Germany – State of the Structure

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Europe finds itself in an ambivalent position. On the one hand, repelled by Trump’s style of politics. On the other, fearful of Kissinger’s scenario materialising: Europe’s decline towards an appendix of a Chinese Eurasia.

From Kuka’s industrial robots over Silex’s micro-electrical systems to Krauss-Maffei’s machines: European craftsmanship, creativity, and innovation are the envy of the world. The many European hidden champions are embedded into a deep web of suppliers and partners extending into the smallest corners of Europe. Their operations not only safeguard the old continent’s prosperity, but also form the backbone of its societies.

While open markets have benefitted both China and Europe since the PRC’s opening in 1978, the playing field has become increasingly uneven. Or rather, the playing field has never been even. But Europe was too greedy to see it.

Although there have recently been announcements about an easing in joint venture constraints for car manufacturers in China, forced technology transfer is still happening en masse. A recent study by the EU Chamber of Commerce in China found that ‘unfair technology transfers continue despite government assurances.’ 19% of the 532 respondent chamber members reported that they were affected by forced technology transfer. The number of unreported cases is probably even higher due to retaliatory concerns.

Most policymakers have (or should have) woken up to the fact that elites at Zhongnanhai have chosen ‘Perestroika without Glasnost’. China’s system depends upon the symbiosis of the state and the economy. The trade negotiations of the US administration with China (while dubious in style) show that China does not intend to change its economic system any time soon.

Now what might a European response look like? The great Karl Popper might provide some insights:

‘Unlimited tolerance must lead to the disappearance of tolerance. If we extend unlimited tolerance even to those who are intolerant, if we are not prepared to defend a tolerant society against the onslaught of the intolerant, then the tolerant will be destroyed, and tolerance with them.’

It would be naïve to wait until the sell-off of European companies to China is over. After all economic policy is a means to an end – and not an end in itself. Policy should be guided by reason and providence. The time for dogmata and ivory tower theories is up.

Bildergebnis fÃ¼r german industry

Impressed and alarmed by China’s recent initiatives, Peter Altmaier, German Minister of Economics, published his ‘National Industrial Strategy 2030’, a white-paper on German and European industrial politics.

The paper mentions German firms, such as Siemens or Deutsche Bank, whose survival is of ‘national political and economic interest’. It also hints at the creation of a ‘Beteiligungsfazilität’, a state-investment fund stepping in to prevent foreign take-overs of critical companies.

However, in recent weeks Altmaier has come under fire. Representatives of the Mittelstand (small and medium-sized companies forming the backbone of the German economy) have been most vocal in their criticism.

A feeling of neglect best summarises their sentiment.

There is indeed a need for a new ‘Mittelstandsstrategie’. Various issues need to be addressed. Many companies suffer from higher energy prices on a European scale. There is also the need for a discussion revolving around corporate taxes.

Valid points, but a polemical outcry:

1. Altmaier explicitly mentions the issue of energy prices and corporate taxes in his paper. An accusation of neglect in this context is simply wrong.

2. Various circles act as if Altmaier’s white-paper is the final outcome. He clearly states the opposite. It ought to serve as a basis for discussion.

3. The accusation that the state is inept of identifying crucial economic sectors by drawing analogies to operative state-led blunders is cheap. The German state certainly didn’t excel with projects it had to conduct on its own, such as the BER airport. Yet the analogy is misplaced. Within the context of industrial politics, the state should identify crucial economic sectors (1) and direct investment to them in their infant stages (2). The track-record of China and the Tiger economies speaks volumes.

4. Moral handwringing without providing tangible recommendations is too easy. Accusing Altmaier of ‘centrally planned economics’, like the FDP does, is ludicrous. Even if it’s hard to admit and might taste bitter: Chinese subsidies helped the country become a leader in crucial sectors.

5. Critics would be well-advised to (re-) read Ha-Joon Chan’s book ‘Kicking Away the Ladder’ to learn about the origins of Western wealth. Hint: it has to do with industrial politics.

Time to wake-up:

Given what’s at stake for the German economy, its politicians should leave their dogmatism behind. They should take up Altmaier’s invitation for shaping Germany’s economic future.

The argument that the German economy has been doing well without industrial politics is naive. With the emergence of the e-Mobility and the A.I. revolution, an entire ecosystem is at stake.

1.8 million German jobs depend upon its automotive industry.

In the same vein, many Mittelstand suppliers depend upon the bigger fish in the pond. The SMEs would be at risk if the big fish were no longer in Germany, but in China.

In that sense, industrial politics isn’t a zero-sum game.

A more active state:

In her book ‘The Entrepreneurial State’ Mariana Mazzucato highlights the crucial role of the state in technological breakthroughs.

The iPhone wouldn’t be the iPhone if it were not for the state. The Internet, GPS, battery and voice recognition were all pioneered by researchers on a government pay-roll.

The government ought to correct market failures, by facilitating investments into sectors deemed too risky for private investors. Certain investments require a planning horizon that exceeds the patience of shareholders. In that sense, the government should support crucial technological fields early on.

The trust in the country’s creative forces of the free-market vis-à-vis technological progress has taken a hit. For a long time, German energy companies were reluctant to invest into renewable energy.

Instead they kept focusing on the cash-cows of nuclear energy and coal. They perceived renewable energy as a hobby, as Peter Bofinger, member of the German Council of Economic Experts, remarks. It was the German government with its ‘Erneuerbare Energien Gesetz’ (Renewable Energy Sources Act) that laid the foundation for wind-energy and photovoltaics.

Looking at the German automotive industry with its recent track-record (including the Diesel emissions scandal and its lagging position in e-Mobility), it seems as if the private sector of Germany’s most important economic branch could need more than a little nudge by the state.

Tag: Germany

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