Heiner Flassbeck has now had offspring, at least academic ones: The analyzes of the economist Flassbeck, writes Patrick Kaczmarczyk in the afterword of his book clash of nations. How economic competition is destroying our future“were a decisive factor in my becoming interested in economic policy issues”.
Kaczmarczyk, 31, studied sports management, worked for Lufthansa in New Zealand, studied in Great Britain, did research for the UN Conference on Trade and Development UNCTAD (Chief Economist until 2012: Flassbeck) in Palestine and now works for the Economic Forum of the SPD, one of Association supported by entrepreneurs close to the SPD: the party that would have saved itself many valleys if it would have followed the economic policy advice of its short-term State Secretary for Finance Flassbeck (1998/99).
der Freitag: Mr. Kaczmarczyk, how big are the hopes that Christian Lindner will read your book?
Patrick Kaczmarczyk: I would appreciate that! (laughs) But the finance minister remains a mystery to me.
In what way?
At first I had a little hope that things were going in the right direction with him. There were requests to speak from the FDP, so I thought: Wow, completely new sounds.
For example?
During the supplementary budget debate between the CDU and CSU, your financial politician Otto Fricke explained how absurd it is to assume that you first have to save money before you can invest it – as if a house builder had to wait 60 years before he started building. But if Lindner now makes Lars Feld his advisor, I ask myself: Ah, happy too soon?
Lindner says he appreciates Feld for his “ordoliberal beliefs.” Ordoliberalism – you are up against it.
Yes, against the ideology that growth and innovation would arise if the state only set a framework for the economy but otherwise stayed out. And against the resulting mantra that here in Europe every country just has to make an effort and increase its competitiveness, the best will come out of it.
Well, competition can also increase performance.
Think of the pyramids in Egypt: their builders worked far harder than anyone operating with cranes and robots would have to today. It’s about productivity. What matters is: What kind of competition do we have? Will companies become more competitive through wage cuts? Or through investments and increases in productivity?
What is productivity?
The relationship between what you produce and what you spend on it, i.e. the output per hour worked, is closely related to the development of the capital stock…
What is the capital stock?
Machines, houses, infrastructure – these are less developed in developing countries, which is why living standards are lower there. If productivity is lower there, it has nothing to do with the fact that people are making less effort there. Developing countries have their hands tied in terms of economic policy. However, what happens to the economy when economic hara-kiri is practiced is what we saw in Greece, when we first applied recipes that the IMF and World Bank normally foist on developing countries on our doorstep. This prevents development, not enables it.
Patrick Kaczmarczyk, 31, received his PhD from the Department of Political Economy, University of Sheffield and Sciences Po, Paris, as a fellow of the UK Government’s Economic and Social Research Council. Among other things, he researches the stabilization of capital markets in developing countries. His book clash of nations. How economic competition is destroying our future (Westend 2022, 224 p., 20 €) was published at the beginning of February.
He’s no longer worried about Greece, says Feld, but rather about the high levels of debt in Italy and France.
We have seen where all the reforms to cut government spending and wages are leading. It would be interesting to ask why debt levels used to be lower.
So why?
Because companies have been failing in their actual role as net debtors of an economy for about 20 years. If they don’t invest and if households save, someone has to go into debt. One’s income is the other’s expense. With its policy of surpluses, Germany has left the indebtedness to foreign countries.
Why have companies stopped investing?
If wages don’t rise adequately when demand is dead, why should a company invest? Wages should actually be a productivity whip. If companies know that they will only be competitive in the future due to high collective agreements and rising wages if they increase their productivity, then they would also invest. Anything else would be their end in the long run. But in Europe we have the opposite: stagnating wages, weakened collective bargaining agreements, in Germany only half of all employees work in companies that are bound by collective bargaining agreements!
Against the accusation that Germany has outcompeted its European neighbors with Agenda 2010 etc. and made them into debtors for its surpluses, people like to object: Our export products are just so good that other countries like to buy them.
Yes, but I looked specifically at the auto industry, and technologically we are lagging far behind the Chinese and Americans. In addition, we are dealing with a blatant profitability problem in Europe. You ask yourself: If everyone wants our cars, why are the margins of the German manufacturers so weak? Similarly with R&D spending: I assumed Germany would be far ahead, but that’s not the case at all compared to, for example, the French auto industry. Much more important is how the Germans use their advantages on the capital markets, for example via the car banks.
About the auto banks?
In the meantime, more than half of the sales are financed by the premium manufacturers, especially Daimler and BMW, via their own car bank. That means they raise billions on the capital markets in order to then bring the cars to the customer via credit and leasing. On the capital markets, Germans have advantages over the French and Italians because government bonds determine how cheaply a company can raise money. Bunds are cheaper, so the French and Italians are at a disadvantage. There were also company-specific risk premiums. For example, a Golf was 80 euros cheaper per month than a competitor’s model. BMW and Daimler spend three to four times as much money on the operation of their financial services as on research and development!
The French and Italians are determined to change something in Europe, specifically the rules of the Stability Pact. Christian Lindner is open, he told an Italian newspaper: “We have to make sure that reducing debt does not take away the leeway we need for investments in cutting-edge technology, climate protection and other important projects”.
That’s one of those signals of hope again. There are two things to understand, first: Debt levels are irrelevant to developed economies when it comes to development. Our grandchildren do not have to pay back any national debt. Rather, we create wealth for future generations in the form of good infrastructure or properly equipped schools. Second, we live in a world of thrifty businesses. The state must fill this gap in demand. As the economist Mariana Mazzucato describes it, many innovations can be traced back to state-funded research.
The state cuts out money without end and then everything will be fine?
No, of course he has to act strategically, as a kind of manager of creative destruction. In addition, a completely different international framework is required. We need to move away from destructive competition between nations to competition between companies that is about productivity. The companies that push wages the most radically should not prevail. But the ones that are the most innovative. This requires cooperation between states and stable interest rates, which can only be guaranteed in Europe if “whatever it takes” becomes Mario Draghi’s official mandate. The stability of government finances and thus of the financial markets depends only on whether the central bank stands behind the paper or not, on nothing else. Especially not from any debt levels.
The central bank finances states, the state controls wage policy – and now tell me that the current fear of inflation is completely unfounded …
Many have been warning of inflation for 15 years, now energy prices are going through the roof, and everyone thinks they always said so. Cheese. Inflation is determined over the long term by the development of wages in relation to productivity. That’s why the Fed is now considering raising interest rates, because wages in the USA have recently risen quite differently than in the euro area. We really don’t need to worry about the wage agreements here, it would be different if the unions were now to push through a 10-15 percent wage increase.
But you are for higher wages! Now calm the fear of inflation and say: wages are not rising that much.
The point is not that wages should rise completely independently of productivity, that would have an inflationary effect. If there are temporary shocks like the ones with energy prices now, then real income losses may be incurred for a few months. Nevertheless, there are various instruments to help poorer households and the middle class.