I've just returned from a Böhm Bawerk lecture given by Hans-Werner Sinn, entitled "Bazaar Economy Germany – world export champion or economic slowcoach?" His theory which is capable of explaining the coincidence of unemployment and booming exports has led to many discussions in the German public over the last year. Sinn in a nutshell [Source]:
Germany is gradually becoming a bazaar economy ... because nowadays it specializes in packaging and selling its products, while outsourcing an ever-larger share of its high value-added manufacturing to low-wage countries. In other words, Germany’s role in the world economy is shifting from that of a producer to that of a merchant. As a result, its exports contain an ever-increasing share of imported goods and services and the share of domestic value-added in its exports per unit of output is rapidly declining... Excessive wages destroy the labor-intensive upstream product stages too fast and also impairs other labor-intensive sectors like textiles, simple services, tourism, and construction. As a result, these labor-intensive sectors must release a lot of labor and capital, which push into the capital-intensive export sectors that are better able to cope with high wages. But, while these sectors therefore grow especially fast, their high capital intensity means that they cannot fully employ the released labor, with the result that some of the unemployed workers have nowhere to turn but the welfare state.The take home message is that German enterprises will remain competitive on international markets thanks to their Eastern European hinterland (= keep putting your money into the DAX), but many German workers have lost their competitiveness and the situation will become even more worse if nothing is done against the unflexible labor market, especially the downward rigidity of wages. Sinn even said that the shock to wages due to the additon of China, India and other ex-communist countries to the world economy will be felt for the next 50 years.
Mahalanobis - am 2006-01-12 00:24 - Rubrik: economics
Pavel (guest) meinte am 12. Jan, 10:16:
Made in ...
I've heard stories from various Czech companies about products that are made in the Czech Republic, then shipped to Germany, labelled "Made in Germany" and the reexported.I agree, profit margins of many German manufacturers look healthy despite the lukewarm macro figures.
EclectEcon (guest) antwortete am 15. Jan, 10:37:
What about services?
While downward wage rigidity poses possible adjustment problems in Germany, it could well be that, like many other Western economies, Germany is producing more services while more of the world's manufacturing is being carried out in other lower-wage countries. I'm not sure this reaction to shifting comparative advantages is all bad.
bob (guest) antwortete am 15. Jan, 12:32:
If I understood him right he said that the shifts from labour-intense sectors to more capital-intense sectors and from production sectors to service sectors were much too fast. With the current speed the shift is destroying much too many jobs, he claimed. According to him, the spectrum of wages should be opened to the down-side, meaning that more low-level jobs should be created. Of course this would result in social tensions. He accounted for that with the concept of "Aktive Sozialhilfe" (active social support), meaning that people with low-level jobs should receive financial support from the state, in addition to their (low) wages.
The brilliant thing about this idea: it would cost less to the state compared to the actual costs of unemployment because employment rises then the state has more money.
Drawback: potential opportunistic behavior on the side of employers, meaning that they could pay low-level wages to ALL employees and thus place an additional burden on the state.
Mahalanobis antwortete am 15. Jan, 22:38:
Correcto
Maybe Sinn should have emphasized more clearly (during his presentation) that by removing wage rigidities new low-level jobs would be created, i.e. that there is no chance of competing successfully in certain sectors but that there is demand for existing or new products/services if offered at a lower price. [After all, 90% of the questions in the Q&A session were closely related to the labour fallacy, the luddite fallacy and the "Keynesian demand fallacy"].I think his theory is logically consistent and backed by empirical evidence so one should only haggle about the size of the effect...
