Germany - Economic analysis of government's policies, investment climate and political risk.
THE
McKEEVER INSTITUTE
OF
ECONOMIC POLICY
ANALYSIS
GERMANY: Economic Policy Analysis
This site presents an analysis of the German government's economic policies
compared to a revised list of 34 economic policies as prepared by student Ms. Andrea Seelig with the McKeever
Institute of Economic Policy Analysis (MIEPA)in December 2001. To read the analysis
scroll through this site. To learn more about the background policies,
click here Introduction and Policy Recommendations
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Andrea Seelig, a German native who currently [December 2001] lives
in Berkeley, has completed a study of her home country government's economic
policies as compared to the MIEPA list of policies as outlined above. The study on Germany is shown below. The
ratings herein are based on the following rating scale:
RATING SCALE
5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 1996. Used herein with permission]
To read a disclaimer about the analysis in this file, scroll to the
bottom of the file.
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GERMANY:
Comparison of Germany's economic policies to MIEPA criteria as prepared
by native student of Germany, Ms. Andrea Seelig, studying in the US in
December of 2001.
RATING SUMMARY
POLICY NUMBER RAW SCORE ADJUSTED SCORE POSSIBLE PERCENTAGE
1 5.0 15.0 15.0 100 %
2 5.0 15.0 15.0 100
3 4.8 14.4 15.0 96
4 5.0 15.0 15.0 100
5 4.6 13.8 15.0 92
6 5.0 15.0 15.0 100
7 5.0 15.0 15.0 100
8 4.8 14.4 15.0 96
9 4.6 13.8 15.0 93
10 4.5 13.5 15.0 90
11 4.6 13.8 15.0 93
12 4.7 9.4 10.0 94
13 4.2 8.4 10.0 84
14 4.4 8.8 10.0 88
15 4.5 9.0 10.0 90
16 4.8 9.6 10.0 96
17 4.5 9.0 10.0 90
18 4.3 8.6 10.0 86
19 4.3 8.6 10.0 86
20 4.2 8.4 10.0 84
21 4.2 8.4 10.0 84
22 5.0 10.0 10.0 100
23 4.8 9.6 10.0 96
24 4.2 8.4 10.0 84
25 4.8 9.6 10.0 96
26 4.5 9.0 10.0 90
27 3.0 6.0 10.0 60
28 4.6 9.2 10.0 92
29 3.5 3.5 5.0 70
30 4.3 4.3 5.0 86
31 4.0 4.0 5.0 80
32 3.8 3.8 5.0 76
33 5.0 5.0 5.0 100
34 2.0 2.0 5.0 40
TOTAL 150.5 331.3 375.0 88.3%
===== ====== ===== =====
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INDIVIDUAL POLICIES
1 Freedom from internal control: Rating 5.0
The first article of the German basic right says that everybody is equal.
There is no discrimination in Germany. Also, the protection of civil liberties
is important to the German officials as well as the people. Because of that,
people can move freely and do anything they want within the legal boundaries.
Sources: Personal information
2 Freedom of speech: Rating 5.0
On of the points in the German Constitution guarantees the freedom of speech
to everyone. With this comes the right of free expression of oneself. Also,
there is the freedom of the press which gives journalists the right to write
what they found out. The freedom of speech is accepted by all the
authorities.
Sources: Personal information
3 Effective, fair police force: Rating 4.8
There is a large police force in Germany, consisting of different
departments. But every town has at least one police station. Becoming a policeman
requires a long education and German police men and women are generally seen as
fair and effective. The crime rate is not too high and most crimes are
investigated successfully. People in Germany feel safe, also because there is a
steady police presence in regions where crime rates are higher than the average.
Sources: Hyde Flippo: The German Way, Passport Books, Chicago, 1999;
Personal information
4 Private property: Rating 5.0
In Germany private property owned by Germans as well as foreigners is fully
protected under German law. That means that a person who legally buys
something owns it legally and nobody could take it away from that person. Those laws
also apply to intelligent property like trademarks or copyrights.
