Council of Economic Experts could be reformed

Berlin More than a dozen times, Angela Merkel has already received the annual report of the “Advisory Council (SVR) on the assessment of macroeconomic development”. Nevertheless, the Chancellor was initially not clear about the process when it was presented last November.

A few seconds of stammering followed the greeting of the economic wise men, until they said: “It begins – I think – Mr. Feld.” The presentation took place digitally for the first time because of the pandemic. The Chancellor did not seem too familiar with the choreography for the handover – which some also interpret as a symbol of a lack of interest.

Both incidents have now sparked a debate among Germany’s leading economists: Does something fundamentally change in the more than half a century old Council?

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The new federal government would have the opportunity to do so: as soon as the new coalition is in place, the council will be on the agenda anyway by appointing the fifth wise man. It would be the perfect time to fundamentally reform the SVR. The only question that arises is: How? The Handelsblatt talked about this with current and previous economists as well as other important economists.

Option 1: Advise the government rather than the public

Ludwig Erhard always knew what to do with the USA. During his travels across the Atlantic, the then Federal Minister of Economics got to know a drink that from then on he also used to drink in the Federal Republic: whiskey on ice, ‘on the rocks’, as the Americans say.

What Erhard also liked: Since 1946 the “Council of Economic Advisers” has resided in the White House, in which the US president has gathered three economic followers around him. Only Erhard was less concerned with advice. “The fat man” already knew which ideas he wanted to pursue with his social market economy.

With the establishment of the SVR in 1963, Erhard rather reacted to the increasingly aggressive wage demands. Five “economic methods” should tell the public the scientifically correct measures – especially with a view to the demands of the trade unions. It was no coincidence that the Council propagated the concept of a “productivity-oriented wage policy” in its first report.

But the SVR’s argumentative support should not last long. And the then Chancellor Konrad Adenauer was right when he is said to have asked Erhard when setting up the committee: “Would you like to put a louse in a fur?”

Ludwig Erhard

The former Minister of Economics and later Chancellor had once initiated the Advisory Council – to assess the situation, not to advise.

(Photo: dpa)

After the first report, including Erhard’s line of argument, the council members presented a special report the following year in which they postulated flexible exchange rates – a revolutionary demand at the time. “We sent the report to the Chancellery and then never heard from it again, there was only a receipt from the porter,” said former council member Herbert Giersch once.

Some believe that this difficult relationship with politics has continued to intensify. Reint Gropp, President of the Leibniz Institute for Economic Research Halle (IWH) says: “There is hardly any influence on politics any more. The reports have hardly been handed over when they end up in the ministries’ drawers.

Former SVR chairman Bert Rürup remembers very well. In the 2008 annual report, he opposed the other council members with a minority vote in favor of a statutory minimum wage. The fact that politics reacted only six years later is a sign for him that his vote was certainly not the decisive factor.

The President of the Ifo Institute, Clemens Fuest, says: “The direct influence on politics is limited, but the Advisory Council influences public opinion and thus indirectly politics.” in truth he should just appraise.

Council independence is its strength

But in Germany, given the traditional scientific advisory boards of many federal ministries and the numerous publicly funded research institutes, there is really no shortage of appraisal bodies, believes Rürup. “Erhard should have stayed with the US model. The format of the council makes a lot more sense than our SVR, ”he says. The President’s Council has only one addressee: the President. The louse in the inside pocket of the jacket has more influence than the louse in the fur.

The only question that arises is whether the inside pocket is not already occupied. “The federal government already has internal advisory expertise through its chief economists in the Federal Chancellery, the Ministry of Economics and the Ministry of Finance,” says former SVR chairman Christoph Schmidt.

He does not see a lack of influence. Rather, the distance is the SVR’s greatest strength. “Because the council is not acting on the instructions of politics, it is able to address undesirable developments that politicians are not aware of,” says Schmidt.

This also applies to grievances that politicians do not want to admit. A council based in the government may express criticism just as sharp as the economic wise men did in their 2013 report entitled “Against a backward-looking economic policy”. The then Minister of Economics, Sigmar Gabriel, is said to have summoned the wise men in and chatted away, report those involved. It is doubtful that such an opinion would have found its way to the public in a council structure.

Berlin

Former SVR chairman Christoph Schmidt (r.) And his successor Lars Feld, in 2017 when the annual report was handed over to Chancellor Angela Merkel.

