Loading summary
Transcript143 lines
- [00:00]
A
Foreign.
- [00:13]
B
Welcome to the long awaited Germany edition of Slate Money, which is normally your guide to the business and finance news of the week, but really now, this week we are just going to talk about Deutschland, which is one of my favorite favorite subjects. And we haven't, after five years of Slate Money, really talked about it much. So we have the one and only Adam Tooze.
- [00:36]
A
Hi.
- [00:37]
B
From Colombia, where you study.
- [00:41]
A
I teach European history and world history and I run the European Institute there.
- [00:45]
B
So. And. And you lived for 20 years in Heidelberg and Berlin.
- [00:49]
A
Yeah, on and off.
- [00:50]
B
Yeah, on and off. And you've been living. Oh, but let me also quickly introduce Emily Peck from the Huffington Post.
- [00:57]
C
Hello.
- [00:58]
B
Who? You've learned, like, two German words for this episode.
- [01:03]
C
Yes, And I wrote them down.
- [01:05]
B
And also Anna Shymansky, who, with a name like Szymansky, you have like a name like Shymanski. I'm Polish, but I mean, it's much the same country really, although I'm actually Polish and German. And you have. And you too have like a couple of German words.
- [01:19]
D
You can bring along ambition.
- [01:21]
B
We have. We have. I'm Kleiners Bisschen Deutschland, and we will talk about Germany with Adam Tooze. And Adam, you were just telling us before we started recording here that you were in Berlin, you were living in Berlin when the war came down in. What was that, 91?
- [01:40]
A
89.
- [01:40]
B
89.
- [01:41]
A
From the summer of 89.
- [01:43]
B
And so you were there for reunification.
- [01:47]
A
Yes.
- [01:47]
B
So, yeah. Before we get into the sort of myths versus realities of Germany, which I think is the core of where I want to talk about, but before we get into that, I think one of the things that almost no one in America understands is reunification and how big of a deal it was and what effect it had on Germany. And I feel it's really hard to understand Germany without understanding reunification, which was this sort of unprecedented thing. Has anything ever happened like it anywhere else ever?
- [02:18]
A
Well, the only real analogy, and it's kind of a painful one, is the Anschluss of Austria to the Third Reich in 1938, which was an analogy that the Germans themselves struggled to avoid.
- [02:28]
B
Yeah, they'll try not to talk about. So explain to me. Yeah. On a very sort of big picture level, you had two countries which shared a culture and a language, but definitely not an economy. There was this absolutely enormous economic gap, but between the two. The Ostmark, the German currency, was worth.
- [02:51]
A
Bupkis, but, well, like 4 to 1 or unofficially maybe on the black market, 9 to 1. And they exchanged it between 1 and 2 to 1 in the end.
- [03:00]
B
So it was a very expensive proposition for West Germany.
- [03:06]
A
Yeah, about 120 billion Deutschmarks a year over maybe 2 trillion old Deutsche marks altogether went into East Germany over the course of 15 years after unification. So that's about 1.2, 1.3 trillion euros. Huge expenditure from the West German side.
- [03:23]
C
What'd they spend the money on?
- [03:25]
A
Everything. I mean, it's a comprehensive refurb of East Germany. It's one of the really remarkable things if you come from the United States, North America, to see what's gone on there. East Germany looks like an East Asian emerging market. Infrastructure, beautiful railway stations, really transformative public spending. Rather less, unfortunately, in terms of private investment, manufacturing, new jobs, so a lot of public infrastructure.
- [03:51]
B
So what happened is they quite successfully, with the aid of a trillion dollars, managed to bring East Germany in the space of not that many years up to German standards of transportation and living. It's still poorer than the west, but not much poorer. Right?
- [04:10]
A
Exactly. Yeah. It's much like the difference between a poor and rich element of the United States. Not as crass though, as the gap between, say, connect Connecticut and Mississippi, but certainly a very remarkable level of homogeneity across the country.
- [04:26]
B
And then moving on to more like where we are at present. People think of Germany, I think if people think of Germany at all as still having this kind of east, west divide, which it has to a certain degree, but now it's much more in terms of the widening inequality, a north, south divide. Right.