Sources: : Chamber of commerce, information accessed through www.buyUSA.com,
11/06/01
5 Commercial banks: Rating 4.6
Germany has a non-discriminatory, well-developed financial services
infrastructure. Private and cooperative owned banks account for 50% of bank turnover
and they offer a wide range of services to their consumers. It is not a
problem to get finance for one’s business through one of the commercial banks. The
three biggest commercial banks are Deutsche Bank, Dresdner Bank and
Commerzbank.
Sources: Chamber of Commerce, accessed through www.buyUSA.com, 11/06/01
6 Communication Systems: Rating 5.0
There is an excellent systme of communication in Germany. There are only
very few households which don’t have a TV or a telephone. Many people do not
only have a land line but do have a mobile phone as well. In 2000 more than 20%
of the German people has their own internet connection and those who don’t
have one by now, can use computers in libraries. Newspapers are an important
source of information in the German society and therefore they are widely
spread and available everywhere. There are some national newspapers but most
people prefer to read their local newspapers that are published in almost every
town. Also, all of the newspapers are available online at no cost.
Sources: CIA, The World Factbook, www.cia.gov 12/05/01, Personal information
7 Transportation: Rating 5.0
The German transportation system is very complex. There are 656,140
kilometers of good quality roads, 40,826 kilometers of railroads, over 600 airports
and a lot of waterways that can be used. It is no problem to reach any place
in Germany when using the transportation system. The train is a fast
alternative for people commuting to work and is used more than in the US.
Sources: CIA, The World Factbook, www.cia.gov 12/05/01, Personal Information
8 Education: Rating 4.8
Education in Germany is free. From age 6 to 18 everybody has to attend
school. Even the universities are free. Because of the available education,
Germany has a literacy rate of 99%. The quality and quantity of education are as
good as in other Western countries. While attending school, every student
learns English and many learn a third language such as French or Spanish.
Sources: CIA, The World Factbook, www.cia.gov 12/05/01, Personal information
9 Social Mobility: Rating 4.6
Because the German constitution says that all people are equal, everybody
has the right to advance in life as much as they can. There are laws that
prohibit from discrimination either by gender, class, race, disabilities and so
on. In fact these laws say, that if two people are qualified equally, the one
from the minority group has to get the job. And in some organizations and
companies they have to hire women only because they have to employ a certain
percentage of women. All the tools needed for success in social life are provided
to everyone in the same way.
Sources: Personal information
10 Freedom from outside control: Rating 4.5
Basically every German is subject only to the German law. This applies
especially if the person lives in Germany. But even those who don’t live in
Germany permanently or are visiting other countries, the German law should always
apply to them. For instance, if German citizens are charged with a major
felony in another country, the German government would try to help that person to
get out of that country and be judged in Germany. Of course this doesn’t
apply to minor charges such as shoplifting but in general, the German government
tries to judge their citizens only by German law.
Sources: Personal Information
11 Foreign currency transactions: Rating 4.6
In general, all transactions have to be made in German Mark, or starting
January 1st 2002 in Euro, the new currency. However, in regions with high
frequency of tourists, merchants would accept other currencies like the Dollar as
well as added convenience for the tourist. But besides those small souvenir
shops, the only currency in Germany is German Mark or starting January 1st 2002
in Euro. The change onto Euro will make it easier for people all over Europe
to make transactions with other European companies or countries.
Sources: Personal Information
12 Border Control: Rating 4.7
After the treaty of Schengen, there are no inner-European border control
anymore in general. However, there are some specific border patrols that hinder
smugglers to bring their products in and out. As for special events, where
the government might fear violent acts, there are controls at the border to
restrict access to the country to people who don’t come in good faith. There are
some special border patrols at specific borders to fight problems such as
illegal immigration, smuggling of money or smuggling of drugs. But for most
borders there is no permanent control, as in no other country in the European
Union.
