West Germany reaches the end of the economic miracle

Press, 8 March 1988, Page 12

West Germany reaches the end of the economic miracle

Daniel Johnson/ of the 'Daily Telegraph/ describes why has deep problems

WE HAVE lately been so preoccupied with the troubles of the world’s largest economy, the United States, that few have devoted much attenton Ito another ailing economic giant, scarcely less important for our prosperity: West Germany. | Though its problems are disguised by a spectacular volume of exports (higher than either the United States or Japan) and by the legendary success of the Bundesbank inj combating ’ inflation, fhey are likely to prove less easy to eradicate than those of the United States, because they stem less from misguided policies than from deep-seated customs and attitudes. There was nothing miraculous about the post-war German economic “miracle,” It was merely the unleashing of the potential of Europe’s most highly educated and disciplined nation by the liberal policies of Ludwig Erhard — in the teeth of resistance from the occupying powers, the opposition Social Democrats and- even, on occasion, Erhard’s | master, Konrad Adenauer.

With hindsight, however, it is possible to 5 see that Erhard’s dismantling of the central planning apparatus did not go far enough to counteract the regulatory zeal of ttie German bureaucracy and the power of the economic-interest groups. . A framework of! pensions, welfare, health insurance and labour law was created in the 1950 s which aroused the envy of the Federal Republic’s neighbours. But there was little grasp of the need to revive entrepreneurial individualism, which had been all but extinguished between 1933 and 1948, "in order to generate the wealth needed for this sumptuous provision. West Germany’s legislators are very rarely businessmen: at least a third come from public service, most of the rest are lawyers, and an increasing proportion have known only politics. But this alone does not explain the weak economic leadership which leading businessmen, such as the chairman of DaimlerBenz, Mr Edzard Reuter, have attacked recently. The business community itself has much to answer for. by greedily exacting State subsidies in return for: political loyalty, by

abetting the lunatic proliferation of regulations to exclude foreign competition and, recently by paying wage increases not justified by' the economy’s persistently sluggish growth, business has contributed to .the difficulties.

It has also lacked' courage to restructure itself, to press for greater flexibility in employment and retailing legislation rather than acquiesce tamely in the guild mentality of the German trade unions. '"| ,1 But surely those unions, reorganised themselves after the war in a way which the British, who can claim much of the credit, have envied ever 1 since, are famed for their co-operation and realism? True, they are still reluctant to strike — though the present troubles in the Ruhr, where steel-workers have cut off cities and stormed j the Krupp family’s former seat, are only slightly less bitter than the British miners’ strike. | Outside declining heavy industry, however, German unions do not need to strike. To get what they want, they have an array of legally entrenched rights which enable employees, in effect, to control hiring and 1 firing. This means that small and mediumsized firms frequently cannot be rationalised.

The popular West German solution of across-the-board reductions in the working week, which increases [unit labour costs, is a poor substitute for weeding out inefficiency. West German labour costs have been rising faster in real terms than those of any comparable country. With unemployment last month breaking the 2.5 million barrier (9.9 per cent of the workforce), and no appreciable’ reduction for several years, no solution to the problem will be | forthcoming from Bonn. “Manchester liberalism”, as Germans' still refer to Lhe tradition of Adam Smith, has little or no support there. Count Lambsdorff, the ‘‘Market Count,” is now discredited, and even when he was Economics

Minister under Mr Schmidt and Mr Kohl he did not alleviate the sclerosis of the labour market — the principal reason why Europe’s unemployment is consistently higher than America’s. Bonn’s efforts in other fields where radical measures are long overdue — tax reform, privatisation, abolition of subsidies, better targeting of welfare spending — have been feeble. The Social Democrats have departed, it seems for good, from the tradition of Karl Schiller in the 19605, and a man like Mr Helmut Schmidt no longer feels at home in his party (he is even an admirer of Mrs Thatcher). Mr Helmut Kohl’s Christian Democrats and Mr Franz Josef Strauss’s Bavarians lack any coherent strategy in the economic field, theirs is a pragmatic, opportunist and dirigiste conservatism.

The Free Democrats share the chameleon-like quality of other European liberal parties, and have failed to exploit their position as a permanent governing party to exact tribute from their coalition partners in the economic field.

On the question of the abolition of highly restrictive shopping hours, for example, the F.D.P. has shown itself internally divided and fearful of electoral risks. A few extra hours of shopping on one evening a week or a few shops open at airports are not likely to change customers’ lives sufficiently to make them passionate supporters of a full-scale liberalisation. The F.D.P. prefers a palliative to a purgative. Though the Greens have probably passed their peak as a political party, the intellectual and emotional attitude which they embody has by no means disappeared. The radical hostility to the legal and military apparatus of the State was accompanied by a kind of economic quietism. The anti-nuclear power campaign is only the tip of this iceberg, and

the same phenomenon is visible in the other parties. I Some commentators have discerned a “revaluation of values” in West Germany, a resurgence of political romanticism. I prefer to interpret the substitution of environmental cleanliness and the preservation of heritage for other economical goals as a legitimate market choice. But this one costs money. The poor performance of the West German economy in recent years looks set to continue; the environment can only deteriorate with it. Every enemy of the environment has his price. By separating questions of political prestige from those of profit and loss, the West Germans might have avoided such spectacles as the colossal quantities of lethal chemicals poured into the Elbe, or the demolition of the castle

[where the poet Novalis lived. I In 1960 the philosopher’ Karl Jaspers, warned the West Germans: “The combination of politely counciliatory negotiations, charming humour, the satisfaction of vanities, the creation of moods, the invention of unifying, meaningless phrases, cunning manipulation, in short: the politics of Gemutlichkeit and slyness, is fatal to the democratic idea, as opposed to the exploitation of formal democracy. The dangers posed to the economy by such politics seem to me at least as great as those for ; popular trust in democracy. HisI tory can provide few, if any, I cases of the overthrow of a 1 parliamentary democracy without a serious economic crisis. West Germany is not yet ripe for such a collapse, but the path to perdition stretches ahead.