(Photo: Reuters)

The independence enables critical statements, says council member Monika Schnitzer. But she can also gain something from the council structure: “He is in daily contact with the administration and is therefore much closer to government work, but does not comment on it in public.” Both constructions have advantages and disadvantages.

Former council member Peter Bofinger therefore suggests: “An internal council could be set up with the government based on the council model, but then an additional one.” According to his ex-colleague Volker Wieland, this would create a sparring partner that the economic methods have so far lacked.

Another suggestion comes from Councilor Achim Truger, who would like the SVR to be advised and appraised in a middle position. “The council must be careful not to make unilateral recommendations,” he says. Simply appraising is not enough either; rather, various economic policy options have to be identified.

Option 2: Spread the flood of paper over several publications

In the middle of November, some government officials will have to bear heavily again. Then the SVR publishes its new annual report. It had 406 pages in 2020, before 368, in the past some volumes had around 1000 pages. The range of topics covered by economists now extends to digital health and disability pensions.

The controversy over the attention of the council also suffers from the fact that there cannot be as much attention as the council deals with issues. The wise men also speak up from time to time, for example with special reports. “I also campaigned for us to publish more during the year, and we did that,” says Councilor Wieland.

The majority of the analyzes can still be found concentrated in the annual report. The President of the Austrian Institute for Economic Research (Wifo), Gabriel Felbermayr, criticizes: “The fixation on the annual report makes the council cumbersome and the cooperation with other bodies such as the scientific advisory boards of the ministries complicated.”

Annual report

In 2020, the volume was not handed over personally for the first time due to the corona pandemic.

(Photo: Expert Council)

Only: Erhard wrote the annual report in the SVR law, where it can still be found today. “And for good reason,” says the ex-chairman Schmidt. The annual report triggers more than the printing presses. The federal government has to take a position, there are hearings with the ministries. “All of this spread over the year would be difficult to manage from an organizational point of view,” warns Schmidt.

SVR General Secretary Wolf Reuter therefore suggests “a good mix: an annual report with only a few thematic focal points and a limited number of other publications on other topics spread over the year”.

Option 3: way full time

It’s just a word, but a previous chairman of the Expert Council didn’t like it at all. “Also” is a redundant term. In the meetings of the SVR before the annual report was published, the word had to be deleted several times, participants recall.

What sounds like triviality is an expression of how much work the reports and, in general, membership in the leading economists mean. In addition to the economic analysis, there are discussions with the specialist public and politics, media work and internal coordination.

The council members receive 33,000 euros annually for this, the chairman receives 37,000 euros. Being an economist is a part-time job. All council members hold professorships at the same time. Throughout the series, current and former wise men report, the work for the council goes far beyond a part-time position. At the same time, a member is bound for at least five years.

“It makes sense to think about making council membership full-time and for a shorter period of time,” says Secretary General Reuter. This would enable several publications spread over the year and a more intensive collaboration with the staff.

The young economists in Wiesbaden often conduct research unnoticed by the public. The research work of the SVR staff is considered excellent, so say scientists from various schools of thought. Schnitzer, on the other hand, does not consider membership of the council as a full-time job with a view to independence as expedient. It would be different if the SVR were set up like the US Council.

Option 4: move to the capital

The simplest step to increasing the SVR’s influence will probably fit in a few dozen moving boxes. Back then, Erhard had set up the committee in Wiesbaden at the Federal Statistical Office in order to make the distance to the Bonn federal government clear – and it is now even further away from the political events of the day.

Wiesbaden

The Council of Experts is also located at the Federal Statistical Office.

(Photo: Federal Statistical Office (Destatis))

So it is not surprising that the wise men are now also meeting in Berlin. “Moving to the capital would save many ways, make the council even more attractive as an employer – and bring the staff closer to the current political discussions,” says Reuter. Nobody believes that this measure will turn the council members into government-subservient lackeys.

One thing is clear: there is a need for reform at the Expert Council, internal and external parties agree. At the same time, the discourse shows the importance of its existence: if the advice were not so important, it would not be talked about so much. As the US baseball legend Yogi Berra once said about a restaurant in St. Louis that he once worked for: “Nobody has been there for a long time, it’s too crowded there.”

More: German economics is in a fundamental dilemma

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