- [04:41]
A
It's a combination of both, actually. If you actually ask the question, are there any rich Germans? One of the things that didn't happen in this post communist society societies, you didn't get any oligarchs. It isn't like a Russian situation or even a Slovakian or Hungarian situation. The wealth is entirely the top, you know, fraction over 1%. That kind of wealth is all in the west and it's mostly in the southwest. It's. And then in the north around Hamburg. So it's, you know, Germany is a very decentralized place. It's not like the Gold coast here. It doesn't concentrate in the same way. So Munich's a big pocket. Dusseldorf, Frankfurt, hamburger, huge pockets of wealth. Berlin is a poor capital. Right. It's the poorest capital in Europe. Capital city.
- [05:21]
B
Right. So let's. So, so let's talk a little bit about what Americans believe. You've lived in America for nine years and you taught you, you lived in Germany. People like, oh, you live in Germany and they have an idea about this economic powerhouse with this, this massive current account surplus and, and, and some kind of like socialist paradise or something is like, what's the general impression, do you think that like Americans have of, of Germany?
- [05:52]
A
Well, I'm not sure they do have a very clear view. I mean, one of the things you have to reckon with is just people are not very familiar with Germany. They know it's there, they know it matters. Historically, a lot of people have family ties, but it's not a popular tourist destination. It's not like it's not a place people fantasize about going to. Except maybe the, you know, the hipsters want to go to Berlin or bits of Berlin. So it's not a place that's commonly visited in the way that you'd expect. And as a result, I think people do have, you know, people underestimate the diversity of the place, the sheer scale. You know, it's the biggest European country and it really shows when you're there. It's, it's, it's, it's very different depending on whether you're in the north, east, west, south or whatever. So it's a really. And on the other hand, it has many of the same problems that, you know, any other modern capitalist society has. It's a society with huge inequality, as is the United States.
- [06:40]
B
So talk about the inequality a bit.
- [06:42]
D
And I was also just going to say I'm curious, not necessarily also just the inequality within Germany, but also Germany's place in Europe and how when we think of the United States position in the world, we have a very clear idea of what that is. But I think a lot of people in the US don't know a tremendous amount about Europe and certainly don't know a tremendous amount about Germany. And I think sometimes don't quite understand how Germany really fits into that picture.
- [07:04]
B
Is, is Germany like the European hegemon in much the way that like America was the global hegemon for all those years?
- [07:11]
A
I mean, things would be so much simpler if that were true. And obviously people who are in the business are simplifying populist politicians in various places who want to draw a kind of us and them story, tell that story about Germany. But it just doesn't stack up. Even if you look at the financial sides of things. All of the. When we say Germany pays for Europe's policies, it pays strictly pro rata on the basis of a GDP per capita calculation. So it pays about 27% of most EU policies. France pays about 20%, Italy pays about 18%. It's really like the. It's not even quite the majority shareholder. I'd say it has a large blocking shareholder group, if you like, in European policy. And it's in that position that it operates. It has the strongest credit rating. The Bund would be a safe asset if you know there was enough of it.
- [07:56]
D
But isn't this also one of the complexities you have in Germany, where on the one hand it's certainly true that a lot of the peripheral European countries have depended on the low interest rates that they've been able to receive because of Germany, because of Germany being in the EU and the strength of Germany. But then on the other hand, you also have Germany really benefiting from having an undervalued currency. And also during the European debt crisis, when Germany's economy is still doing fairly well, again, they benefited from a weaker euro.
- [08:30]
A
Yeah, no doubt. I mean, from the German exporter's point of view, being attached to some pretty dicky sovereign borrowers is a great bonus. And that was always part of the German strategy towards European monetary integration all the way back to the 70s. The last thing the Germans have ever wanted to be is the makers of a sovereign reserve currency because it puts you in the position of having an overvalued currency. So this really suits them from that point of view.
- [08:52]
B
And yet during the 2000s, the German economy kind of stagnated. Right. What was that about?
- [08:58]
A
Well, a combination of things. The after the kind of hangover from the reunification and the cost of reunification, the early 2000s recession hit the Germans really hard. They're an export dependent economy. So when the entire world economy slows down, they slow down too. And then on top of that, the countries that when they were going into the euro of course, were canny about the exchange rates they picked. And most of them, Portugal probably being the only exception, picked quite competitive exchange rates when they went in. So initially Germany was under serious pressure. Plus one has to distinguish Germany from Germany Inc. So German business was doing just fine in the early 2000s because it was able to bolt on Eastern Europe as a manufacturing center relocate. Production profits are doing just fine in the early 2000s. It's GDP growth and wage income, which.
