The Financial Times suggests Germany is losing its edge as an economic powerhouse. The facts they give are a bit disconcerting.
Germany’s path to competitiveness: cutting the cost of labour. Make no mistake; that has been the basis of the nation’s export success in the past dozen years; and exports have been its sole consistent source of growth in that period. But low wages are not the basis on which a rich nation should compete.
… Germany now has the highest proportion of low-wage workers relative to the national median income in western Europe. Average wages increased by more than inflation and productivity growth in the past year for the first time after more than a decade of stagnation.
…total gross fixed investment has fallen steadily in Germany, from 24 per cent to less than 18 per cent of gross domestic product, since 1991. The recent OECD Economic Survey of Germany states that German investment has been persistently well below the rate of the rest of the Group of Seven leading economies since 2001 (and not just because of the bubbles of the mid-2000s in the US and UK). … public infrastructure investment has been even more lacking.
The other way for a rich country to stay at the top of the value-added chain, and thus compete on productivity, is to invest in human capital – that is, to educate its workforce. In Canada, France, Japan, Poland, Spain, the UK and the US, the share of young workers with advanced education is at least 10 per cent higher than in Germany – in most of them, 20 per cent higher or more. Germany, moreover, is one of only two advanced economies in which the share of those aged 25-34 with higher-education qualifications is the same as, or smaller than, in preceding generations (the US is the other). …
… Growth in gross domestic product per hour worked is 25 per cent below the OECD average, whether one goes back to mid-1990s or looks at just the past decade – and whether or not one excludes the bubble years for the US and UK.
…The export obsession has distracted policy makers from recapitalising its banks, deregulating its service sector and incentivising the reallocation of capital away from old industries. Furthermore, public investment in infrastructure, education and technological development could help increase profitable private investment, which would lead to growth with higher wages.
But, hey, at least they have a positive trade balance (sigh).
[Hat tip: Will Truman]