Why the Germans are learning the g-word

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The Independent Online
German economists are spending a lot of time these days trying to define the word "recession". In the Anglo-Saxon world, you need two successive quarters of negative growth to qualify for this dubious honour.

In Frankfurt, one quarter is usually enough, while the politicians in Bonn try to maintain that the concept barely has a German translation. Boom-and-bust economics is something that the British and Americans have. The last recession here was in 1993, and the next dip in the cycle was said to be at least three years away.

The government is therefore finding it very hard to explain what is happening now. In the last quarter of 1995, the economy at best stood still, or, according to the leading institutes, contracted by between 0.3 and 0.7 per cent.

The present quarter is forecast to be no better. Come April even the government might have to enrich its vocabulary with the "r-word".

In the meantime, the voters are being blinded with science. We are, the technocrats explain, in the middle of an M-shaped curve. Output will start soaring again in the second-half of the year, powerfully enough to produce an annual growth rate of 2 per cent. Unfortunately, Germans are aware that Bonn vastly overestimated last year's figure, and are now more inclined to believe gloomy predictions of a measly 1 per cent growth rate in 1996.

While this numbers game leaves the average person confused, the unemployment statistics need little deciphering. The headline figure rose by more than 200,000 last month to 3.8 million.

As the downturn devours thousands more jobs, the Rubicon of the 4 million- mark will be crossed next month, perhaps sooner. The jobless rate will go into double figures for the first time since the post-war "economic miracle". It will require another miracle to bring it down again to levels to which Germans are accustomed.

The trauma of mass unemployment is already keenly felt. The despondency experienced by easterners since reunification is beginning to grip the west, as leading opposition politicians raise the spectre of the "British disease" starting to infect Europe's last truly industrial society.

"Where have we gone wrong?", Germans ask in the bemused manner of all those other Europeans who been posing the question for decades. The label "Made in Germany" still sells well, boosting exports even in the disastrous last quarter. But like Japan Inc., which has had to subcontract some of its work to cheaper lands afar, the big concerns in Germany are also discovering greener pastures abroad - often, as in the case of Siemens, on the other side of the English Channel.

The arguments in favour of relocation are familiar enough: the native worker is too expensive, his or her work pattern too inflexible, the taxes on employment are the highest in the developed world, and regulations concerning all aspects of production are stifling.

Conservative politicians tend to distil all these factors into one single item: wages. The German worker, however thorough and efficient he might be, is simply too expensive. This argument has won many adherents in these times of uncertainty, even in the engineering union IG Metall.

For the first time since the War it is prepared to bargain away future pay rises in return for new jobs. But this line of reasoning has one deep flaw: the great names of industry are not migrating to the likes of the Czech Republic or Taiwan where skilled workers can be picked up for a pittance. Instead, they are building plants mainly in the US and Britain - countries where the cost of labour is admittedly lower than at home, but not low enough to justify the move on its own.

The real reason lies elsewhere, and its consequences are far more terrifying for the Germans. Since the War, a large part of German industry has operated in a cosy cartel, with a pattern of cross-ownership and large share stakes held by the big banks and the state which would have made a central planner proud. Short-term profits were routinely shunned in favour of long-term gains - to the benefit of the whole country and its enviable social market economy.

Now the priorities seem to be shifting. Proximity to markets in an ever- shrinking world has become a new goal, escape from the stranglehold of the upwardly mobile German mark another. Patriotism has gone out of fashion as capital tries to hedge its bets. This trend is accelerating. While industry has lost, according to government estimates, 700,000 jobs since 1983, this year alone some 200,000 jobs are expected to abandon the country. As in Britain in the 1980s, the government in Bonn pins its hopes on the expanding service sector. But, as in Britain, services will not be able to soak up all the surplus labour.

For a country whose wealth has been built on industrial harmony, that could be devastating. For Germany's economists, who thought they knew everything that was to be known, there is another new word to be learnt, a g-word: globalisation.