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20.02.2023 from 
Research + Transfer
How socially just is Germany?

February 20 is Social Justice Day. An important concept for a democratic welfare state in which we live in Germany. But what exactly does social justice mean and can we really achieve this ideal state in times of inflation and climate change? And if so, how far away is Germany from social justice? Economist Prof. Dr. Andreas Knabe talks about this in an interview.

Portrait Prof. Knabe (c) Anna Friese Uni Magdeburg 

Today is Social Justice Day. What exactly is that?

Social justice is, of course, an iridescent term, but also a difficult one. It describes a moral, normative concept for which there is no universally accepted definition. However, if you look at what is generally understood by it, it actually always refers to some kind of principle of equality. If people in similar situations are treated differently for no apparent reason, then social injustice may be present. However, the principle of equality does not mean that in the end all people would have to lead a materially equal life, i.e. that everyone would have an equally large apartment, drive the same car, wear the same clothes, and so on. So it's not about egalitarianism. People are very different and have very different wishes, ideas and needs. But they should all have the same opportunity to implement their different ideas in their lives. So you could say in short that social justice is that all people have the same rights and the same opportunities to shape their lives according to their own wishes and ideas.

Germany is a welfare state and the idea of social justice is enshrined in our Basic Law. How far away are we in Germany from this ideal state?

Whether we have achieved social justice or how far we are from it always depends, of course, on whom you ask. There are different ideas about what social justice really is. There are regular surveys in which people are asked, "Do you think that, all in all, Germany is socially just?" And there, a large majority usually says that they don't see it that way. People seem to agree on that. Where they disagree is on the question of why things are not socially fair. If you ask for the details, some say: Yes, income distribution is too unequal and what is really needed is higher taxes and more redistribution. Others are of the opinion that taxes are already far too high and that there is already too much redistribution. If one asks about pension policy, then some are of the opinion that the pensions are too low and the life achievement of the pensioners is not appreciated enough. Others think that pensions are too high and that this will place far too much of a burden on younger generations in the future. You have similar discussions in education policy and climate protection. In all fields, although the majority of people think that things are not fair, they do not agree on how things can actually be made better. This makes it difficult to determine how close we already are to the ideal of social justice.

But one can also try to move away from the emotional level and look more at objective measures of social progress and social justice. This has been done for decades in the field of social indicators research. There, people try to collect as many measures as possible and compile them in a suitable form to then get a comprehensive picture of the state of society. Take the Human Development Index, for example. This is published by the UN and is probably the best-known of these indicator systems. It takes into account material prosperity, i.e. income, but also the level of education and the state of health in the countries. In comparison, we see that Germany is among the top 10 of all 200 countries in the world. So we're not doing too badly in that respect. Now, it can be said that just three indicators may not capture everything that is important. There are other approaches that compile significantly more indicators. For example, the Social Progress Index also includes indicators such as environmental quality, the extent of political rights and gender equality, and more. And there, too, Germany scores among the top 10 worldwide.

If we look at income inequality, we see that incomes in Germany are unequally distributed. There are some countries where income inequality is lower. However, in most countries around the world, it is greater than in Germany. Germany also has one of the largest welfare state ratios in the world, which means that social spending in relation to gross domestic product is higher in hardly any country in the world than it is here. Certainly not everything is perfect yet. There is certainly still a lot that can be done, and there is every reason to complain here and there. But on such a day of social justice, we must nevertheless bear in mind that when we complain, we are complaining at a very high level. And that we in Germany have already come a long way in the area of social justice in an international comparison.

People are always born into different families, cultures, societies, religions and nations. With such differences, how do you establish justice?

Yes, people are different, they are shaped differently because they grow up in different cultures, have different religions, because they have different family backgrounds. Social justice then consists of not trying to make people the same, but to give them the opportunity to freely shape their lives in their differences. One should try to give all people the same opportunities for development, but one should not expect, and this is not even a goal, that in the end people will use these opportunities in exactly the same way.

It is somewhat more difficult when considering social justice on a global level. Of course, it makes a big difference to one's life chances whether one is born in a developed economy in Western Europe or North America or whether one is born somewhere in southern Africa, for example. Reducing these differences and achieving global social justice has been a challenge for decades and will probably remain so for decades to come. However, even there, a look at the data shows that quite a bit has happened in recent decades. For example, global poverty has declined massively in recent decades. In 1990, about 30 years ago, about 1/3 of the world's population lived in absolute poverty. If you look at the rate today, we are below 10%. This decline in global poverty is largely due to strong economic growth in China. Surprisingly, then, to growth that has increased the inequality of people within China. Inequality has increased in China, but globally poverty has fallen as a result. This is quite an interesting phenomenon because it shows that the key to poverty reduction on a global scale is probably not redistributive social policies within these countries, but enabling economic growth in previously less developed countries. This growth should be socially inclusive, it must be environmentally sustainable, but without growth we will not be able to reduce global disparities between countries.

