The Economics of AfD Expansion

Paul J.J. Welfens

European Institute for International Economic Relations

Prof. Dr. Paul J.J. Welfens was a Geoeconomics Non-Resident Senior Fellow at AICGS. He was Jean Monnet Professor for European Economic Integration; chair for Macroeconomics; president of the European Institute for International Economic Relations (EIIW) at the University of Wuppertal; Alfred Grosser Professorship 2007/08, Sciences Po, Paris; and Research Fellow, IZA, Bonn.

With the right-wing populist Alternative for Germany (AfD) achieving almost 25 percent in the elections in the two east German states of Brandenburg and Saxony in September 2019, and both the CDU and the SPD losing a considerable share of the votes, one could interpret the results to mean that the incumbent parties have no convincing idea of how to stop the rise of the AfD. This party is part of a new populist wave throughout the West, which in a different form is also visible in both the U.S. and the UK.[1]

In the EU elections of 2019, 57 percent of AfD voters indicated that they voted for the party because of its political program, hence one cannot argue that the AfD consists mainly of voters who simply want to protest against the mainstream parties. It is also remarkable that the majority of AfD voters wants a lower profile for the EU, while the majority of other voters holds the view that the role of the EU should be reinforced in the future.[2]

The AfD emphasizes the problem of public insecurity through immigration plus nationalism, and has a pro-Russia policy stance. Eastern Germany is considered to be a victim of the Western embargo against Russia imposed by the Western countries after the annexation of Crimea in 2014.

The AfD has positioned itself as a defender of eastern German economic interests in particular.

Thus, the AfD has positioned itself as a defender of eastern German economic interests in particular; eastern Germany’s economy traditionally had considerable links to Russia/the Soviet Union. To some extent, the strong losses suffered by Die Linke—a left-wing party that is based on former official party groups from the German Democratic Republic (i.e., former East Germany)—in the state elections in Brandenburg and Saxony seem to indicate that the AfD has become the new leading protest party in eastern Germany. The voting analysis by Forschungsgruppe Wahlen for the European Parliament elections in 2019, however, indicates that AfD support is not solely comprised of protest voters, but that the party has also established a strong core of non-swing voters.[3] How strong are the economic aspects underpinning the expansion of the AfD, and to what extent is the AfD’s political focus on economic developments?

An economic destabilization effect could become visible with less foreign direct investment (FDI) inflows into regions with very high AfD voting shares—particularly in the former East Germany where a high share of voters already consider themselves as facing adverse economic developments and being treated as second-class citizens. This is a view particularly held by AfD voters.

The growth rate of eastern German states in 2018 has fallen below the national average. Besides the negative growth rate of real GDP in the small western German state of Saarland and weak growth rates in both North Rhine-Westphalia and Lower Saxony, all facing problems in the automotive and steel industries, growth rates were lowest in the east German states. Brandenburg and Saxony were, however, the leaders in the weak pack of those states—but growth rates of 1.4 percent and 1.2 percent, respectively, were only about two-thirds of the real GDP growth rate of the leading western German states.

Figure 1: Real Economic Growth in German Federal States in 2018

The AfD is not only strong in poor regions, as is suggested by a study of the German Institute for Economic Research,[4] the party has also achieved electoral success in rather affluent regions, including the largest three western states, namely Baden-Württemberg (15.1 percent in the 2016 state election), Hesse (13.1 percent in 2018), and Bavaria (10.2 percent in 2018), not to mention the 12.6 percent voting share in the national election of 2017 and a strong 11 percent in the European election in 2019. The AfD is much stronger than the liberal FDP party, as is not only visible in the much smaller voting share of the FDP, but also in the fact that the FDP has not achieved the critical minimum 5 percent threshold in many states that is necessary to get seats in regional assemblies. It should be noted that the AfD was only achieving slightly below 5 percent support in national opinion polls in spring 2015 so that the findings in the above report may be interpreted in a somewhat different way: After Chancellor Merkel decided to open Germany’s borders in early September 2015, people in poor eastern German regions—with declining population figures—became worried that a high number of refugees would imply cuts in the government’s current and future support for disadvantaged regions.

To the extent that slow growth nurtures populist parties, it is clear that lack of growth-enhancing national policy initiatives in favor of eastern Germany plus North Rhine-Westphalia and Saarland are part and parcel of the expansion of the AfD.

To the extent that slow growth nurtures populist parties, it is clear that lack of growth-enhancing national policy initiatives in favor of eastern Germany plus North Rhine-Westphalia and Saarland are part and parcel of the expansion of the AfD. Inadequate economic policy is found at both the national and the regional level. Poor regions facing declining employment and population often find themselves with much thinner train and bus links than before—the urgent requests of city mayors to maintain adequate public transportation links go unheard. In the internet age, the reaction of the disappointed and frustrated population was not just to wait and see, but instead digital protest networks become more visible and later the AfD picks up an increased voter share at the next local, regional, and national elections.

As regards regional inequality in Germany, one may point out that eastern Germany’s regions have caught up vis-à-vis western Germany and income differentials of households (in terms of disposable income) between cities and regions in the countryside have declined in eastern Germany, while western Germany partly shows different dynamics.[5] In western Germany, regional income differences (not corrected for differences in regional price levels) have increased, particularly in the more rural regions—visible in eastern Germany. Eastern Germany suffers from a much lower density of hidden champions in both cities and the rural regions.[6] Better economic policy is needed in Germany.

I am grateful for technical support/editing by David Hanrahan, EIIW/ University of Wuppertal.

[1] Paul J.J. Welfens, An Accidental BREXIT (London: Palgrave Macmillan, 2018); Paul J.J. Welfens, The Global Trump. Structural US Populism and Economic Conflicts with Europe and Asia (London: Palgrave Macmillan, 2019).

[2] Forschungsgruppe Wahlen, “Unions-Verluste, SPD-Einbruch, Grüne stark wie nie

Politik in Europa erstmals wichtiger als Bundespolitik,” Europawahl, May 26, 2019.

[3] Ibid.

[4] Christian Franz, Marcel Fratzscher, Alexander S. Kritikos, “German Right-Wing Party AfD Finds More Support in Rural Areas with Aging Populations,” DIW Weekly Report 7/8 (2018), 69-79.

[5] Clemens Fuest and Lea Immel, “Ein zunehmend gespaltenes Land? Regionale Einkommensunterschiede und die Entwicklung des Gefälles zwischen Stadt und Land sowie West- und Ostdeutschland,” ifo Schnelldient 16 (2019).

[6] “Kaum Beachtet, Gemeinsam Stark – Versteckte Potenziale von Kleinstädten mit Hidden Champions,” Bundesinstitut für Bau, Stadt- und Raumforschung  (2019).