Saturday, October 12, 2013

How The German Industry Is Damaging Itself

Bertelsmann Stiftung is pushing for a smaller state and and more economic "freedom" to fire people. I can understand their current support for a free trade agreement with the US, since content providers will profit the most; and the Bertelsmann Group is Germany biggest content provider. Their fight against against worker rights also makes sense since Bertelsmann is not dependent on good workers, they are only the middle man. Also, a minimum wage would mean that it would be harder for the middle man industry to exploit workers. But for inexplicable reasons, the German industry wants the government to go in the same direction. These are firms dependent on good engineers, proficient craftsmen, and actually have a very good track record working with unions.The metal and electronics industry employers' federation has their own lobbying institution - the Initiative Neue Soziale Marktwirtschaft (INSM) - which aims at "reforming" Germany to become more like the US. In other words the INSM is trying to turn Germany into an industry free zone, like Britain; and sadly it is very much successful.

The new orders in Germany have been pretty much stagnant for three years now. Before the crisis of 2008 a clear upward trend could be seen. Also, the stimulus program of 2009 worked really well and the industry massively profited. The four years of the anti-stimulus pro-austerity Merkel (no stimulus in Germany; austerity everywhere else) government with the FDP (which is not in parliament anymore) were abysmal for the German industry. Any employer looking at new orders should be well aware of the fact that these last four years were definitely not pro business. Why on earth does the industry still finance a lobby group which is against stimulus? Is this apparent suicide by industry a cry for help? The INSM in their FAQ states:

Debt financed growth and stimulus programs are to be generally rejected.
OK. we have tried that.But now the results are in and they don't look good. This fact alone should make it clear to employers that not only is supporting this group a waste of money; much worse this policy has massively damaged their firms. 

Outright stupid is the chance 2020 idea of the INSM. In fact those plans are absolutely not new. It is Thatcherism at its worst. We only have to look at the small Island close to our coast to see, that a) these reforms are not suitable to reduce the government debt, b) they will damage production and help those who actually profit from less regulation: primarily finance, and c) they are aimed at making the poor even poorer; and the rich richer.

The whole program seems to be based on ignoring rulings of the German Constitutional Court (on taxes) and ignoring new scientific findings on life expectancy of the poor compared to the rich. They are also against a financial transaction tax, so seem to be in favor of high frequency trading, which just doesn't have an upside for anybody but (shadow) bankers.

The plan to make too big too fail go away is based on wishful thinking only. So, a financial crisis could strike again, which would in turn again damage industry and government debt.

This organisation doesn't help the main street businesses which finance it. In fact, the policies that are supported by the INSM are contrary to the interest of the industry. Retailers will be happy that the INSM is against a minimum wage but the metal and electronics industries pay higher wages anyways. Being able to hire and fire might be favored by some due to their delusions of grandeur, but Germany already has too few engineers, so again this just isn't a policy which helps those who pay this lobby group.

I am really puzzled as to why main street employers support policies which have a track record of damaging industry by making financial crisis more likely; and reduce for example government subsidies for research and developement (except for basic research).  The employers should cut their losses and move on, because in capitalism when an idea has failed, that's what you should do. Not poring millions more at it in the hope that someday in the long run ... blabla. Stop financing people who damage industry hitting yourself.

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