With Europe laboring hard to overcome the economic hurdles required for the introduction of a common currency, the one safe bet on the road to Maastricht–as everybody has assumed all along–is Germany. Most nations in Europe will have a hard time catching up with Germany’s economic and financial performances, according to conventional wisdom.
Well, perhaps not. True, since the days of the “economic miracle” of the 1950s, Germans have put together an impressive track record on issues such as trade surpluses, currency stability and controlling inflation. Over time, Germany’s performance spawned a great deal of self-assuredness in the economic sphere. Germans like to think no one can hold a candle to them–at least in Europe.
Upon closer examination, however, it becomes apparent that Germans would be well advised to review some of these preconceived notions. They may find that they are doing not as well as their European neighbors. For a long while, many of these countries have been toiling hard to close the gap between their economic performance and that of Germany’s. In some cases, they may even have surpassed Germany.
How could this have happened? The answer is simple. When it comes to undertaking the task of domestic economic reform, Germany’s neighbors have a concrete goal: overtaking the economic “powerhouse” of Germany.
As every policymaker in any advanced industrial society can attest, generating the political support required for the execution of “belt-tightening” measures is difficult because voters need to be convinced about the necessity of each budget cut. As in sports, the mere ability to point an “opponent” helps to focus the mind. If the proposed cut could, for example, attract more inward investment, or if the cut could increase the competitive power of the home country’s corporations, then the reform proposal has a fighting chance to be implemented.
Take France. For many years a regular feature of French presidential candidates has been to declare that, under their leadership, the French would surpass the Germans economically. This simple, but effective, motivational tool works in other European countries as well.
Many of Germany’s neighbors–the Netherlands, Austria, Finland, even Italy–have successfully broken many erstwhile taboos in the economic, social and financial policy arenas. Agenda items that were “trimmed” run the gamut from social security and unemployment benefits to health insurance, civil service pensions, family assistance and industrial subsidies.
Interestingly, in the German political debate, these efforts by Germany’s neighbors have been castigated as “socially repressive” and “irresponsible.”
But why should Germany not have to swallow the same medicine swallowed elsewhere? For example, much of the “trimming work” being undertaken in Europe has long been executed in the United States. Given the difficulty with which such reforms are implemented in Germany, one has to wonder whether there are some Germans who believe that they are better than the French, Danes or Dutch. Obviously, social policy reforms–while painful–cannot be accomplished by simply shutting one’s eyes.
In comparison to its European neighbors, Germany has a distinct disadvantage: it does not have any strong neighbors which would naturally spark the nation’s competitive spirits. The only neighbor Germans take seriously is a distant one–Asia. For most Germans, this generates a (false) sense of security. Asia, after all, is far away–on the other side of the world.
What about the United States? Believe it or not, many Germans do not consider America to be a real challenge. Too often, U.S. export successes are explained away by a weak dollar. More often, the United States is condemned in a roundabout fashion for being too harsh and heartless on the social policy front.
Whatever the specific merits of those arguments, they have little to do with Germany’s own competitiveness problems. They may be a way of rationalizing the problem, but certainly not dealing with it.
At the same time, there is an interesting parallel between Germany and the United States. Nobody here really shakes in his boots because of Canada or Mexico. Americans, in marked contrast to the Germans, nevertheless have an intricate motivational mechanism at work.
The U.S. has always managed to “domesticize” its global economic challenge–essentially by successive waves of immigration. For example, since the late 1970s, a lot of business-oriented Taiwanese, Chinese, Thais, Cambodians and Vietnamese have made it to these shores. Initially, through their examples as dry cleaner operators and supermarket managers, and then increasingly as architects, engineers, scientists and software entrepreneurs, these groups have provided an internal reflection of global competition right in the American marketplace. Unlike America’s top competitors around the world, the average American is confronted daily with practical examples of global economic integration. That peculiarly American form of “domesticizing” global economic integration is a very healthy process, especially if one considers that most nations don’t have the same privilege of an open immigration policy or anything near the same amount of “hands-on” competition.
