“SOS: the German economy is in danger.” It is with these words that the neoliberal Institute for a New Social Market Economy kicked off its economic election campaign a few days before the collapse of Germany’s governing traffic-light coalition. The campaign’s financiers and supporters include the employers’ association Gesamtmetall, the foreign trade association BGA, the retail association HDE, the building industry association ZDB, as well as the umbrella association of the advertising industry ZAW. The groups’ demands include “maintaining the debt brake, as well as lowering taxes and contributions and for financing through cuts to unemployment benefits”.
Samuel Decker is a critical economist and works as a research assistant for the Network for Pluralist Economics.
The demands are clearly identical with those made in Christian Lindner’s economic white paper, which was allegedly unintentionally made public, leading to the collapse of the government, which the Free Democrats (FDP) had long been preparing for. The paper’s called-for Wirtschaftswende, or “economic turn”, includes demands for lowering corporate taxes to 25 percent and cutting unemployment benefits.
The radical attack on the coalition agreement heralds a major shift in economic policy discourse in the country. For the so-called “economic turn” is not a phantasm of free-market radical think tanks and a discredited special-interest party — it is part of a consolidating economic policy mainstream. Back in April 2024, the Christian Democrats’ (CDU/CSU) parliamentary group tabled a proposal entitled “For a True Economic Transformation” in the German parliament. Its central demands also included lowering corporate taxes to 25 percent and cutting unemployment benefits.
Given the existing balance of power and the extremely brief timeframe of the election campaign, which will likely prove particularly fatal for parties with less resources, the agenda of the economic turn could have a profound influence on the incoming federal government, depending on how strongly the CDU and FDP perform on the one hand, and how poorly the Social Democrats (SPD), Greens, and Die Linke fare on the other. It may result in the first lowering of corporate taxes in 16 years.
While the SPD–Greens coalition government led by Gerhard Schröder drastically reduced corporate taxes from around 60 percent to 38 percent, the grand coalition (SPD and CDU) further lowered them to today’s rate of less than 30 percent. A conservative reform of the debt brake — which would allow for investments where it is useful for business, such as in the armed forces and arms industries as well as in infrastructure development — would align well with those goals and is not in that sense a progressive demand. It would even facilitate the lowering of corporate taxes and other gifts to capital that reduce state revenues.
Progressive State Interventionism Has Failed, At Least for Now
If we want a more fundamental understanding of the economic shifts and conflicts currently taking place, it is worth first taking a look at the US, where an historical rupture occurred on the day of the traffic-light coalition’s collapse: Donald Trump was re-elected as US president. Trump’s re-election can be interpreted as the failure of progressive state interventionism, which began in the US in 2020 with the Biden Administration’s Build Back Better Initiative, an attempt to respond to Trump’s first presidency. The ambitious initiative included broad forms of social redistribution and sought to improve the situation of the lower social classes, but failed due to resistance from the corporate lobby and members of the US Congress subject to its influence.
“Bidenomics” then transformed into a geopolitically motivated subsidies policy for certain sectors of industry, which failed, however, to place the interests of labour above those of capital, or to bring about any wide-ranging material improvements for wage earners. Long before the 2024 US election, economist James Galbraith claimed in an article for The Nation that millions of US households were economically worse off than they had been before the Biden Administration. Basic living expenses such as fuel, healthcare, groceries, and housing had increased at a faster rate than people’s incomes. Rather than wondering why so many people failed to express a sense of gratitude in their voting behaviour despite the positive economic developments, as for example Paul Krugman did in the New York Times, Galbraith recommended taking people’s dissatisfaction seriously.
It is clear that globalized, finance-dominated capitalism has fallen into a structural crisis from which there can be no easy escape.
The Biden Administration’s wide-ranging industrial initiatives had no sweeping impact. While the Inflation Reduction Act’s (IRA) investments in green technologies are historically unparalleled, they seem not to have been sufficient to spur rapid decarbonization and remain far below the target of a 40-percent reduction in greenhouse gas emissions by 2030. The profits of private investors are also still insufficient to bring about a rapid transformation of the energy system. The IRA essentially consists of tax breaks for selected sectors and businesses. Yet these have not led to profound, long-term changes to private investment structures, nor have they automatically improved the situation of wage earners.
Overall, it is clear that Bidenomics had come to an arrangement with the underlying balance of forces in the US. In the absence of a powerful union movement or left-wing organizations capable of forcing a more radical redistribution or a serious industrial policy in pursuit of a publicly planned economy, the Biden Administration’s attempts to guide the economy only moved within the ever-narrower limits of what is acceptable to capital. Following Trump’s election victory, economist Isabella Weber therefore also called for a serious debate on “antifascist economics” in order to draw attention to the inadequacies of Biden’s economic policies.
A bit of subsidization policy: yes. Social redistribution and the public driving of investment: no. This position also prevailed in Germany. Here, the paradigm shift in industrial policy — which, as part of the coalition agreement, in any case started out faint-hearted and lacking in any components of social redistribution— failed back on 15 November 2023, when the Federal Constitutional Court declared the German government’s special fund null and void. The government’s major industrial policy proposals were thereby canned.
