Jan 1 2003

Where the Gray Lady Goes Radical

The New York Times' peculiar German fixation

Election season came to Germany last fall, and in time-honored fashion, the New York Times spent the campaign bemoaning the high wages of German workers. Whether workers in a distant country are overpaid may seem like an odd fixation for an eminent newspaper, but for years the Times has treated no other factor as more crucial to the politics and economics of contemporary Europe.

“It’s hard to think of a cushier place to live through a recession than Germany,” wrote Berlin economic correspondent Mark Landler in a “Week in Review” essay (9/29/02). “With Germany’s welfare payments, unemployment compensation, not to mention union-negotiated job security, salaries and benefits, life, for many, is still pretty good.”

To the uninitiated, this might seem like praise. In fact, it was a lament: “Few economists think that the economy can grow at a healthy rate unless German companies are given more freedom to hire and fire workers and unemployment benefits are cut back enough to force chronically jobless people to look for work. But neither [Chancellor Gerhard] Schroeder nor his conservative challenger, Edmund Stoiber, seized on these themes during the campaign.”

The tone of the paper’s coverage of the 2002 German elections was elegiac. Reporters and commentators alike decried the fact that the Social Democrat Schroeder had no stomach for the wage-cutting and welfare-slashing policies the Times prescribed. “Mr. Schroeder’s efforts in his first two years were reasonably successful, with tax and pension reforms that were not radical but broke the ice,” wrote reporter Steven Erlanger (9/3/02). “But the chancellor then turned back to try to regain the support of unions and the left that put him into power, and an acceleration of wage growth this year, despite the shaky economy, has increased Germany’s troubles.” Even more troubling, Erlanger wrote (9/23/02), Schroeder’s Green coalition partners, once re-elected, “will want to push for new social services like guaranteed daycare.”

As for Schroeder’s conservative rival, Erlanger declared (9/3/02) that few “believe that Mr. Stoiber will be bold or powerful enough, even if he wins, to shake up Germany’s cozy, conservative and increasingly stagnant economy. Mr. Stoiber, everyone agrees, is not Margaret Thatcher.”

Elections are about debate and disagreement. But on this question, the New York Times brooks no dissent. In its pages, one point of view is permitted on Germany’s economy, and it gets repeated over and over again–on the business page (“German leaders…have been reluctant to attack structural problems like the rigid labor market”–11/1/02) and the op-ed page (“We are saddled with an enormous bureaucracy…a rigid labor market, an outmoded educational system, collapsing health service and a social security apparatus that makes a mockery of basic arithmetic”–9/17/99), as well as on the editorial page (“Germany needs to inject new life into its rigid labor market”–9/12/02).

Economists to ignore

Naturally, there is another point of view, but you would never know it from reading the Times. For years, Germany’s unions and the left wing of the Social Democratic Party have blamed rising unemployment on the austere anti-inflation monetary policies of the Bundesbank and the new European Central Bank, and the tight fiscal poli­cies prescribed by Europe’s Stability and Growth Pact, rather than on strong unions and generous welfare benefits. Bankers have kept real short-term interest rates at almost twice the U.S. level (in November, it was 3.25 percent vs. 1.75 percent), even though Europe has lower inflation and higher unem­ployment.

Former German finance minister Oskar Lafontaine has raised this line of criticism frequently over the past decade, most recently in a widely discussed book, The Anger Is Growing, published a few months before the campaign season. And his view is seconded by a number of eminent economists, including Nobel laureate Robert Solow, who argued in a 1997 lecture at the British Academy (Proceedings of the British Academy, 12/98) that the economic evidence “goes squarely against the cliché that high and persistent European unem­ployment is entirely or mainly a matter of labor-market rigidities.”

In 1998, dozens of economists, including several Nobel laureates, put their names to an “Economist’s Manifesto on Unemployment in the European Union,” which emphasized the role of these interest-rate and fiscal policies in worsening Europe’s unem­ployment rate. The signers regretted that “at present the concept has become taboo among many European central bankers and political leaders, even though there is plenty of evidence that, in recent years, it plays a significant role in accounting for the rising unemploy­ment” (BNL Quarterly Review, 9/98).