- [09:46]
C
Is stagnating that really interested me when I was doing the reading for this episode because I didn't really know much about the German economy or I hadn't thought about it and maybe there are a lot of other Americans like me. I just thought, well, they do it better than us. Their people make decent money. So one thing that interested me was during this dark time or whatever. Lost decade. Thank you. I guess there were darker times.
- [10:17]
A
It's a pretty high.
- [10:20]
C
Was that. I read something that said labor is sort of very accommodating in Germany in that they for they went without raises for a long time. And the same thing again during the Great Recession 2008, where Germany didn't have increased unemployment because labor was like, just let us keep our jobs and just well, we'll go without a raise, it's okay. And that sort of surprised me because I thought labor was really strong in Germany. I don't know why I thought that. And well, they are, they are strong.
- [10:49]
D
It's just. Well, I mean, you know more than I do.
- [10:51]
A
I mean it's a, it's not a. Again, it's not, it's not Scandinavia. Right. This isn't a country with a 60% unionization rate.
- [10:57]
B
But it's still like 50, right?
- [10:59]
A
No, it's 17% unionization rate in Germany, down from mid-20s, 15 years ago.
- [11:04]
C
Yeah, that shocked me.
- [11:05]
A
So, and the way it works is however that Ige, Matal and Verdi, which are the kind of lead elephant trade union, one in metalworking, the other in the public sector, still do collective bargaining, which is then translated to the vast majority of workplaces in that sector. And then companies have the option to opt out of that. So really that story, it's not quite as simple as it seems. Because if you actually look at high skilled, high income, blue collar workers in Germany, they saw quite rapid income growth in line with productivity. What we really see is a segmentation in the German labor force which is as pronounced as anywhere in the world. So the OECD figures on say the Gini measure of inequality show the pre tax Gini in Germany rising faster than in any other country from the late 90s. And what compensates for that is the welfare state. So the welfare state works overtime to offset rapidly rising private inequality.
- [11:55]
B
So is that, I mean, is that a kind of weird ideal? I mean, I feel like this is the equivalent of like Harvard raising its rack rate and then giving everyone a scholarship that you, you embrace the inequality that naturally comes with economic health and then you redistribute. Does that work?
- [12:17]
A
No, I mean, in small, you know, in small, really compact, relatively ethnically homogeneous countries like Denmark, these kind of labor market deals have worked quite well. So Denmark has huge labor mobility. Everybody leaves jobs routinely because they know there's a huge amount of active labor market policy where you can get retrained, you never really drop out of the labor market. Germany is a much messier place than that. This is 80 million people. A lot of regional difference. No, a lot of the time this is a far from an ideal situation. The people at the bottom end of the German labor market have basically been uncoupled. And furthermore, it's a very increasingly ethnically diverse place. It's 25% people with migration backgrounds. Now in the most extended sense, in the younger COHORTS it's pushing 40%. So Germans, people living in Germany under the age of 5 are currently 40% either direct migrant or from migrant families. And those people are not well integr into the labor market, job training or education. And so that those dispersions in inequality, those are real. That's actually the emergence of new pockets of poverty across Germany. Real social exclusion and disadvantage in the sense that we know it. Not as extreme as in the United States, but very serious.
- [13:24]
D
I think though also when you're talking about German wages and German labor power and how that relates to all of Europe, I think it's important because by keeping labor costs, a lot of labor costs quite low, it didn't function exactly like devaluing their currency, but it kind of did in relation to the countries around. Because when you're looking at countries like Greece, Spain, Portugal, Italy, because they're part of the EU win, their economies really suffered, they couldn't devalue their currencies, but they also can't just keep wages incredibly low in the same, or not incredibly low, but relatively low in the way that Germany could.
- [13:58]
A
Yeah, I mean that, that chart, that chart about the Eurozone and the divergence of labor costs has had a huge impact on the debate. But the crucial thing is if you've got to break it down by sectors and if you actually look at the traded sector for the German economy, that famous wage repression is just not as severe as we generally imagine. So what Germany is, is this very weird situation where the traded sector actually saw wage increases much closer to productivity levels. And the deflationary effect is coming in the non traded sector. I mean it's really quite remarkable. It's in the services sector, which was always a center of massive inefficiency in the German economy. If you ever lived there for any time or visited, you knew it was like it was crazy, don't try and.
- [14:38]
B
Buy anything on a Sunday.
