Inequality in Germany by Michael Hartmann

(a blog post written by my German friend Guido)

Professor Hartmann

Michael Hartmann is an emeritus professor of Technical University Darmstadt

Summary

Social and economic inequality is increasing in Germany faster than in all other developed countries (EU. US, JP, AU, CA, etc.)

Real income (not gross income) has not increased for the average German since the end of the 1990s, and today it has even fallen back to the level of beginning of the 1990s. Most alarming is the increase of income disparity caused by extreme concentration of wealth:

  • +17% for the top 10%,
  • -14 % for the bottom 10%
  • Total: +30% difference in 20 years.

In principle, Germany is still average in terms of the Gini index. However, this does not take into account the TVA and real expenses.

German Socio-Economic Panel (SOEP: Wikipedia page) is widely used for data analysis; however, it has a built-in systematic error. Being a yearly census of households, SOEP eliminates both extremes (the poorest & richest), and therefore, according to SOEP, rich Germans have a yearly income of 60 million Euros, although they are not even among the 1000 richest Germans!

Examples:

  • CEO Daimler - Zetsche - € 11Mio/year - 50 times higher than the average salary of an employee
  • BMW shareholders - Quandt/Klatten - € 500 Mio/year - 50 times higher than the salary of the CEO

Germany has the highest concentration of large fortunes next to the US. The only way to leverage is by applying higher taxes on fortune and heritage.

But what really happened was that, although in 1998, the richest 65 Germans paid 48% taxes, in 2005, they paid only 29%. Their tax rate was effectively reduced by 20% (income, fortune, corporate, etc.) and this has happened under a socialist-green government.

Since 2005, the consumer taxes (TVA), mostly affecting the poor, have increased.

Therefore, it is correct to state that the German tax policy has LARGELY contributed to the increase of the inequality. It is, however, said that the globalization is to be blamed.

CEO and top managers, why should they be paid so much?

Argumentation: a thriving economy needs talented CEOs and good executives but top managers go wherever they are better paid (implying, the USA).

This is obviously false because, practically, the mobility of top managers is limited to local markets. Figures are eloquent. From the top 300 enterprises in the US, only 8,5% have foreign top mangers (mostly from CAN, GB, and AUS).

EU countries:

  • GB: 33% (mostly from USA, CAN, AUS, etc.)
  • DE: 14% (mostly from SW, AT)
  • FR: 4%
  • SP: 0%

The factors limiting the access of top managers to foreign markets are culture and language.

Therefore, the immense rise of salaries of CEO in EU is not justifiable by global competition.

Political leadership and social origins

Political "Zeitgeist" (Neo-Liberalism) has an immense influence among political leaders; also, the more “social” political parties (e.g. socialists, greens) are now less and less the emanation of humble social origins but rather represented by a political class that is issued from an elite.

Study conducted in 2012 in Germany (300 out of 1000 solicited important persons in high power public positions (ministers, state secretaries, high court judges, generals, etc. were interviewed in detail) has shown that:

  • The richer the origins, the least problematic inequality is perceived;
  • The richer the origins, the more likely the taxation of the rich are rejected;
  • And also, revolving door between private economy and public office are considered as a normal common practice.

Conclusion

  1. Current political system will not reverse the trends, but is more likely to make things worse.
  2. Only huge pressure from the public can have any impact, if at all.

Published work

  • „Der Mythos von den Leistungseliten“, Frankfurt a. M. 2002 - link on Amazon
  • „Elitesoziologie“, Frankfurt a. M. 2004; „Sociology of Elites“, London 2006 - link on Amazon
  • „Eliten und Macht in Europa“, Frankfurt a. M. 2007 - link on Amazon
  • „Soziale Ungleichheit – Kein Thema für die Eliten?“ Frankfurt a. M. 2013 - link on Amazon
  • „Die globale Wirtschaftselite: Eine Legende“. Campus Verlag 2016 - link on Amazon

Comments

Inequality in Germany

Sadly, this is the case in most countries. As you pointed out, the rich get richer as they are able - with their resources - to navigate the complex taxation laws. I must add that, at the end of the day, it's people on fixed middle-range income who have less money to spend for their food and other necessities. In some countries (such as in France), those who have inherited properties but do not have cash enough to feed themselves a lifetime without having to work must sell to survive and pay the taxes. I know of a man who had to leave his job in another city to care for his sick mother. After she died, he had to sell the house he had inherited to pay for the inheritance tax. Now, he lives in a rented modest apartment.

Rolade

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