Yet the New York Times has managed to stay impervious to any hint of alternative views, basing its reporting exclusively on the opinions of a small circle of quotable neo-liberal bankers and economists who can be counted on to echo the approved position. The paper’s Berlin bureau has a particular favorite banker, Thomas Mayer, chief European economist at Goldman Sachs, whose quotes show up in five articles during the election month alone. A typically glum Mayer observed after the vote (9/29/02) that “there is no mandate for a change that would allow the government to modernize the economy, and there won’t be for a long time.”

A few years ago, in a franker mood, Mayer explained in more detail what he and his colleagues mean by “mod­ernizing the economy”: ‘When I look out on the trading floor,” he told jour­nalist William Greider during an inter­view in his Frankfurt offices (One World, Ready or Not), “I see no need to get the wages of the traders down. That’s beside the point. But the need is to get the cleaning workers’ wages down, and to widen the spread between them. If we do that, we get more employment, less tax burden on those who are financing the unemployed, and there­fore greater growth.”

The eminent professors who signed the “Economist’s Manifesto”—scholars at least as well-regarded as any invest­ment banker, including Yale’s James Tobin, MIT’s Franco Modigliani and Jean-Paul Fitoussi, president of France’s leading economic institute— dismissed this logic: ‘We call for reject­ing the powerful pernicious myth that blinds policy makers to unemployment policies that could reduce unemploy­ment without widening the gap between the rich and poor. . . . The trick is to recognize that much of the current employment policy is responsi­ble for the disagreeable choice between unemployment and inequality.”

A truly radical proposal

But while “modernizing” the German economy might mean different things to different people, for the New York Times it has the virtue of making lais­sez-faire economics sound like the inevitable march of progress. Infused with a new-found and uncharacteristic sense of radicalism, the Times blasted Germany’s unions  as “among the most conservative forces in the country” (9/3/02). It lauded the pro-business Free Democrats as the only proponents of “serious structural change” and “radical economic reform” (9/23/02).

News stories complained that Schroeder’s “plans fall short of the radical measures advocated by economists” (11/1/02), in part because of his supporters in the country’s East have “much fear and little appetite for radical steps that economists advocate” (9/24/02). A Times editorial (9/12/02) called the election campaign “lackluster,” since “both candidates have shied away from radical labor market reform.” The gov­ernment’s post-election economic plan, having omitted the desired Thatcherite austerity, was deemed “anything but progressive” (10/17/02); “Schroder, Once Bold, Now Offers a Modest Plan for Germany,” ran the headline.

Yet the Times‘ article on Schroe­der’s disappointingly “timid” post-elec­tion economic plan failed to mention a proposal that openly challenged one of the staunchest taboos in European pol­itics. In an implicit threat to the cher­ished independence of the monetarist- minded European Central Bank, the platform called for “a monetary policy that leads to more investment, and thereby to more growth”—a veiled, yet daring, rebuke to the bank’s high-inter­est-rate policy.

Soon afterward, Romano Prodi, the chair of the European Commission, dropped a bombshell with his public declaration that the Stability and Growth Pact was “stupid” and in need of revision. Meanwhile three countries —Portugal, France and Germany— had defiantly announced that they were likely to breach the deficit limit imposed by the pact.

Suddenly, the edifice of Europe’s austerity-oriented macroeconomic poli­cy seemed to be cracking, for the first time in its 10-year history. Yet to the Times, none of this counted as “bold” or “progressive,” nor did it represent “much-needed reform.” Even when quoting some economists acidly critical of the pact–including Robert Solow–the lengthy article by Landler on the erosion of the European Union’s austerity strictures (“Europe Strains to Put Laggards Back in Line,” 10/27/02) portrayed such questioning as a sign of failure rather than a step forward.

Landler gave no hint that demand-squelching policies might have been responsible for the unemployment problem that he had all along blamed on the welfare state. He even managed to repeat the Times’ standard refrain, presented once again as incontrovertible fact: “In Germany the high cost of production and rigidity of the labor market are crucial factors behind the country’s dismal performance.”