- [14:40]
A
But that is where the inequality opened up. So it's maybe even more like one of these kind of insider outsider stories. The people in the hardcore of the German manufacturing sector who enjoy very high levels of productivity who also had an adequate level of investment, reasonable number of robots being introduced into German manufacturing. They've generally speaking, kept their jobs. And the unions have been very proactive in managing those relationships, dosing labor hours and so on. And their incomes have increased outside that protected core. It's not such a rosy picture. And it's not obvious that that relates directly to the export success, because the Germans, German exports don't compete on price really. I mean, of course people compete in price in the end, but it's mainly on the quality side that they compete.
- [15:27]
B
Anna, let's talk about education. Because there's no other country in the world that has an education system quite like Germany's, and there's no other country in Europe, I believe, that has less social mobility than Germany. There's this incredible. You're born into a certain class and you stay in that class. And that, Adam, is related to the education system, right?
- [15:49]
A
Yeah, it's a really remarkable system. I mean, it's the opposite of the American vision of a comprehensive secondary school, middle school, high school experience. They split, kids still do in most of Germany at the age of 10 or 11 into three different tracks. And the top track leads naturally to university. The bottom track leads naturally to vocational training. The one in the middle is the kind of gray zone. It could lead to white collar apprenticeships. And then on the back of that, then at the back end of that, there's a requirement to stay in education and training, a legal requirement up to the age of 18. But what they funnel a large percentage of the teenagers into is this very high quality apprenticeship training system. And they don't do apprenticeships in the sense that we might think like boilermakers or something. Every single job in Germany has a training requirement. So which is why their hotel service is sort of lightly unfriendly but extremely professional. You know, their bank clerks are basically proficient. Video editing is an apprenticeship in Germany. They've created, as it were, morphed the apprenticeship model into the new era of services and tech. And that is what the majority of teenagers still go into.
- [16:57]
B
And it happens in every profession. I remember when I was telling my German family that, you know, they're like, so what are you doing? I'm like, I'm a journalist. They're like, so, you know, have you become a master yet? You know, and I have relations who are in journalism. And it took them like five or six years before they could actually have a proper job. If you have to go through this process in just about every single profession.
- [17:20]
A
And this is also part of the bargain with labour in that those teenagers in apprenticeships are not well paid. So part of the deal is that you take a very, very minimal salary or wage in that period in exchange for this training.
- [17:34]
C
What does that mean for entrepreneurship in Germany and people going out and starting businesses? Is the rates there of doing that lower than other places?
- [17:41]
A
They're distinctly lower, yeah. No, I mean, it's a very different model of the labor market and of business activity generally. And the upside, of course, is a kind of valorization of all sorts of different types of work, all sorts of different kinds of qualification. You don't have to go to college or university. The universities frankly don't have much to crow about either. I mean, the German universal system is incredibly mediocre, but on the other hand, it really is a static model. And again, given the increasing diversity of the German population, the question of whether or not a really multicultural group of teenagers can be squarely incorporated into the system is still not properly answered, despite the fact that the Germans have had guest workers, so called gasterbeiter, since the 1960s.
- [18:29]
D
Well, I think in terms of what you just said. I know I. I've read a bit about how the tracking system, they've found that although it's supposed to track based on ability, it appears to track much more based on socio economic level. And also whether you come from a migrant family.
- [18:44]
A
Yes, no, absolutely. And this was true. I mean, most European societies had this kind of selective system. Britain had it in the 1940s and 50s and everywhere that it was implemented, it was evident that it was basically tracking social and cultural capital. And one of the key demarcations there is what kind of migrant you are, apart from anything else. Right. It matters a great deal whether you're coming from the agrarian hinterland of Anatolia or whether your parents are Syrian academics who scrambled their way to Germany, but know precisely which university you ought to go to to study electrical engineering. I think that those kind of things then matter. Absolutely. Crucially, and all of the evidence suggests that Germany in this respect is by no means a mobile society. And it's not clear whether the dignity of work, as it were, model can be extended to a much more diverse society.
- [19:31]
B
So one of the things that we're seeing in Germany is increases in inequality. It's not just that you have a surprisingly high degree of inequality, but also that it's rising. What is the like? Given that this system hasn't changed in decades, what's causing inequality to get worse?
- [19:53]
A
Well, I mean, familiar logics from all over the world super returns to various types of human capital, super returns to, to share ownership. And at the bottom end, the falling away of the social protections that was synonymous with hearts fear. The changes to the German benefit system, which really took the safety net away from people who were in long term unemployment.
