Magazine article Insight on the News

Competition Challenges Complacency

Magazine article Insight on the News

Competition Challenges Complacency

Article excerpt

The Germans, world leaders in production and trade, have "lifted the speed limit on their economic autobahn," noted Lester Thurow, the renowned economist at the Massachusetts Institute of Technology, in 1992. "And when there are no speed limits, the Germans like to go very fast."

In fact, Germany's economic engine turned out to be less than finely tuned. Oct. 3 marks the fifth anniversary of German unification and the country's economy is still sputtering. Although it is expected to grow about 2.5 percent this year, deep structural problems exist. Says Chancellor Helmut Kohl, "Now we have to do our homework at a quicker pace."

Unification has proved more difficult than the Germans expected and political foes have derided Kohl for his forecast of "blossoming landscapes" in the new federal states. Damage to eastern Germany's economy and infrastructure from four decades of communist misrule was far more severe than anyone had imagined. To complicate matters, the introduction of West Germany's rigidly regulated social-market economy has stunted development in formerly communist areas, observes Norbert Walter, senior economist at Deutsche Bank in Frankfurt. Shops in eastern Germany, for example, must close at 6:30 in the evening - a small reflection of the draconian hold of trade unions on the German labor market in the west as well as the east.

The pressure of international competition has threatened to turn the country's prized welfare state on its head. Kohl has been chiding his countrymen for pretending they can continue to live in a "collective amusement park." Indeed, Germans still are weltmeisters in wages, benefits, paid holidays and vacations (30 paid days compared with an average of 12 in the United States). But companies no longer believe they can sustain such costs and maintain competitiveness and profitability. "More than half of what we pay on an hourly basis to our employees goes to the states and comes back to them and society in general through services of the social-welfare state," says David Herman, chairman of Opel, General Motors' subsidiary based in Russelsheim. As companies downsize and move plants abroad, unemployment remains high throughout the country (forecast at 7.8 percent in the west and 12.9 percent in the east). BMW has opened a factory in Spartanburg, S.C. …

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