Sunday, 9 May 2010

Revenge of the Angry Ants

Germany's election results are in, and as expected, have probably taken away Mrs. Merkel's parliamentary majority in the upper house. This vote is due to a backlash from Otto Average over bailing out the profligate Greeks and the possibility that a couple of other southern neighbours may be arriving soon, hat in hand. Call this the revenge of the angry ants.

The Germans have a right to be angry at their fiddle-all-summer grasshopper partners in the Eurozone, but it also unfortunately crimps the desire for sorely needed reforms here at home. Perhaps one of the least talked about aspects of the Greek crisis is that the normally smug Germans have been basking in the glory of their own export-centred labour market, which is certainly more competitive than that of the Greek's, but this has unfortunately reinforced the misconceived notion here that Germany is the model to follow. In between downing three hot, steaming bowls of Schadenfreude daily for the last half year, they have somehow missed the big picture; a huge imbalance of competitive strength exists within the EU, but the Greeks are not running the same race that Germans are. In the global picture, the German reluctance to change one iota of their vaunted "Social Market System" ™ will continue to weaken the system until Greek conditions arrive between the Rhine and the Oder without the necessity of a Trojan horse.

Though it would be an impossible list, here are a few areas in dire need of a makeover.
1. While Gerhard Schröder should be credited with making some half-hearted attempts at reforming a system where a very large percentage of workers were allowed to be professionally employed, little was done to change the heavily controlled labour market that causes such un- and underemployment. Germany, as if stuck in some version of groundhog day where they wake up in the middle of the Wirtschaftswunder, continues to train workers for the economy of yesteryear. As economies mature, it is unavoidable that some jobs are lost and others are added in new areas. This is natural and necessary for growth. Exactly how many telegraph operators or typewriter repairmen have you run into lately? My guess would be not many. The German economy is a one trick pony. Germans have obsessively focused on heavy industry and growing a world-class export engine, but they have fallen far behind in other fields. Israel, a country with a population 13 times smaller than that of Germany, has carved out a niche for itself in the global IT market while Germany hasn't really made a dent. By refusing to diversify away from the heavy industry that lifted Germany in the 1950's, many smaller and developing countries are currently far ahead with regards to IT services. As a result, the service industry is in no position to compete globally.

In order to maintain this focus on manufacturing, services, which have been historically reviled in Germany as non-work, are heavily regulated. Setting up and running a small advertising agency for example involves a mountain of paperwork, a significant amount of capital, and the patience to visit every bureaucrat in the city for a stamp. The barriers to market entry are high enough to dissuade many would be entrepreneurs from setting out on their own, and if successful, adding jobs to the economy. I won't divulge too many details of the process, but let's just say I still don't have everything I need, and I am already unable to sit for long periods of time.

Which is related to number 2. Taxes. Roughly half of all tax books on the planet are in the German language. There is not much more to say about that.

3. Movement between jobs in Germany can be nearly impossible due to the rigid, arbitrary restrictions placed on many industries. While German students are often forced to study abroad due to a lack of space in homegrown institutions, people here must train for a very specific job and often do not have recourse to change career paths. Amongst the wonderful careers that you can receive a degree for in Germany are bakery assistant, deli worker, or cashier operator at a supermarket. These degrees take 2 to 3 years and require quite a bit of sacrifice since the "trainee" may only receive 500 Euros a month, which is hardly enough to live on. If you train as a deli worker for example, and you "graduate" with your "diploma" after 30 months, you will not be qualified to work the cash register in the same supermarket. If you manage to move up to stocking shelves, you may be considered "untrained labour" and will receive a lower salary than someone with the correct "training." This means that there is very little labour market flexibility and often no ability to work as a waiter if you lose your job at the supermarket; remember, waiters need a German degree in waiting as well. Any person in their right mind could see that this leads to high unemployment for workers with fewer qualifications, many of which are forced into early retirement in their 40's because they are too old to retrain and the places where they can practice the job they trained for may have decreased. So, it's off the official unemployment statistics and onto the gravy train for you!

I think this is enough information for one sitting, and I certainly don't want to put off any readers with indigestion, so I'll end there.

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