- [20:20]
C
I feel like some of the things you said in this segment and the last segment, the combination of the rising inequality and then the, the growth of the migrant population and their sort of a failure to integrate them into the economy as a whole, sort of like a recipe for disaster, especially considering sort of like the global picture and the rise of populism right now. And it makes me a little anxious.
- [20:44]
A
I mean, those are the stakes really of German politics. The question of coherence and Unberhagen, this sort of sense of feeling unwell in your own society is the key term of German politics in the moment. And the real question I think, that we're facing right now is whether Angela Merkel is the problem or whether Angela Merkel is the only person who can, as it were, pull Germany out of this, this funk. The right wing, the AfD, the right wing of the Christian Democrats, is basically making the case now that she has to go because she is the source of the problem because of the 2015 refugee decision.
- [21:19]
D
But I think what's interesting, if you look in Germany and some of the problems that they could face moving forward because of demographic issues, the fact that you have a low birth rate, that actually what they need are immigrants.
- [21:31]
A
Yeah, absolutely. There's absolutely no question from the point of view of, I mean, one could think about engineering slow decline. And that is an interesting and I think not an unreasonable problem for societies to address. But you can do that in Japan. Yeah, but. Exactly. But if they're in the business of maintaining or growing, then absolutely short of a productivity miracle, they need workers. You could extend the age of retirement, of course, and fix the problem that way, but Germany could accommodate workers. The question is how you steer that flow, right, and where they come from and under what circumstances. And that's really the essence of the political problem right now. I mean, the real puzzle in many ways is why that question isn't being answered by huge flows of young people from Spain or huge flows of young people from Italy, where, you know, they have these horrendous youth unemployment rates. Greece is a tiny place, right? I mean, even despite its massive unemployment level of a million and a half Greeks emigrated, that would be the end of the Greek unemployment problem. Greece is less than half the size of Germany's largest state, Neudrand Westfahn in economic terms. So there's a real issue of why certain migrant flows within the EU are as sticky as they are. And then on the other hand, what you deal with, how you deal with these avalanche like flows from crisis countries like Syria. And the really big question in the background is of course Africa, Africa, Africa. How Europe deals with the massive development gap on either side of the Mediterranean and the huge demographic pressure that' building up there.
- [22:57]
C
Also, one other thing I was thinking, I'm not the first person to think this that they could do because Germany has the, correct me if I'm wrong, the lowest birth rate certainly down there.
- [23:07]
A
In the bottom tier, down there with Italy anyway.
- [23:09]
C
And they have this real problem with gender discrimination against women. Women aren't in the labor force as high percentages. They need to be and they're.
- [23:18]
A
How did the US know?
- [23:19]
D
Yeah, it's true.
- [23:20]
C
I mean the US is not a good counterpart, but it seems like they're facing a lot of discrimination. That's, that's one reason they don't have a lot of babies is they get really.
- [23:28]
A
Women are choosing to work rather than have kids.
- [23:30]
C
Exactly. So could there be more stuff to be done there?
- [23:33]
A
Well, that's one of the really remarkable stories. If there's one thing that the West Germans really did in the end absorb from the east, it's the realization that you needed to have an early childhood infant childcare system. So they actually established a quasi legal right for German families to have childcare for kids from I think the age of nine months. This is hugely expensive and hugely contentious and far from complete in realization. But, but that's something they really got. And this is one of the key cultural issues. At the heart of the unease of German conservatives with Angela Merkel is fundamentally, you know, she's a kind of feminist and Ursula van der Leyen and people like that in her party have pushed an agenda of social cultural change, which is undeniable. And specifically on this issue of working mothers.
- [24:19]
B
So explain the wage gap because. Because German women make significantly less than their male counterparts and that gap is much bigger in Germany than it is in virtually any other European country. Where does that come from?
- [24:34]
A
Generally speaking, with gay wage gap measures, there's two elements at work. One is absolute like, for like comparisons. And those I think are pretty generic factors everywhere. What I would think of as being really peculiar to the German case is just how difficult it is for women to make careers, sustained careers there, which is then what opens up the really big gap in lifetime earnings.
- [24:53]
B
And why is it difficult?
- [24:54]
A
Because in the past the assumptions about childcare and schooling have just been absurd. So I mean, you know, I went to school in Germany. We started at 7:45 in the morning and finished at 1:10. And there was a cast iron assumption that there was a mother at home to take care of the kids. And they did not promise to keep us at school either. If a teacher was ill for whatever reason, they'd send us home at 11:30 without any kind of prior warning. So in, in the last 15 years, German schools have recognized that they have a legal obligation to care for children for a fixed number of hours on any given day, which is obviously the precondition for, you know, work life balance in the modern age. But that's a recent thing.
