“Die Schule der Nation ist die Schule.”
(Willy Brandt, 1913-1922)

Eurolektionen fragt: Sind die Schulen Europas eine gute Schule für den in Vielfalt geeinten Kontinent?

Wir berichten aus Rumänien, Schweden und Berlin, von Lehrerinnen und Schülerinnen. Wir erzählen von einem sauberen Europa und einem friedliebenden Europa, von einem Europa der Identitäten und einem Europa ohne Visa, von einem Europa des Erinnerns und einem Europa ohne Eltern und einem in den Binnenmarkt verliebten Kontinent.

Wir fragen uns und wir fragen Sie: Lernen wir gut und lernen wir fair, nicht für die Schule, sondern für Europa?

Antworten auf diese Fragen finden Sie hier auf http://eurolektionen.de und im gleichnamigen Beitrag im 6. Sammelband des Studienkollegs zu Berlin Projekt Junges Europa, das heute im Wehrhahn-Verlag erscheint. Es ist ab sofort bei Wehrhahn und über Amazon zu beziehen.

Mehr über den Inhalt und die folgenden Posts hier.

Eurolektionen – Europa in der Schule

Inhaltsverzeichnis

1. Do we need some education?
2. Europa in der Schule
3. Europa ist: …
   1. schön!, freundlich und sehr sauber!
   2. Ein Europa ohne Eltern
   3. Materialismus: Money makes the world go around …
   4. Bildung lohnt sich nicht
   5. Erinnerung und Geschichte: Erzählen und Verstehen
   6. Das beste Argument gegen Demokratie: Ein Fünf-Minuten-Gespräch mit einer Schülerin?
4. Europa sollte sein: …
   1. Engagement: “Stell’ Dir vor es geht, und keiner kriegt’s hin”
   2. Solidarität: Einer für alle und alle für einen
   3. Identität: Wer bin ich – und wenn ja wie viele?
   4. Informierte Teilhabe, sonst frisst die EU ihre eigenen Kinder
5. Reflexion
   1. Methode: Nur dem Fortschritt und der menschlichen Kultur?!
   2. Adorno: “Das Ganze ist das Unwahre”?!
6. Unsere Vision: So träumt Eurolektionen
7. Epilog

They are not. If we balance the burden of economic transformation on labor and capital, and strengthen progression, we can have it both: near full employment and open borders.

The sentiment is right, but the policy is flawed.

No, the answer is not a minimum wage. No, it’s not protectionism. No, it won’t hurt growth. But yes, it will require fundamental reform, hard work and international cooperation.

Structural unemployment and working poverty require honest, if politically incorrect explanations. The questions they pose are not trivial: economic theory holds that perfectly competitive markets clear. At equilibrium prices, every worker should find employment. And yet, they do not, and if they do, frequently under dire conditions and low pay. What happened?

Return of Manchester-capitalism

At least three mechanisms are at play. The first is exploitation.

If workers are not organized and able to credibly threaten strike, their collective bargaining power breaks down. Employers, often larger and better organized, can exploit the collective action problem of labor and pay lower wages than they otherwise would be ready to accept. This is the dynamic that plagued early, Manchester-style capitalism: individual workers, faced with the alternative of being replaced by someone else, will accept almost any wage, irrespective of their productivities. We may witness a sad resurgence of this dynamic in some sectors of the service economy (think security, cleaning, labor leasing). This is an outrage, to be sure. We need to ensure fair, collective bargaining as much we can and otherwise threaten with direct intervention (sectoral minimum wages). And yet, while exploitation is an easy sell politically, it is only a part of the story. The following argument concentrates on that other part.

Blame trade? (no)

The second culprit is trade and capital mobility.