At the moment we are living in difficult times. Gas and also food are becoming more and more expensive. Inflation is on the rise. What impact does that have then in terms of social justice?

There, of course, you address the greatest social injustice we see at the moment: war. I can hardly imagine anything more unjust than hundreds of thousands of people losing their lives or having to leave their homes because others invade them out of ideological delusion or driven by the power interests of individuals. In Germany, we are feeling the consequences of the war primarily in the form of rising prices for food and energy. And that, of course, burdens all households, but some households more than others. That's why it's important to create an appropriate social balance. A lot has happened in this regard. The German government has launched a wide variety of aid packages. For a while, it was impossible to keep track of all the measures that had been introduced and implemented, be it heating cost subsidies and flat-rate energy prices, child bonuses and tax relief, and now the gas and electricity price brakes. These are packages worth billions, we are talking about over 300 billion euros that have been made available for this. So a lot is happening to distribute these burdens in a reasonably socially acceptable and fair way.

It should be made clear once again that in this whole discussion, it was sometimes said that politicians had to relieve the burden on citizens. That is, of course, a completely wrong perspective. Politics cannot relieve citizens in their entirety. The politicians, the state, are ultimately the citizens, and the citizens cannot all relieve themselves. Relief can only ever apply to individual groups of people. You have to look at which groups of people are particularly hard hit, and then they have to receive social support. But this support can only come from other citizens from other parts of the same society. If any group is relieved, another group must pay for this relief. This must then be financed, either through higher taxes for the groups that can financially bear it. If this is not done through higher taxes, then it will be done indirectly through national debt and thus higher taxes in the future. Or by simply accepting that the additional demand generated will drive inflation even further and thus reduce purchasing power overall. But someone has to pay for it. It is not possible to relieve the entire population in a situation such as we have, where Germany as a country as a whole has become poorer as a result of the war. You can only ever relieve the burden on individual, particularly disadvantaged groups.

Low-income families suffer the most from inflation because they bear the highest inflationary burdens. Why is that?

The inflation we're seeing right now is primarily one in energy costs and food prices. And these are, of course, things that lower-income households buy proportionately more than higher-income households. That's why they are relatively more affected by the current price increases. So if you put this into concrete figures, you can see that lower-income households - let's take, for example, a person living alone with an income of no more than €900 a month - are experiencing a de facto inflation rate of around 10%. High-income households, let's take a single person who has an income of over €5,000 a month, only have an inflation rate of about 7%. So there's a perceptible difference, but it's also not as huge as it sometimes appears in the discussion. So all groups suffer from inflation, but lower-income groups actually suffer somewhat more than higher-income groups.

In order to counteract the increased prices caused by the war in Ukraine, the citizen's income came into force on January 1 - replacing Hartz IV. An important step toward greater social justice?

The citizen's income was not introduced because the war in Ukraine led to price increases. The discussion has been going on for a long time. Since the Hartz reforms, there has been a great deal of dissatisfaction in parts of the population and also in parts of politics, especially in the SPD, and a desire to somehow overcome and reform this Hartz IV system. And this has now been attempted with the citizen's income.

Is this a step toward greater social justice? Well, any basic welfare system has to strike a balance between supporting and demanding. On the one hand, it is clear that people who get into financial difficulties through no fault of their own, but sometimes also through their own fault, have the right to be supported by society. First of all financially, but primarily by helping people to overcome their own hardship. That is the support. And on the other hand, there is the demand. This involves expecting everyone in need of assistance to do everything in their power to overcome their need for help as quickly as possible. In the Hartz reforms, which took place almost 20 years ago, more emphasis was placed on making demands, while support was perhaps neglected. With the citizen's income reform, the pendulum is swinging back a little and there is a move away from demanding and more emphasis is being placed on promoting. However, if you look at the details of the citizen's income reform, you will see that there are minor changes to the basic income system, but that on the whole there is not that much change.

Perhaps to the point: What exactly is supposed to be better now with the citizen's income? And is that really the case?

