The Hartz IV Workfare System: Why Merkel’s Much-Touted German Economic Powerhouse is Built on Sand

Webster G. Tarpley, Ph.D.
February 25, 2014

Tarpley PressTV Article

Around the world, dissatisfaction is growing with the Anglo-American economic model, which presents itself as a system of free markets and free trade. There is also growing dissatisfaction with the extreme disparities of individual income this model has created.

Not surprisingly, many observers have seen an attractive alternative in the German social market economy, featuring a highly regulated system in which small and medium export-oriented companies are prominent, and in which trade unions play an integral part, both in factory councils and by placing representatives on corporate boards.

But a closer look at Germany reveals that the social market economy of earlier decades now includes a vast low-wage sector of workers who have become second-class citizens, receiving much the same status which undocumented Hispanic immigrants in the United States would occupy under plans put forward by the Republican Party and supported by many Democrats. The German low-wage sub-economy has a name: it is called Hartz IV, named after the former personnel boss of the Volkswagen concern, and enacted into law under the auspices of the former Social Democratic Chancellor Gerhard Schröder — with massive complicity from the neo-corporatist German trade unions — and successively amended several times, thus accounting for the IV. German working people have just completed their eleventh year under the yoke of Hartz, which came into full effect in January 2003, and has been expanded and perfected by Europe’s reigning austerity enforcer, Christian Democratic Chancellor Angela Merkel.

The various Hartz plans started as a response to the permanently high levels of unemployment which have prevailed in West Germany and then in reunified Germany, since the early 1980s. These high jobless levels are themselves a reflection of the slowing of world economic progress in the decade after the demolition of the highly successful 1944 Bretton Woods system, which was terminated by Nixon and Kissinger on August 15, 1971. During the 1980s and 1990s, Germany was afflicted by unemployment in the neighborhood of 3 million, 4 million, and then 5 million workers.

Hartz wanted to prevent these millions of unemployed workers from collecting their full jobless benefits over an indefinite period, as was often the case before 2003. His response was to design a system which shunted unemployed workers off the unemployment insurance rolls and onto the welfare rolls after about one or two years, depending on their age, and to impose a stringent low-wage workfare requirement on these welfare recipients. Workfare means that welfare victims are required to work for their benefits, often functioning as strikebreakers, and always contributing to a race to the bottom in labor conditions. The workfare requirement, in the opinion of some, amounted to the institution of a kind of slave labor.

The pre-Hartz system included unemployment insurance benefits for workers who had been employed for a certain number of years. For others, there were social welfare benefits. Now, these two categories have in effect been merged for the long-term unemployed, with a workfare requirement — the compulsion to accept jobs at submarket wages as a condition for further benefits — having been added.

Desperate jobless preyed on by labor brokers, low-wage subcontractors

As Hartz IV currently functions, even a unionized worker making a decent wage of €30-€40 per hour will, if laid off, within one to two years find himself or herself as a social welfare (Sozialhilfe) case, and therefore no longer counted among the unemployed. At this point, the worker in question is, if single, eligible to receive a monthly basic payment of €391 per month. But this allowance is means-tested, and requires proving that personal assets are below a mere €3,100. In addition, between €200 and €300 in housing allowances may also be available.

In exchange for these meager payments, the unemployed worker comes under the control of the local Agentur für Arbeit or labor agency. These labor agencies, unlike the old Arbeitsämter or employment offices are no longer primarily government institutions, but now represent for-profit private companies functioning as what could be called labor brokers. The Hartz IV recipient is, within certain limitations, required to take any job which the labor broker demands be filled. If the recipient refuses, this can lead to a total denial of future benefits. The labor broker can also demand that the recipient do certain things to become more marketable, such as taking training courses to acquire certain salable skills. Jobs obtained in this way are not likely to be permanent employment, but are rather more frequently so-called mini-jobs or midi-jobs. Any wages arising from such substandard employment are partially subtracted from the basic monthly maintenance payment, and are also subjected to taxes and insurance payments. In any case, these wages are likely to be very low. Incredibly enough, Germany still has no law establishing a minimum wage.

These profit-driven labor brokers work closely with the Werkleistungsfirmen, which are low-wage subcontractors of the corporate sector. These subcontractors have entered into agreements with private corporations to provide certain services. The subcontractors work for the famous names of German export industry like Volkswagen, Mercedes Benz, BMW, Siemens, and many others. Sometimes these subcontractors occupy specially designated spaces inside the plants of the larger corporations, and these special low-wage areas are often marked off by a yellow line. This is doubly ironic, since yellow is associated in many European languages with scab labor and other antiunion tactics. Workers inside these yellow zones are not represented by trade unions, and are more or less at the mercy of whatever the subcontractor wants to demand. It might be more accurate to say that the inmates of the yellow zones have been abandoned by the trade unions.

This arrangement often leads to a situation along the lines of the following hypothetical example. Let us assume that a famous German company pays its unionized workers €40 per hour. At the same time, this company contracts with Hartz IV subcontractors on the basis of €20 per hour for the labor of Hartz IV recipients. The subcontractor deducts a commission of five euros per hour from this €20 per hour fee. The labor broker then deducts another five euros of commission. The Hartz IV worker is then left with €10 per hour, from which applicable taxes and various fees then have to be deducted. To complete the cycle of exploitation, whatever the Hartz IV worker is paid results in a reduction of the €391 basic monthly payment.