That said, something new began as early as the dispute over the basic child protection scheme (which has not yet been implemented), prompting Christoph Butterwegge to speak of a “socio-political transformation” in the traffic-light coalition. After the unemployment benefit bonus was scrapped just a few months after it had been introduced, the sanctions of the old Hartz IV system were negotiated back into the new unemployment system through the backdoor. Refugees faced wide-ranging social welfare cuts and payment cards were introduced, which can be interpreted as a step in the direction of what Claudius Vogt calls an “authoritarian welfare state”.
The right-wing push for an economic transformation is rooted in the failure of progressive state interventionism and goes one step further in that, rather than calling for the expansion of public subsidies and economic support programmes for businesses or even for private households, it proposes a lowering of company taxes and with it a reduction of social redistribution. A certain form of subsidization and infrastructural policies — those aligned with the interests of capital — has also not yet been ruled out in the US under Trump or under a new government in Germany. Yet the portents, or rather the economic paradigm in which this kind of policy might be embedded, are shifting.
Rather than an ecologically driven policy turn that includes cushioning effects for the vulnerable and seek overlaps with businesses, it constitutes an aggressive regional economic policy that one-sidedly represents the interests of capital. While the healthcare crisis and climate collapse proceed apace, ecological and social concerns are being pushed further into the background. “Transform Germany from the economic caboose into a world leader again”, which might serve as the German version of the MAGA slogan, is becoming the guiding principle for an economic transformation that will only disburden companies and discipline workers. A conservative reform of the debt brake must not be allowed to contradict an economic paradigm that puts growth and competitiveness before environmental and social concerns. A politics of “internal devaluation”, which combines subsidies for businesses and austerity for the majority, is compatible with it and is already in the offing.
The New Fight over Redistribution
This economic rollback is taking place in a context of massive economic shifts within global capitalism. The economic rise of China, ongoing for decades, has now come to a critical juncture. The tipping point at which China’s economic growth outstrips that of the US and other Western countries has already passed. In 2020, 124 of the 500 most profitable companies in the world were Chinese, 121 were in the US, and 96 were from the EU — at the turn of the millennium, the list only contained 11 Chinese companies, and in 2010 it contained 61. China surpassed the US as the world’s biggest exporter in 2019 and has now risen to become the second-largest investor worldwide. China also overtook the US and the EU in terms of share of global GDP in 2018. In 2021, China’s share was around 20 percent, while the EU and the US had around 14 percent each.
The trade war with China, introduced by Trump in his first presidency and only intensified by the Biden Administration, aims at slowing down China’s economic development and explicitly decoupling the Chinese economy from technological developments. Trump raised the prospect of introducing wide-ranging import tariffs during his election campaign, but Biden already introduced punitive tariffs against Chinese electric vehicles in the summer of 2024 at a rate of 100 percent.
Things are as bad as can be for progressive economic voices in Germany.
The international struggle for economic dominance is central to securing future economic growth (that is, both state revenues and private profits) for the various capital factions and geographical zones in which it is primarily anchored. Whoever is economically stronger can determine the rules of the game of global trade and finance and win economic advantages. For example, the US continues to profit from the status of the US dollar as a global currency, which allows it to go into unlimited debt in order to maintain its military hegemony. In the German economy, oriented towards international markets, the intensification of imperialist rivalry manifests in the form of a new struggle over the distribution of resources between labour and capital, with Christian Lindner’s white paper epitomizing the latter.
The new geopolitical competition within capitalism is playing out in the context of a global growth dynamic that is generally weakening. In China, too, growth is slowing, and the state has repeatedly been forced to spur new growth dynamics with economic stimulus packages in order to stave off major economic crises. The era of cheap energy and resources and endless new accumulation zones has come to an end. As before, a great deal of capital is still flowing into the financial markets without directly stimulating new investments, because profitable investment opportunities are declining overall.
Despite diverging analyses in left-wing debates about its actual nature, it is clear that globalized, finance-dominated capitalism has fallen into a structural crisis from which there can be no easy escape. The right-wing economic transformation is the expression of a radicalization of neoliberalism that, in the face of meagre economic prospects, is pulling all the stops and aims to further hollow out the compromise between capital and labour.
Prospects for a Progressive Economic Turn
Meanwhile, things are as bad as can be for progressive economic voices in Germany. The SPD and the Greens are in favour of the unprofessional policies of the traffic-light coalition government, which have engendered a fatal divide between environmental and social policy. Change is in the air, but is now playing into the hands of the apologists of the economic turn.
The renewal of Die Linke, which had been caught in a strategic cul-de-sac by Sahra Wagenknecht’s project since 2015 until early this year, centred around a strong social policy, with which the party hopes to return to prioritizing wage-earners, may well have come too late. Yet to the extent that Die Linke boldly emphasizes social and economic issues in its election campaign, the party remains a major actor capable of offering visible progressive responses to the right-wing economic turn. At the same time, the party is actively marginalized, including by the media: it is often not even featured on the major talk shows or in election forecasts.