The best thing about the new citizen's income is probably its name. This is not meant in a disparaging way, but the old name was simply a disaster. The benefit was never called Hartz IV, but Unemployment Benefit II. However, the benefit was never conceived as a pure unemployment benefit, because you didn't have to be unemployed to receive it. Instead, it was aimed just as much at employed people who have a relatively low income and need supplementary financial support. From that point of view, the name of the benefit has always somehow created a false impression of what it is actually about. So it's good that a new name has now been agreed upon, and Bürgergeld - you can argue whether that's the best name or not - is definitely better than Arbeitslosengeld II.

Of course, there are also some concrete material changes. For example, the standard rate has been increased by about €50, which is a good compensation for the inflation trend. There are somewhat more liberal regulations regarding the protected assets and the consideration of living space. There is a waiting period of one year, during which there is practically no check on how much property one has and whether the apartment is perhaps too large. Only after that do the rules for taking into account assets take effect, although they are somewhat looser than they were in the past. And a little more emphasis is being placed on support. The priority for placement has been abolished. So it is no longer primarily a matter of getting people into a new job as quickly as possible, but if it is seen that it might be better for them to do further training first, because afterwards they might have the chance to find a better job, then that is now also possible. These are material changes that also make sense in some areas. The government had even more far-reaching changes in mind. For example, there was to be a period of trust during which no sanctions would be applied, but this was then removed during the legislative process. So the changes aren't huge, but they are there and some of them are quite sensible.

But the fact that there are no major changes is perhaps not such a bad thing, because the system is not working as badly as is sometimes claimed. Let's go back to 20 years ago, when the Hartz reforms were implemented, the main problem on the labor market was mass unemployment. We had almost 5 million unemployed! At that time, the Hartz Commission was set up to think about how to reduce unemployment. And then a long report was presented, saying that the proposed measures could halve unemployment within three years. Everyone said that was totally crazy. Such a rapid and drastic reduction in unemployment, after unemployment had been rising for decades, was considered completely impossible. And the three years were also illusory, that's true. But the halving of unemployment actually took place, not after three years, but after about twelve years, unemployment was only half as high. Of course, not only the Hartz reform is responsible for this; there were also other things that played a role. But the Hartz reform has certainly also played its part in ensuring that we are no longer talking about mass unemployment. So that's actually a good development.

It is perhaps a pity that the reform of the citizen's income did not take advantage of the opportunity to take a somewhat larger step. If you consider, for example, that we have a large number of different social benefits in Germany, all of which are administered by different authorities that may not work well together and where the benefits are not well coordinated, then this opportunity could have been used to bring a number of things together in order to really create a basic benefit system from a single source and also to offer benefits from a single source for those in need of assistance. It would then be easier for them to find out what they are actually entitled to and then to implement this entitlement. We have nothing to gain from offering sociopolitical benefits that are then not taken up by those who are supposed to receive them.

Unconditional basic income is also discussed time and again. And would that really be a solution?

There are basically two alternatives for setting up a basic security system. One is to make it means-tested, as we do with the citizen's income. You check whether someone is needy, i.e. whether they don't have too much income of their own and are willing to work, otherwise they won't get the money. With the unconditional basic income, on the other hand, it doesn't matter what other income you have and whether you are willing to work or not. In any case, you get the unconditional basic income.

The unconditional basic income has quite a few advocates. And there are also some advantages from my point of view. One advantage is that it generates little administrative work. You don't need authorities to then check whether someone perhaps has too large an apartment or still has assets somewhere that they haven't declared. That is simply all eliminated. Another advantage is that the benefit is less stigmatizing for the needy, because they don't get a benefit that is linked to neediness, but they simply get the benefits that everyone gets. And a third advantage of the unconditional basic income is that it provides greater incentives for low-income earners to work, because one problem with means-testing, as with the citizen's income, is that if you start working and have only a small income, a large part of it is deducted again from the citizen's income, so that in the end relatively little remains in your pocket. This is different with the unconditional basic income, because you always get your basic income, no matter if you work and no matter how much you earn. This gives people with lower incomes a greater incentive to work. These are the advantages of the unconditional basic income, but there are also disadvantages.

