I just had an insight, and maybe you can tell me if I am right or wrong. It's about Germany mainly, although other countries might qualify, and it comes from reading German academic and political commentary over the past few weeks.
It is common for some people (i.e. most people in your world) to think about the nation as if it were a firm. A firm provides income and security for its workforce by succeeding in competition. It must regularly increase its productivity, innovate and keep abreast of changes in the market. It must keep its costs under control. If costs rise too rapidly, and there is a risk of being priced out of the market, then strong measures may need to be taken. German unions as well as employers and everyone else recognize that competitive reality has to be taken into account.
The problem is that there is an enormous difference between the perspective of a firm and that of a society. A firm does not, and cannot, worry about the others who lose out in competition. If you gain market share and others are pushed aside, this means you are doing something right. You might be concerned for the workers and other stakeholders who are losing, but whatever you do for them, it would not include harming your own competitiveness.
Not so for a country. A country can organize itself to have a trade surplus through enhancing human resources, more productive allocation of capital and keeping wages and other costs down. Such a surplus, however, is necessarily matched by a deficit in trading partners. Deficit countries cannot shrink or dissolve as deficit companies can. Nor can they continue very long as deficit countries, unless they are the US and they export their financial instability to everyone else. But Greece, Spain, Ireland et al. cannot go on with these deficits. There is no solution for the deficit countries that does not imply a reduction in surplus for the surplus countries.
In other words, the "game" of international competition between countries, unlike between firms, cannot really be won. Any victory is only temporary, until its financial consequences become overwhelming. This is why no country ought to seek to outcompete the others. Raising productivity, innovating, and the rest is very good, of course, and should not be discouraged. But if a country is very successful at these things, it has a responsibility to the system as a whole to allow its costs to rise to the point that other countries are not crushed.
Here is a different way to say the same thing, from the other side of the ledger. Germans want to save. Good! But if they save quite a lot, and if their government borrows relatively little, then the only thing they can do with these savings is buy foreign debt. This means that the value of German accounts depends on the financial health of these foreign borrowers. But there we are again: we are seeing what happens to the chronic borrowers when their credit runs out.
In the end, what the surplus countries have to see is nothing more than the laws of accounting, that someone's surplus and savings is necessarily someone else's deficit. Firms do not have to worry about this, but societies do.
But I will agree to this: it is also obvious that there can be no solidarity across the Eurozone unless retirement ages are harmonized!
UPDATE: In a followup conversation, we agreed that the best course for a rich but thrifty country like Germany is to decrease its work hours still further. (I also think that a rich surplus country should consider making large transfers to very poor people in other regions. Just give some of it away. Why not?)
6 comments:
"(I also think that a rich surplus country should consider making large transfers to very poor people in other regions. Just give some of it away. Why not?)"
The argument for doing so is already accepted within countries. You just need to extend it to the EMU. :)
Dorman:"Germans want to save. Good! But if they save quite a lot, and if their government borrows relatively little, then the only thing they can do with these savings is buy foreign debt."
Please, indulge my ignorance. Why is foreign debt their only choice? Why not foreign assets or local corporate debt?
Channeling the Sandwichman in his absence, eh? Well, probably right on this one, as he was on quite a few matters.
Jack: Yes, net purchases of existing domestic assets can go up, but only if there is a net retreat in those assets by foreigners. This is unlikely if the assets, public and private, in deficit countries are viewed as damaged. On the contrary, there will be increased foreign demand for the assets of surplus countries.
Similarly, it is possible for Germans to buy land or equities in the deficit countries rather than debt, although this comes to largely the same thing. (1) The net equity position of sellers in deficit countries deteriorates, as it would with an expansion of liabilities. (2) Equities and real assets are likely to fluctuate in value with debt in the same countries.
You are right that I cut corners; I didn't want to get bogged down. In my defense, I would say that adopting a financial balances approach is still the right way to begin: it raises the issues that have to be addressed, although accounting identities can permit many sets of adjustments, and these identities do not say anything about causation.
"(I also think that a rich surplus country should consider making large transfers to very poor people in other regions. Just give some of it away. Why not?)" This caught my interest. Sounds like "Cast your bread upon the waters, after many days it will return unto you." It would be nice if some nation considered itself wealthy enough to do as suggested. Eamon Fingleton in the American Prospect recently stated that the German economy produced $44,500/capita vs. the U.S. $47,400, the principal difference being that the Germans worked 9 weeks less each year. If your success depends on the purchasing power of your neighbor such a practice has implicit self-interest. That the world would figure this out sooner than later.
I'm of German ancestry, have visited the rellies 1/2 a dozen times in Hamburg and have worked for a few German bosses. My verdict: they love the unrelenting dissatisfaction that comes with being Germanic. The endless obsession with scheisse and cleanliness. The constant sneering and condescending attitude to "outsiders". The belligerence and pompous disdain. It's a dysfunctional functionalism that lets them masochistically and endlessly seek Perfection Nirvana.
The gift is the sense of moral highground that excuses their naked hypocrisy for never considering others or dealing with them fairly. Nothing excites them more than the opportunity to do the pearl-clutching, aghast(!) routine at the inferiority of foreigners.
They haven't changed one bit from 1939. They just pulled their heads in with more (oh so enjoyable) self-flagellation PC PR about their moral responsibilities. Fck 'em.
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