August 15, 2005

A new brand of populism surfaces in Germany

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Dublin in the summer of 1905 felt like a very British city. Yes, you were in Ireland, but British rule in Ireland, and particularly Dublin, would have felt very secure.

Had anyone suggested that, within little more than a decade, there would be a bloody rising, leading to a war of independence and culminating in the Free State, you would probably have laughed off their forecast as the deluded dream of extreme nationalists.

In the summer of 2005, anyone suggesting that Europe in general, and Germany in particular, might revisit the path that led to the rise of Hitler, could be similarly dismissed. Yet, on closer inspection, remarkable trends have emerged in Europe over the past few months which indicate that populism could resurface quite easily.

In France and the Netherlands, the No votes to the European constitution were a warning, but the recent political developments in Germany – where a populist protest party formed three weeks ago is registering 12 per cent at the polls – are much more telling.

Germany votes on September 16.Until a few weeks ago, it was expected that this would result in either the centre-right or the centre-left winning, but from nowhere, a party with the loose description of Der Linkspar, or Left Party, has elbowed its way into the reckoning.

The Linkspar is the brainchild of the former leader of the East German communist party, Gregor Gysi, and the former firebrand of the Social Democrat Party, Oskar Lafontaine. Both are eloquent orators and are using ordinary Germans’ main fears – unemployment and foreigners – to galvanise voters.

Neither man has a clear agenda, but their platform is a hodge-podge of issues designed to push plenty of old-fashioned populist buttons.

All the usual suspects are in the mix, from the far-left favourite of higher taxes on business, to the far-right gem of blaming foreigners for stealing German jobs one day, to banning foreign speculators from taking over German companies the next. Last week, it was a defence of Iran’s right to develop nuclear weapons against the US/Israeli alliance in the Middle East, and an adoption of the slogans of the anti-globalisation movements.

Despite the strong impression that the Linkspartie is making it up as it goes along, Europe’s most educated electorate is responding. Why?

An unexpected place to start explaining why Germans would support a mix of protectionism at home and anti-Americanism abroad is China. China is changing the economic landscape for everyone, but it is threatening Germany more than any other country in Europe.

The reason is that Germany is the world’s pre-eminent exporter of manufactured goods.

Despite years of high costs, Germany has managed to retain its dominance across a variety of areas. This means Germany has much to lose from China’s emergence as the workshop of the world.

But, unlike the US, which has an enormous trade and current account deficit that prompts regular China-bashing from political and corporate leaders, Germany’s trade account is in enormous surplus, so the threat from China is not well signposted or understood.

This opacity is the nub of Germany’s problem, even though China’s threat to Germany is being felt in the more politically sensitive arena of unemployment.

In contrast, the US feels Chinese competition in the virtual world of current account deficits and currency fluctuations, which may send regular readers of the Financial Times into delirium, but does not determine elections.

Unemployment, on the other hand � particularly if it stands at over five million voters as it does in Germany – affects the very soul of the nation.

But why does China have a more significant impact on German unemployment than it does on American joblessness? And why does that lead to anti-American, rather than anti-Chinese political sentiment in Germany?

This is the conundrum. German jobs do not necessarily get exported to China directly. The mechanism is more circuitous. Due to the opportunities that globalisation gives to transnational corporations, every time they make corporate decisions, they are factoring the cost in China into their calculations.

It is impossible for any civilised society to compete with Chinese rates of pay that start at 50 cent an hour, so the German worker is priced out of the manufacturing market for new jobs.

But those in existing jobs are protected by strong labour laws so, in the short term, it is those without jobs (the unemployed and young workers trying to come into the labour force for the first time) who suffer twice as much.

The reason this same process has not led to a rise in American unemployment is that the US has replaced manufacturing jobs with service jobs, and its service economy is driven by its credit bubble, which has been fuelled, as in Ireland, by its housing boom.

In Germany, there is no housing boom. In fact, house prices have hardly budged for ten years. Without a housing boom, you get no credit bubble; with no credit bubble, there is no consumer spending; without consumer spending, there are no service jobs; and with fewer jobs, a country will never have political consensus.

So far, so explicable, but why has German political anger that results from the economic conundrum been directed at America, rather than China?

There are many reasons for this. Possibly because China is remote, it is difficult to articulate what form anti-Chinese protests might take. Another possibility is that those who respond to the Linkspart’s anti-American rhetoric can’t actually see the full picture. It is also possible that anti-globalisation, because it is primarily a vehicle for anti-Americanism, offers a readymade cocktail of easily-recognised villains, which might be confused if the Chinese were thrown in.

My own hunch is that being anti-American is simply easier.

