The Hermaphrodite and the Machine

Addendum, 24 October 2026: Market, Plan, Tournament. Three recipes and the missing feedback.

I. What Steingart sees

On 20 May 2026, Gabor Steingart published a finding in The Pioneer that stands out from current economic journalism for its sharpness and precision. The diagnosis: the German market economy has undergone a sex change. It is no longer a market economy in the classical sense, but a hermaphrodite — market-shaped on the outside, deeply permeated by the state on the inside.

The evidence Steingart cites cannot be disputed. With 5.4 million employees, the public sector is a larger employer than retail, mechanical engineering, the car industry and chemicals combined. In the first quarter of 2026 the private sector shrank — manufacturing by 2.1 per cent, construction by 1.1 per cent — while the public sector grew by 181,000 posts. At 117.1 billion euros, the subsidies the state paid out to the private sector in 2025 were twice as high as in 2019. Over ten billion went to E.ON alone, over nine to Volkswagen. At Lufthansa, subsidies account for more than forty per cent of pre-tax profit. In 2026 the share of government spending in GDP will again exceed the fifty per cent mark. The national debt stands at just under three trillion euros.

Steingart sums up these data in an image that sticks: the state is the Big Daddy of the German economy. His punchline — that Friedrich Merz should, in this legislative term, read his own book of 2008, Mehr Kapitalismus wagen — is witty and on target. The conservative chancellor who once demanded more market has not dismantled the hybrid his predecessors built, but expanded it further.

The finding is correct. What it does not explain is how the hybrid came about.

II. What the diagnosis leaves open

Whoever reads Steingart's text gets a precise description of the finding. What they do not get is an explanation of why the hybrid came about. Steingart hints at a cause — political inertia, ideological aberration, a failure of conservative reforming energy. Mehr Kapitalismus wagen, the Merz quotation in the 2008 title, is the implicit therapy. If the problem were too much state, it could be solved by more market.

This argument has a hidden premise. It assumes that there is still a substance that could function capitalistically if only it were freed from the state's corset. That the private sector, as soon as it was no longer subsidised, would once again unfold its own innovative power, its own productivity, its own capacity for renewal. It is precisely this premise that is false — and it is precisely here that what lies behind Steingart's diagnosis is to be found.

The German private sector has not merely been distorted by state subsidies. Over forty years it has drained itself of the substance from which innovation and renewal arise. The subsidies are not the cause of the crisis; they are the reaction to a crisis that had set in long before. Whoever cut the subsidies without restoring the substance would not bring the apparatus to renew itself. He would bring it to collapse.

III. The dried-up source

In 1990, about 25 per cent of all patent applications in Germany came from independent inventors and medium-sized innovators — that is, from individuals and firms outside the large corporations. Today it is less than 4 per cent. This figure is not incidental. It describes the disappearance of an entire layer of producers of substance without which a modern industrial society cannot maintain its capacity for renewal (cf. The Vanishing Link, beyond-decay.org).

Where has this layer gone? It was not driven out by state intervention. It was smothered by the concentration of the industrial structure. Over three decades, the OEMs — the original equipment manufacturers, that is, the large final manufacturers in automotive, machine and plant engineering — built a system in which their suppliers not only deliver the products but also have to bear the development itself. Anyone who, as an independent inventor or as a medium-sized firm, had developed a new process had to bring it to the OEM for submission. The OEM examined it. The OEM had samples made, often free of charge. The OEM decided. What the OEM needed, it took over — the licence terms were designed so that the inventor was left with a fraction of what would have been due to him from direct exploitation on the market. What the OEM did not need stayed with the inventor, who had borne the development costs alone (cf. López' Krieger — Wie Deutschland seine Wertschöpfer kannibalisierte and Die Mutter aller Industrien, gu18.eu).

Over decades, this mechanism made a particular selection. Those who could succeed were those who mastered the OEM game — that is, those who had large corporations as clients and submitted to their conditions. Those who thought independently, developed independently and wanted to market independently failed because of the market structure. There were no longer any markets for independent innovation. There were only apparatuses that one could supply or not. An entire generation of independent inventors disappeared in this way — not through state pressure, but through private market concentration.

What remained are corporations whose innovative power rests on preserving what exists. They can improve their own products, increase their efficiency, optimise their supply chains. What they cannot do — and will not learn any more — is generate something genuinely new. The genuinely new does not come from corporate research departments; that has been an established finding since Schumpeter. It comes from the periphery, from the Mittelstand, from independent minds. Germany no longer has this periphery. The German economy is world champion in incremental inventing — and systematically incapable of radical inventing (cf. Die inkrementalen Erfinder, gu18.eu).

IV. Why the state had to step in

What Steingart describes as a sex change is in truth an emergency measure. If the private sector has lost its own capacity for renewal, it can no longer exist without external support. It is liquidated not by market competition but by lack of substance. To prevent this, the only remaining actor that still has the means and the legitimacy to act on this scale steps in: the state.

This function can be described more precisely by drawing on Lewis Mumford's concept of the megamachine. In The Myth of the Machine, Mumford describes how complex industrial societies function not as sums of individuals but as integrated apparatuses in which people, technology, institutions and capital are fused into a single great machine. This machine has its own needs for self-preservation. It is not the servant of the society it claims to serve. It is a value in its own right that imposes its needs on the societies that house it.

Applied to the German case: the megamachine that Steingart describes as a hermaphrodite has main components — the large corporations in the automotive, machinery, chemical and energy sectors, the big banks, the utilities close to the state. These components are not independent of each other. They mesh like gears. If a central component breaks away, the whole machine falters. If Volkswagen went into insolvency, not only a single corporation would disappear — a whole chain of suppliers, logistics providers, workshops, financing institutions and tax revenue would collapse with it. If E.ON went into insolvency, Germany's energy supply would be in question. If Lufthansa went into insolvency, a central pillar of Germany's foreign trade would have disappeared.

