Could the vehemence of the response to revelations of the carmaker's experiments on the effects of diesel exhaust indicate a tectonic shift in ethical attitudes toward animals? To answer that question requires examining some details about the experiments and the reaction to them.
MELBOURNE – Late last month, the New York Times reported that researchers used monkeys to test the effects of inhaling diesel fumes from a Volkswagen. The research was commissioned by the European Research Group on Environment and Health in the Transport Sector, an organization funded entirely by three big German car manufacturers: Volkswagen, Daimler, and BMW.
The reaction to this revelation has been unequivocal repudiation – by the public, the German government, and Volkswagen itself – of the use of the monkeys. Why? Could the vehemence of the response indicate a tectonic shift in ethical attitudes toward animals? To answer that question requires examining some details about the experiments and the reaction to them.
The research, carried out in Albuquerque, New Mexico, involved placing ten monkeys in small airtight containers into which, over a period of four hours, the exhaust fumes were piped. Later, a tube was stuck down the monkeys’ throats to take tissue samples from their lungs.
It is clear that the experiments were extremely distressing for the monkeys. The Guide for the Care and Use of Laboratory Animals, a manual of good practice for those who use animals in research – published by the US National Academies of Sciences, Engineering, and Medicine and now in its eighth edition – states: “Like all social animals, nonhuman primates should normally have social housing.” These monkeys were confined in individual chambers and forced to breathe polluted air, including exhaust fumes from an older Ford truck, which was supposed to enable a comparison with the cleaner Volkswagen. A video of the experiments included in the Netflix documentary “Dirty Money” shows a monkey in a state of panic, pawing at the window of the chamber in a desperate effort to escape.
Making matters worse, we now know that the only results the experiments could have yielded would have been misleading. Unknown to Jake McDonald, the scientist who oversaw the research, the Volkswagen that was used to produce the exhaust gases had software installed that reduced emissions under laboratory testing conditions, so the results could not provide reliable information on the health hazards of the car’s emissions during normal driving. No wonder McDonald told the Times, “I feel like a chump.”
The reaction to the news about the research was swift. Two days after the story broke, the Volkswagen Group tweeted that it “explicitly distances itself from all forms of animal cruelty. Animal testing contradicts our own ethical standards.”
Over the next two days, criticism mounted. At a meeting in Brussels, Volkswagen Group CEO Matthias Müller addressed the experiments, saying that the European Research Group’s methods were “totally wrong.” He added: “There are things you just do not do.” Thomas Steg, Volkswagen’s chief lobbyist, told a German newspaper: “We want to absolutely rule out testing on animals for the future so that this doesn’t happen again.” This didn’t help Steg himself, whom Volkswagen promptly suspended.
The other funders of the European Research Group quickly distanced themselves from the experiment. Daimler said that it was “appalled” by the studies, and would investigate them. BMW said that it did not participate in the research. Representatives of General Motors, Ford, and Fiat Chrysler said that they do not test the effects of emissions on humans or animals.
The public response to the experiments reached a level that even the German government could not ignore. Steffen Seibert, a spokesperson for Chancellor Angela Merkel, said that “the disgust many people are feeling is absolutely understandable,” and that the tests on monkeys “can in no way be ethically justified.”
I have been arguing against the way we treat animals for the past 45 years, yet I have never seen such categorical repudiation of experiments on animals by senior corporate executives and government spokespeople as we are witnessing in Germany now. If the reactions had condemned Volkswagen for seeking to mislead the public by supplying the researchers with a rigged car, I would not have been surprised. But Volkswagen’s use of “defeat devices” in its cars to cheat on emissions tests has been known since 2015. It is the abuse of the monkeys that is driving the condemnations, and the desire of the companies to distance themselves from the research.
It is not news that animals suffer in painful and unnecessary experiments. In every edition of Animal Liberation since the original in 1975, I described dozens of experiments in which the suffering of animals was severe and the likelihood of any significant benefit to human health or wellbeing was as remote as it was in the Volkswagen experiments. Today, organizations like People for the Ethical Treatment of Animals continue to highlight how millions of animals – including monkeys – suffer in unnecessary experiments.
Nearly three million animals are used in experiments in Germany each year. If Volkswagen, Daimler, BMW, and the German government are saying that experiments like those commissioned by the European Research Group to test the health impact of diesel exhaust are unethical, then many other experiments also fail to meet the same ethical standard.
