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NYT: German Economy Stifled By Regulation

Discreetly buried in the ‘Global Business’ section of the New York Times:

In Germany, a Limp Domestic Economy Stifled by Regulation

By JACK EWING
February 22, 2012

FRANKFURT — Torsten Emmel… was on the verge of breaking the law. Mr. Emmel’s crime: Setting a placard on the sidewalk outside his shop advertising that he would stay open from 9 a.m. to 4 p.m. It was, after all, Mother’s Day.

But a city inspector noticed the sign and warned Mr. Emmel that it was illegal to stay open so long on a Sunday. Close earlier or be fined, the inspector said.

It was a lesson in how, despite its vaunted industrial sector, the German economy suffers from some of the same overregulation and sclerosis usually associated with much more troubled European countries

Thank Allah it could never happen here.

Alongside [Germany’s] export juggernaut… is another, creakier economy that operates well below its potential and holds back not only Germany but the rest of Europe, some economists say.

This economy is overregulated, intended to insulate insiders from competition and deeply resistant to change. Though Germany’s chancellor, Angela Merkel, often harangues countries like Spain, Italy and Greece to become more competitive, the German economy features some of the same flaws that they do, including protected professions and zoning laws that favor existing businesses over new ones.

“Germany has what I would call a dual economy,” said Andreas Wörgötter, a senior economist at the Organization for Economic Cooperation and Development in Paris.

“On one side, we have this very dynamic, innovative, competitive and refreshingly unsubsidized export sector,” he said. “On the other side, there is a much less glamorous services sector which depends on barriers to entry, subsidies and not developing and reaching out for new activities.” …

Again, something we will never have to worry about.

At the end of 2011, the German economy, the world’s fourth-largest, shrank for the first time since 2009… [M]ost economists do not expect brisk growth to return any time soon.

Germany could add about 10 percent to growth over the next decade if it removed barriers to competition and other inefficiencies, according to the O.E.C.D. [Organization for Economic Cooperation and Development].

Surprisingly, the untapped potential in Germany was almost as high as that in Italy and higher than that in Spain, according to the O.E.C.D…

The barriers to entrepreneurship in Germany are often obscure, but cumulatively act as a significant drag on job creation and investment.

For example, two years after a promised deregulation of domestic transportation, intercity long-distance bus service is still effectively prohibited in Germany. The decades-old ban shielded the government-owned rail company, Deutsche Bahn

Germany has made huge progress in the last decade toward removing strictures on the economy. In the 1990s, stores closed at 6:30 p.m. and were open only a few hours on Saturday, a hardship for working parents… Now, German states can set their own shop hours

Germany has also eased strict licensing rules that required years of qualification even for professions like basket weaver or violin maker.

But years of training are still required to qualify as a house painter, chimney sweep or bicycle mechanic, to name a few examples. The O.E.C.D. has called on Germany to loosen restrictions on advertising and fees, which limit competition among architects, lawyers and engineers.

In 2005, Germany also changed rules to put more pressure on people to find jobs

Now that really is shocking. We thought their ‘social safety net’ was the envy of the world.

Our news media has written endless article on how wonderful it is to be unemployed in Germany.

Those changes contributed to a significant decline in the unemployment rate, to 7.3 percent in January from 13 percent in 2005. German unemployment remained low throughout the recession of 2009 and the debt crisis that followed.

Gee, maybe we should try this sometime.

Germany also has its public spending under better control than most of its neighbors. The German government budget deficit in 2011 was 1.1 percent of gross domestic product. At the same time, total debt is about average for the euro zone, equaling 80 percent of G.D.P

By comparison, our annual budget deficit is now over 8% of our GDP, and our total national debt now exceeds 100% of our GDP.

And yet some people are complaining about Germany. We should be so lucky.

This article was posted by Steve Gilbert on Thursday, February 23rd, 2012. Comments are currently closed.

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