SINCE the Industrial Revolution, manufacturing strengths have
propped up the German economic machine.
Industrial giants - names such as Daimler-Benz, Krupp, and Bayer
- made Germany the economic powerhouse of present-day Europe and a
crucial player in the effort to achieve lasting Continental
But the economic rules are rapidly changing as Europe prepares
for the 21st century. The service sector is coming to dominate
heavy industry in the new age, and the cutting edge will involve
developing computers and other information technology rather than
That is prompting some economists to warn that Germany is
dangerously underprepared for economic competition in the
"We need much more flexibility than we have right now," says
Jurgen Dongas, an economist at the University of Cologne who served
on the government's Deregulation Commission from 1989 to 1991.
"The future of the industrial state, that is the issue," says
Arnulf Baring, a Berlin political scientist. "We cannot maintain
the current social-welfare state if we don't change the way
Responsibility for guiding Germany through the transition will
fall on Chancellor Helmut Kohl's coalition, which scored a narrow
victory in the Oct. 16 elections. Mr. Kohl advocates deregulation,
but it is unclear whether the chancellor - one of the last
remaining world leaders from the cold-war era - retains the vigor
and vision to implement dramatic change.
Germany's ability to adapt is critical to the success of the
European Union's attempt to create a continentwide federation of
Forging closer EU cooperation will be difficult under any
circumstances. But the experiment has virtually no prospects for
success if Germany - a major force for integration - goes into a
significant economic decline. And plenty of historical precedents
highlight the danger to European stability when Germany is not
firmly anchored in a Continental security system.
No browsing at midnight
The German economy is governed by some of the stiffest
regulations in Europe. While future prosperity may hinge on the
retail and service sectors, they may be the most rigid areas of the
Shopping hours, for example, are strictly regulated, with stores
closed nationwide on Sundays and holidays. A cash-only attitude
prevails, as many smaller shops still refuse to accept credit
Expansive labor laws - covering everything from hiring to
discounting - have left customer-service skills underdeveloped.
Meanwhile, key service-sector businesses, such as the state-run
telephone company, have received government regulation and
"Many companies don't feel they need to provide service," says
Volker Gorgen, a deregulation specialist at the German Industry and
Trade Council (DIHT), a Bonn think tank. "When you operate like a
monopoly, there isn't a need to attract customers."
A short-term lift
Despite its rigidity, Germany still has the world's third-
largest economy. Statistics indicate a strong economic recovery is
under way after the country's worst recession since World War II.
The government projects that gross domestic product for 1994 could
rise more than 2.5 percent, far exceeding expectations at the start
of the year.
The good economic news boosted Kohl's ratings in opinion polls
leading up to the Oct. 16 vote, and was crucial to his coalition's
slim win over the Social Democrats.
But if Germany wants to remain a leader in the next century, the
post-October government must take quick action to rectify economic
deficiencies concealed by the statistics, Mr. Dongas and others
Among the economic issues that require urgent attention are
privatization, innovation, labor-cost reduction, and popular
expectation about the welfare state.
The danger to the export-dependent German economy is perhaps
best borne out by the fact that the nation's export share outside
Europe has dropped steadily over the last two decades. …