- [25:34]
D
Right? And you still have the problem, which you have in a lot of countries, that you have far more women in low paying industries and you have far more women in part time work and just former women in lower level work.
- [25:45]
A
Yeah, absolutely. And all of those things compound. I mean, I do think there's no doubt that it's changing and the demo, the demographic, you know, you can't view the problem of gender inequality and demographic separate from each other. The demographic problem is German women's answer to these sustained questions of. And you know, who can possibly blame them?
- [26:06]
C
Wait, but those are the two just. I'm sorry, I see we need to stop. But there are. The two words I learned were really.
- [26:11]
B
Oh yeah, okay, Emily, what are your words?
- [26:12]
C
But let me pronounce them. Okay, I'm gonna say them in English. One is, it means women's jobs and it's. Oh man, it's frauer. And I wrote it down.
- [26:23]
A
Show me.
- [26:24]
C
I wrote it down. What does that say?
- [26:28]
A
That just means women's jobs.
- [26:30]
C
Yeah, sorry, that's what I said, women's jobs. And then the other one really disturbed me. Rabenmutter.
- [26:37]
A
Did I say that? Rabenmutter? Yeah, yeah.
- [26:40]
C
Raven Mother. It's what they call like working mothers because they leave their children behind in the nest.
- [26:51]
A
We should be clear that, I mean that language has really. That's absolutely characteristic of my period of growing up. They would look across the wall and they would see, you know, these socialist patterns of child rearing which were going to raise little robots of, you know, socius ideology after the war came down. The skinhead phenomenon in East Germany was blamed on the fact that they weren't raised properly by their mothers. The late 90s, early 2000s have really displaced that. No doubt there are Backwards conservatives in German who would still talk in those terms. That's. It's a mobile society. It's a society which has changed without perhaps the drama of some of the culture wars that we've seen in the United States. But it's very significant. I mean, the current term, and you'll laugh because it's this weird German English term, is patchwork family, which is a term I'd never heard until I got to Germany. But from the late 90s, early 2000s, they'd say, oh, you live in a patchwork family, which meant you were divorced and had somebody else's kids. So. And they use the English because it signifies modernity to them, but it points to the fact that there has been a really very significant cultural change in that respect.
- [28:00]
B
So there's one other thing which we talk about a lot on Slate money when it comes to Germany. Well, I talk about a lot because I'm mildly obsessed by it, which is how much of an outlier Germany is in terms of homeownership. And I know that Anna wants to talk a little bit about wealth inequality and these things are related, but let's start just with the fact that Germans, unlike virtually anyone else, certainly unlike the Brits or the Americans or the French or the Greeks, they just don't own their homes. And like, where does that come from and what's up with that?
- [28:36]
A
Well, I mean, one element of this, there just isn't the pressure to do so because there's a large amount, relatively speaking, of high quality rental accommodation available, not strictly rent stabilized, but nevertheless in rental agreements that, you know, one could responsibly settle down to living in rental apartments in Berlin once you've got one for the rest of your life. I know most of my colleagues do, and this is a kind of chicken and egg thing, because if there's no mortgage driven housing market, then you don't expect much equity appreciation. So why accept the burdens and responsibilities of ownership when you could rent instead of.
- [29:09]
D
That's great.
- [29:10]
A
And you can acquire equity by way of renovation. So if you do renovations on an apartment you rent in Germany, you acquire equity by virtue of that. You can, you can, if you own a little bit of that apartment, you can charge the costs of the kitchen refurb to the people who move in after you. So you can, it's a, it's a kind of a flexible model in which you have a, you have a real sense of ownership of an apartment even though you don't. Even if you don't own it.
- [29:35]
B
Yeah.
- [29:35]
A
So when people say they have an apartment in Berlin, they mean they have a long term rental contract.
- [29:38]
B
And does this help in terms of. I know we were talking about how there's a surprise that the Greeks and the Spanish and the Portuguese are not moving to Germany to find the jobs, but does this help? I'm assuming like in principle it would help in terms of labor mobility within Germany that if you're not stuck in a house then it makes it much easier to pick up and move to where the jobs are.