What has changed, gradually and over several decades, is concern for animals. A 2015 Gallup poll showed that almost one in three Americans agreed with the statement that animals should be given the same rights as people, while nearly all the rest (62%) thought that animals should be given some protection. In Germany, 89% of those polled said that they oppose animal testing that causes pain and suffering. In several other European nations, including France, Italy, and the United Kingdom, opposition was also above 80%.
No car manufacturer or other corporation that values its brand can afford to alienate 80% of its potential customers. If, as Merkel’s spokesperson said, the use of monkeys to test the safety of emissions from diesel engines “can in no way be ethically justified,” it becomes possible to hope that the end of painful experiments on animals is not far away.
Volkswagen and the Future of Honesty
In the wake of the Volkswagen emissions scandal, cynics might say that lofty talk of "business ethics" is intended only to camouflage the pursuit of profit. Yet the company’s behavior is odd, because, even – or especially – by the standard of profit maximization, its software ruse was an extraordinarily reckless gamble.
PRINCETON – If you used the term “business ethics” in the 1970s, when the field was just starting to develop, a common response was: “Isn’t that an oxymoron?” That quip would often be followed by a recitation of Milton Friedman’s famous dictum that corporate executives’ only social responsibility is to make as much money for shareholders as is legally possible.
Over the next 40 years, however, businesspeople stopped quoting Friedman and began to talk of their responsibilities to their companies’ stakeholders, a group that includes not only shareholders, but also customers, employees, and members of the communities in which they operate.
In 2009, an oath circulated among the first class of Harvard Business School to graduate after the global financial crisis. Those who took it – admittedly, a minority – swore to pursue their work “in an ethical manner” and to run their enterprises “in good faith, guarding against decisions and behavior that advance my own narrow ambitions but harm the enterprise and the societies it serves.”
Since then, the idea has spread, with students from 250 business schools taking a similar oath. This year, all Dutch bankers, 90,000 of them, are swearing that they will act with integrity, put the interests of customers ahead of others (including shareholders), and behave openly, transparently, and in accordance with their responsibilities to society. Australia has a voluntary Banking and Finance Oath, which obliges those taking it (more than 300 people have so far) to, among other things, speak out against wrongdoing and encourage others to do the same.
In August, one executive, Véronique Laury, said that her professional ambition is to have “a positive impact in the wider world.” You might think she heads a charity, rather than Kingfisher, a home-improvement retailer with some 1,200 stores across Europe and Asia. In September, McDonald’s, the largest purchaser of eggs in the United States, showed that it, too, can contribute to ethical progress, by announcing that its US and Canadian operations would phase out the use of eggs from caged hens. According to Paul Shapiro, the US Humane Society’s vice president for farm animal protection, the move signals the beginning of the end for the cruel battery cages that have, until now, dominated America’s egg industry.
Then came the revelations that Volkswagen installed software on 11 million diesel cars that reduced emissions of nitrogen oxides only when the cars were undergoing emissions tests, enabling them to pass, even though in normal use their emissions levels greatly exceeded permitted levels. In the wake of the ensuing scandal, the New York Times invited experts to comment on whether “the pervasiveness of cheating” has made moral behavior passé. The newspaper published their responses under the heading: “Is Honesty for Suckers?”
Cynics would say that nothing has changed in the last 40 years, and nothing will change, because in business, all talk of ethics is intended only to camouflage the ultimate aim: profit maximization. Yet Volkswagen’s cheating is odd, because, even – or especially – by the standard of profit maximization, it was an extraordinarily reckless gamble. Anyone at Volkswagen who knew what the software was doing should have been able to predict the company was likely to lose.
Indeed, all that was required to lose the bet was an attempt to confirm that the emissions results obtained when the vehicles were undergoing federal emissions tests were similar to those resulting from normal driving. In 2014, the International Council on Clean Transportation commissioned West Virginia University’s Center for Alternative Fuels, Engines, and Emissions to do just that. The software ruse quickly unraveled.
Volkswagen’s stock has lost more than one-third of its value since the scandal broke. The company will have to recall 11 million cars, and the fines it will have to pay in the US alone could go as high as $18 billion. Most costly of all, perhaps, will be the damage to the company’s reputation.
The market is giving its own answer to the question “Is honesty for suckers?” Its response is: “No, honesty is for those who want to maximize value over the long term.” Of course, some corporations will get away with cheating. But the risk is always there that they will be caught. And often – especially for corporations whose brands’ reputation is a major asset – the risk just isn’t worth taking.
