Chapter 90 Section 8 Two Models - UK and Germany

The economic reformers of Central and Eastern Europe naturally tried to study the most successful models in the capitalist system they wanted to rebuild.Many of them have their eyes set on Britain, in particular, to learn from privatization practices, although these have to be adapted to different circumstances.But the examples of the United States and Germany are the most influential. There are clear differences between the American and European models of capitalism.Americans have traditionally emphasized the need for limited regulation, few regulations, low taxes, and as flexible a labor market as possible.Its success lies above all in its ability to create new jobs, in which it has always been more successful than Europe.Since the 1960s, employment in the European Economic Community has grown by an average of only 0.3 percent per year, compared to 1.8 percent in the United States.Also, unlike Europe, most jobs in the US are created by the private sector.In the European Community, 40% of the unemployed have been unemployed for more than one year, while in the United States it is 10%.

Some policymakers in the US government favor intervention in training, industrial policy, and regulated trade.In recent years they have given a lot of positive consideration to the European model, especially the German one.It is therefore particularly important to understand the weaknesses and undoubted strengths of the European system represented by Germany.Because if the greatest example and representative of free capitalism in the world deviates from it in its domestic and foreign economic policy, it will seriously affect the entire system of free enterprise. After the war West Germany became Europe's leading economic power, and it was rightly called the "economic miracle".The achievements of the Germans were characterized by very low inflation and high productivity.This reflects the characteristics of the German people and the policies of the German government, especially those of the 1950s and 1960s, when they emphasized the "market" rather than "society" in the "social market" approach.This situation changed considerably in the 1970s and 1980s due to increased state intervention and co-determination of trade unions and administration (ie workers' participation in enterprise management).Taxes and the burden of regulation on employers have increased substantially, and some say are now approaching 100% of wages.While Germany's economic achievements have always been impressive, the above two burdens, combined with the shock of not handling well the expansion of the former communist East Germany, had previously Some features of capitalism's success are now causing serious problems, and there are signs that these problems may get worse.The degeneration of industrial consensus into a more rigid totalism reduces the ability of German industry to respond flexibly to challenges from Asia and Central Europe.This is true both for individual German companies and for entire sectors.Significantly, German employers raised East German wages to West German levels in 1994, a practice that proved so harmful that it turned out to be almost impossible.In an economy, this decision can only be enforced when centralized wage bargaining has become the accepted norm.

Furthermore, the German labor force now has the shortest working hours and the longest holidays of any country.The hourly wage costs of industrial competitors in the Asia-Pacific region are only one-sixth of Germany's, which poses a growing challenge.Relatively speaking, Germany relies more on manufacturing than most economically developed countries. It is therefore an open question how long Germany's present prosperity can last under these circumstances.It will further tempt Germany to follow France in pushing the European Community toward protectionism.But that would be self-defeating, because protectionism reduces the incentive for efficiency at home and stimulates efficiency abroad.It should be added that this analysis is by no means "against the Germans".Indeed, the more totalist model that Germany came to represent in capitalism was able to achieve what it is now because of the good qualities of the Germans.