Sources: Personal Information
13 Currency: Rating 4.2
Until January 1st 2002, the official currency will be German Mark. The
German Mark was introduced in 1949 and has been a strong currency. Starting
January 1st, 2002, the official currency in Germany will be the Euro, a common
currency for 11 European country. Hopes are, that the Euro will become a currency
as strong and important as the US-Dollar. Right now, 1 Euro is about $0.95.
Sources: Hyde Flippo: The German Way, Passport Books, Chicago, 1999;
Personal information
14 Cultural, language homogeneity: Rating 4.4
In 2000, there were 83 million people living in Germany of whom 7.4 million
were foreigners. That is a percentage of about 11%. Most of the foreigners
now live their life as every German. However, there are some minority groups
like Muslim communities, that still keep on with their own culture and customs.
There are no conflicts about that and there are many efforts that people
learn more about different cultures. There is only one official language in
Germany, which is German but most people learn English and can speak it as well.
In rural areas there is almost no diversity of culture whereas some urban
areas can be seen as international melting pots.
Sources: : Chamber of commerce, information accessed through www.buyUSA.com,
11/06/01, Personal Information
15 Political effectiveness: Rating 4.5
Germany’s Bundestag (the federal council of parliament) consists of 660-plus
members who all are elected from the people and therefore there is a
representative for every part of the country. These representatives would make sure
that problems in their area are solved and therefore, the recognition and
solving of problems happens all over Germany, in rural areas as well as in urban
areas. Sometimes solving a problem takes a long time because of different
local groups and there different interests but in the end everything is solved
by the political forces.
Sources: Hyde Flippo: The German Way, Passport Books, Chicago, 1999;
Personal Information
16 Institutional stability: Rating 4.8
In almost all of German’s organization people are elected to serve for a
period of at least 2 years, in politics it is even more than that: The German
president stays in office for at least five years and the Chancellor stays in
office for four years. I think it is German culture not to necessarily change
something that is working good and so all of the organizations have been
stable in the recent past.
Sources: Hyde Flippo: The German Way, Passport Books, Chicago, 1999;
Personal Information
17 Honest Government: Rating 4.5
Germany is one of the least corruption plagued countries in the world and
therefore has an honest government. If there is any suspicion of corruption,
leaders of all political parties will do their best to eliminate that
corruption and control even more so it doesn’t happen again. There haven’t been any
real big incidents of corruption lately in the German government.
Sources: : Chamber of commerce, information accessed through www.buyUSA.com,
11/06/01, Personal Information
18 Common laws: Rating 4.3
The German constitution guarantees every citizen the same basic rights under
a written law. These laws date back to the 18-hundreds, and were revised in
1949. The first 19 paragraphs in the German “Grundgesetz” are similar to the
Bill of Rights in the US Constitution. There are different layers of laws:
local, district and federal courts. The federal court is the final arbiter in
the German law system but most of the cases are solved on lower levels. Even
though theoretically the law should be the same for everyone everywhere it is
still a fact that those people who have the money to hire a good lawyer will
most likely win their cases over people who cannot hire good lawyers. But
still, everybody charged with a felony has the right to get a lawyer even
though they might not be able to pay for him.
Sources: Hyde Flippo: The German Way, Passport Books, Chicago, 1999;
Personal Information
19 Central Bank: Rating 4.3
There are three layers of central banks that are of importance for Germany.
The central banks of the states, the German central bank and the European
central bank. Because the Euro will be the new currency in Germany and also
because of Germany’s member status in the EU, the European central bank sets the
interest rates in effect in Germany and also controls the amount of money
circulating. Before this has been done by the German central bank. The state
central banks are more a bank for commercial banks. All these layers of central
banks are politically independent.
Sources: Personal information
20 Domestic budget management: Rating 4.2
In 2000 the German revenues totaled $996 billion and there was a total
expenditure of $1.036 trillion. That means there was a deficit of $40 billion,
which make up a little more than 2% of the GDP. At the same time the inflation
rate was 2%.
