Economy & Politics

Germany must now set the course for the restart

The German economy has come through the Corona crisis well so farimago images / Jochen Tack

A great time for the great state! This is how the intellectual refrain of many observers looking at Germany in 2020 could be summed up. And indeed: Corona has made aid programs for the economy the rule to a degree that even overshadows the dimensions of the global financial crisis in 2008/2009. There has never been such a huge surge in support for threatened and affected companies in German history. And above all: so broad. Unlike in normal economic crises, not only industry, but also trade and services received massive aid – and rightly so, because the corona-related lockdowns hit local and regional domestic markets particularly hard.

Karl-Heinz Paqué is chairman of the board of the Friedrich-Naumann-Foundation, economist and holder of the chair for international economics at the Otto-von-Guericke-University Magdeburg

The picture emerged of a badly battered, stagnant market economy on the state drip. It was clear from the start: If this were to become permanent, it would be a catastrophe. And that may well be imminent if a wave of bankruptcies expires after the special rules for insolvencies after the Corona period. Nobody really knows how many companies will be saved from an already due closure precisely because they are currently under artificial bankruptcy protection. Some business operations may have mutated into zombies.

However, after the dramatic slump in the second quarter, there was also a remarkable capitalist resilience that received little public attention. Above all, there were three positive developments that only notorious optimists had expected.

For one thing, the economy recovered astonishingly quickly in quantitative terms. After the GDP slump of around 10 percent in the second quarter, the core period of the lockdown, value added increased strongly again. The GDP in the following quarter rose by a remarkable 8.5 percent. So a good part of the slump was actually made up for. You could also observe this in concrete terms: the streets were filled up again with trucks and commuters, the cinemas, theaters and restaurants were well attended again as far as possible, the cross-border movement of goods picked up speed again, the temporarily broken international value chains were reconnected.

“When it matters, the national market economy and global capitalism react creatively and innovatively”

Karl-Heinz Paqué

But it was by no means a purely quantitative recovery. The world of business was changing qualitatively, and for the better. Strict hygiene concepts were implemented across the board, in practically all companies in the nation, no matter where and in which branch – from industry to retail to catering and cultural services. And these worked: From now on, hotspots concentrated almost exclusively on the private and semi-private area, where there were superspreading events, which suggested an even larger number of unreported cases. The commercial business, on the other hand, was spared precisely because it had responded quickly and professionally to the new requirements.

Finally, there was a rapid change in production from the economy to the new needs of the corona-plagued world. Protective masks and test preparations – initially in short supply – came onto the market quite quickly. And recently there was the relieving news that the medium-sized company Biontech in Mainz has developed a suitable vaccine in cooperation with the American corporation Pfizer. A first breakthrough in the global pharmaceutical industry! A second has already followed – with the American company Moderna. And more are only a matter of time – as the result of a lucrative wide-ranging competition in which a large number of company consortia participate.

All of this suggests the following: When it comes down to it, the national market economy and global capitalism apparently react creatively and innovatively. Of course, critics of the market see the state at work everywhere again: It was with the aid of liquidity that it made the economic recovery possible; It was he who first motivated companies to adopt successful hygiene concepts with mask requirements and distance regulations; and he poured money into research into an effective vaccine. All of that is correct. But without an alert and vital economy that reacts dynamically to these impulses of demand, state coercion and state money would have been of no use.

Return to growth

This is a very important lesson for how to deal with the corona crisis. Because their traces and effects can still be seen in the economy as a whole. This is especially true for the labor market. In October 2020, almost 3.3 million employees were still on short-time work. That is less than half of the 7.3 million in May 2020, but it is still evidence of massive underemployment – incidentally still higher than in the first Corona month of March with 2.8 million. Even at the time of the second lockdown, the situation remained critical, mainly because it affected a far above average number of less well-qualified personnel, such as service staff in gastronomy, culture and tourism. Bringing them back into employment will not be easy. So there can be no talk of normality at all.

How the question arises of what a new normal after Corona can look like. There are other major challenges in this regard. During the Corona era, the main aim was to use liquidity aids to protect the substance from irreparable damage, then the focus will then be on how the German economy can be brought back on a course of sustainable growth. This requires what is called the “enabling state” in the Anglo-American region – a state that sets the course to enable a dynamic increase in value creation, despite limited resources and an aging population. It is the exact opposite of what growth critics want: not “degrowth”, but restart!

