When the Miracles Stopped Working

By Alexander, Andrew | Daily Mail (London), January 31, 2003 | Go to article overview
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When the Miracles Stopped Working


Alexander, Andrew, Daily Mail (London)


Byline: ANDREW ALEXANDER

WHY NATIONAL economies rise and fall is an intriguing question and highly relevant for us at the moment.

Germany makes a good study. When the country was shattered after the War, Britain's Labour Government was urging it to follow socialist policies of rationing, planning and controls. But in 1948, Finance Minister Ludwig Erhardt abruptly announced an end to all these restrictions, declaring that the only ration card would be 'the mark note'.

The alarmed American military governor, General Clay, called him in to tell him: 'My experts tell me you are making a terrible mistake.' 'Don't worry, General,' responded the jovial Erhardt, 'my experts tell me exactly the same thing.' And with that, Germany was launched into the so-called economic miracle, making it the envy of Europe for a generation. Now the country is Europe's basket case. Why?

One can point to obvious policy errors like joining the straitjacket of the euro and the merging with East Germany on rashly generous terms which the Bonn government assumed were affordable.

The real problem was the complacency which grew as the economy grew. German workers were featherbedded by job protection schemes, high unemployment benefits and such luxuries as the right to four weeks' holiday in a government- subsidised health spa every two years.

The Teutonic passion for regulation spun a spider's web of rules to 'protect' everybody, even having criminal laws to safeguard particular crafts as if medieval guilds still existed. It was also assumed that pensions need not be properly funded schemes as one generation would be able to pay generous pensions to its predecessors.

From once being a country which sucked in outside investors, Germany has become a place to avoid. Now we see the outcome, with a budget almost out of control, high unemployment and an annual growth rate dangerously close to zero.

THEN let us look at Japan, an even more woeful story.

Its ascent was as striking as Germany's. Economic pilgrims descended from far and wide to learn how business could flourish so brilliantly.

Everything was rising: output, the currency, the standard of living and the stock market.

The bubble burst in 1989 and Japan has become the industrial world's most persistent basket case.

Why? Many individual problems can be pointed to - land values out of control, banks' bad debts and stock markets which had lost contact with reality. But hovering over it all was the problem of complacency.

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