The leaders of the Linkspar are part of the long continental leftist tradition of anti-Americanism. Whatever the reasons, the Linkspar is tapping into German fears that the world is changing too rapidly and that this change is threatening their country.

It is easy to see why the cosmopolitan elite of the political and corporate world does not fear this threat, for it is benefiting from it.

But in Germany, France, Italy and Holland, the man on the street is worried. If your livelihood were to be outsourced to Beijing, wouldn’t you feel the same way?

The election in Germany should be examined closely to see what happens when a nation feels economically threatened. Not for the first time, Germany is being hypnotised by populists with listenable and potent rhetoric.


  1. Aidan

    A very thought provoking article. The fact that you
    started your article with a reference to Dublin in 1905 is
    interesting and mirrors another article I was reading.
    Niall Ferguson a Cambridge historian has written an
    article “Sinking Globalisation” about how the current
    period we are now in bears striking resemblances to the
    period leading up to the first World War. That period was
    also a period of globalisation, immigration and increasing
    international trade. It was a period of great optimism
    where no great wars had been fought for a long time. He is
    warning that globalisation is very fragile and may easily
    be reversed if powerful countries feel that they are
    losing out economically. The First World War ended the
    first period of globalisation and he is warning that the
    same thing could happen again.
    However I disagree with your analysis that Germany
    has the most to lose from globalisation and Chinese
    manufacturing. I think that Germany has been remarkably
    successful in maintaining its strong industrial base in
    this new era of globalisation. Germany doesn’t really
    compete with Chinese manufactured goods because Germany
    mainly exports industrial equipment and machinery. I think
    that Germany in fact entered this new era in 1990 with the
    fall of communism and it had to cope with reintegrating
    the much poorer East Germany which has now been
    accomplished. The Linkspar is merely an echo from the the
    old East Germany. However there are other countries most
    notably the anglo saxon countries which have “yet” to deal
    with this new era and whose economies have not “yet”
    noticed the effect that China and the former soviet
    countries will have on the global economy. These countries
    havn’t noticed the new era “yet” because as you have
    pointed out they have had their own little side show
    going on which has insulated them from Chinese competition.
    “The reason this same process has not led to a rise in
    American unemployment is that the US has replaced
    manufacturing jobs with service jobs, and its service
    economy is driven by its credit bubble, which has been
    fuelled, as in Ireland, by its housing boom.”
    However when this ends then the real trouble will start,
    the US/British/Irish worker will then realise the full
    effect of China and how much ground has been lost. So I
    don’t see much trouble coming from Germany but more likely
    closer to home. As an aside if you wander down Grafton
    street or Temple bar, Dublin in 2005 also feels like a
    very British city.

  2. Sean

    Dublin wasn’t exactly built by the Gael ;)

    Neo-nazis have been active in Germnay in the past 15 years
    at least. Auslander Aus was a favourite slogan chant.

    America is expanding its free trade agreements with Central
    America, I don’t think that the decisions that the US
    government makes are based upon the idea of providing jobs
    for the American people. Most of the decisions that that
    government has made were more benefitial to the
    corporations, and thus the shareholders. The wonders of the
    MBA mentality ;)

  3. Pearse

    I think you are being a bit unfair to die Linke (official
    name for die Linkspartei.PDS). I agree that their policies
    don’t make much sense, but I wouldn’t call the anti
    American.

    I think most Germans, including potential voters of die
    Linke, are aware that the real threat to their jobs comes
    from cheaper labour to the east, be that eastern Europe or
    Asia. The fear to the west isn’t really anti Americanism
    but rather what you might call anti “anglo-saxon
    capitalism”. There has been a lot of publicity here about
    US or UK hedge funds buying out companies, firing a large
    percentage of the workforce to improve the balance sheet
    and then selling the company within a very short time frame
    for a handsome profit.

    For west Germans, this goes against the German version of
    capitalism, which promoted corporate social responsibility.
    German capitalism also was often managed a bit like a
    cartel, and as long as the jobs were secure, this didn’t
    bother anyone too much. For East Germans, well this whole
    capitalism thing is pretty new, and the experiences up
    until now havn’t been particularly good. Since 1991, huge
    numbers of traditional manufacturing jobs in the East have
    disappeared since the factories were suddenly forced to pay
    West German wages, but the productivity was still on a par
    with Poland. In many east German towns, there are
    demolition programs to knock down appartment blocks that no
    one wants to live in any more. And since the populations of
    these towns are decreasing, no new appartments are being
    built in their place.