Honesty maximizes value over the long term, even if by “value” we mean only the monetary return to shareholders. It is even more obviously true if value includes the sense of satisfaction that all those involved take from their work. Several studies have shown that members of the generation that has come of age in the new millennium are more interested in having an impact on the world than in earning money for its own sake. This is the generation that has spawned “effective altruism,” which encourages giving money away, as long as it is done efficiently.
So we have grounds to hope that as the millennials begin to outnumber those still running Volkswagen and other major corporations, ethics will become more firmly established as an essential component of maximizing the kinds of value that really matter. At least among major corporations, scandals like the one at Volkswagen would then become increasingly rare.
The Decadence of the People’s Car
The Volkswagen scandal is a useful reminder that corporate wrongdoing is not confined to the banking industry, and that merely levying fines or ramping up regulation is unlikely to solve the problem. Indeed, it is one of the iron laws of corporate physics: Every regulation elicits a proportionate effort to circumvent it.
PRINCETON – So far, the Volkswagen scandal has played out according to a well-worn script. Revelations of disgraceful corporate behavior emerge (in this case, the German automaker’s programming of 11 million diesel vehicles to turn on their engines’ pollution-control systems only when undergoing emissions testing). Executives apologize. Some lose their jobs. Their successors promise to change the corporate culture. Governments prepare to levy enormous fines. Life goes on.
This scenario has become a familiar one, particularly since the 2008 financial crisis. Banks and other financial institutions have enacted it repeatedly, even as successive scandals continued to erode confidence in the entire industry. Those cases, together with Volkswagen’s “clean diesel” scam, should give us cause to rethink our approach to corporate malfeasance.
Promises of better behavior are clearly not enough, as the seemingly endless number of scandals in the financial industry has shown. As soon as regulators had dealt with one case of market manipulation, another emerged.
The trouble with the banking industry is that it is built on a principle that creates incentives for bad behavior. Banks know more about market conditions (and the likelihood of their loans being repaid) than their depositors do. This secrecy lies at the heart of financial activity. Polite analysts call it “management of information.” Critics consider it a form of insider dealing.
Banks are also uniquely vulnerable to scandal because many of their employees are simultaneously behaving in ways that could influence the reputation, and even the balance sheet, of the entire firm. In the 1990s, a single Singapore-based trader brought down the venerable Barings Bank. In 2004, Citigroup’s Japanese private bank was shut down after a trader rigged the government bond market. At JPMorgan Chase, a single trader – known as “the London Whale” – cost the company $6.2 billion.
What these repeated scandals show is that apologies are little more than words, and that talk about changing the corporate culture is usually meaningless. As long as the incentives remain the same, so will the culture.
The Volkswagen case is a useful reminder that corporate wrongdoing is not confined to the banking industry, and that merely levying fines or ramping up regulation is unlikely to solve the problem. Indeed, it is one of the iron laws of corporate physics: For every regulation, there is a proportionate proliferation of innovations to circumvent it.
It should come as no surprise that there were incentives in the automobile industry to game the system. Everyone knows that actual fuel economy does not correspond to the numbers on the showroom sticker, which are generated by tests carried out with the wind blowing from behind or on a particularly smooth road surface. Similarly, anyone who has stood next to a diesel vehicle, even one proclaiming the virtues of “clean diesel,” could tell that it was smellier than cars powered by gasoline.
There are two important similarities between the scandals in the finance industry and at Volkswagen. The first is that large corporations, whether banks or manufacturers, are deeply embedded in national politics, with elected officials dependent on such firms for job creation and tax revenues. Volkswagen in particular is an icon of German manufacturing. Chancellor Angela Merkel has gone out of her way to support the company, as did her predecessor, Gerhard Schröder, who came to its defense in 2003, when the European Commission challenged the legality of its holding structure.
The second similarity is that both industries are subject to multiple regulatory objectives. Regulators may want banks to be safer, but they also want them to lend more to the real economy, which often means taking more risks. As a consequence, they impose rules that do not clearly push banks in one direction or the other.
The regulation of automobile emissions faces a similar problem. As regulators’ focus turned toward limiting global warming, there were tremendous incentives to manufacture vehicles that produced fewer greenhouse-gas emissions, even if that meant, as with diesel engines, emitting other gases and micro-particles that are much more harmful to humans in their vicinity. There was never a discussion of the tradeoff between limiting local pollution and fighting climate change.
As the Volkswagen crisis so vividly illustrates, we need more than corporate apology and regulatory wrist slapping. It is time for a sustained discussion about how to craft regulations that provide the proper incentives to achieve the objectives we truly desire: economic and social wellbeing. It is only when that discussion takes place that we will get the banks, cars, and other goods and services that we want.
