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20.05.2006

Retrospective: IUF Reform Summit 2006 Berlin

It's Really Not So Difficult!

That is how the tenor of many of the presentations at the Institute for Free Enterprise's first summit on reform could be summarized. Approximately 100 interested parties who are active in the political, scientific and economic arenas attended the summit, which took place at the Maritim Hotel in Berlin.  

 

Many distinguished scientists and experienced practitioners illustrated that Germany does not have to be the "sick man of Europe" forever. Plans for reform actually exist and are successfully being put into practice in many countries.  

The picture galleries:  

 

The Programme as PDF:  

 

After Erich Weede bluntly analyzed the reasons why Germany has become a "patient," John Blundell, based on the teachings of the Thatcher-Era, demonstrated how quickly and decisively political reforms can be implemented. It took him a mere four sessions to explain the tax, social security and healthcare systems and the labor market.  

 

Charles B. Blankart began the session by explaining tax reform and the problem of the German financial charter: The financial competencies are so intertwined that clearly defined responsibilities are simply unidentifiable. The system inherently encourages financial dependence on the state. Blankart pleaded for a clear system of separation. Manfred Rose from Heidelberg introduced the concept of the corporate tax, which poses a real challenge: The tax burden should not affect and consequently distort the investment decisions of a corporation.  

 

Then Branko Balaban, who recently introduced a partial digressive income and property tax in Kanton Obwalden in Switzerland, offered an interesting counterpoint on the German debate over taxes for the rich and the "fairness of taxation." Subsequently, Ondrej Socuvka from Slovakia explained the positive effects that the flat tax has had on Slovakia's growth and employment. Socuvka also dispelled the myth that such a tax would cause a decline in the revenue of the state.  

 

At the beginning of the second session, Ian Vasquez of the Cato Institute presented Chile's reform of the pension system, which is completely based on mandatory individual contributions, that have subsequently become a positive policy example for developed countries. Edward Palmer from Sweden added that the clear-cut centrist Swedish model is based in substantial part on individual, asset-protected pension accounts. Then Norbert Walter rated the status of the German government's policy on social security, on which more progress has been made than on any other reforms with a higher priority. However, there must be a path that leads to more individualization and asset protection.  

 

Wilfried Prewo, Peter Zweifel and Carlos A. Gebauer, who all addressed healthcare policy issues, were in agreement that there is a genuine need for healthcare reform in Germany because the public's faith in the state is so immense. Basic mechanisms of the market economy are being disregarded. Therefore, ineffective incentives lead to an inefficient use of resources and simultaneously damage the best economic chances that exist in this area. Carlos A. Gebauer described the prevailing system of paternalism serving the patient and the state allocation of resources as "Leninism" in the healthcare system.  

 

Hilmar Schneider and Jason A. Turner addressed the need for more free market practices and competition by reforming the labor market that, up until now, still carries the label "market," which is totally incorrect. First and foremost, unskilled workers must have the opportunity to enter the market. The state is in a position to do a few things to strengthen the public -- most importantly appropriate incentives should be offered. Opulent state redistribution schemes are the wrong way - they exacerbate the problem of long-term unemployment and force more and more people into inactivity and irresponsibility.  

 

One of the highlights of the summit was the presentation given by Andrej Illarionov, who is the former economic adviser to President Putin. He made it clear that present-day Russia is drifting away from democracy and the market economy. The reforms of the 1990s -- whose significance is debatable-- as ascribed by the west are losing more and more of their effectiveness. Instead a small bureaucratic power clique has the country well in hand.  

 

What is the quintessential point? Plans for reform exist. However, such plans cannot be implemented until the numerous and powerful lobbies stop opposing them. And because of this, it appears that Germany, while engaged in a grand coalition, is too far off track to be effective. There is still much to be done. The Institute for Free Enterprise would like to take part in changing public awareness on the crucial reforms that focus on competition and entrepreneurial initiatives. One can only hope that this takes place before Germany falls further behind in the international arena.  

 

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