As borders become permeable, the global economy specialises, each according to national comparative advantage. In developed economies, this means that labor-intensive production of tradable goods is frequently outsourced or off-shored (FDI) abroad, where workers are in ample supply and willing to work for lower pay. Deindustrialisation sets workers free in the rich world, or may force them to accept lower real incomes. Again, a culprit that looks good on campaign posters. And yet, we have known since David Ricardo (1772 – 1823) that, at least in principle, trade increases overall welfare, and we have seen it work in practice. Ricardo, of course, assumed complete factor mobility, thereby ruling out structural unemployment. Our understanding of international economic transformation has grown since his time, and revealed more complex dynamics and empirical findings, featuring agglomeration effects, proximity to target markets, dependency theory, and costs of moving, to name just a few. But still, whatever happens in our labor markets occurs under the constraint of someone else, somewhere else being able to get it done for less.

Rage against the machine? (please, no)

The third cause is economic and technological modernisation. Fewer, but more productive workers replace many, less educated workers. This invisible hand of specialisation takes many forms. Sometimes, a machine is invented that renders human beings redundant in production (think microchip, not paper). Sometimes, organisations grow, integrate and evolve to do more with less people (think lean management, not Fordism). Sometimes, better educated workers find new, more efficient ways to do things (think engineering, not trial-and-error). Since early-industrial rage against the machine, specialisation has receded into the background of political conflict. It may be inopportune to say out loud, but it is nonetheless true: the latter two dynamics of trade and domestic specialisation are unambiguously positive for our economies as a whole. These painful throes of transition are the very carrots and sticks that make us prosper. Specialisation is, indeed, the key to the “Wealth of our Nations” (cf. Smith 1776).

We do need some education …

Structural unemployment and working poverty emerge from the dysfunctional interaction of economic transition and an inaptly intervening welfare state. Where precariously low wages are not a product of bargaining power asymmetries, they suggest that some people just do not produce enough value to partake in the riches of our economies. Similarly, structural unemployment arises when some workers are not productive enough to warrant pay at whatever we collectively deem a socially acceptable minimum income. Whether this minimum is implemented as a statutory minimum wage or as welfare transfers makes little difference. Whoever is below either of the two will not find a job.

“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”
(Harry Truman, 1884-1972)

The only genuine cure for the twin societal illnesses of structural unemployment and working poverty is education, and increasing social mobility. The first political imperative must be to ensure that at least the children of those struck in precarious conditions today will once be able to earn their living without the transfer payments, hardship and stigma of their parents. This will require colossal public resources, but also, fresh ideas.

… but also: redistribution

The hardships of structural unemployment and working poverty are good reasons to redistribute the carrots more than a little, to strengthen tax progression, both for normative and instrumental reasons. Where do we stand today?

A bad, bad fiscal configuration: taxing to pieces

Over the past decades, in many industrial countries, we have seen a shift towards regressive schedules on immobile tax bases. Taxes on capital (capital gains and associated corporate income taxes) have decreased, and the progression of the income tax has been reduced – mostly for fear of capital flight abroad. Taxes on labor (payroll) and, most dramatically, consumption taxes (VAT), have increased – because these tax bases cannot easily emigrate.

This fiscal configuration may not only be regarded as unjust, it also exacerbates structural unemployment and working poverty. Payroll taxes and social insurance contributions further widen the gap between actual labor productivity and gross wages. Even fewer people will find gainful, let alone adequate employment. VAT hikes increase the effective socially acceptable minimum income by raising the costs of living. VAT is also, in truth, a regressive tax because poorer people spend more (all) of their income generating ability on consumption that richer people do, who can generate untaxed interest with their surpluses.

Progressive transfer is the answer

The solution to structural unemployment and working poverty lies in boosting progressive components of taxation. The least productive person must be taxed so little that she will still find gainful employment at adequate pay. For many, this may necessitate a negative tax rate (read transfers), as the prominently suggested (Friedman 1961) but never implemented negative income tax. Under the NIT, workers would receive progressive transfer payments for hourly market wages below the socially acceptable minimum. However, in contrast to current income supplements, real market wage increases are not entirely eaten up by transfer cuts: at any given level of income, earning more on the market will leave you with more net in the bank. For example, under a minimum acceptable hourly income of EUR 7.50 (current minimum wage proposal in Germany), moving from a EUR 2.00 market price to a EUR 4.00 market price job could increase your post-tax income from EUR 7.50 (transfer EUR 5.50) to EUR 8.50 (transfer EUR 4.50), always maintaining your incentives to earn more on the market. This may also help to counteract rent-seeking exploitation by low-paying firms.
The NIT is one promising proposal to shift the burden of economic transformation away from the unemployed and working poor who now bear its brunt. It will get us closer to welfare-maximising full employment. Yet, it will be very costly, and, to the extent that it alleviates the material hardship of the working poor, it will include a zero-sum redistributive component.