Those who do feature in media debates are what are known as public economists, whose stance is taken either from the German Council of Economic Experts or from publicly-funded research institutes such as the Leibniz Society. Here, moderate to right-wing positions dominate.
The head of the Leibniz Institute for Economic Research Clemens Fuest, for example, willingly leapt to Lindner’s defence, using his expertise to bolster Lindner’s ultra-neoliberal white paper. The free-market liberal Ifo-Institut organized an event on the economic turn in Germany back in the summer. The head of the German Institute for Economic Research, Marcel Fratzscher, did speak out in favour of reforming the debt brake on the “Hart aber Fair” television programme on 11 November, but said he was also in favour of lowering corporate taxes.
Nevertheless, there are always critical economists in the academy. Economist Adam Tooze as well as the Nobel laureate for economics Joseph Stieglitz, for example, effectively and publicly warned against Christian Lindner’s appointment as finance minister. (Clemens Fuest leapt to his defence that time, as well.) Yet critical economists are not particularly visible in public discourse. The fact that Lindner’s head economist Lars Feld is allowed to tell neoliberal fairy tales on news broadcasts without being challenged shows how little progress academic economists have made in pushing back against neoliberalism since the global financial crisis over 15 years ago.
The extent to which the upcoming collective bargaining negotiations might play a role in economic debates during the election campaign remains an open question. The labour unions generally shy away from linking collective bargaining negotiations to bold economic and social positions and risking a political strike — a step that would also have to be driven by the unions’ base, that is, the workers themselves.
In the last one or two years, we have seen progressive segments of civil society cautiously open up to economic issues. We saw, for example, regular appeals from civil society coalitions and NGOs against the traffic-light coalition’s austerity measures, and in favour of investing in the future and reforming the debt brake. An initiative for taxing billionaires has also emerged.
With Die Linke now extremely weak and the Sahra Wagenknecht Alliance lurching to the right, there is no real progressive option and no left-wing social force on the offensive.
Nevertheless, these initiatives are not powerful enough to thoroughly penetrate public discourse. While labour union struggles are not yet linked to major economic policy issues, the NGO campaigns lack the social base needed to constitute a true countervailing power. Overall, the ecosystem for progressive economics, in which different groups of actors — workers’ movements and unions, NGOs and think tanks, social movements and campaign organizers, critical academic economists, research institutes, and parliamentary actors — productively cooperate to constitute a common driving force, remains underdeveloped.
The economic aspects of the upcoming election campaign therefore constitutes something of a litmus test for this as yet underdeveloped ecosystem in terms of offering the strongest possible opposition to the return of neoliberal policies and giving voice to left-wing alternatives. It means a forward-looking defensive struggle to block neoliberalism’s renewed momentum and build a foundation for re-gathering our forces under a CDU-led government and developing effective climate and social welfare strategies. In order to achieve the best-possible deadlock situation between progressive and neoliberal economic views after the federal election, we need to channel all available energies into economic policy debates.
Above all, calls for a billionaires’ tax and large-scale investment in the future while sidelining the debt brake have, to the extent that the immediate value of such measures is made visible to the broader public, the potential to shift the focus away from immigration and armaments and towards economic issues, which are polarizing and could put wind in progressive sails. This could contribute to breaking out of the politically calamitous polarization between the Alternative für Deutschland (AfD) and all other parties and creating a new polarization along the axis of progressive versus neoliberal economic policy. In that case, the AfD would lose its status as the only visible voice of opposition to business as usual. Instead, it would have to justify its policies, which are actually extremely hostile to workers.
Not only the reform or the de facto abolition of the debt brake, but also the reintroduction of the wealth tax and other wide-ranging redistribution mechanisms for financing significant investments in the future and palpably improving the living conditions of broad swathes of the population would have to be included in the programme. Price caps, too — primarily a rent cap, but also caps on groceries — are obvious demands that would be materially helpful for the majority of people and would take the fight to the corporations. The programme of the Nouveau Front Populaire (New Popular Front, NFP) in France could serve as a blueprint here.
The example of the NFP simultaneously highlights the dilemma in which progressive politics in Germany is caught. With Die Linke now extremely weak and the Sahra Wagenknecht Alliance lurching to the right, there is no real progressive option and no left-wing social force on the offensive. Consequently, there is little prospect of a wide-ranging progressive project challenging the ongoing drift to the right under the hegemony of a centre-left coalition by means of progressive economics.
It is therefore all the more important to take the first steps towards developing such a project. The fact that the traffic-light coalition foundered on the debt brake could be a chance for a left-wing project in terms of economic and social policies to reconstitute itself, and to form a progressive camp in the upcoming struggles over redistribution, which will pose even more of a challenge to German society after the election.
Translation by Marty Hiatt and Louise Pain for Gegensatz Translation Collective.