IF I SHOULD DIE BEFORE I WAKE...:

Dodging market forces gives Germany rude awakening (Charles Stein, November 21, 2004, Boston Globe)

Global competition can be a drag. It all but guarantees a steady stream of restructuring, outsourcing, and the nagging insecurity that comes from knowing someone out there may be trying to take your job.

In the United States, we have embraced market forces and the results have been pretty good: The American economy has performed well, even though many individuals have suffered.

But what if we'd chosen a different path? What if, instead of embracing competition, we had done our best to ignore it or insulate ourselves from the painful adjustments the marketplace demands? What would our economy look like then?

It might look a lot like Germany's. And that would not be so great.

The German economy grew at a 0.4 percent annual pace in the third quarter. Retail sales barely grew at all. Germany's recent dismal performance can be blamed, in part, on the rising price of oil and the rising value of the euro, which makes German goods more expensive to overseas buyers.

But the German economy has been dismal for a long time. Over the past decade Germany grew at roughly a 1.3 percent annual pace, compared to 3.3 percent for the United States. "And we worry that we are growing too slowly," said Nariman Behravesh, chief economist at Global Insight in Waltham.

Germany has a long list of economic problems. Yet its central problem has been an unwillingness to recognize that it lives in an increasingly competitive world. Wages and benefits in Germany rose steadily over the decade, even as productivity grew modestly. German companies reacted by voting with their feet for cheaper production facilities in Eastern Europe. Job growth has been anemic.

Germany has been slow to shift from manufacturing to services, slow to develop "new economy" industries, slow to innovate in financial services -- mortgage refinancing is rare -- and slow to allow competitive forces to reshape retailing.

"They don't have the freewheeling, innovative situation you see in Silicon Valley," said Martin Baily, an economist and the co-author of a new book, "Transforming the European Economy."

Why should the rapidly aging populations of the secular West willing to accept less security? The old aren't risk-takers.

Posted by Orrin Judd at November 21, 2004 4:47 PM