So the state does not face the choice of subsidising these corporations or not. It faces the choice of subsidising them or organising the collapse of the megamachine. Since no political actor — left, centre or right — wants to organise the collapse, nor could, only the subsidy remains. The sex change of the market economy that Steingart describes is the operational form in which the megamachine organises its self-preservation.

V. The subsidy as cost of self-preservation

Seen from this perspective, the subsidies change their meaning. They are not gifts to stumbling firms. They are the costs of self-preservation of the megamachine, which regards these corporations as its own main components. The ten billion euros E.ON received are not money flowing to a firm that is supposed to prove itself on the market. They are money flowing to an apparatus that could not continue to exist without this allocation. The nine billion at Volkswagen are the operating costs of keeping the German car industry from imploding.

This view also sheds light on a particular peculiarity of German subsidy practice. The largest recipients are not innovative newcomers but established large corporations. If the state were a rational investor, it would put its money into the new, not the old. That is exactly what it does not do. It subsidises the old because the old must not collapse. The new it subsidises — if at all — only at the margins, because, although the new will at some point become necessary for the megamachine, it is not (yet) critical to the system at present. Current problems have priority.

This also explains why subsidies have doubled since 2019. In this period, the megamachine has entered a double crisis. First, Chinese industrialisation has taken away the large corporations' former margins — in cars, machinery, photovoltaics, rail technology, and increasingly also in chemicals and pharmaceuticals. Second, the energy crisis after 2022 dramatically increased input costs. Both shocks have shown that German corporations can no longer hold their own in international competition. For them to go on existing, the state must cover the deficit. The doubling of subsidies is not a political failure; it is the quantitative reaction to a worsening erosion of private-sector substance.

What turns this reaction into a farce is the parallel movement of the subsidised corporations themselves. While they draw on state aid in Germany, they are systematically relocating their research and development to China. The data of the Institut der deutschen Wirtschaft from January 2026 show the extent: seven billion euros of new direct investment by German corporations in China in 2025, plus twelve billion from profits reinvested locally — the highest level in five years, an increase of fifty per cent over the previous year. In November 2025, Volkswagen completed its first full research and development base outside Germany, the VCTC in Hefei, with development cycles of 24 to 30 months instead of the 48 usual here. Bosch already operates 34 plants and 26 technology centres in China with more than ten thousand R&D staff. BMW has expanded its Shanghai research centre; BASF is building for ten billion euros in Guangdong while cutting 2,600 jobs in Germany. It is no longer just about production. It is about the substance itself — the ability to develop. Whoever relocates their R&D to China gives up the last preserve that distinguishes an industrial location from an extended workbench. What became visible as an individual case in the Schaeffler–Leju contract of March 2026 is in truth standard practice (cf. Der Schlussverkauf, beyond-decay.org). The German taxpayer is subsidising corporations that are transferring their future to a location that will, in the foreseeable future, take from them whatever remains.

How this erosion is also reflected in the accumulation of fraud scandals — from Siemens through VW to Wirecard — is described in a separate essay (cf. Die deutsche Industrie — eine Bande von Betrügern?, beyond-decay.org).

VI. What Steingart's proposed therapy misses

This diagnosis shows why Steingart's implicit proposed therapy — Mehr Kapitalismus wagen — misses the actual problem. More capitalism would presuppose that the regenerative capacity of capitalist substance still exists and is merely blocked by state interference. But this capacity for regeneration or innovation no longer exists. Despite immense funding, the state did not foster it, and the corporations themselves smothered it at its sources. The corporations whose capitalist rebirth Steingart now hopefully awaits are the actual and causal problem.

If Friedrich Merz actually tried to put the 2008 book into practice — cutting subsidies, lowering the government share, demanding more self-reliance from the corporations — he would not experience a renaissance but accelerate the collapse of the megamachine. Volkswagen would not suddenly learn to compete with Chinese rivals. E.ON would not suddenly learn to refinance itself under its own power. Lufthansa would not suddenly learn to be profitable without subsidies. They would slide into insolvency — one after another — and with them the chain of suppliers, employees, tax revenue and social stability that hangs on them.

What would have to be done is not more capitalism. What would have to be done is to restore the substance that once made up German innovative power: a lively Mittelstand, a broad layer of independent inventors, a market structure in which the new can arise without first having to be placed at the disposal of the large corporations. This restoration would take thirty years — and it would be brought about not by less state, but by a fundamental reordering of the relations between the state, the large corporations and the medium-sized sources of innovation. A reordering in which the large corporations are no longer the yardstick by which economic policy orients itself, but rather the question of where something genuinely new can arise. This demands what Germany, unlike all other major industrial nations, has not had for decades: an industrial-policy plan (cf. Alle haben einen Plan, gu18.eu).

Gabor Steingart has diagnosed a great crisis. What he does not yet describe is how deep this crisis goes. The German market economy has not been ruined by the state. It has ruined itself, through concentration on a few large apparatuses, through the hollowing-out of the Mittelstand, through the dissolution of independent sources of innovation. The state is not the intruder against whom one must take a stand. It is the last actor that still has the means to keep the system running. Whoever drives it out does not drive out the pest. He removes the crutch without healing the leg.

The sex change was an emergency measure. It is not the problem. The problem is the dried-up source — and making it flow again would be a task lasting generations. Less state would not accelerate it but prevent it.

Addendum, 24 October 2026: Market, Plan, Tournament. Three recipes and the missing feedback.