The Hybrid and the Machine

I. What Steingart sees

On 20 May 2026, Gabor Steingart published a diagnosis in The Pioneer whose sharpness and precision stand out in current economic journalism. The diagnosis: the German market economy has undergone a sex-change operation. It is no longer a market economy in the classical sense, but a hybrid — outwardly market-shaped, inwardly deeply penetrated by the state.

The evidence Steingart marshals cannot be disputed. The public sector, with 5.4 million employees, is larger as an employer than retail, mechanical engineering, the automotive industry, and chemicals combined. In the first quarter of 2026, private industry shrank — manufacturing by 2.1 percent, construction by 1.1 percent — while the public sector grew by 181,000 jobs. The subsidies the state paid to private business in 2025, at 117.1 billion euros, are twice as high as in 2019. Over ten billion went to E.ON alone, over nine to Volkswagen. At Lufthansa, subsidies amount to more than forty percent of pre-tax profits. The state ratio will once again exceed the fifty-percent mark in 2026. National debt stands at nearly three trillion euros.

Steingart sums up these figures in an image that sticks: the state is the Big Daddy of the German economy. His pointed remark — that Friedrich Merz should during this legislative term read his own book from 2008, Dare More Capitalism — is witty and well-aimed. The conservative chancellor who once demanded more market has not dismantled the hybrid his predecessors erected; he has built it up further.

The diagnosis is correct. What it does not explain is the origin of the hybrid.

II. What the diagnosis leaves open

Whoever reads Steingart's text receives a precise description of the diagnosis. What he does not receive is an explanation of why the hybrid came into being. Steingart implies one cause — political inertia, ideological aberration, the failure of conservative reform energy. Dare more capitalism, the Merz quotation in the 2008 title, is the implicit therapy. If the problem were too much state, one could solve it by more market.

This argument has a hidden assumption. It presupposes that there still exists a substance which could function capitalistically if only it were freed from the statist corset. That private industry, once no longer subsidised, would unfold its own innovative power, its own productivity, its own renewal capacity. Precisely this presupposition is wrong — and precisely here lies what is behind Steingart's diagnosis.

German private industry has not only been distorted by state subsidies. Over four decades, it has systematically withdrawn from itself 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 already set in long before. Anyone who cut the subsidies without first restoring the substance would not bring the apparatus to self-renewal. He would bring it to collapse.

III. The dried-up source

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

Where did this layer go? It was not driven out by state intervention. It was suffocated by the concentration of the industrial structure. The OEMs — the original equipment manufacturers, that is, the large end-producers in the automotive, machinery, and plant-building sectors — have over three decades built up a system in which their suppliers must not only deliver products but also bear the development themselves. Whoever as an independent inventor or a mid-sized firm developed a new process had to bring it to the OEM for submission. The OEM examined. The OEM had samples manufactured, often without compensation. The OEM decided. What the OEM needed, it took — the licensing terms were structured such that the inventor was left with a fraction of what would have been his in direct market exploitation. What the OEM did not need remained with the inventor, who had borne the development costs alone (cf. López's Warriors — How Germany Cannibalised Its Value-Creators and The Mother of All Industries, gu18.eu).

This mechanism made a particular selection over decades. Successful could be those who mastered the OEM game — those who had large corporations as clients and submitted to their conditions. Anyone who thought independently, developed independently, wanted to commercialise independently failed against the market structure. There were no longer any markets for independent innovation. There were only apparatuses to which one could deliver or not. An entire generation of independent inventors disappeared on this path — not under state pressure, but under private market concentration.

What remains are corporations whose innovative power rests on the preservation of the existing. They can improve their own products, increase their efficiency, optimise their supply chains. What they cannot do — and will no longer learn — is the generation of what is genuinely new. Genuinely new things do not come out of corporate research departments; that has been an established finding since Schumpeter. They come from the periphery, from mid-sized firms, from independent minds. This periphery Germany no longer has. The German economy is world champion in incremental invention — and systemically incapable of the radical (cf. The Incremental Inventors, gu18.eu).

IV. Why the state had to step in

What Steingart describes as a sex-change operation is in truth an emergency measure. When private industry has lost its own renewal capacity, it can no longer exist without external support. It is liquidated not by market competition but by absence of substance. So that this does not happen, the only remaining actor with the means and the legitimacy to act on this scale steps in: the state.

This function can be described more precisely if one draws on Lewis Mumford's concept of the megamachine. Mumford describes in The Myth of the Machine that complex industrial societies do not function as sums of individuals, but as integrated apparatuses in which human beings, technology, institutions and capital are fused into a single great machine. This machine has its own needs of self-preservation. It is not the servant of the society it claims to serve. It is an entity in its own right, imposing its needs on the societies that host it.

