Speech by Federal Chancellor Gerhard Schröder at the World Economic Forum Davos:

»Dear Mr Vasella, Ladies and gentlemen,

Mr Vasella, I believe it was the good and right thing to do for you to mention the 60th anniversary of the liberation of the Auschwitz Concentration Camp. Although no blame can be placed on the generations that were born after the war, they do bear a responsibility. It is a responsibility that we will all accept and live up to. In particular, this involves ensuring that in Germany, people of other faiths – especially of the Jewish faith – and people from different ethnic and cultural backgrounds, are not subject to persecution, or even attacks. This is the responsibility that is borne by my generation, and by future generations. The international community can rest assured that we will live up to this responsibility. However, this is not the subject that I was asked to address here today.


It has been pointed out that the terrible images of the tsunami disaster in South Asia triggered an enormous willingness to help. This disaster vividly demonstrated that the idea of “one world” is not the creation of futurologists or globalization opponents, but rather that events in other parts of the world, whether their causes be natural or man-made, have an immediate effect on our own economies and lives. I think this is precisely what the theme of the 2005 annual meeting expresses, it is an attempt to respond to the challenges. Of course, the idea is to take the matter further and also ask ourselves: what does this mean for the actors in the world, for the political and economic élites, and – this should not be underestimated – the cultural élites? What are the implications, both on an international level and for each society? In this respect, I would like to make the following comments:


I am firmly convinced that, for all of us, globalization bears more opportunities than it does risks. It is the responsibility of the developed world, not to mention the industrial countries, to create opportunities and to minimize risks. This means that we are obliged to do more to help less developed countries than we have done in the past. I would like to mention a few specific points that, however modest they may be in comparison, are nevertheless clear-cut and result-oriented:


First, we must ensure that the current debate is not used to sideline a central issue, namely that of providing less developed countries access to the markets of industrialized nations. This must remain a focus. This of course concerns agriculture, where restrictions that are still in place in industrialized countries must be lifted, and where export subsidies still exist that must be abolished. And this also applies in particular to raw materials. We must ensure that both tariff-related and non-tariff-related obstacles are removed; otherwise, we will not be in a position to provide sustainable aid that focuses on helping people help themselves.


Second, at the 1999 G8 summit in Cologne, which Germany hosted, we embarked on the path towards debt relief for the poorest countries – with the aim of completely eliminating the debt burden of these countries. And this so-called HIPC Initiative must be continued. At the same time, this means – and on this point I agree with many African leaders, in particular with Thabo Mbeki and others as well – that indebted countries must make efforts to primarily invest funds that thereby become available in infrastructure, health and education; also, we must ensure that indebted countries adhere to the principles of good governance, i.e. that they monitor their own activities.


Third, on this note I believe a word is in order to oil-producing countries. The exorbitant rise in oil prices, which has often resulted from speculative dealing, threatens not only the development of the global economy, and with it the prospects for developed countries, but has in particular affected developing countries that rely on oil imports. Therefore, countries that supply this raw material – and that after all derive considerable revenue from its sale – also bear a responsibility to support the aid measures I have addressed. We must not lose sight of the dramatic effects of the rise in the price of oil on developing countries. We must create more transparency in order to curb speculation on the market. This will be one of the issues we will discuss at the G7/G8 summit in Great Britain this year.


Fourth, we have pledged to meet the United Nations Millennium Development Goals. And we made our pledge because we realize that it is not power politics, but rather development, that will lead to peace and freedom. We must ensure that we can and will finance these development opportunities. Developed countries in particular, all of which to a greater or lesser extent are faced with budgetary difficulties, are being called upon to tackle these tasks. Therefore, the question arises of how, in view of the budgetary difficulties, we can provide the funding that is required to achieve the Millennium Development Goals. The British government has made a respectable proposal, namely to establish an International Finance Facility that would certainly help to better and more quickly achieve these Goals. I believe the British government proposals point in the right direction; they should be the subject of serious discussion and implemented within the framework of the G8. In connection with this, the question arises not only of how such a facility should be established, but also of how it should be refinanced. Although I am grateful for all the proposals that have been made, a kaleidoscope of various plans will not help us move forward. Due to the great number of proposals, there is a danger that the G8 would take note of all of them without actually reaching a consensus to implement a specific one. As a result, the decision on such a facility could be postponed. Such an outcome must be avoided. Thabo Mbeki and I therefore agree that we must attempt to establish this facility and put forward a viable financing proposal, also within the framework of the G8. If we could manage to harness these capital flows – which have almost no real relation to actual economic transactions – to finance the facility, and if the international community could agree to do so, then this would be one way of securing financing for such a facility. If at any time we should realize that these efforts will not succeed, then other solutions must be sought. Germany is prepared to participate in this debate. As is our nature, we will not only engage in discussions, but also urge decisions to be taken – and we will assume the burden, also the financial burden, that results from any such decisions.


