Germany needs a minimum speed for infrastructure investment

German fiscal policy needs a turnaround. Investments have been a neglected factor in public spending for far too long. There are numerous examples, ranging from primary school bathrooms, to road surfaces, to the rail network. Our economy is no longer equipped to meet the standards that Germany, as one of the strongest economies worldwide, deserves. There are two issues here: our understanding of investments, and the measures to be taken in order to ensure that these investments are really made.

On the first point: We need a much broader understanding of investment. These days, media coverage of the issue mainly focuses on bridges and school facilities. This first component of investment is important, but it only refers to things that we already have. However, it is obvious that the renovation of a dilapidated road does not make our country more fit for the future. Holding debates on leaking school roofs, or on whether a motorway bridge can be maintained for a few more years cannot be seen as debates on investment in the stricter sense, but as debates on the decay of our economy – thus on either the depreciation or the maintenance of our infrastructure, as we know from every successful company.

A real debate on spending for future investments would be much more important. In addition to the infrastructure debate, we need a debate on tomorrow's infrastructure. It is not enough to ensure that a vocational school is half-way maintained: students training to become dental technicians must have the most modern 3D printers at their disposal in order to be well prepared for their future jobs. The same is true for communications networks and energy grids, and also for the administration. Anyone who really wants to digitalise the state, who really wants to ensure that administrative procedures can be managed from a computer twenty-four-seven – and not after waiting for hours in administrative offices – must make major investments. It will not be possible to finance the digitalization of our public administration from the current budget. This is something all companies realise, but the public sector has trouble accepting.

We also need a debate on softer forms of investment. This means investment in education, research, or the construction of bike lanes. Many economists raise the question of whether such measures constitute real investments. This says much more about the theoretical character of some economic discussions than about investment policies in Germany. Investments in education are, of course, real investments, as long as the money is not frittered away. Germany lacks 350,000 daycare slots. About 500,000 women state that they would like to work full time instead of part time. These figures show that Germany's economic power could be stronger if we invested in half a million new daycare slots. Another example: Does a safe and fully developed network of bike lanes in Berlin constitute an investment? From a social, health and ecological perspective it certainly does. Purely financial considerations might be somewhat more complex, because the returns can only be measured indirectly. But exactly this is the task of the state – to invest not only in areas in which returns can be measured directly. Otherwise there would be no internal security and no national defence.

Looking at German investments during the past years, we see that the net investment rate has hovered around zero for about 20 years. The rate has even been negative in some years. This means that Germany even decreased the value of its own assets (the so-called "capital stock") during these years. Thus, there is no question of future investments.

What has to happen to make Germany invest again? It is clear to me that in addition to the debt rule, which is completely correct, we need an investment rule, because the government's fiscal policy takes the easy way out: the debt brake must first be observed before money for consumption spending can flow – things like social expenditures, pensions and subsidies.. And what is left in the end can be used for investments. This order must be changed: First observance of the debt brake, then the investment rule, then consumption spending.

Therefore, Germany needs a “minimium speed for investment“ as an integral part of medium term financial planning. Just like an engine that needs to run to avoid stalling, the public needs a minimum of investment that is not called into question. The exact arrangement still needs to be discussed. A minimum investment rate in proportion to the gross domestic product would be a possibility but would also mean that investments would have to be much higher in good than in bad years. An intelligent counter­-cyclical economic policy should do the opposite. Therefore, a figure should be defined as binding in the medium-term that could ideally be composed of a maintenance component for infrastructure, a future component for infrastructure investments, and an education and research component.

One thing is very clear: It is completely wrong to believe that only debts will be a burden for future generations. Is it not even more unfair to expect young people to grow up with a dilapidated infrastructure today, and in addition to that ask them to pay for the significantly more expensive reconstruction of this infrastructure tomorrow? The famously frugal and efficient Swabian housewife would never do such a thing. I grew up in Swabia, so I know what I am talking about. The house of a Swabian family that spends wisely is spic and span and has solar panels on their roof. There people know that it is their moral duty to hand their house over to the next generation in a perfectly maintained state and well-prepared for the future. The German state should do the same. 

This article orginally appeared in Tagesspiegel Causa.