How can the restart look like? First of all, you need a clear idea of ​​the starting point: where is the German economy today? The answer is: Germany is and will remain – similar to Switzerland and Austria – a nation of quality-oriented medium-sized industry with a focus on classic areas of innovative engineering. The swan song for this traditional model has been initiated for decades mainly from the Anglo-American region, but its decline has never come. On the contrary, the countries with a strong manufacturing sector weathered the world financial crisis ten years ago much better than those nations that specialized in services and financial markets too early.

The downside of the model, however, is a start-up culture that is still too weak in Germany. On the one hand, this is still due to the enormous bureaucratic obstacles and financial bottlenecks that arise with start-ups around universities, colleges and non-university research institutions. California standards are still a long way off, despite one or two improvements. This was always a disadvantage, but as the population ages it is increasingly becoming a serious stumbling block for economic dynamism.

Huge need for modernization

The same applies to the lack of an immigration policy worthy of the name: If the well-qualified baby boomer generation will leave the labor market in the next decade and a half, a strong new generation will have to move up – through even better and broader education, through increasing the participation of women in the labor force and through the immigration of technical talents from outside Europe. There is still no sign of that.

The same applies to the condition of the infrastructure, which has to support innovative growth. Transport projects are notoriously difficult to implement in Germany – the neighboring countries Switzerland and Denmark have been able to sing a song for years about the delay in the development of the Rhine valley and the tunneling under the Baltic Sea due to appeals and judicial review on the German side. The condition of the signal boxes at Deutsche Bahn is almost like a museum, which explains the notorious disruptions in long-distance traffic. The weaknesses of the communications network are even more dramatic, as it lags far behind in terms of density and capacity compared to industrialized countries in East Asia. Germany lived off the substance for a long time. The pent-up investment requirement is enormous.

All of this adds up to a strangely divided picture: a powerful German industry, medium-sized and highly innovative, but threatened by the failure to set the course for expansion on practically all modern fronts of potential growth. In addition, there has recently been a call for a radical turn away from a traditional product of German industry that has been the guarantee of innovation and highly qualified employment for decades: the car with a combustion engine. The European Union is calling ever louder for the imminent “combustion ban” for reasons of climate policy – in favor of the electric motor. For many European nations this is more of a marginal economic structural problem, which is why there is little resistance there. For Germany, the situation is completely different: A radical shift in the industry to electromobility could lead to bloodletting in jobs because it would essentially hit, if not eliminate, a classic competitive and knowledge advantage of the nation.

It is therefore of central importance for Germany that the automotive industry and its suppliers react aggressively to the challenge. The trick will be to catch up with the German backlog in terms of electromobility, but at the same time to drive alternative further developments of the combustion engine towards non-fossil fuels such as hydrogen. The research front to be dealt with will therefore widen massively, since in the basket of technological options there will no longer be just one path, but several research directions. This speaks in favor of rethinking the tax treatment of research and development, also in the direction of a technology-neutral strengthening of the search for new ways into the world of emissions-neutral economic and social life.

Away from substance consumption and towards a future strategy

Incidentally, the completely unsolved problem of infrastructure remains with the change in the direction of electromobility. There is currently nothing to suggest that a network of charging stations for electric cars could emerge in Germany in a few years’ time, which could substantiate the ambitious goals credibly and attractively for customers. There is a threat of a huge additional need for infrastructure, for which the country has not yet been prepared at all.

Conclusion: Germany faces enormous modernization challenges. If the country is to retain and expand its central role as the industrial heart of the EU, a smart growth strategy and policy is required: away from the depletion of assets and towards a future strategy that sets itself ambitious goals, but realistically and intelligently on the existing medium-sized economic structure their industrial innovation.

Incidentally, such a strategy is by no means limited to a selfish goal of national interest. Germany is traditionally a global supplier of quality goods, the use of which many other nations, companies and people benefit from. Politically, the country is and will remain a natural lobbyist for free trade, far stronger than other wealthy nations like the United States. Germany – together with the European Union – will have to fill this role more than ever if world trade is not to get more and more caught between American protectionism and Chinese state capitalism. In this respect, too, German politics bears great responsibility.

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