The main disadvantage of an unconditional basic income is that it has to be financed. If this is done via taxes, the tax burden increases enormously. All the studies I know of arrive at tax burdens of around 70% on self-earned income at moderate levels of the unconditional basic income. Of course, this ensures that the incentives to work are reduced for middle and higher incomes. This has positive and negative effects, because if the incentives to work are reduced too much for middle and higher incomes and people only work part-time or switch to undeclared work or relocate economic activity abroad, where the taxes are less high, then the financing basis that is needed to finance the unconditional basic income in the first place naturally dwindles. There are some studies that say: Well, the positive effects among low-income earners are large enough to more than compensate for the negative effects. But there are also studies that come to exactly the opposite conclusion. The problem is that we don't know how people would actually react if we threw them into a system like this, where they received an unconditional basic income of a significant amount, not just a few €100, but €1,000 a month, for example, and at the same time they had to pay at least 70% of everything they earned. Because we have not yet observed such a situation in reality, we do not know what will happen in the short term. Above all, we don't know what will happen in the medium and long term, because there will probably be a shift in social norms. It could be that I say, okay, even with the 70% tax burden I'll still go to work full time because everyone I know works full time, and that's the social norm, that's part of it, that's what I do. But when some people start working only part-time, I see that it's possible and that more and more people are doing it, and I won't be looked askance if I do it too, so maybe I'll switch to part-time. The shift in norms does not happen in the short term, it happens in the medium and long term and then increasingly threatens the financial viability of an unconditional basic income. That's why, overall, I'm rather skeptical about the advantages of an unconditional basic income compared to a means-tested basic income like the one we currently have in the form of the citizen's income.

Another topic that moves the world and people is climate protection. Many people fear that environmental policy measures and the energy transition will lead to major financial burdens that will hit low-income earners particularly hard. Is that the case?

Man-made climate change is a burden, of course, and it always burdens someone, no matter what we do. So if we do nothing, we burden future generations. If we pursue ambitious climate protection policies, we burden current generations. That will be unavoidable. So it's a matter of finding a reasonable balance between the demands of the respective generations. In other words, somehow achieving a socially just, intergenerationally just climate policy. A socially just climate policy must ensure that it distributes the burden in accordance with individual performance. And yet it must be incentive-compatible. In other words, it must ensure that everyone does their part to avoid climate-damaging behavior. And that's independent of one's wallet. Everybody has to make some kind of contribution. However, I believe that social acceptance of climate protection policy will be greater if it is made clear that we really will get as much climate protection as possible for the burdens we impose on the population. Or, to put it the other way around, that the climate protection we do is cost-effective, so that it goes hand in hand with the least possible burden. And to do that, you have to choose the right political instruments. And these do exist. So from my point of view and from the point of view of the entire economic community, the key is a uniform CO2 price. No matter how it is designed in detail. But with a uniform CO2 price, we would achieve cost-effective climate protection. And the beauty of such a state-organized CO2 price is that it also generates revenue for the state, which can then be used to provide financial support for the needy groups that have been hit particularly hard. And if you do that, then you don't need political micro-management, where politicians then try to dictate to individual companies and private households how they should behave. With uniform CO2 pricing, the companies and private households do it all by themselves. They know best where they can save CO2. But they also have to save it, because otherwise they would no longer be able to afford it.

Social inequality is still part of everyday life in the world and also in Germany. But what is the solution? How can distribution be made fairer?

How to make distribution fairer is, of course, the one-million-euro question, and perhaps it is more difficult to answer than the one-million-euro question, because there is no clear-cut answer. It always depends on what one actually understands by social justice. But you can refer to equal opportunities. In a socially just state, all people should have the same rights and, formulated somewhat more broadly, the greatest possible and equally distributed opportunities to shape their lives according to their own wishes and ideas. I supplement this with the greatest possible opportunities, because we also have nothing to gain from everyone having the same opportunities, but the opportunities are simply equally low for everyone. That's not a socially just situation either. If you take this definition, you can derive tasks for politics from it. People must have equal rights. That means that politics must ensure that individual human and civil rights are protected. Then it's a matter of providing the greatest possible and most equal opportunities for development, and for that we need efficient economic management. That means we have to make sure that the scarce resources we have in the world are used well, that we use them in such a way that they create as many consumption opportunities as possible and, more broadly than just material consumption, truly human development opportunities. In addition to efficient economic activity, we need inclusive economic activity, which means that everyone must have something to gain from it. Everyone must have the opportunity to participate in the production process and then also enjoy the fruits of production. And the third thing is that economic activity must be sustainable, so that not only do current generations have the best possible opportunities for development, but that these opportunities are also available to future generations. So if we can achieve this: protection of individual rights and an efficient, inclusive and sustainable economy, then we will make good progress in the pursuit of social justice.