Review | Day of Progressive Economic Policy 2023

Struggling through the Corona pandemic, the energy crisis and climate change has already cost a great deal and continues to pose major fiscal challenges for all EU member states. This is reflected in how public debt has ballooned in every EU country in recent years. From 2024 onwards, the EU fiscal rules that normally impose a credit limit on EU member states and which had been suspended in the meantime will again come into force. But before that happens, the experts agree, these rules need to undergo fundamental reforms so that EU countries can better stabilise the economy and society in times of crisis and invest more in the future, while simultaneously and sustainably reducing bloated national debt in the coming years.

This forum will therefore debate how to think about the current proposals to reform EU fiscal rules. At the same time, the question will be addressed as to whether the scope for fiscal policy can also be further strengthened at the EU level, e.g. by establishing other new resources managed by the EU itself and/or by setting up an EU investment or EU fiscal capacity that builds upon the experiences made with the EU stimulus fund Next Generation EU.  

Fiscal policy and taxes: discussions about how to finance state projects for the common good are still mired down by well-worn, mostly conservative arguments. The state has to be a “penny pincher". Public debt – as if it were the same as private debt – has to be avoided at all costs or at least severely curtailed, and those who willing to put in some effort will be rewarded with prosperity above all if the state holds back from “skimming” tax or regulatory interventions. But the last decades have shown that something is off with these arguments. Inequality has worsened; wealth is concentrating among the few; the income gap is now yawningly wide; and no matter how much or how hard someone works, most younger people end up worse off than their parents. 

So how can these dramatic facts help us reshape the discourse and achieve social majorities for a fairer tax and fiscal policy? 

Degrowth or green growth? Green capitalism, a Green New Deal or a radical break with the current economic model? These two positions are often seen as irreconcilable. For some, innovation and market-based competition will inevitably pave the way to an environmentally sustainable economy. To others, there is the argument that decoupling economic growth and resource consumption is doomed to failure due to the inherent logic of capitalism.

At this year’s TPW, we would like to pose the question differently: What must grow, what must shrink? What instruments do we need for this transformation? And are the foundations of our economic order at stake? 

In recent decades, the discussion around industrial policy has been highly ideologically charged and even frowned upon, especially in the dominant neoliberal economics. Nevertheless, industrial policy has been practiced in all developed economies throughout. The past few years, characterized by exogenous shocks and increased pressure to act to fight the climate crisis, have challenged economics and economic policy to a rethink. Thus, the policy that “shall not be named" is coming back into the policy debate to offer solutions to transform the economy.  

We would therefore like to ask: How can industrial policy help make Germany and Europe resilient in the face of transformation? How can Europe become a more attractive location for investors and future technologies? How can both good jobs and climate protection be achieved through industrial policy? 

Public budgets in Germany and elsewhere must take into account considerable expenditure and the need to invest in the fight against climate change, the modernisation of infrastructure, the promotion of digitalisation and other new technologies, demographic change, the expansion of social security systems, the reduction of economic inequality and regional disparities, and the management of newly emerging geopolitical challenges at present and in the coming years.  

This is the backdrop for our forum to explore how all these challenges, above all the socio-ecological transformation, can be financed in a fair and sustainable way. What changes to the German tax system are essential and purposeful, e.g. in the area of income and wealth taxation or in energy and environmental taxes? Which subsidies can or must be eliminated? What new financing instruments must be introduced? And what role can or should the instrument of public debt play? Does the German “debt brake” need to be reformed? And how should we evaluate the recent rise in the use of “special budgets” or “special funds”?

In the wake of the Corona pandemic and Russia’s invasion of Ukraine, inflation rates in the Eurozone have reached historic highs. Inflation poses new challenges for policy-makers and social partners and has exacerbated distribution conflicts. Rising food and energy prices hit low-income groups particularly hard. Workers had to accept real wage losses last year. At the same time, some companies have taken advantage of this situation and increased their profit margins.   

The panel will take a closer look at the consequences of inflation and discuss the right policy responses to high inflation rates. While some experts call for a restrictive monetary and fiscal policy, others criticise the previous interest rate policy decisions and point to the negative effects on the economy and the labour market. How long will the price pressure last? What are the drivers of inflation? What role do workers’ wages and companies’ profits play in all this? What are the right policy responses to the current inflationary trend? The panel will discuss these and other questions with renowned experts.  

The energy transition is creating a multitude of new jobs, but the sector on the whole is still heavily male-dominated. Yet, right now, we have an opportunity to take advantage the shifting ground to overcome inequality between the sexes where the energy transformation, labour and gender intersect.  

So, we’re asking: How can we take gender perspectives into account in transformative system change at the national level? What is the significance of the gender perspective for structural change in East Germany and the role of women there? What dimension cannot be missed? How can women be enabled to get those good, green jobs that are futureproof? 

The return of industrial policy for the green transformation will inevitably be accompanied by a realignment of global trade relations. The focus on the German and European side here will thus focus on access to raw materials, hydrogen, and essential inputs and intermediates for domestic green value chains. Yet, there has been a lack of focus on how European industrial policy also might disrupt trade for countries and regions in the Global South: Are we witnessing the danger of a new, fundamentally neocolonial extractivism arising? Do European green policies imply disadvantageous economic models for supplier countries without their seeing own opportunities for increased value creation? Or do the new dependencies on raw materials offer a scope and some leeway to negotiate for progressive progress in the direction of global justice? What are the economic and political interests of partner countries that need to be considered in European transformation strategies and how can these be integrated into trade and investment policies? We envision a progressive response to new global dependencies and global justice issues in the transformation?