Is Germany No Longer Competitive?

Charles Stein has a piece in today’s Boston Globe which pretty much repeats the conventional wisdom that the German economy is deteriorating due to the high cost of its social programs and the efforts by industry to shield itself from market forces.

But the German economy has been dismal for a long time. Over the past
decade Germany grew at roughly a 1.3 percent annual pace, compared to
3.3 percent for the United States. "And we worry that we are growing
too slowly," said Nariman Behravesh, chief economist at Global Insight
in Waltham.

Germany has a long list of economic problems. Yet its central problem
has been an unwillingness to recognize that it lives in an increasingly
competitive world. Wages and benefits in Germany rose steadily over the
decade, even as productivity grew modestly. German companies reacted by
voting with their feet for cheaper production facilities in Eastern
Europe. Job growth has been anemic.

Germany has been slow to shift from manufacturing to services, slow to
develop "new economy" industries, slow to innovate in financial
services — mortgage refinancing is rare — and slow to allow
competitive forces to reshape retailing.

Stein ends his piece by praising Gerhard Schröder and German business for implementing the Hartz IV reforms.  This is the only solution: German workers need to give up their generous benefits.

But is this really true? Is dismantling the hugely successful social compact (Sozialstaat) the only way to fuel economic growth? 

The economist Albrecht Müller – author of Die Reformlüge , a book highly  critical of Hartz IV, – has been a voice in the wilderness in attacking the conventional wisdom that Germany must "americanize"  its economy in order to be competitive.  In a recent post on his Web site he listed a number of "reform" measures put forward by the CDU and business leaders – everything from stretching the work week to 40 hours, delaying retirement to age 67, to docking workers for cigarette breaks.  He then juxtaposes this with recent announcements of record earnings posted by many German corporations.

• Allianz: Weniger Chancen, mehr Gewinn (in den
  ersten neun Monaten konnten die Münchner ihren Gewinn mehr als
  verdoppeln, auf 1,8 Milliarden Euro nach Steuern)
• Mobilcom: Ausgezeichnete Perspektive
  
• Prognose angehoben: Telekom zahlt hohe Dividende
  
• Siemens: Zum Abschied ein Rekordgewinn
  
• Energieversorger: Eon steht unter Strom
  
• Lufthansa: Skepsis war unberechtigt
  
• MAN: Das Geschäft brummt
  
• TUI: Die Deutschen reisen wieder
  
• AWD: Das Beste kommt noch (AWD ist ein Finanzdiensleister)
  
• Linde: Es geht voran
  
• BASF: Gewinn mehr als verdoppelt

As Müller points out , the reform measures mean that  wage earners must sacrifice in the name of "competitiveness" so that investors can earn a higher return. 

Economics is a zero-sum game: there are winners and losers.  One’s perspective depends on which side one is standing.