- [30:01]
A
Except you get hurt. On the other side of this, which is, you know, the classic rent control dilemma, there's an endless shortage of apartments in Germany and a really drastic shortage of apartments in the hot spots, which is a lot of where the animosity towards migrants comes from is that in many places in Germany it's just really difficult to find a decent apartment within commuting range of your job. So you get there's an evident kind of trade off and they fix that in various ways by tax incentivized construction, you can get permits to build if you have a certain amount of subsidized rent controlled apartments and so on. But they live in the same range of dilemmas that we do. I think in the background, if I was to think of a kind of fundamental factor, I think there is a real unease with debt. It isn't so much because people say the Germans save a lot. That's not true. The macro data don't show them as being exceptionally high savers. What they do show is households are exceptionally reluctant to take on debt. And I think that's a big part of this equation. People are not comfortable, as say Americans and Brits are. It's kind of rite of passage. How soon can I get my mortgage? It's kind of a question that's really not the culture at all in Germany.
- [31:08]
B
And they don't have credit cards either.
- [31:09]
A
They do now, but for a long time they didn't. Yeah.
- [31:13]
D
And this does relate to the larger problem of wealth inequality where you have people who've developed wealth by developing productive assets and created jobs and then that is taxed very favorably. So you have this transfer of wealth. And because you only have a very few people who own homes and I believe a lot of the housing is actually owned by just large companies. And because you also have a lot of Germans, the savings that they do have, they tend to put more a lot, a large percentage in cash and bonds, there's small equity ownership. So this is going to create a just large inequality. And also if you just look forward, that seems to be a problem.
- [31:49]
A
Yeah, no, I mean, I think that's a very important point. I mean, it's important to stress, though, on the flip side of that that, you know, when we look at wealth inequality in places like America and Britain with large numbers of home ownership, one has to ask what kind of wealth most much of that is. Because it's not wealth. You can. It's not control of the means of production, it's not command in any economic sense. Your option is to sell it and go move to Mississippi where you can live like a king for the proceeds of a Brooklyn apartment, or you stay in Brooklyn and cash one for another. So it's not actually what the wealth inequality in the United States is funded is far more extreme and looks far more German, if you like, if you concentrate on assets other than housing. So there's a kind of. And I'm not. That doesn't mean to dismiss the significance of the grade in Germany, and you're absolutely right that a lot of housing there is owned by essentially investment trusts of affluent, very rich people who then invest in apartment buildings. The really dramatic element of wealth inequality in Germany is regional and it's East, West. And that is the truly astonishing thing. I mean, because that's there all of the things compound. So if you don't have much private ownership, that's the kind of bedrock of wealth equality, of housing ownership in most societies, if you don't have any housing ownership and then the control of assets, of equity and so on is as tightly held as it is in most societies in West Germany, in East Germany, there simply isn't any wealth ownership of that type. People's assets consist entirely of claims on their pension systems and the social insurance fund. It's really the wealth inequality numbers, east, west are something to behold.
- [33:31]
C
Why isn't wealth taxed more? Is it because they want to encourage wealth creation? And there isn't that many people anyway that have anything to be taxed?
- [33:39]
A
This is the thing, like wealth is hard to tax. Wealthy people don't like being taxed. Wealthy people are influential. Germany's just like anywhere else. There was an absolutely hilarious thing recently with a political science study where the Germans set out to show how damaging the role of money in American politics was and thought what they would do is contrast the United States with Germany, where of course, money plays a trivial role. I mean, electing Angela Merkel costs less than electing a big state governor in the United States. So they were convinced of what this would show is a Radical difference in the influence of rich people's preferences on legislative outcomes. And what they were astonished to find was that rich people's preferences have a larger influence on legislative outcomes in Germany than they do in the U.S. in the U.S. the U.S. political system is indifferent to what poor people want. It just responds to rich people. In Germany, there's a negative correlation between poor people's preferences and a legislative outcome. I mean, it's absolutely astonishing. So in ways which are fairly obvious but not very transparent, wealth talks in Germany in the same way as it does in all other capitalist democracies. The thing about America is somehow the wealth gets splurged and it's a kind of potlatch of wealth that has to be spent in a kind of anthropological display of excess. It's more efficient in Germany.
- [34:59]
C
It's vulgar.
- [35:00]
A
Yeah, the rich people just get their way, but very effective.
- [35:03]
B
They quietly get their way, quietly keep their, their money in Switzerland where they can't be taxed and they.
- [35:11]
A
Luxembourg is so close and Luxembourg's just.
