Can you give an explanation for the raise of the Euro compared to the Dollar or the risks that come with an investment in government bonds? If your answer is 'No,' you are in good company in Germany. Those who do not have an education in economics or work in this field rarely have any knowledge in matters of the economy or finance. One thing though is certain, in school Germans do not learn how a market economy works.
Stefan Theil recently showed how entrepreneurship is dealt with in German, French, and US school books and how little students learn about the functioning of a market economy. If at all the economy is an issue within the Social Science or Politics curricular in high-schools, than it is discussed under the aspect of wealth distribution or a skeptic questioning of innovation and growth. In the end a student knows more about the living conditions of Latin American coffee farmers then about the relation of the institutional order of the economy, growth, and wealth distribution. He or she might know how many jobs were destroyed thanks to the introduction of the computer but does not know how many new jobs were created directly in the IT industry and indirectly through the saved resources. In the end many believe that it is better for society to produce the same amount of goods with more rather than with less labor. It is not surprising that as a result of this lack in knowledge half of all Germans believe at least in parts in the socialist' ideology and 14% believe in the doctrine of salvation of the Left Party and would vote for them in a federal election.
Just as little as Germans know about goods and labor markets, they tend to know about capital markets. One result of this is a relative small number of share owners. Only 4.1 Mio. investors (6.6% of the population) profit from the long-term higher yields of stocks compared to bonds or saving accounts. In the US 25.5% invest in stocks and even in capitalist skeptic France 14.5% do so. The lack of knowledge leads to a suboptimal asset formation for the individual household. But for society as a whole this has also the effect of a widening income and wealth gap. This again fosters the thinking in terms of social class, defining oneself in categories such as capital owner or wage earner. In the US this problem was noticed on the highest level and President Bush established this January the ‚President's Advisory Council for Financial Literacy'. It is supposed to come up with recommendations as to how to better educate people from all walks of life about matters pertaining to their finances and their future.
In the Lisbon Agenda the EU member states committed themselves to make the EU the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion. If Germany wants to have only the slightest bit of a chance to make this become a reality it is imperative that competitiveness and dynamics are seen as desirable by society. New knowledge needs to be transferred into marketable innovations by risk taking entrepreneurs. But instead of being instigated to be proactive students are taught to become obeying employees. Entrepreneurs are seen as exploiters and have a lower social standing than government employees with guaranteed livelong employment or middle managers in the Deutschland AG.
If a country's elite rather seeks government employment than being self employed and criticizing capitalism - while at the same time knowing very little about it - is seen as chick, the global competition with innovation embracing Americans and with Chinese that hunger for a better life can only be lost. Knowing the basics of a market economy is a prerequisite if not for anybody in Germany but at least for today's students that should learn about it in school. And if this is not convincing enough: It is easier to criticize and change an economic system when you understand its rules.
Dr. Tim Stuchtey is a senior research fellow and director of the business and economics program at the American Institute for Contemporary German Studies - AICGS