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Germany's lag behind the world's best is shocking in some areas

2021-09-19T13:41:23.344Z

Germany needs a new course in economic policy. Because in some areas the gap to the world's best is shocking. A clear mandate can be formulated for the next federal government: green dynamism.



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Skyline in Frankfurt am Main

Photo: Allan Baxter / Getty Images

In this article you can read which economic policy agenda the next federal government should pursue - where Germany is particularly seriously behind and where we are leading.

Some points may surprise you and some not.

Some things may annoy you.

That's okay.

My aim is to embed a few fact-based pillars into the discussion.

In the heated final spurt of the election campaign before the finish line on Sunday, topics and opinions fluctuate wildly.

The pictures that the parties draw of the state of Germany sometimes differ so significantly that one occasionally wonders whether they are actually talking about the same country.

This text is divided into three parts:

  • The first part deals with the question of which economic goals politics should actually pursue.

  • The second compares Germany's performance with the countries that are leaders in the respective discipline.

  • Finally, we look at how well the political options fit with the economic requirements: Are possible coalitions suitable for dealing with the national problem situation?

    First of all: the conclusions are - halfway - encouraging.

Four goals - many contradictions

Economic policy is not just about money, debt or labor markets.

From a more fundamental point of view, the focus should be on four central target categories: efficiency, stability, sustainability and fairness.

That means: A free society should use all capacities as much as possible, so nothing should be wasted. And it should use these capacities in such a way that progress and increasing levels of prosperity are possible. In doing so, it should not build up any serious imbalances, for example high public and private debt and capital market bubbles, and avoid deep recessions and overflowing upswings, deflation and inflation alike. It should consume as few natural resources as possible and protect the livelihoods of future generations. And it should level out stark differences in the distribution of wealth to such an extent that all citizens have as similar opportunities as possible to develop personally and participate in social life.

The ESSF formula (

Efficiency, Stability, Sustainability, Fairness

) roughly outlines an expanded concept of prosperity that has emerged since the financial crisis and has long been used. This is the case, for example, in the country analyzes of international organizations such as the OECD and the International Monetary Fund, and in some cases also in the context of the European Union's economic policy monitoring procedures.

In the very long term, all four goals may be harmoniously compatible.

In the short to medium term there are a lot of conflicting goals.

For example, if a government were to strive for economic growth at any price, stability and sustainability would fall by the wayside, and fairness would probably be too.

If, on the other hand, it were to make sustainability its sole maxim, the other three goals would be missed because many economic activities would become obsolete and jobs would be lost.

It is therefore a question of difficult trade-offs - compromises between conflicting goals.

In a free society, the debate about it takes place in public, we are currently experiencing it in the election campaign.

The more interesting is the question of where we are at the moment.

How good are we compared to other countries?

Where is the greatest need for action for the next government?

We are stability masters

In the economic policy debate, we prefer to look at countries where things are worse than ours, especially the southern states of the euro area.

That is cheap.

If you want to get better, you should compare yourself with those who are already better in the respective category.

For an analysis in “manager magazin” I recently compiled a dozen and a half indicators that put the ESSF formula in concrete terms and allow a comparison.

Here are a few key findings.

First the positive: When it comes to

stability

, the Federal Republic is a leader.

Corporate debt is lower than anywhere else in comparable countries.

In terms of national debt, some smaller western countries do even better - the best-performer Switzerland has a debt ratio that is 20 percentage points lower - but none of the G7 countries has as little debt as Germany.

In addition, there is the absolutely largest external trade surplus in the world.

Overall, Germany has considerable financial airbags that can cushion distortions, for example if the local real estate bubble bursts with a loud bang at some point.

We are masters of stability - even if one can discuss whether a low level of debt makes sense in times of extremely low interest rates and whether large-volume capital exports abroad (the downside of high foreign trade surpluses) do not cost us prosperity.

But these are questions of efficiency, and in this category the judgment is more nuanced.

High level, weak dynamics

If one understands

efficiency in

such a way that the existing capacities of a society should be used, then the Federal Republic is in a good position.

The employment rate is over 75 percent.

Again, Switzerland does best in this discipline, with a rate of 80 percent, but Germany is clearly in the top group.

This indicates that the labor market and social policy incentive systems are functioning properly.

Even better: the high level of employment goes hand in hand with high productivity.

Local workers earn the equivalent of more than 66 US dollars per hour per hour worked.

Considerable value, even if the best country in this category (Denmark) reaches $ 75.

