This text was also published in German in ZEIT ONLINE on March 31 as part of the op-ed column “Fratzschers Verteilungsfragen“.
Social inequality has become the main issue of political contention in Germany. The trenches are deeper and the struggle more vociferous than for any other issue. One camp wants to fortify society’s most vulnerable segments; the other believes that top performers should be rewarded. There are even intra-party rifts with no reconciliation in sight. But both sides are on the wrong track – despite obvious solutions of mutual benefit.
One camp – located primarily at the far left and right of the political spectrum – believes that income and wealth inequality is deeply unjust. They demand more redistribution, particularly via higher taxes and more transfer benefits for lower-income segments.
The other camp is located at the center of the political spectrum. It feels that the level of inequality in Germany is neither too high nor unjust and is not calling for more redistribution. Instead, it considers the excellent health and efficiency of Germany’s social state an automatic guarantee of social security.
Both sides are wrong. The level of social inequality in Germany is indeed too high. But not because it is per se “unjust” – what is deemed “just” is the subject of rousing debate. Actually, social inequality in Germany causes significant economic and social damage, as many people are unable to adequately participate in the job market and society in general.
More redistribution in the form of taxes and transfers is not the solution. In an international comparison, inequality levels with regard to wealth and market income in Germany are high. The reason is not that its social state is too small or inefficient. The main reason is the low level of equal opportunity and social mobility. Access to education, training, and income-boosting opportunities is more strongly dependent on social class here than almost anywhere else in the world.
This means that too many people do not gain access to the education and training necessary in order to leverage their talents and abilities on the job market. Not only are individuals at a disadvantage, but the situation also inflicts damage on society as a whole. Manifold and complex, the causes stem primarily from an educational system that is stratified and does too little to support the children and teens who need help the most.
This is why (more) redistribution via taxes and transfers can never solve the problem of inequality in Germany; (greater) distributive justice will never be able to compensate for the lack of equal opportunity. Raising their benefit levels will not exactly improve the outlook for 35-year-old welfare recipients. What they need instead is a real opportunity to become integrated into the job market, for example, via a suitable and targeted continuing education program. In most cases, and rightly so, they would demand greater opportunity, not more social security benefits. Single parents will not benefit from more money alone, but from an infrastructure for education and childcare whose quality is significantly higher as well.
The greater the dependency on the benefits it distributes, the more a social state is stretched to its limits. In many parts of Germany, one-third of households receive at least half of their income from state benefits. The risk of a vicious circle increases as a social state becomes less and less able to meet these needs. In other words, too little equal opportunity weakens the German social state, leading to increasing distributive injustice. Social states are healthier and more efficient when fewer people are dependent on them. That way, they can better reach the people who actually need their benefits and services.
Social inequality in Germany is a serious economic, social, and political problem. And the solution of focusing the distribution battle on taxes and transfers is a trap. Instead, policy makers must prioritize and concentrate their efforts on promoting a higher level of equal opportunity. And the measures they have at their disposal are not difficult to grasp: A major investment offensive aimed at establishing a more productive, inclusive, and transparent educational system must be the centerpiece of an intelligent policy strategy compatible with all political interests.