The Volkswagen Revolution
The world is only at the beginning of what could be a long process of investigation and accountability for Volkswagen. If that process fuels wider disruption of the industry, it could lead to a genuinely new era for human mobility.
NEW YORK – When Michael Horn, the president and CEO of Volkswagen Group of America, recently testified before a committee of the US Congress about the software that Volkswagen installed on its diesel-powered cars to defeat emissions tests, he expressed his own incredulity that the blame lay with a couple of engineers. “I did not think that something like this was possible at the Volkswagen Group,” Horn said.
Horn and the members of Congress are not the only ones who feel betrayed by Volkswagen’s purposeful malfeasance. So do the consumers who bought into the company’s “clean diesel” marketing and purchased one of the 11 million affected Volkswagen, Audi, Skoda, and Seat cars. And the dealers, suppliers, workers, regulators, and legislators in every country who now have to deal with the aftermath feel betrayed as well.
When a high-profile consumer company, one built on confidence and specialized skill, breaches the public’s trust, the damage is enormous. The US hearings have been followed by parliamentary hearings in the United Kingdom, and more official inquiries are being launched elsewhere. In Italy and Germany, the police have searched offices and private homes to secure relevant documents. There is talk of consumer class-action suits around the world, from the US to Australia. And the European Investment Bank plans to investigate whether any of the loans extended to the company – which were linked to fulfilling climate targets – were used to rig emissions tests. If so, it could demand the money back.
With Volkswagen announcing the recall of 8.5 million cars in Europe, the company may not survive – at least not in its current form. The financial damage is set to be enormous: Volkswagen now says that it will set aside €6.5 billion ($7.4 billion) to cover the costs of the scandal. That may not be enough, and the company’s stock is reflecting the market’s concerns, as is its Standard & Poor’s credit rating.
The entire auto industry is now under scrutiny, as are regulators, whose testing procedures proved so easy to game and whose complex relationships with governments and auto manufacturers may not serve the public interest. And Volkswagen is so closely aligned with the German engineering “brand” that, unfair as it may be, the scandal is bound to affect the perception of other German carmakers and industries.
Here, after all, was a much-celebrated company that put its environmental credentials front and center, and then, where the rubber hits the road (so to speak), proactively cheated. Covering up a mistake, à la GM and its faulty ignition switches, is bad enough; creating and installing a piece of software designed for the sole purpose of defrauding the public is a symptom of something much worse.
A fish rots from the head. Volkswagen is well known for having a particularly poorly run and structured board: insular, inward-looking, and plagued with infighting and family rivalries. Matters came to a head last April, when then-Chairman Ferdinand Piëch resigned following a power struggle with the company’s (now former) CEO, Martin Winterkorn. Piëch’s wife, Ursula, a former kindergarten teacher who was also a supervisory board member, resigned as well.
If these people can say with a straight face that they didn’t know what was going on, they are either not being completely forthcoming, or they failed to carry out one of a board’s fundamental duties – asking hard questions and holding the executive team to account, especially when things seem too good to be true.
Unfortunately, in the wake of the revelations, Volkswagen has squandered what could have been a watershed moment for the company – a perfect opportunity to overhaul its broken corporate governance and bring in truly independent board members and fresh new thinking at the top. Instead, Hans Dieter Pötsch, Volkswagen’s chief financial officer since 2003, a true insider, has been appointed chairman of the supervisory board, and the new CEO is another insider, Matthias Müller, the former head of Volkswagen’s Porsche brand. Who will trust such a leadership’s internal inquiries and promises of transparency?
All of this comes at a time when traditional carmakers face strong challenges from outside the industry. The behavior of companies like Volkswagen may end up encouraging consumers to shift from the industry’s incumbent manufacturers to newcomers such as Google’s forthcoming self-driving cars and Tesla’s electric models, which challenge the very premise of emissions tests.
But there is more to the story. The fact that lines of code, not a piece of plastic or metal, was used to dupe the emissions tests highlights the power and promise of sophisticated, high-tech cars that can do more than ever before. But it also exposes the pernicious possibilities of cars that have become so complex that almost no drivers know what is under the hood, what data are being collected about them, and what that means for the future.
What Volkswagen claims was the work of a couple of rogue engineers could turn out to be a catalyst for new thinking and approaches in the car industry, particularly given the possibility of new legislation to combat climate change. People would be pushed that much more quickly toward adopting cars that do not depend on fossil fuels. And the rise of new challengers would accelerate as consumers let companies know that business as usual – poor corporate governance and empty promises – will no longer be tolerated.
