The New German Zeitgeist

Born in the workers' conflicts of the 19th century, Europe's great labor parties have struggled to modernize in the face of globalization and the dysfunction of the West European-style welfare state. Yet some shrewd politicians have managed to do it. Britain's New Labour ditched an ideology of redistribution; Nordic socialists helped deregulate labor markets; German Social Democratic Party (SPD) Chancellor Gerhard Schröder enacted tax cuts and tightened jobless benefits—to much grumbling in his still very traditional party. But while the U.K. and the Nordic countries continue to thrive, last week, the German grumblers won, effectively burying the reform agenda of the Schr?der years and dooming German Chancellor Angela Merkel's attempts at further change.

Merkel's center-right party, the Christian Democrats, had joined forces with the SPD two years ago in a grand coalition and promised to stay Schröder's course. But she stopped pushing for reform, and her partner is reverting to its old form. At an emotionally charged SPD Party Congress in Hamburg at the end of October, delegates voted for a party platform that calls for a new democratic socialism in Germany that would soothe the souls of Social Democrats after years of hard-to-swallow reforms. They instructed their own SPD Labor minister in Merkel's coalition government to boost unemployment benefits for older workers. Railing against foreign "locust" investors, they vetoed the SPD Transportation minister's plans to privatize the national railway. They demanded that temporary employment agencies, whose liberalization under Schr?der has created several hundred thousands of jobs, be prohibited from undercutting wages of permanent staff.

Yes, party conventions are designed to warm the heart of the base. Real decision-making typically takes place elsewhere. But this Congress brought to an end the SPD's years of split-personality disorder, in which the leadership defended its own reform decisions while the rank and file protested the perceived inequities of those decisions. That conflict had left Europe's most venerable left-of-center party in crisis. Membership is down by one third since the start of reforms, and support is only 26 percent. Now that the Schröder agenda is finally buried, the party—under its chairman and now all-but-sure candidate for chancellor in 2009, Rhineland-Palatinate Gov. Kurt Beck—can once again wholeheartedly campaign for "social justice" as in days of old.

Strangely, no one in Hamburg talked much about the obvious: Schröder's economic reforms are paying off. Last week, Germany's Labor Office reported the highest employment numbers since World War II, a German Jobwunder fueled in no small part by SPD-led reforms. Older workers and the long-term unemployed, who before Schröder were paid to stay out of the job market, are now going back to work at the fastest rate, the Labor Office reports. "It's a textbook case of successful reforms just like under Reagan or Thatcher," says Jürgen Matthes, economist at the Institute of the German Economy in Cologne. "They take a while to work and in the meantime you run the risk of losing elections."

But instead of touting the reforms' success, leading Social Democrats have lately been talking a lot about gefühlte Gerechtigkeit—"felt justice," whether something "feels" like social justice to German voters. This concept avoids tedious discussions over whether a policy that feels good to the Social Democratic soul actually has its intended effect. Extending unemployment benefits, for example, feels like social justice, but even the trade unions' own economists say that benefits have created an incentive for companies to lay off their older workers. "The SPD could have connected sinking unemployment to the success of its own policies," says Uwe Andersen, political scientist at Ruhr University in Bochum. "Instead they preferred promoting the traditional soul of the SPD."

Where does this leave Merkel and her Christian Democrats? They, too, seem to be desperately avoiding any discussion of economic first principles. Burned by her party's worse-than-expected outcome in the 2005 election, Merkel has drawn much the same lesson as the SPD. Now, Merkel's own supporters explain that she wants to avoid falling into the trap of being called a "cold-hearted" neoliberal out of tune with the country's emotional Zeitgeist.

No big surprise, there. Unlike, say, Tony Blair's New Labour or Bill Clinton's Democrats, Germany's pro-reform camp never managed to come up with a compelling vision of inclusion and opportunity that might explain why change would be good for Germans. Instead, they heard mostly that belts must be tightened. By avoiding discussion of why the reforms are working, both parties are encouraging the growing clamor for "felt justice" in their ranks. Now it is not clear how long Germany's Jobwunder will continue—and as for the reform debate, it looks like it is almost back to square one.