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Germany

Globalization And Wealth Inequality, The German Counter-Case

There are various reasons the wage and wealth gap is growing, but in Europe's strongest economy it makes no sense to blame the global marketplace.

A Porsche factory in Liepzig, Germany
A Porsche factory in Liepzig, Germany
Marcel Fratzscher*

-OpEd-

BERLIN — There's not a week that goes by without a headline around the world about people who've lost out in the job market because of globalization.

"Many of our citizens are frustrated by the pace of globalization and feel they are not experiencing the benefits of international trade," British Prime Minister Theresa May recently said at the G20 meeting in China.

In reality, globalization is not responsible for social inequality and insecurity. It's just an easy excuse by politicians to cover their own mistakes.

Germany was, and still is, one of the biggest winners of globalization. The country proudly calls itself the world export champion. Without the competition and innovation of German companies, the economic miracle after World War II would not have been possible. Germany is one of the world's wealthiest countries, with one of the highest per capita incomes.

Opponents of globalization are right to criticize Germany's growing inequality. There's a lack of social mobility in Germany. It's one of the countries with the highest wage and wealth gaps.

On top of that, a growing number of people are experiencing increasing insecurity in their life. What does insecurity mean? It refers to people not knowing if they will still have a job a couple of years from now, if their children will have a better life than they've had, and if, in their later years, they will benefit from a pension system or fall into poverty.

It's true that the German joint association of assistance stipulates financial support for the unemployed and that more Germans are starting to depend on state handouts. But social and economic advancement remains problematic even as people, especially women, find employment.

A recent OECD study finds that global trade and financial markets have not contributed to the augmented wage inequalities in industrialized countries since the 1990s. Instead, three other potential reasons were identified: Technological change, the weakening of national and global institutions, and failures of the education system.

A look at Germany confirms this theory. The part of the workforce that's least well-paid, who have seen its real income decrease over the last two decades, work in service industries like cleaning, gastronomy or healthcare, in jobs that can neither be outsourced to India or China. These people are employed in precarious work conditions and worry about their job and wages in the future.

The highest wages and best jobs, on the other hand, can be found in export companies (auto manufacturers, engineering firms, drug makers) that are in a tough global competition. This tough environment forces these companies to be innovative. They make their workforce benefit from technological change in order to be productive.

[rebelmouse-image 27090453 alt="""" original_size="1024x683" expand=1]

The good life in Ketzen, Germany — Photo: Onnola

The reason for jobs with low wages in Germany is not global competition but rather the lack of it. The federal government has been criticized for years by international institutions like the International Monetary Fund for failing to reform service industries. Eventually, less competition means poor investment and reduced efficiency and thereby, less productivity, fewer jobs and lower wages.

Another reason for inequality is the weakening of institutions like trade unions. People who earn minimum wage in Germany are often those whose wages and work conditions are not determined by collective bargaining. And that's how the gap between "insiders" and "outsiders" on the labor market has widened in the past.

The result is strong polarization of German society and the labor market. The part of society that is actively taking part in globalization benefits from good jobs and high income. The rest fall behind.

National politics play an important role when it comes to the functioning of markets and institutions. The government should heed the warnings of international institutions and economists seriously and break down the dominant status of companies in some service industries and reinforce labor market institutions.

The last reason for inequality in Germany is child poverty, which is slowly increasing. Almost 2 million children were dependent on the state in 2015. Children do not have equal opportunities. There are ways to fix this. More all-day schools, focusing on children and teenagers with a difficult social background and more investments in early childhood education will help mitigate this problem.

The current German education system doesn't fit into an increasingly globalized world. International institutions have raised this problem with the government for many years. So far these warnings have been ignored.

*Marcel Fratzscher is the president of the Berlin-based German Institute for Economic Research

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Future

AI Is Good For Education — And Bad For Teachers Who Teach Like Machines

Despite fears of AI upending the education and the teaching profession, artificial education will be an extremely valuable tool to free up teachers from rote exercises to focus on the uniquely humanistic part of learning.

Journalism teacher and his students in University of Barcelona.

Journalism students at the Blanquerna University of Barcelona, Catalonia, Spain.

© Sergi Reboredo via ZUMA press
Julián de Zubiría Samper

-Analysis-

BOGOTÁ - Early in 2023, Microsoft tycoon Bill Gates included teaching among the professions most threatened by Artificial Intelligence (AI), arguing that a robot could, in principle, instruct as well as any school-teacher. While Gates is an undoubted expert in his field, one wonders how much he knows about teaching.

As an avowed believer in using technology to improve student results, Gates has argued for teachers to use more tech in classrooms, and to cut class sizes. But schools and countries that have followed his advice, pumping money into technology at school, or students who completed secondary schooling with the backing of the Bill and Melinda Gates Foundation have not attained the superlative results expected of the Gates recipe.

Thankfully, he had enough sense to add some nuance to his views, instead suggesting changes to teacher training that he believes could improve school results.

I agree with his view that AI can be a big and positive contributor to schooling. Certainly, technological changes prompt unease and today, something tremendous must be afoot if a leading AI developer, Geoffrey Hinton, has warned of its threat to people and society.

But this isn't the first innovation to upset people. Over 2,000 years ago, the philosopher Socrates wondered, in the Platonic dialogue Phaedrus, whether reading and writing wouldn't curb people's ability to reflect and remember. Writing might lead them to despise memory, he observed. In the 18th and 19th centuries, English craftsmen feared the machines of the Industrial Revolution would destroy their professions, producing lesser-quality items faster, and cheaper.

Their fears were not entirely unfounded, but it did not happen quite as they predicted. Many jobs disappeared, but others emerged and the majority of jobs evolved. Machines caused a fundamental restructuring of labor at the time, and today, AI will likely do the same with the modern workplace.

Many predicted that television, computers and online teaching would replace teachers, which has yet to happen. In recent decades, teachers have banned students from using calculators to do sums, insisting on teaching arithmetic the old way. It is the same dry and mechanical approach to teaching which now wants to keep AI out of the classroom.

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