Sources: CIA, The World Factbook, www.cia.gov 12/05/01
21 Government debt: Rating 4.2
In 1998 the German’s government debt made up 4.9 % of the GDP and in 2000
the government’s debt was 4.6 % of the GDP. The government is constantly trying
to decrease the countries debt and comparing the two numbers from 1998 and
2000, we see that this happens, even if only at a small pace. Compared to
other countries Germany’s debt is good as well.
Sources: CIA, The World Factbook, www.cia.gov 12/05/01
22 Economic Statistics: Rating 5.0
The German “Statistisches Bundesamt”, the statistical government department
gives numerous statistics out every month. They are referred to as highly
accurate. Besides that there are many other organizations that give statistics
for special fields every month, including a large number of private companies.
Sources: : Chamber of commerce, information accessed through www.buyUSA.com,
11/06/01
23 Protection of public health and safety: Rating: 4.8
In Germany almost everybody has health insurance, in fact, for those people
employed, the employer pays half of the health insurance. This means that in
case people get sick they can go to the doctor without having to face high
bills. Also, there are doctors in every big town and there are hospitals
basically within 15 miles of every place in Germany. If someone is diagnosed with
an infectious disease, the local authorities would look into that case to
avoid more people becoming sick. In case, a person has an infectious disease, he
has to stay home from work, school or pre-school until he is cured. But there
aren’t many infectious diseases in Germany anymore, also because of really
good vaccination programs starting at infant age.
Sources: German-American Chamber of Commerce: Starting a business in
Germany, Los Angeles, 1999; Personal Information
24 High wage policies: Rating 4.2
There are many unions for almost every industry sector and there are
collective bargainings about wages every year. These debates end with union
contracts for every industry sector. If the employers break these contracts, the
workers/employees have the right to strike. Most likely the problems will be
solved through negotiations. There haven’t been many strikes in the last years
but one that had a lot of effect on the whole of Germany was when the pilots of
Lufthansa were on strike to get higher wages. So there are effective ways
for workers to fight for higher wages even if they don’t succeed every time. On
the other hand, Germany’s wages are good European standard and therefore
strikes don’t happen that often. Because of those generally high wages there is
a high standard for living, meaning that most German families have at least
one car, own TV’s, microwaves and other articles beyond basic needs.
Sources: German-American Chamber of Commerce: Starting a business in
Germany, Los Angeles, 1999; Personal Information
25 Environmental protection: Rating 4.8
There are uncountable efforts to save the environment in Germany. And most
households comply with the guidelines how to safe the environment. Almost
every single household is part of the “Duale System” which guarantees the
recycling of everything. This is paid for by every household, every company and also
the government. Another important issue is that cars have to run under
specific norms and that they get checked every two years. A car that doesn’t
comply with the emission figures is not allowed to run. And every single shop has
to do everything to reduce waste. They even have to take back all packaging
material and recycle them. These are not just laws but are enforced not only
by the government but also by people’s way of life and their understanding of
nature in general.
Sources: Personal information
26 Strong army: Rating 4.5
The Deutsche Bundeswehr, Germany’s armed forces have grown steadily after
World War II. But as the world became more and more peaceful, money was cut in
the military’s budget. Because of that the German armed forces would most
likely not be able to repel an invasion by another Western country. But as all
of those strong Western countries are Germany’s allies, the threat is not too
likely. Also, if another country were trying to invade Germany, the allies
would help out. And recently there has been more money for the armed forces
again, so I think that there is no real threat for an invasion in Germany.