Hartz and the successive governments who have implemented this program have been careful to camouflage this Dickensian system of exploitation using trendy Anglo-American labels. The jargon of Hartz IV includes such foreign expressions as “Jobcenter,” “Personal Service Agentur,” “Mini-Job,” “Midi-Job,” and “Bridge System.” Much of this verbiage is incomprehensible to the average German.

Obviously, one of the effects of this system is to provide German corporations with low-wage labor by people whose survival is subsidized by government and the taxpayer. In the United States, this has long been associated with the Walmart business model, in which many low-wage workers depend on food stamps, heating subsidies, and other assistance from the federal government. In Germany, the same basic dynamic has been fully worked out and institutionalized under oppressive laws. In turn, Hartz IV allows us to see what the United States would be like if 11 million undocumented foreign workers, largely of Hispanic origin, were turned into second-class citizens earning inferior wages and thus exerting a downward pull on all pay scales in the way we can see in Germany today.

Hartz IV: Merkel’s human junk heap

This Hartz IV system must be condemned as a process of brutal exploitation which is forcing millions of Germans into a life of low-wage, dead-end jobs and low-wage temporary jobs. Hartz VI represents a human junk heap to which victims are consigned with Kantian thoroughness.

One of the great benefits of Hartz IV for the German political class of Eurogarchs and Eurocrats is that it has become practically impossible to determine the real level of unemployment. When workers enter the Hartz system, they drop off the unemployment rolls. Even within Hartz, the statistics are highly fragmented. Some workers become on-the-job trainees. Other workers are shunted off into German language courses and other classes. The presence of many Turkish, Romanian, Bulgarian, Albanian, gypsy, and other foreign workers within various Hartz IV programs has tended to shield the entire system against criticism by the politically correct left. According to Merkel’s propaganda, a Greek living in Greece is considered a lazy bum. But a Greek guest worker who has taken a job under the auspices of Hartz IV is a diligent person who is contributing to German society — meaning ultimately to the profits of the derivatives-riddled Deutsche Bank.

According to unofficial estimates, the total yearly cost of Hartz IV for the Berlin government is about €25 billion, which some reactionaries attack as excessive. But this compares with estimated yearly support of €300 billion-€400 billion dished out in various forms to the German zombie banks. In this light, the €25 billion for Hartz IV appear as a cynical insurance policy by German financiers to neutralize the explosive revolutionary potential of so many million unemployed.

Some unemployed workers become self-employed through the institution of the so-called “Ich AG” or “Me, Incorporated,” for which they may receive a microcredit. But these self-employed unemployed are then subject to a long series of compulsory contributions, ranging from pension insurance and health insurance to local Chamber of Commerce dues.

Between eleven million and eighteen million Hartz victims?

According to the most recent statistics for early 2014, the German unemployment rate is officially about 5.1%. This is great public relations, but it is also completely deceptive. The simple fact is that no one really knows how many of those who are actually unemployed and underemployed have simply disappeared into the Kafkaesque labyrinth of Hartz IV. Estimates from knowledgeable observers gathered by the present writer range from 11,000,000 to 18,000,000 victims of Hartz IV. This is Merkel’s Gulag.

Given the immense size of the Hartz IV human junk heap, it is not surprising that this system has contributed much to the pessimism, despair, and anger which have played an increasing role in German politics. Hartz IV has distorted German society in ways which will not be easy to roll back. One area of long-lasting damage is the sharp increase in income inequality and disparity of economic incomes, a question which is in the center of public attention in many countries right now. An April 2012 OECD report found that “Germany is the only [EU] country that has seen an increase in labor earnings inequality from the mid 1990s to the end 2000s driven by increasing inequality in the bottom half of the distribution.”

The long-term impoverishment of German society has a number of causes, but 11 years of Hartz looting have certainly played a major role. Twenty years ago, Germany was notable for its highly developed system of regional infrastructure, including post offices, local public transportation, and schools. The post office has now been privatized, local transportation networks have been gutted, and kindergarten classes have ceased to exist in many areas.

In the former German Democratic Republic (East Germany), many towns have simply never recovered from the post unification economic collapse of two decades ago. The landscape east of the Elbe River and especially along the East German Baltic coast is now dotted with virtual ghost towns where very few inhabitants and almost no economic activity remain. Numerous abandoned buildings are falling into ruins, as in Detroit.

The right wing extremists who have just come to power in Ukraine loudly proclaim their desire to join Europe. If they are granted any rapprochement with Europe, it is likely to be on the Greek path of killer austerity dictated by the International Monetary Fund. But even joining Europe on the supposedly preferable German model turns out to be a process of exploitation, looting, and despair. Merkel’s Europe of austerity dictated by the banks and cartels is not viable. Five hundred million Europeans deserve an end to the financier yoke and a new era of full employment and rising standards of living.

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