As Europe struggle with their debt laden economies and things become tighter and tighter, perhaps it is time to look at some real solutions.
Gerhard Schröder is an unlikely poster boy for the British Conservatives, but the story of how he transformed the German economy 10 years ago is being studied with much interest in the Treasury. Gordon Brown spent most of the past decade mocking the Germans, contrasting their economic performance with our own growth, which we now know to have been a debt-fuelled illusion. As Warren Buffett observed, when the tide goes out you learn who’s been swimming naked. Britain stands exposed as the Prince Harry of the global economy, while Germany celebrates unemployment near record lows.
So George Osborne is studying what Germany got right. There is special focus on “mini-jobs”, contracts that allow a worker to earn 400 euros a month tax-free on the condition that they can be sacked at any moment. Germans can have as many such jobs as they like, but only one with the same employer. The official figures show that, within a year of their introduction, there were 500,000 more part-time jobs, with a good record of leading to full-time employment. Youth unemployment was indeed halved. None of this was pain-free – protesters lined the streets, complaining about deregulation and denouncing “devil jobs”. It was, for Schröder, a battle worth fighting and winning.
I can imagine the howls of outrage from Labour and their assorted union paymasters if “devil jobs” were introduced here. But given the state of our economy and the numbers of unemployed shouldn’t we give it a crack?
When Schröder faced the same choice he hired a director of Volkswagen, Peter Hartz, to design the biggest shake-up of German employment law in a generation. The report, when delivered, was carefully thought through – but the genius lay in its presentation. It was not a bloodless, wonkish work but a cri de coeur, presented as if it were Germany’s version of the Beveridge Report. The aim was to vanquish the giant evil of idleness through supply‑side reform. The report was launched to great fanfare: Hartz handed it on a computer disc to Schröder and declared that the future of two million unemployed Germans was at stake.
The most powerful insight of the Hartz reforms was that Germany’s real problem wasn’t the supply of jobs but producing a supply of willing workers. The federal government could borrow all it wanted, but resurfacing the autobahns wouldn’t have much effect if it couldn’t find enough Germans to do the work. Better to cut taxes on low-paid work and create a proper incentive for people to take the jobs that were actually going. Asking if this applies in Britain is like asking if Newton’s Laws apply here. The world over, the more work pays, the more people will want to work.
Labour and the Greens will claim this means raising the minimum wage…it does not. It is about removing barriers to employment through tax incentives. Many of these people currently are net tax takers, we need to transition them, through work to net tax payers.