German capitalism. Bogues backlash

Attacks by a leading German politician on investors have been hysterical and misguided

THE metaphor of the swarm of locusts devouring all in its path is as old as the Bible. But when politicians, particularly German ones, use it today to attack groups whose behaviour they don't like, it is hard not to be reminded of Nazi propaganda against “social parasites” and “blowflies”. Such comparisons, even though they are by no means signs of anti-Semitic thinking, are especially regrettable when uttered so close to the anniversary of the end of the second world war.

Yet a lack of linguistic sensitivity is not the most unfortunate aspect of recent remarks by Franz Müntefering, chairman of Germany's governing Social Democratic Party (SPD), in which he condemned certain financial investors as “swarms of locusts that fall on companies, stripping them bare before moving on”. By starting a heated “capitalism debate”, he has triggered an anti-business and anti-reform backlash that might be hard to stop. That could be immensely damaging to both Germany and Europe (article).

Foreign observers are as bemused as they are alarmed by the debate and its fall-out. After Mr Müntefering's attack there were calls in Germany to boycott “socially irresponsible” companies and to introduce legal limits on top executives' salaries. Last week, the press found an internal SPD memo listing a dozen “locusts”, mostly (American) private-equity firms, which are said to have stripped bare German companies.

Much of the rhetoric can be discounted as electioneering of the most desperate kind. The SPD is scared that it might lose regional elections in its heartland in North Rhine-Westphalia, Germany's most populous state, on May 22nd. Attacking capitalists may give it a chance to mobilise long-time SPD voters, who otherwise might stay at home or prefer a new left-wing party that will put up candidates for the first time. And Mr Müntefering's offensive firmly positions the SPD as an alternative to the Christian Democrats, who hope to win the next federal elections in September 2006 by embracing far-reaching economic reforms.

A dangerous debate

Yet the intensity of the debate shows that Mr Müntefering has hit a chord with Germans. Never enthusiastic about Chancellor Gerhard Schroder's Agenda 2010 package of economic reforms, many see recent slow growth and persistently high unemployment as proof that moves to a supposedly more Anglo-American-style, less-regulated economy are not working. That many German companies are, for the moment, nicely profitable only adds to popular indignation. Germans also resist the idea that they will have to give up even more of their cherished social-market model, and the rules and government benefits that underpin it, if they want to stop jobs moving abroad and cheap labour from coming in. Almost 60% agree with at least some of Mr Müntefering's arguments.

The question now is whether the debate will have any lasting consequences. In Germany, such political fits typically die down as fast as they appear. But this time it could be different, thanks to the current situation. If the SPD loses North Rhine-Westphalia, there could be a revolt within the party against Mr Schroder and his reforms. If the party hangs on to power after all, Mr Schroder might be tempted to add a dose of anti-free-market rhetoric to his bid for re-election in 2006.

In any case, some within the SPD are busy working on an alternative to Agenda 2010 which would reportedly include higher taxes on dividends and capital gains as well as on inheritance. Labour-market reform would be modified, for instance by relaxing conditions under which long-term unemployed have to accept jobs if they do not want to lose benefits.

Even if none of this comes to pass, the “capitalism debate” has already done much damage to any faith that Germany is really willing to tackle its economic problems. It certainly has not made the country more attractive to investors, foreign or domestic. Even a future CDU-led government might now be more careful when it comes to further economic reforms.

But there might just be a silver lining to this affair. It clearly shows how bad a job German leaders, in both government and opposition (and, it must be said, in business and finance as well) have done of explaining the need for reforms. Just like France with its anti-European spasm ahead of the May 29th referendum on the EU constitution, Germany may have to go through such an episode to understand finally that its economic model is past its prime, and needs an overhaul. The underlying truth is already clear: the country needs a freer, more flexible form of capitalism, not a hunt for scapegoats.

Editorial says that attacks on investors by the chairman of the SDP, Franz Müntefering, in which he called them 'swarms of locusts', has been hysterical and misguided.