Ladies and gentlemen, it is economic strength, not weakness, that leads to international responsibility. On the one hand, countries must assume international responsibility. On the other hand, every country has a vested interest in maintaining the strength of its national economy at an optimal level, and wherever it may be required, in reinforcing it. It is precisely against this background that we have set in motion reform processes in Germany. Mr Vasella has stated it clearly: we are taking action because we are confronted with two inescapable challenges. The first is globalization, which has done away with many mechanisms that countries used to strengthen their national economies. The options have been greatly reduced. The second and more decisive challenge is demographic, i.e. the trend towards increasingly ageing European societies. We must rise to these challenges. In Germany, the first priority was to adjust our social security systems, which were the lynchpin of our prosperity and which had, for the first time in German history, and over a very long period of time, given people in Germany so much security. These adjustments were required in order to ensure that these systems would continue to function in the future, by bringing them in line with the transformation that has occurred at the basis of our economy. Reform focused on three areas in particular.


First, our system of provision for old age is based on contributions that are generated by companies and paid by employees in these companies. In view of the changes that the working world is experiencing, these systems – along with the way they are financed – have been placed under tremendous pressure. We therefore had to develop a fully-funded system to supplement the system of a dynamic pay-as-you-go pension. That is what we did. And we ensured that individuals with a low income would receive government assistance with a view to giving them, too, an opportunity to provide their own capital cover. The task at hand was to strike a new balance between collective pay-as-you-go pension systems, on the one hand, and individual capital cover, on the other. We are moving in the right direction. The international response has also proven that this mixed approach is most likely preferable to pure pay-as-you-go or fully-funded systems. We still must considerably raise the effective retirement age, which is currently around 60. Companies in Germany will need to play a principal role in bringing this about.


Second, Germany has one of the best healthcare systems in the world. Independent of his or her income, everyone in Germany is guaranteed to receive the appropriate medical care that is required to treat any illness. This makes it a very good system, with only one weakness: it is too expensive. We will have to address this weakness. This can only be done with a similar approach to the one we adopted for the reform of our old age provision system: we must strike a new balance between solidarity and individual responsibility, i.e. between costs that sickness funds can bear, and costs that must be covered by private health insurance. Of course, the decisions we have taken so far in this area have placed additional burdens on individuals – but this had to be done so as to ensure that the system will continue to function. These burdens include, for example, the fact that sickness benefits must now be paid by the respective individual him or herself. The same holds true for other healthcare system benefits. We will not reduce healthcare services, but we must change how they are paid for. These reforms are not easy to implement. We have had to adopt a new guiding principle in order to ensure that the system is not overstretched: we have had to insist on the fact that, like everything else, healthcare has a price. And everyone must pay their share of what healthcare costs.


Third, we must liberalize our labour market – and we have already done a great deal in this respect. We have established one of the best low paying sectors in Europe. I recommend that everyone who looks into this issue not only read reports on the facts, but that they closely examine the facts themselves. Germany has a tendency to hide its light under a bushel, even though this is actually the worst thing one could do. We have established a low paying sector that works, and we have created strong incentives for people who receive unemployment benefits to return to employment. Considerable conflicts were carried out with strong interest groups in our society. But we resolved them. And we are confident that the reformed system will prove its success on the labour market. Our new system encourages individuals to earn professional qualifications, while it at the same time demands that all those who can make an increased effort to enter employment do so. After a period of transition, this system will reduce unemployment in Germany.


There is something positive even on the flip side of the so-called Agenda 2010 programme: among other things, the reform of our social security systems was carried out with a view to freeing up resources that are required for large investments in our society. First, we must invest in research and development. Germany invests approximately 2.5 percent of its GDP in this area. Although this makes us the top investor in research and development among the large European national economies, the Scandinavian countries invest much more, and we must make an effort to attain a level of investment comparable to theirs. We must end outdated subsidies and begin investing in the future. Second, we need an education system that is first-rate not only with respect to its breadth. Germany performs better than most other countries when it comes to providing access to education to less educated sections of the population. However, we must improve our education system at the uppermost level. In addition to promoting excellence at research institutions that are independent of universities – which we have been very successful at doing – we must also foster excellence at universities themselves. Third, we will only be able to maintain our position as a leader in the global economy if we make a much greater effort to promote women in the workplace. This effort will only succeed if we ensure that women are better able to combine their careers with raising a family, by providing more child care options to them.


Ladies and gentlemen, this programme, which we implemented in spite of the considerable opposition we faced in our society, is beginning to have an effect. First, for several years now, unit labour costs in Germany have remained stable. This promotes investment in our country. Second, we still have one of the best infrastructures of any country in the world. Third, thanks to its high-quality system of professional and vocational training, Germany ranks among the best when it comes to providing highly-qualified workers. Fourth, our system of higher education provides great opportunities, and we will work to complete and improve it. And fifth, we have both creative entrepreneurs and highly-motivated workers. Our export figures indicate that, when it comes to international competition, we are strong, not weak. During the period of economic stagnation, we did not lose, but instead gained, market share. These advantages that I have just named were forged in spite of the fact that every year we have transferred, and until the end of 2019 will continue to transfer, approximately 4 percent of our GDP from the west to the east of our country to help achieve economic and social unity. No other national economy in the world is in a similar situation. Aside from this fact, I think we have proven that Germany is capable of reform, and that it is both a profitable location for business and investment and a good place to work. In addition to proving that Germany is concerned about its prosperity, we have also demonstrated that we Germans view this prosperity as a calling to work in an efficient and sustained manner to achieve more justice in the world.«


Speech by Federal Chancellor Gerhard Schröder at the World Economic Forum Davos, 28 January 2005; Translation