Scratches to Sketches
Tuesday 12 November 2013
Germany needs to continue to restructure socially in order to help others and Germany realize the European Dream
My colleague and economist Rene and Walker's World asks the question whether Germany is right in having such a great trading surplus. It is an important question and at least one analyst proposes that German pensions be paid only to Germans willing to retire in the countries further south in Europe desperate for tourist or retiree cash flow. That is obviously not something German politicians would entertain, but the possibility that the German growth rate might act as a dynamo for the whole of Europe pulling it forward both to the benefit of Germany and its neighbours is just something that now needs to be seriously entertained if Germany is to remain competitive against China while remaining financial in balance. Having surplus is not a bad thing if it can be used to grow the real economies of Germany's European partners. They must be willing to have German direct investment.
It's curious that I should be asked this question having just had an earful from an individual at Poole Harbour here about how the UK should leave Europe; how key British assets such as expensive yacht building firms are being sold to the Chinese; how British industry and its politicians after the Thatcher era have bled the country of its valuables through dishonest dealing, etc. the list of negatives is so long that I am totally confused as to validity or what can or should be done about the UK situation. Seems pretty hopeless and mixed up. There is no longer any homogeneity or policy framework and all the key policy variables seem to have vanished. The situation almost seems ungovernable.
I for one am not convinced the problem Europe faces is because of Germany. It most certainly isn't something that Germans seem capable of analysing logically even though it requires a uniquely German solution, that of opening wide its doors to the very sort of rainbow mix of people that it eliminated in the early 1940s. The fact of German trade surpluses arises because Germany does a better job of manufacturing and it's efficiency is a result of its willingness to challenge the notion German firms could not be competitive viz-a-viz the Chinese and Asian manufacturers. Inward investment into German thrives on the German work ethic that is absent in Britain. The sleazy nature of current British banking, stock market, housing industries, and political backhanders / cronyism hinders Britain as a destination of ethical finance, rand d, and investment. Get rid of corruption please, it's not helping Britain, Canada, and America.
It is claimed that Britain is absorbing more than its share of foreign resettlement because it is more socially hospitable compared with Germany. English firms benefit from very cheap labour from Eastern Europe that Germany should be absorbing! So there are a number of things going on. German firms as more competitive and enjoying economies of scale and highly trained German workers, but absorbing enough of the enlarged community workforce has its eye on social benefits more than working benefits.
Barriers to entry into German employment of workers from the rest of Europe needs to looked at as well as improvements to the German social benefits streams to encourage inward migration. The security aspects of what happened 70 plus years ago obvious is a scary proposition for those who lost a previous generation to genocide. The consequences and advantages of history are serious facts of life that cannot be easily overlooked. The experiment of Europe will fall short unless Germany is more genuinely willing to develop the social benefits of others resettling in Germany with strong guarantees of long term security.
Germany can grow its economy even faster. Europe's problems are the sleazy nature of American banking capital and not Germany. More on that another time.
Why is the German economy so strong relative to that of the UK?
When one looks at real economic growth not that funded through wasteful credit expansion one is drawn to the fact that some countries do better than others. Could it be that real incomes in Germany are generating the savings needed for long term growth? One has to ask whether the key to success has something to do with the quality of real consumption. In the UK, which is a member of the EEC and can trade on equal terms with Germany, there is no doubt that the build up of real savings in Germany has been greater than the UK.
These higher real savings have meant greater real investment and competitiveness. It has little to do with interest rates as much as how financial markets and banking in Germany work for industrial investment rather than against it. While David Cameron fritters away at the housing industry in an endless pursuit of phoney growth through consumption by credit expansion and wasting of valuable resources, the Germans are actually saving for the long term. Had Britain not opted for the gamblers approach to growth, it might see some industry want to locate there, but now it seems the profits in Britain are artificially created by credit.
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Sketches from scratches is a provocative blogspot that has grown out of the Wuh Lax experience. It is eclectic, which means that it might consider just about anything from the simple to the extremely difficult. A scratch can be something that is troubling me or a short line on paper. From a scratch comes a verbal sketch or image sketch of the issue or subject. Other sites have other stuff that should really be of interest to the broad reader. I try to develop themes, but variety often comes before depth.
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