The Federal Republic, it must be seen, has achieved a high level of efficiency.

What is lacking is the dynamic.

Germany is a rather static event.

Growth, progress, innovation - we are only mediocre there.

A few comparative values: Economic growth averaged 1.5 percent in the years 2010 to 2019;

the best in class in this discipline (USA) achieved 2.3 percent.

The macroeconomic investment quota is around four percentage points lower than that of the best performer (Switzerland), although the share that goes into creating intellectual property is only half as high in Germany.

The endowment with venture capital relative to economic output is only a tenth of the best comparable country (USA).

The digital infrastructure is, well ... Four percent of the German network is equipped with fiber optic cables, in the best country (South Korea) it is more than 80 percent.

Accordingly, the data transfer there is on average twice as fast as with us.

An interim conclusion: We are good at making the most of our existing possibilities.

But when it comes to translating new knowledge into new products, processes and companies, the services are not great, to put it cautiously.

Fairness?

Sustainability?

When it comes to

fairness

, Germany is better off. The tax and welfare system compensates for income differences quite effectively. The Gini coefficient, a statistical measure of equality, is 0.29 for net income. That's not far from the country with the best value (Belgium). The poverty rate has risen in the past decade and a half: According to the OECD comparison statistics, it was most recently just under ten percent, an average value internationally. In the best-placed Denmark it is only six percent, which shows that there is still more possible.

When

it comes to

sustainability

, a single indicator is sufficient to illustrate how far Germany falls short of its own standards: greenhouse gas emissions per capita are around twice as high as in Sweden, the best comparable country in this category.

After two decades of the “energy turnaround”, which, according to calculations by the Federal Court of Auditors, has already cost around half a trillion euros in power generation alone, the Federal Republic of Germany is far from achieving the goal of sustainability.

Incidentally, this is also a blatant failure to meet the efficiency target.

What to expect from the Greens and the FDP now

The best comparison gives a clear picture: Germany has a lot of catching up to do in terms of dynamic efficiency and sustainability, while our goal of fairness is satisfactory and we may even exaggerate in terms of stability.

The next federal government should rebalance the ESSF formula accordingly.

Can it work?

In all likelihood, the next Berlin coalition will for the first time include the Greens and the FDP at the federal level - in other words, precisely those parties that are committed to sustainability and innovation.

Therein lies an opportunity.

If there was a productive division of labor between the two of them, they could move forward together.

While differences are still loudly emphasized in the final phase of the election campaign, a statistical analysis of the election programs that we have just published as part of our DoCMA research network illustrates that the Greens and FDP are more closely related in content than ever before in the past 30 years.

Even in the potential three-way constellations of “traffic lights” (plus SPD) and “Jamaica” (plus Union), they achieve agreement values ​​that have not yet been measured.

Let's see whether the statistical analyzes can actually be translated into politics.

The most important dates of the upcoming week

Open assembly area

Frankfurt -

The 40 question marks

- The German stock market index Dax starts with 40 corporations for the first time.

Ottawa -

New

elections

- Canadians elect a new parliament.

Prime Minister Trudeau is trying to win back his majority.

Moscow -

Frustrating non-event

- After the controversial parliamentary elections in Russia, results should now be available.

Expand Tuesday area

Reporting Season I

- FedEx, Adobe, Kingfisher figures

Expand Wednesday area

Washington -

Major economic event

- The governing body of the US Federal Reserve decides on the further course of monetary policy.

When inflation rates are high, the question arises whether the rising prices are only a temporary phenomenon after the Corona crisis - or whether an inflationary momentum has set in motion.

The main issue now is when and how quickly the Fed will shut down its securities purchases.

Kiel / Munich -

Forecasts -

The Institute for the World Economy and the Ifo Institute present new economic

forecasts

.

Berlin -

more money!

- Collective bargaining for the construction industry.

Expand Thursday area

Reporting Season II

- Figures from Nike, Costco Wholesale

Open area Friday

Washington -

contain China

- US President Biden receives colleagues from Japan, Australia and India.

Munich -

German economy

- New figures on the mood in the economy: The Ifo Institute publishes the business climate index.

Open Sunday area

Berlin -

D-Day

- federal election: The rest of Europe looks to Germany, more concerned than amused.

There are also state elections in Berlin and Mecklenburg-Western Pomerania, as well as runoff elections in the municipalities of Lower Saxony.

Source: spiegel

All business articles on 2021-09-19

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