Deciding who should bear more of the burden and designing how to pay for it will not be easy. Just taxing capital and investment across the board would depress growth and redistribute from the future to today. If anything, progressive taxation of assets (read expropriation, estate tax) and consumption (think conspicuous consumption) appear to be promising candidates to maintain incentives and still raise enough revenue to redistribute. Either way, more progressive taxation will require strong international cooperation to avoid capital flight. Also, whenever resources are channeled from investment to people who are ill-equipped to be sufficiently productive that very redistribution of consumption may alleviate the very pressures we all need to adapt.

Live to work, not work to live (some Marx, at last)

For the goal must ultimately be to enable all people to participate gainfully in the mainstream of social and economic life,  to enable them to earn their living. As Marx wrote, man lives to work, meaningfully and adequately paid, one might add. No one should work to live, certainly not under some decommodifying transfer scheme that grants sustenance, but not gratification.

And yet, for the time being, transfer is the answer. The plight of structural unemployment and hardship of working poverty are not inevitable, for no one. Balancing the burden of economic transformation with progressive taxation is of our own, collective choosing. If we do it right today, and never cease to improve education and social mobility for tomorrow, we can have it all: to prosperity and opportunity.

This piece first appeared in the print issue 8 of Schlossplatz3, Hertie‘s own student magazine. Find more articles on the future of labor here.

I’m critical about the efficiency, equity and legitimacy of civil society, and I think foundations are a case in point. This tax-exempt, free-roaming and supposedly benevolent capital is subjected to only minimal public accountability and may sometimes reflect a troublingly elitist vision of the common good.

Bertelsmann Stiftung / AG Berlin, via Flickr, originally uploaded by Gertrud K.

Kommandantenhaus, Unter den Linden 1, 10117 Berlin: charity?

Foundations exist for many purposes, in many forms and in many (though not all!) legislations. I concentrate here on the charitable foundation, established by private sponsors.

Eternal tax privilege, minimal public accountability

The concept of a charitable foundation is quite extraordinary: it’s a capital stock, exempt from taxes, eternally devoted to a specified charitable cause, ideally discharging only the interest gained. Everyone can establish such a foundation, and many do. State authorities then check the charitable cause according to some set of (rather broad) criteria, and your foundation is good to go. Foundations are then regularly audited by supervising bodies.

Is that enough in terms of accountability? I think not. The test for a charitable cause, similar to that for a tax-exempt association, is necessarily and by definition a minimal criterion: a foundation is either charitable, nor not. And how exactly that earmarked capital could best serve the common good is not subject of the test. It’s simply a test of whether it will serve some charitable cause, in Germany broadly defined to include things like local history, education and tradition. The democratic deficit of foundations becomes more dire in the long run: no one, neither within, let alone outside the foundation has the right to change the cause to which it was originally committed. Whether it’s the foundation to honor the memory of Konrad Zuse (yes, according to Brömmling 2005: 49, that does exist) or the Deutsche Bundesstiftung Umwelt, their goals are carved into stone, irrespective of what the polity wants.

And the polity should have a say, because it exempts both the turnover, and income of as well as donations to foundations from taxation. If you add the interest and compound on the Hertie Foundation‘s EUR 799 million endowment, that’s a lot of tax money foregone.

Hertie fellow’s annual meeting 2009.
Who agreed to co-fund this class trip with public money? (I benefited greatly, see below)

Ambiguity: civic virtue/elitist nepotism

Foundations have been described as both the epitome of civic virtue and as harbor of elitist nepotism. The Bertelsmann Foundation study suggests that above all, people want to give back, they want to feel effectual and they want to meet with people. Francie Ostrower (1997), on the other hand, has shown that philanthropy can serve to represent high status and elite membership. The Bertelsmann Foundation itself adds to suspicions about conflicts of interest by holding large amounts of shares in the Bertelsmann AG.