- [35:13]
B
Across the border and, and it's hard to change that.
- [35:18]
A
Well, there is a, there is a, you know, the other thing is that Germany is of course a country, you know, what we. So Germany is a society in which somebody did run that experiment. And the experiment is East Germany, where, where indeed wealth was expropriated on a huge scale. And that's left a scarring that in a sense, in retrospect, vindicates the wealth protection politics of people in the West. Because the dilapidation in the east after the war came down, particularly in the housing stock, was simply shocking. I mean, it was like the most broken down bits of North Philadelphia, of the Chicago south side. In Europe, which is very rare in Europe, there was literally still bomb damage from World War II unrepaired. And that has left, you know, if anything, compounded the German sense that we're not going to touch this, that wealth is indeed private ownership, is indeed the foundation of any civilized society.
- [36:09]
D
Although hasn't that also then led to now less investment in infrastructure because of the focus on.
- [36:15]
A
Altogether. I mean, the big story in Germany for macroeconomic, you know, from the macroeconomic point of view is just the shockingly no investment numbers. It has the lowest rate of investment in the EU certainly over a 20 year period. That's a key element in the current account surplus story because there's just no domestic demand. The German corporate sector has a high savings rate and the German public sector has had negative net investment rates for most of the time since the late.
- [36:43]
B
1990S, Germany has the crappiest Internet in Europe.
- [36:46]
A
Yeah, crappiest Internet. Railways that don't run on time anymore. Very, very mediocre public schools, dilapidated schools, and just frankly, mediocre universities. It's a society that is underperforming in key respects quite dramatically and investments. And actually a key element of that. And a lot of. When aware of those assets gone, they're the flip side of the current assault. Surplus Germans have been investing abroad.
- [37:15]
B
Let's have a quick numbers round. Just because I have a number which I want to bring out here, which I love, which is 1935, it's rare that my number is a year, but when we're talking about wealth taxes, the classic wealth taxes is property tax. And in East Germany, the property taxes are based on the 1935 property values, and they've never been updated since then. And in West Germany, it's not much better. It's like 1965.
- [37:55]
C
My number isn't Germany related.
- [37:57]
B
That's okay.
- [37:59]
A
Do you want to do a segue to a German number?
- [38:01]
B
Yes.
- [38:03]
A
Today's the anniversary of the German invasion of the Soviet Union. 22nd of June, 1941 is the moment that fascist Germany, Nazi Germany, invaded the Soviet state.
- [38:13]
B
How did that turn out?
- [38:16]
A
Well, it out turned. It didn't get fixed till 1990, as far as Germany was concerned.
- [38:20]
B
Right.
- [38:22]
C
My number is 10 million. That's the. This month, the U.S. patent Office issued its 10 millionth patent to Raytheon for something called Ready, Ready. Okay.
- [38:36]
B
Is it in German?
- [38:37]
C
No, thank God. I think I can pronounce this for a coherent radar using intrapixel quadrature detection. And I don't know what it means. Maybe someone can write in to. What's our email address again?
- [38:49]
B
Slatemoneylate.com.
- [38:51]
C
Right. So someone could write in and tell me, but it's some kind of technology you can use in space stuff, driverless cars and other things like that. 10 million. Well done, America.
- [39:01]
D
Indeed. My number is 85%. So between 1980 and 2000, the Greek drachma, the value declined 85% against the Deutsche mark before they then both went to having the euro. So just to suggest that there were maybe some problems from the very beginning of setting it up the way they did.
- [39:26]
B
You mean that like it wasn't reasonable to expect the two to just be completely even from then on in.
- [39:32]
D
One might think.
- [39:34]
B
Okay, well, Adam Tooze, thank you for coming on. I know you have to rush off to Germany to basically get them to write down all of their Greek bonds and do another Greek debt restructuring.
- [39:46]
A
It's a pleasure. Thank you for having me.
- [39:48]
B
Okay, wait, hang on. This is very important. Adam Tooz, you have a book coming out. What's it called?
- [39:52]
A
It's called How a Decade of Financial Crises Changed the World and it's out on the 7th of August.
- [39:58]
B
Excellent. We will read it.
- [40:00]
A
Please do.
- [40:01]
B
Oh, and stay tuned to Slate plus for a discussion of the Manschaft is why does Germany keep on winning the World Cup? Thank you to Dan Trader for producing this weekend. Thank you also to Max Jacob, who also produced this week.