Asia Times: Germany and China: Systemic scandals



	January 27, 2000	atimes.com

Editorials

Germany and China: Systemic scandals

"Like prostitution, corruption is part of life," says Karlheinz Schreiber, a principal in the black money scandal now engulfing former German chancellor Helmut Kohl and his political party, the Christian Democratic Union.

"As the head of a private company, Lai [Changxing, the Hong Kong/Xiamen businessman at the center of the several billion dollar smuggling scandal that is shaking the Communist Party] could never have grown as big as he did without official patronage and money," the South China Morning Post quoted a Chinese schoolteacher as saying.

Revealing as the Bavarian arms-, airplanes- and what-not dealer's comment may be of his own mindset, Schreiber - now fighting extradition from Canada - merely reproduces a standard Hollywood mafia-flick line. The Chinese schoolteacher's comment is rather more to the point. In almost any respect, Germany and China are worlds apart. But the illegal political donations and money-laundering scandal that is threatening to destroy the political party that ruled Germany for 16 years until the fall of 1998 and the largest ever Chinese economic crime affair reveal serious and quite similar weaknesses in both countries' political-economic systems.

The German so-called "social market economy" model, replicated pretty much everywhere else in continental Europe, came into existence shortly after World War II and is closely associated with the ideas and name of Ludwig Erhard, long-serving economics minister under the first post-war chancellor, Konrad Adenauer, and later himself chancellor for a brief period. Laissez-faire capitalism, thought Erhard, was too rough and tumble an affair and had to be moderated by explicit recognition in law and fact of the capitalists' social responsibility. Thus was born a political-economic arrangement between the government, political parties, trade unions, and business in which agreed portions of business profits were earmarked for government-controlled social spending in return for trade union moderation of wage demands and government protection of business interests. The arrangement, thought Erhard, supported by cross-party consensus, was necessary in order to defuse communist agitation and make Western Europe safe for democracy.

All good and well, and through the first four decades of post-war German (and Western European) political and economic history, some scandals treated as aberrations aside, the social market economy model functioned to almost everyone's satisfaction. Germany Inc, a handful of large banks and insurance companies, linked through cross-holdings with each other and with major business concerns, was built and from the rubble of WW II the German economy grew to become the world's third largest and arguably most prosperous. So, what went wrong in the 1980s and '90s to produce current unemployment rates of over 10 percent and the present scandal that threatens to politically and financially bankrupt the political party which - with some brief periods of social-democratic rule intervening - built the contemporary Germany?

There is no quick and easy answer. But in essence, Germany Inc over the past two decades has increasingly stifled entrepreneurial initiative, has become large and dull, and is sinking under the weight of taxes that appropriate 50 percent of GDP for government dispensation. And what started as a seemingly benign arrangement between business, labor, and government bureaucracies has come to reveal its character as collusion between the partners in the arrangement with few checks and balances on their activities.

In the run-up to the Gulf War, Saudi Arabia wanted German-built tanks. The German constitution prohibits arms sales to countries and regions involved in military conflict. So, the German national security council produced a finding that the sale was in the essentail national interest. The sales agent was good old Karlheinz Schreiber. Thyssen, one of Germany's largest companies had the tanks. Schreiber mediated between Thyssen, the German government, and Saudi Arabia. The tanks were sold. Schreiber collected a hefty commission. One million marks of that was handed over in cash stashed in a suitcase to the Christian Democrats' treasurer in a parking lot in Switzerland. And, of course, now it has come to light that much larger sums than that at least since the late 1980s flowed from corporations and individuals into CDU coffers, all nicely laundered through tax-haven countries and properly kept away from the not-so-watchful eyes of authorities charged with monitoring party finances by means of an as yet undetermined number of black accounts.

To do business in social market Germany, middlemen like Schreiber have learnt, one must pay off the right people with appropriate sums at the right time. And businesses, in turn, have to figure the ever higher costs of graft into their profit calculations.

And now look at China. The Xiamen smuggling operation, much like the by now corrupted German social market arrangement, undoubtedly benefited both the people of Fujian province and the government-business-party circle that carried it out. Reportedly, the price of gasoline has increased by 20 percent since the illegal import of oil ceased. What's to be learnt from this is the obvious: if you give the government and political parties the pre-eminent power over arranging and controlling business, you set the stage for corruption and businesses quickly discern what palms need to be greased for successful business conduct. Corruption is deplorable. In Germany, some people will go to jail; in China, with harsher punishment standards, some may be shot. But as importantly, corruption is a heavy tax on business conduct that should be removed forthwith. Punishing the culprits is necessary. Changing the system that breeds corruption and having the government and political parties get out of businesses' ways, however, is the only cure.