Hertie fellow’s annual meeting 2009.
Dining with the former President, Roman Herzog. Status games or genuine exchange? (I enjoyed myself, see below)

This is an irresolvable ambiguity: where does civic virtue end, and where does elitist nepotism begin?

I have recently had a chance to experience this ambiguity at an event with the Friends of the Hertie Foundation. I know next to nothing about their work, but their dinner party, set in a good Frankfurt restaurant, gave me a sense of this blurry line between virtue and nepotism. Some of the guests seemed genuinely excited about the Foundation’s projects, were eager to learn more, get involved and bring their own ideas. For others, the whole thing seemed more like a good occasion to meet friends or do business in a protected environment with what must be a fairly sizeable entrance fee.

This ambiguity is a good price to pay for a liberal society with constitutionally guaranteed freedom of association. Yet, foundations, with their affinity to big money, “closed shop” internal governance (boards of trustees recruit themselves), limited openness and public accountablity, all the same with full tax privileges, are probably not the best institutional set-up to face that ambiguity.

Taxation and e.V. should do

Foundations aren’t an ideal instrument to harness private wealth, as Prof. Meffert, ex-CEO of the Bertelsmann Foundation said in his foreword to the Foundation’s own study. Taxes are. If for no other reason, because private wealth is never truly our own business to begin with.

Still, it’s a little hard to argue against foundations when you speak to committed donors, who want to give back to their communities and know their causes. Also, this is not to say that foundations in Germany or elsewhere may not be doing excellent work. They may, or they may not. Some of them may, some of them may not.

My point is this: eternal tax exemptions with minimal public accountability make for a lousy governance mechanism to maximize the common good. There is one organization already which decides on and provides public goods: the democratic state, ideally involving everyone, taxing everyone. There are also organizations already that harness that civic virtue, local knowledge and commitment: charitable associations. They are more open, and they go with the times, as their membership changes. Let’s stick to these two.

Or, at least, let’s strengthen strengthen public (parliamentary?) oversight over foundations. The Hertie School of Governance, itself a foundation project, may be a good place to think about how foundation governance and accountability could be improved.

Full disclosure: this author has been a fellow of the Berlin Studies Centre and has received a partial tuition waiver from the Hertie School of Governance, both of which are co-funded projects of the Hertie Foundation, one of the leading foundations in Germany.

via Flickr, originally uploaded by Mindful One

Don’t tax me, I’ll donate?!

Sloterdijk’s hyperliberal argument may be spearheading the kind of uncritical naturalizing of private property that also underlies much of the praise of foundations. Sloterdijk has it wrong when he believes that he doesn’t owe the polity much to be taxed.

No man is an island.
John Donne (1572 – 1631)

We do in fact, owe the polity a lot, and certainly all of our private property. This is not to say that property is theft, as the latrine Marxists like to sloganeer. This is to say: private property is never pre-social, is never independently our own doing. To begin with, private property is real only in so far as we mandate and equip a state to uphold it, just like all the other public goods, on which all individual prosperity relies (think: streets, social peace). Also, we have plenty ofempirical and normative reasons to believe that market outcomes are at best an imperfect indicator of achievement. Lastly, we know that social inequality can be self-reinforcing and we know that wealth has diminishing, if not conspicuous returns.

None of this is to say that rich people are bad people, an easy political sell that too many populists go for (this, Sloterdijk is right about). This is to say: rich people are rich because they earned a lot of the carrots we apparently need to keep things going. They deserve to eat and enjoy some of these carrots (consumption), because, ideally, they have created great value for everyone around them. Also, it’s probably a good idea to entrust these people with capital, because they ideally know how to make good use of it (investment).

Rich people aren’t rich because they created the carrots or capital out of mid-air. The polity handed out these consumption checks, and the polity has every right to bounce some of them, if that is considered fair.