We are only at the beginning of what could be a long process of investigation and accountability for Volkswagen. If that process fuels wider disruption of the industry, it could hasten the dawn of a genuinely new era for human mobility.
Germany is Not Volkswagen
The Volkswagen scandal has raised questions about the German model of production. If Germany is to maintain its economic dominance, it will have to ensure that the culture of integrity underlying its success remains unchanged by the pressures of global competition.
MUNICH – The Volkswagen scandal has raised questions about the German model of production. If the success of the company’s diesel-powered vehicles was due in part to fraudulent efforts to conceal the amount of harmful pollutants they emitted, will similar revelations at other companies call into questions the country’s transformation from “the sick man of Europe” to an export-driven economic powerhouse?
Fortunately, the answer is almost certainly no. Germany’s competitive advantage has less to do with chicanery than with how its firms are structured and the culture in which they operate. Germany’s leading car company is an exception to the manufacturing rules that have driven the country’s success, not an example of them.
Indeed, Germany’s success is frequently cited as a model that other countries should emulate, and rightly so. Since the beginning of the century, the country has grown to become one of the world’s leading exporters, outstripping all other major European countries. From 2000 to 2013, Germany’s exports grew by 154%, compared to 127% for Spain, 98% for the United Kingdom, 79% for France, and 72% for Italy.
The leading explanation for Germany’s impressive recent export performance is wage restraint. But, as a comparison with Spain reveals, faster wage growth elsewhere cannot be the entire story. To be sure, from 2000 to 2008, German wages increased by 19%, compared to 48% in Spain. But after the 2009 financial crisis, the roles were reversed. From 2009 to 2013, German nominal wages increased by more than 14%, compared to 4% in Spain. And yet, despite the more rapid rise in German wages, the country’s exports rebounded faster than Spain’s – or those of any other European Union country.
The most important factor behind Germany’s success is that the structure of its firms improves the quality of their products. German exporters are organized in a way that is less hierarchical and more decentralized than other European firms. This gives them several advantages. Decentralization enables employees at lower levels of the corporate hierarchy to devise and implement new ideas. As these employees are often closer to customers than those higher up, their collective knowledge about what the market is demanding is an important source of value.
Tapping this knowledge allows Germany to compete on quality, not price. Indeed, if wage restraint were the main factor in Germany’s success, it would be hard pressed to outperform French, Italian, British, and Spanish exporters, who compete mainly on price by offshoring production to low-wage countries. Instead, the German focus on quality allows its firms to charge higher prices and gain new customers. When exporters are asked to rank their products relative to a market average, 40% of German exporters classify their goods as top quality, while only 10% of French exporters do so.
Decentralized management has helped German exporters triple their share of the global market for top-quality goods compared to those firms that did not reorganize. Indeed, when I studied the top 1% of German exporters – the country’s export superstars – I found that they more than doubled their share of the world export market when they opted to decentralize their organizations.
This focus on quality could explain why German exports rebounded quickly after 2009, despite the rise in nominal wages. Quality makes exporters less vulnerable to changes in price – including those driven by rising wages. By contrast, those countries in which firms compete on price may have felt more pressure to move production abroad as domestic wages rose. Germany’s relative insensitivity to rising costs could also explain why its government is comfortable with a strong euro, whereas France and Italy have been calling on the European Central Bank to weaken the currency.
Volkswagen, it turns out, took a different approach from that of most other German firms. Rather than decentralizing power, CEO Martin Winterkorn sat at the head of a centralized, command-and-control organization in which he acted as a patriarch. His desire to take the company to the very top of the global car industry, surpassing Toyota, put enormous strain on his managers to deliver growth. The result – a decision to cheat on emissions tests – says less about Germany’s culture of manufacturing than about rot at the car company, beginning at the very top.
According to the World Value Survey, Germany is a high-trust society, in which citizens have confidence in one another’s behavior and act accordingly. Indeed, the lesson of the Volkswagen scandal is that this culture may be necessary for its export model to work. French and Italian exporters that introduced decentralized management did not increase their share of the global market for top-quality goods. The likely reason is that providing division managers with greater autonomy not only frees them up to respond to market demands; it also allows them to put their own career interests above the wellbeing of the firm.
If Germany is to maintain its economic dominance, it will have to do something far harder than keeping wages in check or restructuring hierarchies. It will have to ensure that the culture of integrity underlying its success remains unchanged by the pressures of global competition.
