Social inequality The gap between rich and poor

The start into life can be unfair
The start into life can be unfair | Photo (detail): © erhui1979/iStock

There is an intense debate about social inequality in Germany. Is it at all possible to prevent social inequality, or is it part of a functioning market economy? The experts are at odds.

Economic growth in Germany is stagnating. In 2017 the federal government expects growth of only 1.4 per cent. And if the cake fails to become bigger, there will ensue a fight over distribution. Many people are already worried about this: more than 80 per cent of Germans find social inequality in Germany to be too great, according to a 2016 study of the Friedrich Ebert Foundation. In politics, the media and science, there is a particularly heated debate about the gap between rich and poor.
 
Germany is faced by a battle over distribution, fears, for example, Marcel Fratzscher, President of the German Institute for Economic Research (DIW). “Germany is today one of the most unequal countries in the industrialised world”, says the economist; in no other member state of the European Union is wealth so unequally distributed. Incomes too are growing further and further apart.

A question of point of view

Andreas Peichl of the Centre for European Economic Research (ZEW) also believes that inequality has increased. His overall judgement of the situation, however, is much more positive. The main problems, he says, are in the distribution of wealth, not in incomes. That the assessments of economists differ so greatly has to do with a fundamental question: Does it suffice if the state distributes prosperity so that everyone has enough? Or should the state ensure that everyone has the opportunity to prosper on his own?
 
Peichl studies mainly the monthly amounts that German households have at their disposal. This yields a picture similar to that of the Scandinavian countries, which are regarded as examples of equal societies. But appearances are deceptive, says Fratzscher. The German state does a great deal of distributing through taxes and social benefits. Fratzscher therefore studies income before taxation. And here a completely different picture emerges: inequality in Germany is as pronounced as it is in the United States.
 
Income before taxes is an indicator of equal opportunities, says Fratzscher. It shows “what people earn on their own”. And in Germany there is hardly equality of opportunity to do this. If you have parents who earn only a little, you will later probably end up with a similar income. Children of rich parents, on the other hand, later usually make good money.

How much can education do?

The key to a good income is education; yet in hardly any other industrialised country is the educational achievement of young people so dependent on social background as in Germany. Fratzscher’s central demand is therefore to invest more in education. Germany spends four per cent of its gross domestic product for education; the European average is five per cent. Early childhood education in particular has been recklessly neglected, according to the economic researcher. It is precisely from this stage of education that children of low income families could benefit.
 
“Even with the best educational system, not everyone will be able to qualify himself to achieve an adequate market income”, counters Peichl. Inequality, he argues, is driven primarily by globalisation and digitalisation. Machines are increasingly replacing human labour, routine jobs are being sent abroad. Highly qualified workers may be safe to some extent against these trends, but the state cannot effectively protect those in the low-wage sector. The result: incomes drift farther and farther apart.

Society must join in the responsibility for changes

Peichl calls for the state to effect redistribution through the tax system and in this way to diminish inequality. It is a great mistake, he says, not to tax wealth and inheritances. The maximum tax rate could also be raised.
 
In the survey conducted by the Friedrich Ebert Foundation, although many participants complained of growing inequality, significantly fewer favoured tax increases. “Measures that could reduce inequality are often unpopular”, says Olaf Groh-Samberg of the German Sociological Association (DGS). This was seen in the Bundestag elections of 2013. The Greens called for higher taxes for top earners and property, and lost a significant amount of voters. In order to combat rising inequality effectively, says Groh-Samberg, we must both strengthen the educational opportunities of children from low-income families and tax wealthy people more heavily. “In the end, the question is whether society is ready for this”.