Dateline: Germany. I am in Munich this week staying with a friend, and as always I am fascinated by the German socio-economic project. On the clean and efficient train ride out to Augsburg today, we passed town after town sporting the contrast of black solar panels installed on red roofs. The German economy remains in positive growth even as the rest of the eurozone slows into recession, buoyed by a strong ethos of work and community and a commitment to quality and innovation.
Now, I am no fool. I also know that Germany has achieved its current prosperity by maneuvering for a favorable position within the European Union, which it is now using to impose its monetary policies on its eurozone neighbors. I think that this policy is a misguided one, and that while it serves German interests in the short-term, it also weakens their principle trading partners, and Germany’s political relationships with those partners, in the long term. Whether I approve of it or not is irrelevant. What is important is that Germany has emerged as the center of economic and political power in the European Union and will stay there as long as current trends continue.
Today’s New York Times offers a different take, with a feature article criticizing Germany’s non-industrial economy as stagnant and over-regulated. The article acknowledges Germany’s macroeconomic successes, but argues that there remains excessive regulation at the microeconomic level, in particular as regards professions protected through stringent licensing requirements and allowing only certain kinds of shops to be open on Sundays.
What the argument boils down to is that Germany needs more efficiency, which the article claims could boost economic productivity by 10% over a decade. The article supposes that this greater activity in the services sector would not increase Germany’s trade surplus but would actually lead to greater imports from the eurozone countries currently requiring bailouts due to their current account deficits.
This analysis is altogether too neat and clean. The article speaks of reducing Germany’s trade surplus in the passive voice and provides no evidence to indicate why the services industry would impact Germany’s net imports. The “built-up” services industries would need to buy products from other EU countries in order to close the north-south divide, but without more information on which service industries would be liberalized and what their supply chains would be, this is a fantasy. At the end of the day, Germany cannot solve the southern tier’s lack of competitiveness by making its own industries even more competitive. The south must reform itself (or go off the euro).
In addition to being economically unsubstantiated, the article’s negative portrayal of German economic regulation makes the classic error of confusing the purpose of a market with the market’s mechanics. Markets exist to increase human happiness through the efficient allocation of resources; the efficiency is a means, not the end. Nevertheless, articles such as this portray efficiency as desirable in and of itself, as being praiseworthy through some tautology of moral reasoning.
But would greater efficiency in its services economy actually make Germans happier and better off? I’m skeptical of this. This is my fourth visit to Germany, and to Munich in particular, and from my perspective part of what makes the German lifestyle so enviable is its attention to detail and high priority on quality. Would it be more efficient to relax the “years of training [which] are still required to qualify as a house painter, chimney sweep or bicycle mechanic”? Probably. But would German services necessarily improve? New painters, chimney sweeps, and bicycle mechanics might be licensed and enter into competition faster, but would the quality of work go up or down?
Licensing requirements can be used by guilds or unions as a way of restricting entry into the professions from potentially competing laborers. Where licensing requirements are being used for this cynical purpose, they should be amended. But when high licensing requirements are being used to safeguard quality of life or the national “brand”, then the case for the paramount importance of efficiency is a lot less pressing because efficiency no longer offers the most direct route to happiness.
Likewise the criticism of restricted shop opening hours goes too far. Yes, train station shops price gouging on diapers while their main street competitors are forced to close early is an abuse of regulation. But Sunday closing hours have important non-efficient benefits, such as encouraging a feeling of communal time , giving laborers a break from work, and encouraging a day of the week clear of economic concerns that can instead be devoted to community activities such as church attendance or family gatherings.
We should remember that Germany is now at the tail end of a generation-long project in market liberalization and seems to have hit the sweet spot between efficiency and other values in determining its economic policies. Why mess with a good thing? The eurozone crisis will not be solved by making Germany more American. Nor, for that matter, will it be solved by mindless austerity. It is wrong to try to solve a currency’s troubles on the backs of Europe’s southern poor. But it is also wrong to denigrate a culture’s accomplishments in achieving a high quality of life for the sake of an efficiency ideal that is presumed to have higher importance than actual human happiness.