities
and there is a fundamental
misunderstanding that many people feel a
welfare state is there to compensate the
losers from globalization in a
functioning market economy and that’s a
fundamental misunderstanding the idea of
the social market economy that is social
welfare state is there to enable to
empower people to make them able to take
free decisions to live in
self-determined life to be autonomous to
decide what do I want to do with my life
and that of my family and to address
that I see the key challenge to create
those equality of opportunity through a
better education system that focuses in
early childhood education in particular
for families who cannot do the same at
home because both parents have to work
or they don’t have the money we need to
provide for for the children the same
educational standards for for Richard
kids it has it with family policies in
particular to empower women and other
groups in society who don’t have the
same opportunities it’s about a fair
taxation a fair market economy where
everyone has the same ability in the
same chances to compete and it has to do
altum Utley also missed creating a labor
market where people can work
and have a future can determine their
future and provide for old age so in
short I think the social market economy
is really the answer to the challenges
we have today in terms of social
inequality but for that we need to make
it work again and that can only be by
creating opportunities so that people
can attend again take choices have
choices are free and autonomous does it
deliver self-determining life and that’s
the objective and thereby I thank you
very much for your attention thank you [Applause]