Germany’s Strange Turn Against Trade
Germany – one of the world's most open and trade-dependent economies – would be among the main economic beneficiaries of the Transatlantic Trade and Investment Partnership between the EU and the US. So why do 70% of Germans oppose the deal?
BERLIN – The window of opportunity to complete the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union is closing quickly. National elections will be held this year and next in the US, France, and Germany, and the campaigns will play out in an environment that is increasingly hostile to international agreements in any form. The biggest risk might come from the least likely source: Germany, an export powerhouse.
As it stands, some 70% of Germans citizens oppose the TTIP, almost twice the average in other European countries. They overwhelmingly believe that Germany will not benefit economically, that lower-skill workers’ wages will suffer, that large corporations will gain power at the expense of consumers, that data and environmental protection will be compromised, and that citizens’ rights will be undermined.
But a slew of studies have proved all of these claims to be overblown or outright wrong. In fact, Germany – whose economic progress since the end of World War II has been driven by its consistent openness to international trade and economic integration, and which remains one of Europe’s most open and trade-dependent economies – would be among the main beneficiaries of the TTIP.
It is projected that the TTIP would raise annual per capita income in Germany by 1-3%, or €300-1,000 per year by 2035. Moreover, with nearly 50% of German jobs linked, directly or indirectly, to the tradable sector, the deal would also help protect employment. And, by boosting the ability of the US and Europe to set global business standards, German firms’ international competitiveness would rise. Not every individual or company stands to gain from the TTIP, but the net effect on Germany’s economy and citizens would be clearly positive.
Why, then, do so many in Germany oppose the deal?
One reason is that Germany’s apparent economic success has increased aversion to change. The country not only endured the global financial crisis of 2008-2009 and the European sovereign debt crisis; it has actually thrived in recent years, experiencing robust GDP growth and impressive wage gains. The unemployment rate has been halved since 2005, reaching a record low of 4.6% today, and its current-account surplus has soared to a staggering 8% of GDP.
The sense of being Europe’s economic superstar has generated policy inertia, bringing the country almost to a complete standstill on economic reforms. While most other Europeans are desperately looking for any opportunity to pull their country out of crisis, Germans see little reason to meddle with an ostensibly prosperous status quo.
Unfortunately for Germany, its current path is not as smooth and secure as people like to think. In fact, since its lost decade as the “sick man of Europe” in the 2000s, Germany has caught up with other advanced economies in only some areas. It still has one of the lowest rates of public and private investment among OECD countries, and will be hit harder than most by a dramatic demographic shift over the next decade. Beyond providing an immediate economic boost, the TTIP would help Germany weather the longer-term challenges it faces.
Germany’s opposition to the TTIP also reflects the recent surge in populist and nationalist sentiment in much of the Western world. The appeal of such forces is particularly pronounced in the EU, owing to the popular perception that European integration has weakened national sovereignty and left citizens subject to decision-making by unelected technocrats. The last thing many Europeans want is yet another set of supra-national rules, formulated behind closed doors, governing their economies.
This sentiment is especially acute for Germans, who remain bitter at, as they perceive it, having been Europe’s paymaster during the crisis. Some now fear that the TTIP is just another trick, intended to take advantage of Germany’s economic strength and generosity. Overcoming this fear will be no easy feat.
A third reason for Germany’s opposition to the TTIP is that the country is already engaged in a battle for wealth redistribution. Germany currently has the highest inequality in private wealth in the eurozone, and it has experienced a sharp increase in wage inequality over the last two decades.
In fact, many Germans anticipate a further increase in inequality. Not only is the minimum wage widely circumvented; some politicians have capitalized on fears of the current influx of refugees to win votes, claiming that openness to foreigners will only make inequality worse.
Compounding Germans’ disillusionment is the sense – shared by many in Europe and elsewhere – that the system is “rigged.” Volkswagen managers received huge bonuses this year, despite the global scandal caused by the company’s years-long effort to evade emissions standards. And the release of the Panama Papers has revealed how the wealthiest avoid paying taxes. Claims that the TTIP would benefit primarily the wealthy have thus struck a chord with labor unions and others.
A trade-dependent economy has much to gain from freer trade, especially with a market as large as the US. Germany should be using its political clout to push its European counterparts to seal the deal. Instead, with the popularity of the country’s two largest political parties, the Christian Democratic Union and the Social Democrats, falling fast, Germany’s leaders are unlikely to push an unpopular deal. That is bad news for everyone – especially Germans.