The ‘German Model’ Loses Its Punch : Germany: Competition, recession, immigration slow a growth machine that produced decades of prosperity.

Germany is engaged in a serious period of political introspection and economic restructuring. Once an authoritarian superpower, the country could well become a democratic superpower and serve as an essential partner for the United States in the post-Cold War era--but this transformation will not happen painlessly or overnight, as many Germans and others had euphorically expected in the immediate aftermath of the tearing down of the Berlin Wall.

At a recent meeting of the Transatlantic Economic Roundtable--a gathering of German and American economic policy-makers organized by the Konrad Adenauer Foundation--I heard pessimistic evaluations of the German economy and society from leading bankers, economists and conservative ruling-party politicians.

“We live on a marvelously built ship called the Titanic,” quipped Dr. Norbert Walter, chief economist of Deutsche Bank, “and we’ve not seen the iceberg.”

Walter expressed the view that Germany can no longer afford its “cooperatist, socialist model,” which has created a leisure society where most Germans no longer work hard enough or long-enough hours. Walter and other conservatives, not unlike conservatives in the United States, want to reduce social-security programs, discipline the labor force and spur a new era of private initiative and economic growth.

The famous “German model”--built on labor-management cooperation, relative labor peace, a nationwide apprentice-training program, public investment in quality infrastructure and generous universal health and welfare benefits and ample paid vacations--produced an economic miracle in the 1950s and ‘60s and two decades of prosperity and steady income and employment growth in the 1970s and ‘80s. But the German economic growth machine has fallen on hard times. The budget has gone from surplus in 1989 to a growing deficit; labor and health costs are rising, and economic growth in the past year was negative. Joblessness nationwide is 8% and would be much higher without generous subsidies, training programs and early retirement schemes for workers in the former East Germany.

German auto, engineering, machine tools, chemical and steel companies have been hit hard by international competition, and some have begun to move production overseas in search of lower costs. In addition, the prolonged general recession in Europe has reduced the demand for German exports. The economic downturn has exacerbated social strife between the German majority and more than 6 million foreign residents, especially the 2 million Turks who came to Germany as guest workers over the years. There are also hundreds of thousands of Romanian Gypsies and other economic refugees from the former Eastern Bloc who have claimed asylum in Germany. Many Germans are deeply uncomfortable with non-Germanic foreign residents. Their settlement in Germany is viewed as undesirable and a drag on the economy.

“They are parasites, worthless people,” a leading academic told me at the conference. While immigrants have brought diversity, vitality and entrepreneurship to the United States--in spite of the strain of accommodation--Germany does not want any more immigration and is paying Poland and Czechoslovakia to beef up their borders.

Still, Germany has great strengths--a highly trained and educated work force, efficient and modern communications and transportation and a tradition of long-term private-sector investment. German firms are adjusting to world competition by downsizing, flattening corporate hierarchies, negotiating with unions to trade wage moderation and job flexibility for profit sharing, and investing in new technologies.

For the time being, Germany is looking inward, largely concerned with its own problems. All of the German leaders whom I met expressed the hope that the United States would exercise leadership in the ‘90s as the transition is made to a post-Cold War world. New international economic and security structures must be constructed. Eventually, Germany will want to play an equal partnership role with the United States in providing this leadership--but for the near future, the responsibility falls to President Clinton and his team.