Voluntary donations instead of progressive taxation and eternally tax-exempt foundation endowments restrict the polity’s right to do this rebalancing and reallocating. They shouldn’t. Private property isn’t theft, but neither is taxation.

Animal vs. disability charities, via Flickr, originally uploaded my Mot

So is the third sector panacea? Uh, maybe not. A third sector? Non-governmental, non-profit? What kind of definitions are these, anyway? And what would be an uncivil society?

Whenever social sciences come up with such terms that convey little more but a vague sense of something being different, or gone (think postmodern) there is always the danger that really, we don’t know (exactly) what we’re talking about.

For all their shortcomings, we roughly know how markets and states function, and how they fail. By contrast, we appear to know relatively little about how whatever it is we call “civil society” works.

Is it then reasonable to assume that civil society is categorically devoid of dysfunctions? Hardly so, I think.

As long as we don’t know what we’re cobbling together in civil society, we’d better stick to our lasts: the market and the state.

Efficiency, equity and legitimacy seem crude but workable criteria to assess modes of production and forms of organization. Let’s see how civil society might do compared to how we know the state and the market work.

Efficiency: civil society may be wasteful

On the market, self-interested utility maximization under perfect competition is supposed to maximize the common good. It coordinates activity by means of a price signal. We’ve known for sometime: markets fail (think externalities, market power …). The good news is: we know something about correcting these dysfunctions (think regulation, taxation, antitrust).

The modern state is supposed to produce goods and services as a legal-rational bureaucracy. It coordinates activity by means of command and control. We’ve also known for sometime: governments fail (think principal/agent, turf war). And again, we know something (arguably less) about how to fix these shortcomings (think NPM).

How efficient is civil society?

Frauenkirche Dresden, via Flickr, originally uploaded by Stuck in Customs

EUR 102,8 million in donations for rebuilding an old church, destroyed during WW II. Is that the best “reconciliation”-value for money we can get?

Absent a well-understood mechanism of how civil society organizations coordinates activity and produces value, it’s a little hard to know how we’re doing, let alone how we could do better.

There are reasons to fear that civil society may be wasteful. Causes compete for funds and volunteers. In civil society, no price signal or command and control organize this allocation problem, but individual people, acting on what they believe is an important cause. Probably, a host of other considerations (networking, status, fun) will play a role, too. Will people find the welfare-maximizing allocation? Maybe not. When faced with the alternatives of supporting a disability or animal charity, as implied in the above ad, they may lack a good indicator and a common understanding of where to best put their money, and their mouths.

Efficiency problems can also arise within non-profits. Given widespread, anti-professional norms in the non-profit sector, limited scale and negligent management oversight, some of these organizations may persist at low performance levels (Seibel 1996). Low performance and uncertainty about it may persist because there is no clear and agreed-upon concept of a bottom line. Non-profits can of course set themselves goals, and undertake benchmarking exercise – becoming, in fact, similar to for-profits. But even when managed like that, they lack the invisible hand of a profit motive, guiding them to where their resources can produce the greatest value.

Equity: civil society may be unfair

Markets don’t exactly have a reputation for fair distribution of goods and services. And yet, when competition is perfect, they will reach at least pareto optima, where no one can be made better off without making someone else worse off. Some economic theories (factor price equalization) even suggest that there may be equalizing dynamics at play on free markets. Of course, markets also frequently fail at distributing equitably. Also, pareto optimality is a pretty weak benchmark for equity to begin with.

The best news about the market is that, in principle, the state can step in to rectify inequities, even (preferably!) without commanding (socializing) all economic activity. My favorite instrument to do this, of course, is the tax. States fail at this, too (think: rent-seeking), and in particular when they intervene with the market (think: moral hazard). And yet, private property, fair competition and progressive taxation at least give us some idea of how this could be done.

How fair is civil society?

The Children’s Hospice Löwenherz attracts a lot of attention in my hometown Syke. Is it conceivable that the heart-breaking fates of these children and their families will crowd out other causes from the local non-profit agenda?

Uncertain, really. Surely, much of non-profit activity is geared towards helping the disadvantaged. And yet, whether decentralized production and distribution of goods and services in the civil society will strike that animal-vs.-disability charity balance fairly, is not certain at all.