    As an aside, I think the main reasons for the lack of a
    housing boom are the banks and the rental laws.
    Traditionally banks have demanded that the borrower put up
    at least 20% of the price of a property in order to get a
    mortgage. This is prohibitivly expensive for most. Secondly
    the rental laws are such that many tenants feel secure in
    rental properties. Couple this to the fact that the Germans
    are quite risk adverse (I know it’s a generalisation, but
    IMHO it holds true) and you’ve got a predominantly renting
    population. Home ownership here is at about 43%. This is
    changing slowly as the deposit required is decreasing, and
    as US investment firms are buying up whole appartment
    blocks. One of the few legal ways of raising the rent
    beyond inflation is to renovate an appartment block, thus
    raising the value of the appartments. If the old tennant
    can not afford to pay the raised rent and moves out, then
    new tennants can be charged whatever the landlord likes.

    Returning to die Linke. They are largely comprised of PDS
    members – the decendants of the East German communist party
    SED. They merged with a group called WASG (voters alliance
    for social justice), who protested against labour and dole
    reforms last summer. Their main figure is Oscar Lafontaine.
    He was Chancellor Schroeder’s right hand man when the
    socialist/green coalition ousted Helmut Kohl and first took
    power in 1998. He mysteriously resigned from the cabinet
    within a couple of months. It was believed that the cabinet
    wasn’t left wing enough for him. He’s spent the last couple
    of years appearing on German political TV shows,
    criticising the government and big business for their lack
    of social justice, and receiving handsome appearance fees
    for his work.

    The polls currently give die Linke 9%. They’ve been
    dropping support regularly since their inception. This is
    partially due to the pounding they get from much of the
    media. Almost everyone knows that their policies can’t be
    financed, but many will vote for them anyway as a form of
    protest against all the established parties. Prior to this,
    the ex communists always managed to do reasonably well in
    the east, but nationally they never got above the required
    5% to take their seats in the German parliament. The merger
    with the WASG, and the high profile Lafontaine, has changed
    this.

    Now that the Linke will surely pass the 5% threshold and
    take their seats in the parliament, the opposition
    Christian Democrats are getting worried. They were sure
    that they were going to win the election and form the next
    government with the help of the Liberal Party. Die Linke
    are threatening this majority. It is becoming more probable
    that the only possiblity after the election will be
    a “grand coalition” of the center right Christian Democrats
    with Chancelor Schroeder’s center left Socialists. In this
    case, Die Linke may be the largest opposition party in the
    parliament.

    There have been a few slightly dubious anti-foreigner
    statements from die Linke. However their policies and
    propaganda are largely 70′s style socialism. The real fear
    is that their populist agenda and position as leader of the
    opposition will increase the feeling of discontent within
    Germany. Utlimatly this will benefit the neo nazi parties,
    as they will surely capitalise on the general mood, and
    spread their version of populist politics. This will be a
    lot more dangerous that the current strain of populism from
    die Linke.

  4. John E. Kelleher

    Hi David,

    You mention that Die Linke are a new political party that
    have come out of nowhere in Germany. This is inaccurate.
    They are the old Communist party from the former GDR that
    formed after a shady amalgamation of the Russian zone’s
    SPD and the KPD in 1946 to form the German Socialist Unity
    party (SED), which was the party of the ruling regime
    until reunification in 1989. After reunification they
    renamed themselves SED-PDS, and in 1990 PDS (Party of
    German Socialists), basically a kind of Democratic Left
    or “reformed” communists to differentiate from the
    traditional German socialist party SPD, who are basically
    Social-Democrat. The Likspartei formed this year when they
    amalgamated with the WASG (Literally “The voter’s
    alternative for work and equality) who are disgruntled ex
    SPD members that are a kind of “Old Labour”. WASG formed
    in the western “old Germany” in 2004.

    PDS has always had around 20 per cent of the vote in
    Eastern “new” Germany, but never gained much ground in the
    old states of the Federal Republic. However, this
    amalgamation may be seen as a tactical move to gain more
    ground in the old Laender from traditional left wing
    voters disillusioned by the SPD’s “blairist” policies.
    However, I expect they may steal more ground from the
    Greens than from the SPD, as many disillusioned SPD voters
    that are more centrist may shift to the Christian
    Democrats (CDU/CSU) or the Liberals (FDP). I suspect the
    next German Government will be more of a rainbow coalition
    with the usual policies rather than any new populistic
    majority. At least in the Federal Elections. However, they
    may do well in State, Municipal and European elections.

  5. david mc williams

    thanks for the above comments on Germany, its elections
    and different parties, is there a good source for up to
    date German news/commentary in English that any of you
    would recommend? thanks again, david

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