Competitiveness: the German Approach

One cannot help but be struck by the upturn in the German economy and in particular by the improvement in exports of manufactured products. François Michaux analyses here the factors that he thinks have allowed Germany to improve its global competitiveness.
Besides relocating certain manufacturing activities to Eastern Europe, the improvements in German competitiveness vis-à-vis the rest of the world can, he argues, basically be attributed to two factors: the negotiations under way about the length of the working week and the lowering of the tax burden on firms.
In this article he shows in particular how Germany – which, like France, had brought in the 35-hour week (Germany by collective agreements, France by legislation) – has had to renegotiate the length of the working week involving a concerted fall in wage costs and challenges to certain established rights. François Michaux stresses the advantages of flexibility obtained through negotiations at all levels, which he reckons is a far more efficient approach than the heavyhanded interventions of the French government, applied indiscriminately to all activities.
The second factor which, he argues, has helped to improve the competitive position of German industry is what economists call “competitive fiscal devaluation”, which will be implemented between 2007 and 2009 and will involve a limited social value-added tax, a significant reduction in the tax burden on businesses, and the virtual exoneration of industries from the “green” tax.
The author illustrates his argument by examples largely drawn from the negotiations in the automobile industry, though he stresses that they are not peculiar to that sector and that they can be found in other sectors of the German economy.
By publishing this article, which some people will certainly consider provocative, we hope to stimulate a debate in the pages of Futuribles about the ways and means of updating the European social model.