[Viewpoint]Germany has bounced back, again

Only four years ago, when the Roh Moo-hyun administration was launched, Koreans often cited Germany, especially its economy, as a failure. Korean newspapers used to carry headlines such as “Learning from the German Failures” and major research institutes published reports with similar titles.
In retrospect, there were two aspects to “Germany bashing.” One was intended to criticize the administration’s major policy guidelines.
People thought those guidelines were similar to Germany’s “social market economy,” which was a compromise between capitalism and socialism.
The other was because the German economy itself was in bad shape at the time. Germany, the largest economy in Europe, recorded 0.1 percent growth in 2002, which regressed to minus 0.2 percent in 2003.
According to the records of that time, about 37,000 businesses or self-employed people went broke or closed down businesses in 2002 throughout Germany. Businesses did not vigorously invest and the unemployment rate hovered in double-digit figures.
Although the reasons were partly due to the enormous amount of expenses Germany had to pay for the reconstruction of the former East Germany after reunification, it was basically due to the social market economy that Germany had maintained since 1970s.
That system, which expanded the scope of social welfare and the power of the labor union that ruled the country for a prolonged period of time, undermined the country’s economic vitality.
As of 2001, the unit labor cost in the area that belonged to the former West Germany was 26.2 euros, the highest level in the world. In comparison, the rate was 23 euros in the United States, 22.2 euros in Japan and 19.2 euros in the United Kingdom.
Josef Ackermann, chairman of the management board of Deutsche Bank, said, “We had to pay 46 percent of our net profits as corporate tax and social security contributions in the second quarter of 2003.”
He further revealed that “because of the heavy tax burden, we are in a situation where we have to consider moving the head office of Deutsche Bank to a country that does not levy such heavy taxes.”
Germany is now applauded by the world’s leading newspapers.
The Financial Times of the United Kingdom reported at the end of March that Germany has been recovering its growth engine quickly since last year.
The paper also said that the presidential candidates of neighboring France are now saying that France should learn from Germany. Last year, Germany’s economic growth rate, which had been 2.7 percent, exceeded France for the first time in 12 years.
According to the paper, Germany’s unemployment rate of 7.5 percent in February of this year was lower than France, and 1 million unemployed Germans have found jobs in the past year.
Just this week, the New York Times noted that Germany has exceeded the United States in exports in three consecutive years ($1.11 trillion in 2006). Pointing out that Germany has a competitive edge in high technology, the paper said Germany is now in an era of “economic renaissance.”
What are the driving forces behind Germany’s economic revival? Both the Financial Times and the New York Times point out, first of all, that the German economy has succeeded in restructuring.
It is the direct result of changing the country’s social market economy. Gerhard Schroeder, Chancellor of Germany from 1998 to 2005, pushed through a series of reform programs, including a labor market, taxation and social security system in 2003, although he had to risk political losses.
Angela Merkel, who succeeded Mr. Schroeder, took a step further by reducing welfare expenditures while taking measures to expand employment. As an outcome of Germany’s structural reform, the Financial Times reported that the unit labor cost of Germany had gone down 1.1 percent in 2005 and 2006 respectively, and that the weight of public sector deficit was reduced to 1.7 percent of the gross domestic product.
Of course, the future prospects of Germany’s economy are not all that rosy. The nature of a social market economy, which has been maintained more than 30 years, cannot be changed from its roots in three to four years.
The Financial Times and the New York Times also anticipate that the German economy can experience trouble at any time because their labor unions are strong.
What is clear, however, is that Germany has restored the model for growth that had been lost for a long time. After just four years, it is also clear that few media outlets or research institutes in South Korea look down on Germany anymore.

*The writer is a senior business news editor of the JoongAng Ilbo.

by Sohn Byoung-soo