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Making Germany fit for the future
election campaign is paralysing the country. While the candidates
manoeuvre for the contest this autumn, action on economic reform has
almost come to a halt. Europe's largest economy cannot afford to let this
state of lethargy continue.
the social democrat chancellor, and Edmund Stoiber, the rightwing governor
of the state of Bavaria, both have a fair chance of winning on September
22. Both are capable of tackling the complex problems that Germany faces
today but there is an urgent need for action.
Germany is in
last place among European economies, with growth in gross domestic product
of only 0.6 per cent last year and expected growth of 0.8 per cent this
year. The unemployment rate is 9.4 per cent: 4m people are jobless. We
have lost our competitive edge: Germany's share of world trade has
declined from 12.2 per cent in 1990 to 9.6 per cent today and the US and
others are outperforming us in terms of innovation.
reason for Germany's poor performance is that we have been misallocating
our resources. We have focused on subsidising the status quo and not on
innovation, growth, new jobs and prosperity. To put it another way, we are
not living for tomorrow but in the past. In order to move forward, we need
a more competitive and entrepreneurial approach and we must reallocate our
capital and human resources.
First of all,
Germany needs to increase its investment in education, the foundation of
its future strength, from today's 4.4 per cent of GDP to 7 per cent. We
need pre-school education in primary skills such as reading, arithmetic
and languages. We need more emphasis on communication and leadership
skills, greater inter- national focus and the introduction of courses in
our universities to prepare students for the technology of the future. The
US, France and Britain have shown us how to promote elites and improve
standards by creating competition between educational institutions and
have to raise the level of investment in industrial innovation to 3 per
cent of GDP and focus on high-technology research and knowledge-based
services. Only superior performance in innovation can safeguard our wealth
in the face of global competition. Our wealth is an economic rent derived
from our capacity to innovate. Other countries will pay the prices we
charge only if we produce goods and services that they need but cannot
Third, we have
to accelerate the pace of the economy's structural change away from
manufacturing and towards high technology and services. We must support
our service sector and those who produce innovative technology, by means
of suitable training programmes, financial support and tax breaks.
Last, we must
encourage the development of industry- and technology-based clusters. This
will inject dynamism into our economy by creating links between the
scientific and research community, companies, venture capital providers
and other professional and business service providers.
All this will
cost money: a sum equivalent to about 6 per cent of GDP will have to be
saved elsewhere. Mr Schręder and Mr Stoiber have promised the German
public good deeds and they agree with me on these long-term priorities.
Yet neither will specify how they should be financed - at least not during
the campaign. I believe the money should be raised from the following
sources: Privatisation, deregulation and liberalisation. Germany needs
more of the market and less of the state in order to unleash its
entrepreneurial forces. We still have largely state-dominated financial
services, energy and transport industries. About 100,000 other companies
are owned by local, regional and national governments.
is to make the labour market more flexible. This would involve opening up
the system of national wage agreements and making legal agreements at
company level, especially in eastern Germany. Employment protection laws
must also be eased and low-wage jobs released from bureaucratic
restrictions. Only then can our entrepreneurs create new jobs. A good
first step towards introducing flexibility and reducing high un-
employment would be to adopt the ideas of the task force led by Peter
Hartz, a director of Volkswagen. Reforms of the social security and
healthcare systems to reduce ballooning costs. Germany must remain within
the framework of a social market economy on the continental European
model. But the country now has to concentrate on providing basic social
insurance coverage, while leaving additional coverage to the discretion of
the individual. Allowing the private sector to finance and operate more
infrastructure, such as transport and communications. This shift could
ease the strain on public budgets. The key would be to ensure that the
public continued to have non-discriminatory access to services. Regulation
would be needed to ensure that the private sector provided services of
guaranteed quality at a fair price.
would allow the country to save the 6 per cent of GDP needed to invest in
the future. There would be other advantages as well. Increased private
sector provision would mean that capital markets gained a boost to
liquidity from private investment that would make them more effective,
more efficient and more competitive.
We have no
time to lose: all these reforms must be initiated within the first 100
days following elections. The winner of this election will have to prove
that he deserves the trust placed in him by the German people by pursuing
economic policies for the future.
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