Germany: Senseless Regulations, Bloated Bureaucracy?

Greece's absurd regulatory state has gotten a lot of attention lately, including my favorite example of a Greek internet start-up that had to wait 10 months to begin operating because of rules which included requiring the company to submit stool samples from its board members.

But if Greece is a 10 of 10 on the scale of pointless regulations, Germany is at least a 4, I'd say. Jack Ewing of the New York Times kicks the tires of Germany hyperefficiency:

Torsten Emmel may have looked like an innocent florist, a gentle guy with a shaved head and an apron, clipping the stems of fresh freesia. In fact, he was on the verge of breaking the law.

Mr. Emmel’s crime: Setting a placard on the sidewalk outside his shop advertising that he would stay open from 9 a.m. to 4 p.m. It was, after all, Mother’s Day. But a city inspector noticed the sign and warned Mr. Emmel that it was illegal to stay open so long on a Sunday. Close earlier or be fined, the inspector said.

It was a lesson in how, despite its vaunted industrial sector, the German economy suffers from some of the same overregulation and sclerosis usually associated with much more troubled European countries.

...

Alongside the export juggernaut, though, is another, creakier economy that operates well below its potential and holds back not only Germany but the rest of Europe, some economists say.

This economy is overregulated, intended to insulate insiders from competition and deeply resistant to change. Though Germany’s chancellor, Angela Merkel, often harangues countries like Spain, Italy and Greece to become more competitive, the German economy features some of the same flaws that they do, including protected professions and zoning laws that favor existing businesses over new ones.

“Germany has what I would call a dual economy,” said Andreas Wörgötter, a senior economist at the Organization for Economic Cooperation and Development in Paris.

“On one side, we have this very dynamic, innovative, competitive and refreshingly unsubsidized export sector,” he said. “On the other side, there is a much less glamorous services sector which depends on barriers to entry, subsidies and not developing and reaching out for new activities.”

...

Germany could add about 10 percent to growth over the next decade if it removed barriers to competition and other inefficiencies, according to the O.E.C.D. Surprisingly, the untapped potential in Germany was almost as high as that in Italy and higher than that in Spain, according to the O.E.C.D., an indication that the German domestic economy is not as superior to its southern neighbors as is often assumed.

Ewing then goes on to undermine his point by noting that Germany has ended dozens of labor and opening-hours restrictions in recent years. (Note Ewing's basic assumption that getting rid of regulations is always a good thing.) Meanwhile, over at Slate, Bjorn Lomborg has a go at German solar energy subsidies:

Germany once prided itself on being the “photovoltaic world champion”, doling out generous subsidies—totaling more than $130 billion, according to research from Germany’s Ruhr University—to citizens to invest in solar energy. But now the German government is vowing to cut the subsidies sooner than planned and to phase out support over the next five years. What went wrong?

Subsidizing green technology is affordable only if it is done in tiny, tokenistic amounts. Using the government’s generous subsidies, Germans installed 7.5 gigawatts of photovoltaic capacity last year, more than double what the government had deemed “acceptable.” It is estimated that this increase alone will lead to a $260 hike in the average consumer’s annual power bill.

According to Der Spiegel, even members of Chancellor Angela Merkel’s staff are now describing the policy as a massive money pit. Philipp Rösler, Germany’s minister of economics and technology, has called the spiraling solar subsidies a “threat to the economy.”

 

Comments

[Mak]

I like the comments section for Ewings article. The basic tone is that Ewing is biased and that the Germans CHOOSE these regulations. If someone does not like it, that is the problem of democracy - many people support it. And the U.S. is a showcase example of free enterprise gone wild - are they better off today??

[Johannes]

I'd really like to have it spelled out properly how on earth getting rid of regulations (so more stores could be open on sundays) should contribute to economical growth to such an extent. A Euro spent is a Euro spent and the one spent on sunday cannot be spent on monday.

Their might still be some overblown bureaucracy in Germany, but the hard economical reason why the flower shop is not flourishing is probably simply that wages and incomes have stagnated for many years, for most average earners (and especially those below average) they are even lower in real terms than 20 years ago.

And bureaucracy and regulation ist not always a bad thing. Greece is not broke because of to many stool samples, but because people there are evading taxes as a national pastime and the administration does not have the man power (or just the power) to make them pay or go to jail. Even in Germany millions and billions of Euros are lost every year because of tax evasion and understaffed tax authorities. And most of this money is not going into little startup businesses (some of which might be given a hard time by some superfluous regulations), but it goes to Switzerland or the Caymans or elsewhere.

Or take the vermin in the bakery in Bavaria a few weeks ago. The public health authorities are understaffed as well, and of course it is a hazzle for the baker or the startup döner or bratwurst joint to bother about health regulations and wouldn't we all be better off if these (or the controls of the Euro-socialist Gesundheitsamt) were relaxed a bit?

FWIW, by now there are now about two million fewer people employed in the public sector in Germany (about 4.6 mio) than 20 years ago (6.7 mio).

http://preview.tinyurl.com/6w84v3x

I can't find the statistics on the relative percentages of public employees in relation to the total workforce, but I think it is by now lower in Germany than even in the US.

[dubuc]

The overpriced pv electric energy saved the european power network during the last chill in february 2012. Even France with 75% of nuclear power wasn't able to produce enough electricity (and yes, they heat with electric power the air in their apartments) and, according to german and french papers, had to import electricity from, among others, Germany. Due to the unusual sunny period, pv power generation in Germany was at its peak and could be sold.
So, nothing 'went wrong', the government just cuts down on subsidies without looking at long-term benefits.

[Roger]

> But a city inspector noticed the sign and
> warned Mr. Emmel that it was illegal to
> stay open so long on a Sunday. Close
> earlier or be fined, the inspector said.
Yes, the sunday (afternoon) rest can be seen as a efficiency brake. The same with laws forbidding worl hours over 10-12 hours per day.
Or they can be seen as regulatorly ways to give the people the chance to recreate, having a better life and beeing more efficient in the real working time.
And of course sometimes you need rules for all to stop unhealthy ways of competition.

Or as the lord once said, on the lords day you should rest.

[H. Burkhardt]

It think Mr. Ewings Article is spot on and laudable. The nice thing about this duality is though, that the lack of competitiveness concerns industries that are largely not prone to international competition. Therefore they are very unlikely to cause a competitiveness gap vis a vis other countries. Nevertheless reforms should be undertaken to fully capitalise on those sectors.

The only real problem that I have with Mr. Ewing is the slight suspicion by reading through other articles by him that he does a lot of that work on how Germany is actually a basket case to somehow weaken the very favourable view many Americans take on Germanys position both morally and factually in this eurozone crisis.

To that end I just want to say to Mr. Ewing, that Germany can be as beaurocratic as it wants to. Because it doesn't ask other countries to make up for the wealth gap these institutions create. If Germany would reform all these sectors its GDP would be 10 percent higher. If Germany was Greece it would run to the other countries in the world and ask them to please give us those 10 percent for free, because our citizens want to be 10 percent richer, but not change their behaviour accordingly. Germany doesn't. But Greece with its sclerotic system does. Thats the difference.

[Martin]

Note Ewing's basic assumption that getting rid of regulations is always a good thing.

Yeah, always!, and earth is a disc.