Legitimacy: civil society may be undemocratic

Balancing the needs of a disabled, suffering or dying child against anything else is a vexing task no one likes to undertake. Still, in a world of scare resources, we have to. We face these questions a lot, questions to which we find no objectively true or universally agreed-upon answer. Aggregating everyone’s best guess is our feeble attempt at solving this dilemma.

Legitimacy and the market are strange bedfellows. At the most basic level, the legitimacy of markets stems from the (democratic) state’s enforcing of property rights. Beyond that, markets aggregate preferences in terms of individual willingness to pay. This mechanism can fail us (think: different budget constraints) and it may inadequately model human motivation as utility-maximizing. For many of the myriad trade-offs  we face (think: producing apples vs. pears), it serves us ok.

Democratic states legitimate their actions by open debate, and ultimately aggregation of preferences in elections.  Imperfectly so: debate isn’t always fair, electoral systems almost necessarily misrepresent multidimensional preferences and veto players skew decisions, to name just a few. And still, as Churchill quipped, it may still be better than everything else we know.

How legitimate is civil society?

Great visuals. But who voted for Greenpeace?

Civil society creates legitimacy very directly for and by the people involved. But what about everyone else? Will that suffice? There are reasons to assume that it may not. NGOs, particularly of the political kind, tend to concentrate on single issues: Greenpeace, Amnesty International, Attac. It’s probably a little easier to make absolute demands on a single issue, rather than to campaign on comprehensive political platforms. Greenpeace doesn’t have to consider a possible trade-off between CO2 emissions and emerging market development. Governments, and ideally political parties in elections, do. When one player has to consider trade-offs and the other doesn’t, that’s not exactly a level-playing field for political competition.

Civil society, a fig leaf for a retreating state?

Civil society is a liberal concept, and it is right: when there is no compelling reason to do otherwise, nothing should restrict the freedom of individuals to take matters in their own hands.

The question is: how much can these hands handle?

As states come under ever more fiscal pressure, I fear we may be tempted to hand too much over to civil society. I am doubtful whether civil society can or should replace the state (or the market) in providing goods and services to citizens. Civil society, for the time being, just doesn’t have that kind of efficiency, equity and legitimacy. Or at least: we don’t understand nearly enough how to fix its likely dysfunctions.

Wolfgang Seibel (1996) has suggested a worrisome dynamic of “successfully failing” women houses and workshops for disabled workers,  where low-performing non-profits become but a fig leaf for a state unwilling or unable to address the daunting task of social progress for real. Such a negligent principal (and society) has little interest in knowing about, let alone managing the performance of non-profits – as long as there is a pretense of something being done about it. That is the danger of civil society.

Saving the best of three worlds: civil society governance

My point is this: civil society, just like the market and the state, is fallible. The problem is, for now, we now much less about the dysfunctions of civil society than we do about the shortcomings and fixes of market and state.

At the same time, civil society activism has great potential. It can act on local information, it can be more flexible than centralized systems of social service provision, and, maybe most importantly, it brings people together and empowers them to take things in their own hands.

We just have to find a way to reconcile these benefits with possible dysfunctions. For now, I think a good idea would be to organize civil society more like the market or the state, maintaining as much of its local knowledge and empowerment as possible. There are models how to do that. Maybe, social entrepreneurship is a good idea to bring in some of that market discipline. Maybe, public-private partnerships are a good way to align NGOs more closely to government objectives and responsibility. Maybe, an expert rating for nonprofits by Philanthropedia (founded by Deyan Vitanov, a fellow Jacobs student) is a promising solution to establish that bottom line, that civil society lacks.

Subjecting civil society organizations to any of these (and more) criteria and hierarchies will change their nature. It won’t be easy, and it’s not going to be a lot of fun.

But that’s just the way it is, in civil society and beyond: feeling good isn’t the same as doing good.

References

Seibel, W. (1996). Successful Failure – An Alternative View on Organizational Coping. American Behavioral Scientist, 39, 1011-1024.