Applied to the German case: the megamachine that Steingart describes as a hybrid has principal components — the large corporations in automotive, mechanical engineering, chemicals, and energy; the major banks; the state-affiliated utilities. These components are not independent of one another. They mesh like gears. If one central component fails, the entire machine stalls. Were Volkswagen to enter insolvency, not only a single corporation would disappear — an entire chain of suppliers, logistics service providers, workshops, financing arrangements, and tax revenue would collapse with it. Were E.ON to enter insolvency, the entire German energy supply would be in question. Were Lufthansa to enter insolvency, a central pillar of German foreign trade would be gone.

The state therefore 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, and could not, only subsidisation remains. The sex-change operation of the market economy that Steingart describes is the operative form in which the megamachine organises its self-preservation.

V. Subsidies as cost of self-preservation

If one views the subsidies from this perspective, their meaning changes. They are not gifts to struggling firms. They are the cost of self-preservation of the megamachine, which understands these corporations as its own principal components. The ten billion euros E.ON has received are not money flowing to a firm that should prove itself in the market. They are money flowing to an apparatus that without these payments could not continue to exist. The nine billion at Volkswagen are the operating cost of preventing the German automotive industry from imploding.

This view also sheds light on a peculiar feature of German subsidy practice. The largest recipients are not innovative challengers but established large corporations. Were the state a sensible investor, it would put its money into the new, not the old. It does exactly the opposite. It subsidises the old because the old must not collapse. The new it subsidises — if at all — only at the margin, because the new will indeed at some point become necessary for the megamachine, but is currently (not yet) system-critical. The present problems take priority.

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

What turns this reaction into a farce is the parallel movement of the subsidised corporations themselves. While they receive state aid in Germany, they systematically relocate their research and development to China. The data from the Institute of the German Economy from January 2026 show the scale: seven billion euros in new direct investment by German corporations in China in 2025, plus twelve billion in reinvested local profits — the highest level in five years, an increase of fifty percent over the previous year. Volkswagen in November 2025 completed in Hefei, with the VCTC, its first full research and development base outside Germany, with development cycles of 24 to 30 months instead of the 48 months customary at home. Bosch operates 34 plants and 26 technical centres in China, with more than ten thousand R&D employees there. BMW has expanded its Shanghai research centre; BASF is building a complex in Guangdong for ten billion euros while cutting 2,600 jobs in Germany. The question is no longer only about production. It is about the substance itself — the capacity to develop. Whoever relocates his R&D to China gives up the last reserve that distinguishes an industrial location from an extended workbench. What the Schaeffler-Leju contract of March 2026 made visible as a single case is in truth the standard (cf. The Final Sale, beyond-decay.org). The German taxpayer subsidises corporations that transfer their future to a location which will, in the foreseeable future, take from them what little 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. German Industry — A Gang of Fraudsters?, beyond-decay.org).

VI. What Steingart's therapy misses

From this diagnosis it follows why Steingart's implicit therapy — Dare more capitalism — misses the actual problem. More capitalism would presuppose that the regenerative capacity of the capitalist substance is still present and only blocked by state interference. This regenerative or innovative capacity is no longer present. It was not promoted by the state despite immense funding, and it was suffocated by the corporations themselves at its sources. The corporations whose capitalist rebirth Steingart now hopefully anticipates are the actual and causal problem.

Were Friedrich Merz actually to try to put the 2008 book into practice — cut subsidies, lower the state ratio, demand more self-responsibility 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 from its own strength. Lufthansa would not suddenly learn to be profitable without subsidies. They would slide into insolvencies — one after another — and with them the chain of suppliers, employees, tax revenue, and social stability that hangs on them.

What would need to be done is not more capitalism. What would need to be done is the restoration of that substance which once constituted German innovative power: a vibrant mid-sized sector, a broad layer of independent inventors, a market structure in which new things can come into being without first having to be offered to the large corporations. This restoration would take thirty years — and it would not be brought about by less state, but by a fundamental reordering of the relations between state, large corporations, and mid-sized sources of innovation. A reordering in which the large corporations are no longer the standard by which economic policy orients itself, but the question of where genuinely new things can arise. This demands what Germany, unlike all other large industrial nations, has not had for decades: an industrial-policy plan (cf. Everyone Has a Plan, gu18.eu).

Gabor Steingart has diagnosed a great crisis. What he does not yet describe is how deep this crisis reaches. The German market economy was not ruined by the state. It ruined itself, through concentration on a few large apparatuses, through the hollowing-out of the mid-sized sector, through the dissolution of independent sources of innovation. The state is not the intruder one would have to oppose. It is the last actor with the means to keep the system running. Whoever drives it out is not driving out the parasite. He is removing the crutch without healing the leg.

The sex-change operation 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 this; it would prevent it.