Cardinal Sins

According to a famous German proverb, "A horrible end is better than horror without end". However, with regard to the insolvency of Schlecker, Europe's largest drugstore chain, this proverb is misleading, for there was a clear alternative: An end without horror, as opposed to horror without end.

The placement of the company's employees in a "transfer company" – a special purpose vehicle under German law designed to help employees transition to new jobs – would have been a form of horror without end. Companies can receive government subsidies for setting up a transfer company if they fulfil various criteria. The transfer company must be designed to re-integrate employees into the labour market. In addition, it is necessary to implement a quality control process. The legal provisions for transfer companies were established in Germany some 15 years ago during a time of high unemployment and insufficient activity on the part of Germany's employment agencies to find jobs for the unemployed. Transfer companies do not offer employment, but rather assist individuals in finding new jobs by providing various services, including career counselling and further education.

Transfer companies are thus a "parallel institution" to Germany's employment agencies. By claiming that Schlecker's employees have been "left stranded" and are now "faced with ruin", the proponents of a transfer company indirectly accuse Germany's employment agencies of incompetence. Yet this accusation is inappropriate. Germany's unemployment agencies have grown into very effective institutions for worker placement. Meanwhile, empirical studies show that transfer companies have failed to live up to expectations, and have been extremely costly for taxpayers. Employees enrolled in a transfer company receive financial assistance for a maximum of one year. The amount of assistance granted is typically higher than the normal unemployment benefit due to additional contributions paid by the employer. Furthermore, the employees are not legally considered to be drawing on unemployment benefits until they depart from the transfer company. To speak plainly, employees enrolled in a transfer company find themselves "parked" in a situation that, if not tantamount to "horror without end", is at the minimum one of great uncertainly.

However, there are positive factors indicating that Schlecker’s insolvency will not be a "horror without end" for employees: Schlecker's retail locations are widely dispersed across Germany, and, according to government statistics, there are some 26,000 available jobs in the retail sector. While the worries expressed by Schlecker's employees are of course understandable – not least because the company has often received criticism for its treatment of workers – recent news reports indicate that several hundred employees have already found new jobs.

The government made the right decision when it rejected Schlecker's request for subsidies to form transfer companies. In any event, Schlecker joins the ranks of companies that have been the subject of intensive bailout debates, including firms such as Holzmann, Opel, and Quelle. Clearly, the government should not be operating a general-purpose "repair yard" for insolvent companies – a "cardinal sin" in economic policy. Those who express this view are not "free market radicals". Quite simply, millions of customers chose not to make purchases at Schlecker, but instead frequented the competitors, and this not for considerations of "social justice", but because the competition served their needs better. Wouldn't it therefore be more accurate to describe the customers who failed to support Schlecker with purchases as the true proponents of "free market radicalism"?