| BUSINESSWEEK ONLINE : JUNE 21, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
Commentary: Wanted: A Turnaround Artist for Germany (int'l edition) If Germany were a publicly traded company, most analysts would probably rate its stock a ''sell.'' Although its economy expanded slightly faster than expected in the first quarter, growth for the year won't get much above 1.75%. The Social Democratic government under Federal Chancellor Gerhard Schroder seems directionless. Germany's DAX index of big stocks is up just 3.8% in dollar terms for the year, compared with 11.8% for the French market and 17.25% for the Dow Jones industrial average. But a value investor might find a lot to like in Germany. The country has all the makings of a dynamo, from its skilled and educated workforce to high-tech infrastructure. Under better management, Europe's biggest economy would deliver robust returns worthy of its potential. It would also get on the same road to strong, low-inflation growth that the U.S. has been traveling for three years. LASTING GAIN. What if a turnaround artist got hold of Germany, booted out its top executives, and restructured to unlock its hidden value? A few moves would bring a payoff much sooner than politicians think and bring Europe lasting gains. A German economy growing at the projected U.S. rate of 3.5% for 1999 would be worth $2.07 trillion at yearend, rather than $2.035 trillion. That's an extra $426 per capita, an enormous addition to the country's economic clout. One all-important fix by Germany's new CEO would be making it easier for companies to hire temporary and part-time workers. That would let employers tailor head count to their needs and remove a huge cost burden. Lowering payroll taxes and eliminating some of the more egregious social benefits would also stimulate hiring. Taxes and social security costs are equal to 52% of gross pay in Germany, compared with 31.1.% in the U.S., according to the Organization for Economic Cooperation & Development. No wonder Germany created zero new jobs in 1998. Unemployment fell only because the population is aging. In the U.S., with its flexible labor market and lower social costs, employment rose 2.4% during the year. If Germany created jobs at that speed, its unemployment rate would sink below 10% for the first time since 1995. Along with heavy taxes and stifling work rules, new German management would get rid of outmoded regulations on business hours for retailers. Wacky laws governing when and how often stores may hold sales would also get wiped out. Allowing consumers to shop on Sundays and during late hours would boost retailers' market share and volume. Meanwhile, forcing stores to deal with price competition would quickly bring down the often astronomical costs of basic goods and services. The pension system is another drag on the German economy that a savvy executive would quickly revamp. Currently, retirees live on the contributions of today's workers. Everyone agrees the pay-as-you-go system faces a crisis in the next century as the population ages. But Germany's tough new managers would easily avoid that by letting pension funds invest some of their money in stocks. Besides taking pressure off the national budget, that would free tens of billions of dollars for investment. Alas, any attempt at radical restructuring is probably doomed to founder on opposition from organized labor and other groups determined to cling to the status quo. The government agrees changes are long overdue. ''We know there's a huge reform backup, and we're working on it,'' says Bodo Hombach, Schroder's chief of staff and one of the authors of a joint statement issued on June 8 by the German chancellor and British Prime Minister Tony Blair. The leaders called for an end to tax-and-spend policies and cradle-to-grave security. But there's no sign the government will risk politically painful reforms. ''They haven't made one decision that will result in more investment and more jobs,'' complains Hans-Olaf Henkel, president of the Federation of German Industry. Eventually, perhaps the sense of wasted potential will get through to current management. Salomon Smith Barney economist Steven Englander says that if market forces were completely unleashed in Germany, its economy could grow even faster than the U.S. Until its leaders realize how much wealth they're sacrificing, Germany won't get back on anybody's ''buy'' list. By Jack Ewing To read a letter to the editor about this story, click here. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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