Affluence for everybody and social justice: In the late 1950s that was the goal the then Federal Minister of Economics Ludwig Erhard had in mind when he introduced the social market economy in Germany. The “German model” proved to be a success story and became an archetype for several other countries. One of the pillars of this success was the extensive German welfare system. Today, Germany boasts one of the most comprehensive welfare systems: 26.7 percent of the country’s gross domestic product is channeled into public welfare spending. In comparison, the USA invests 15.9 percent, while the OECD average is 20.7 percent. An all-embracing system of health, pension, accident, long-term care, and unemployment insurance provides protection against the financial consequences of the risks we face in everyday life. In addition, the welfare lifeline offers tax-financed services such as the family services equalization scheme (child benefit, tax concessions) or basic provisions for pensioners and those unable to work. Germany sees itself as a welfare state that considers the social protection of all its citizens to be a priority.
The welfare-state social systems in Germany have a long tradition dating back to the industrial revolution. In the late 19th century, Reich Chancellor Otto von Bismarck devised the principles of the state social insurance scheme; It was under his aegis that the laws relating to accident and health insurance as well as provisions for invalidity and old age were passed. Whereas in those days a mere ten percent of the population benefited from the welfare legislation, nowadays almost 90 percent of people in Germany enjoy its protection.
In subsequent decades the welfare lifeline was expanded and refined; in 1927, for example, insurance covering the financial consequences of unemployment and, in 1995, long-term care insurance were introduced. The 21st century calls for a fundamental structural realignment to the systems, in particular with regard to whether they can be financed in the long term: The increasing proportion of elderly people in the population in conjunction with a relatively low birth rate and trends in the labor market have pushed the social security system to its very limits. By means of extensive reforms politicians are now busy attempting to meet this challenge and ensure a welfare system based on solidarity for coming generations as well.