Sources: Personal information
27 Foreign trade impact: Rating 3.0
For 1998: Exports + Imports = 1,770.8 billion DM, 47% of the total GDP
For 2000: Exports + Imports = 2,220.3 billion DM, 52% of the total GDP
Because exports and imports made up almost half of the GDP in 1998 and more
than half of the GDP in 2000, we see that Germany is dependant on its foreign
trade. This also becomes clear when realizing that Germany has been the
world’s second most important export nation, making out app. 9 % of the world’s
exports. And the percentage got even bigger which means that there is more
dependency on foreign trade. But compared to other countries, the differences
are not too high and Germany is not fully dependant on foreign trade.
Sources: German-American Chamber of Commerce: Starting a business in
Germany, Los Angeles, 1999
28 Protection of foreign currency earning enterprises: Rating 4.6
78 % of German exported products were finished goods. The most important
industries were the car industry (17.7 %), machinery (15.6 %) and chemical
industry (12.7 %). The German government has an interest in keeping these
industries healthy and would help them if possible. But because German products like
cars, machines or chemicals have a good reputation, there is no real threat
to these industries.
Sources: German-American Chamber of Commerce: Starting a business in
Germany, Los Angeles, 1999; Personal information
29 Management of foreign currency budget: Rating 3.5
For 1998: Exports of 949.7 billion DM and imports of 821.1 billion DM
For 2000: Exports of 1,167.3 billion DM and imports of 1,053.0 billion DM
The exports are higher than the imports and so there is more money spend
than is earned internationally. But the difference is not too high and because
Germany exports a lot of high quality products, the rating is still pretty
good.
Sources: German-American Chamber of Commerce: Starting a business in
Germany, Los Angeles, 1999
30 Layers of collective action: Rating 4.3
Generally, decisions are made on every layer and each layer’s
representatives are elected by the people. So if the highest layer makes a decision and the
people don’t want to accept that decision the lower layers will try to make
deals with higher levels. But this takes time so there is no instant control
on different decisions made by the government. This is the case in all of the
layers, whether it’s school boards, city councils or other elected groups.
In the end, every decision in Germany is made by people elected by a majority.
Sources: Personal information
31 Pro business climate: Rating 4.0
In theory it is a good thing to own a business, most business owners are
seen as important people and seem to play an important role in social life. In
reality though, it is not that easy anymore to own a business because of the
slowing economy and therefore many business owners are struggling to survive.
Once somebody takes the step into entrepreneurship, he or she has to pay for
all insurances on their own and there are not as many security mechanisms as
for employees. But in general, a business owner is seen as a good person.
Sources: Interview with Jens Meyer, business owner in Germany, Personal
information
32 Government enterprises: Rating 3.8
There used to be many government enterprises in Germany such as “Deutsche
Post” or “Deutsche Telekom” but most of these enterprises have undergone
privatization in the last few years. The few government enterprises that still
exist will most likely be privatized in the nearer future. So there are only low
costs for the government to operate these businesses and there is an end seen
for that.
Sources: Chamber of commerce, information accessed through www.buyUSA.com,
11/06/01
33 International security agreements: Rating 5.0
Germany is a member of the European Union and also a partner of NATO. As a
partner of NATO, Germany is fully protected by NATO agreements. If a third
country would attack Germany, Germany would get the support of all other members
of NATO. Also, Germany’s location in the heart of Europe is a very
important and good one. As one of the world’s leading industrial nations, Germany has
partnerships and special agreements with countries all around the globe.
That’s makes Germany a safe place to do business in. I would say it is as good
as it can get in any western country.
Sources: Personal Information
34 Protection of domestic enterprises from government mandated costs: Rating
2.0
There are a lot of regulations that protect workers. For instance, the
employer pays percentages of the employees unemployment insurance, health
insurance and mandatory care insurance. They don’t always make it easy to open up a
business but on the other hand it gives security for possible accidents and
damages caused by workers. Compared to other countries it is definitely more
expensive to produce in Germany. But there is still that old quality standard
“Made in Germany” that stands for good quality. Also, when producing in
Germany a company makes sure that they don’t exploit people or children in
specific.
Sources: Interview with Jens Meyer, business owner in Germany, Personal
information
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