IZA Tower Talk - Report

Guido Westerwelle at IZA Tower Talk: Benefits of change outweigh the risks
A record number of invited guests witnessed the 6th IZA Tower Talk on August 19, 2004 at the Post Tower, headquarters of IZA’s sponsor Deutsche Post World Net in Bonn. Guido Westerwelle, Chairman of the Liberal Democratic Party (FDP), talked about the economic and social impact of EU accession and globalization, focusing on the resulting need for policy reforms. His speech and the subsequent discussion with Hilmar Schneider, IZA Director of Labor Policy, was entitled "Prosperity through Change".	Westerwelle
Germany’s future economic success will hinge on people’s mental readiness for change, Westerwelle contended. Facing the urgent need for reform, Germans should recognize the benefits of change rather than fearing the potential risks. He warned that the desperate attempt to fend off political, economic and social modernization carried a higher risk than change itself, and that Germany’s declining competitiveness called for the rapid implementation of reforms over the next years. The FDP politician proposed a four-point plan to initiate the modernization process, including (1) a fundamentally revised and simplified tax system to provide new work and investment incentives and to discourage shadow economic activities, (2) the redesign of German labor law to create more flexibility, reduce employment protection, and give priority to firm-level over collective bargaining agreements, (3) intelligent structures to create more individual responsibility in the social security systems, and (4) new education and research policies leading to enhanced autonomy and competition among educational institutions. Westerwelle also demanded that the welfare state be reorganized to better reflect the basic principles of individual accomplishment, return on investment, and actual need. He stressed that "every right implies a duty, and every freedom implies a responsibility." In the subsequent discussion, Westerwelle leveled harsh criticism at the labor unions for their "less than constructive" role in the reform process.