Rethinking the state






In view of the Corona pandemic, criticism of the state’s crisis management increased again last year. This is not surprising, because it is precisely during crises that the state’s ability to perform and respond is put to the test and attention is drawn to its weak points. There are therefore many voices calling for reforms. However, there is some disagreement about what these reforms might look like – and whether they would be a better way to solve the major challenges of our time.

In its election program, the CDU calls for a modernization offensive for the state – including administrative modernization, digitization and a reform of the state system. But how sensible are these reforms – and how can they be implemented? Will the important problems – lack of investment in the climate, for example, or the weaknesses brought to light in the pandemic – be addressed in this way? We discussed this with Thomas Heilmann, Member of the German Parliament from the CDU/CSU parliamentary group and co-author of the book ‘Neustaat’, and Henning Vöpel, Professor of Economics at the HSBA Hamburg School of Business Administration and until recently Director of the Hamburg Institute of International Economics (HWWI).

The article is part of our New Economy Short Cut series for the federal election, in which we invited prominent candidates to discuss with us their party’s promises with regard to the major economic issues of our time. Other discussants were Norbert Walter-Borjans (SPD), Christian Dürr (FDP), Anja Hajduk (Bündnis 90/ Die Grünen) and Caren Lay (Die Linke).

Both participants identified the sluggish digitization of the administration and the insufficient exchange between authorities as key obstacles to a well-functioning state. The Corona pandemic had shown that the German state needs to be organized in a more agile and flexible way in order to be able to act more quickly in future crises.

Henning Vöpel described the data situation during the Corona pandemic as catastrophic and noted that better availability of data could provide a better basis for decision-making. Thomas Heilmann argued for uniform federal standards for data processing and for better information exchange between authorities. He said that the example of the SORMAS software for epidemic control showed that Germany needed clearer decision-making channels in this area. In his view, German authorities are stuck in a so-called complexity trap due to their strict adherence to individual responsibilities. Henning Vöpel also emphasized that greater interdepartmental cooperation will become increasingly important in the future in order to deal with increasingly complex global problems. Both discussants also agreed on the point that the modernization of the administration requires a more targeted selection of personnel in the civil service.

However, they differed on the question of the extent to which the state can be expected to play a greater role in the future as a result of market failures.

For Thomas Heilmann, natural monopolies such as digital platforms could certainly be regulated effectively at EU level. However, this often fails due to a lack of political will. In his opinion, reforming the partially outdated administrative law, which is not designed for today’s world, could lead to more state capacity to act. He also advocated the goal of a data-based policy.

In contrast, Henning Vöpel believes the time is ripe for a more comprehensive role for the state. In his view, cases of market failure, especially externalities, are increasing due to major global shifts (e.g., in geopolitics and technology, up to and including global warming). He described a complementary relationship between the state and the market as the optimum: on the one hand, the state should be made capable of acting, and on the other hand, a “genuine entrepreneurship” is needed that develops new solutions (in the sense of Schumpeter).

In its election program, the CDU/ CSU calls for a new start for the state. The diagnosis: “The state and its administration are all too often out of step with the times: too analog, too bureaucratic, too slow, too little networked and too distrustful. Germany is paralyzing itself and is in danger of losing touch.” The state should therefore withdraw after the pandemic and give citizens and companies more freedom. A reliable and modern state does not have to regulate every problem down to the last detail. To enable Germany to master the digital and technological challenges, a separate Federal Ministry for Digitalization is to be created. In addition, planning and approval procedures are to be accelerated and laws subjected to a necessity check.

The initiative for the so-called “Neustaat,” was launched a little over a year ago by parliamentary group executive committee members Nadine Schön and Thomas Heilmann (both CDU) with their book of the same name.

And the other parties? They too want reforms. The Greens are calling for a modern, engaged state that manages crises effectively, makes it easier for citizens to claim their rights through digital participation and administers them more transparently. The SPD aims for Germany to have a world-class digital infrastructure by 2030. At the same time, the state is to be a “strategic investor, a regulatory and creative force for mastering the challenges of our time.” The FDP, on the other hand, wants the state to be lean, and state holdings should be more closely scrutinized for their necessity and, in the long term, reduced. The left focuses primarily on the state as a welfare state: A society that makes things possible is only feasible with sufficient and crisis-proof social security.

These are ambitious goals, but only a few concrete proposals. And the economists? What do they say about the role and relationship of the state and the market in times of crisis – and beyond?

As a result of the Corona crisis, economists have recently been increasingly concerned with the challenges of economic policy and the relationship between the market and the state. Many angles play a role in the debate – the development of the understanding of the state, for example, the government debt ratio – or how much and with what goals the state should invest. And, of course, the question of which institutional design between the market and the state is the right one for successful macroeconomic activity.

The state has taken on important tasks in the Corona crisis. This is an unqualified consensus. But a strong state must also be equipped for future tasks. Some economists argue that state support for innovations (in climate policy, education, digitization, etc.) in particular is indispensable for this, that the state should act as an entrepreneur. Others disagree with this interpretation, saying that the state is not a good investor and should rather withdraw from the market.

In particular, many economists now recognize climate policy as one of the essential tasks of the state after the Corona crisis. Tom Krebs sees the modern state on a “mission for the future” if it specifically strengthens demand for ecologically sustainable products of the future, and Michael Hüther of IW Cologne calls for a major reform of the state to enable the structural change to climate-neutral industry. We have already talked about how to deal with the national debt before the high future financing requirements and whether the debt brake should still apply in other articles in our Econ Election Check.

There is minimal consensus when it comes to the fact that a strong and modern state can only be made possible through far-reaching reforms, particularly in the area of digitization. In its annual report, for example, the German Council of Economic Experts states that Germany ranks 21st out of 28 countries in the area of digital administration in an EU comparison.