Who creates prosperity – the state or business?

Author: Christian von Dürckheim
The state is expected to sort things out, but that is the wrong approach. Only capitalism leads to prosperity

About 200 years ago, in the Ruhr region, the Silicon Valley of the 19th century, industrialisation became a revolutionary development. It produced not only a different kind of economy but also a completely new type of entrepreneur: the capitalist who also took on social responsibility. The pioneers were Friedrich Krupp, Mathias Stinnes and Franz Haniel. In 1837, the latter established, among other things, Germany’s first health insurance fund for his workers. To put this into context, the Prussian state did not introduce state health insurance until 1883.

The new entrepreneurs also replaced the nobility and royalty as the principal employers. Since the middle of the 19th century, it has been private companies that have created work and prosperity for millions of people. For instance, out of around 45 million people in employment in Germany today, only six million work for a public employer. Every stakeholder should always remember that Western prosperity was created through private initiative over the course of more than 200 years and is still guaranteed by small and medium-sized businesses to this day. The social market economy is part of our democracy’s DNA.

But does the social market economy as practised today still fulfil what it once stood for: “prosperity for all”? Or has it turned itself, in the form of turbo-capitalism, Anglo-Saxon capitalism or narrative capitalism, into an egoistic, individualistic system, the effects of which policymakers try to cushion by expanding the welfare state?

The system of Rhine capitalism has served all stakeholders for 200 years, and the republic is rich. Nevertheless, the wealth gap is growing wider and wider. If ignorance controls information and shapes the rules, prosperity will be gone in less time than it took to create. The state does not operate in an economically efficient manner, in society each person envies the rise of others, and capitalists are increasingly drifting off into Anglo-Saxon capitalism, which concentrates on debt and equity capital and neglects the social element.

In the debate about justice and equality of opportunity, capitalism is demonised. Equality of opportunity is expected to be achieved by redistribution, and governments assume that social cohesion can be promoted by raising taxes – to applause from the majority of the population. The question of whether this actually secures the future of prosperity is not addressed in this debate. The state is expected to sort it out.

However, this is the wrong approach. Only capitalism will lead to prosperity. Whether it is Mercedes, BMW, Henkel, Siemens, SAP, Apple, Microsoft or, indeed, Haniel, the driving force behind enterprise is the expectation of sales and of the resulting profits that are then used to pay salaries, loans and taxes. Sales constitute an entrepreneur’s contribution to society. Here is one example: out of sales worth 10,000 euros, other entrepreneurs – suppliers etc – receive 6,000 euros, while employees get 2,100 euros, inclusive of all incidental expenses, whilst 700 euros go to the financial sector and 140 euros to shareholders.

This entrepreneurial cycle guarantees prosperity and peace. If businesspeople realise that it is no longer worth their while to establish or maintain a company, sales will drop and, consequently, so too will their contribution to all stakeholders. These economic connections need to be understood not just by ordinary individuals but also by politicians. Earning money is harder than spending it.

Even today there is, once again, something revolutionary in the air. In the future, artificial intelligence will make the biggest contribution to value creation. Digitisation is another illustration of the saying that life punishes those who come too late.

Graf Christian-Ulrich von Dürckheim-Ketelhodt (born 1944) was a member of the Haniel Supervisory Board for around 30 years. He is also a co-founder of the biotechnology company Axiogenesis.