“GERMANY IS LIVING ON ITS CAPITAL”

BROYER Here I’d like to differentiate between short-term and long-term effects. In the short term, the subsidies for renewable energies are causing enormous costs for electricity customers. These costs have increased by more than 20 percent in the past five years. I also think that the indirect costs of this reform include the fact that big energy companies such as RWE can no longer pay good dividends to their shareholders. In the long run, the energy transition is opening up new markets for German companies. Germany is now the leading producer of wind and solar energy. The only thing that’s now missing, in my opinion, is the medium-term perspective: How are such decisions affecting the existing business processes? I don’t see any overarching concept for answering this question.

AUDRETSCH Here’s an interesting thought: In general, Germany’s economic policy is regarded as being very risk-averse. But the decision to launch the energy transition was a very risky one, wasn’t it? Nobody was able to say where it would lead. But I see a positive short-term aspect. Through its phaseout of nuclear energy and its energy transition, Germany represents an environmentally friendly policy. Today this image is definitely a locational advantage, especially in the competition for the talents of the young generation. Young people from the so-called “creative class” want to live in healthy and environmentally friendly surroundings. For many young people, that’s the top priority. As a result, talented young people—what we call “human capital”—are happy to move to Germany.

AUDRETSCH Yes, it certainly is. But just take a look at Silicon Valley. I’m always very impressed by it. Silicon Valley is one of the world’s most expensive locations, but that isn’t scaring off the companies and people in the digital industry. It’s true that there they have very high costs, but they also get a lot back! And that also applies to Germany as an industrial location. The energy costs there are very high, but in exchange German companies benefit from other advantages: the stability and, above all, the excellent workforce.

BROYER Rising prices for electricity would be a real problem for energy-intensive sectors such as the chemical industry. And as far as education is concerned, the German educational system for skilled workers is fantastic. However, Germany is only in the middle rankings of European countries when it comes to the number of school and university graduates in the MINT subjects. And the competition isn’t napping. Other G7 countries such as Canada and Japan are making huge efforts to incorporate younger generations into their aging societies, give them a better education, and strengthen their social bonds. Germany is certainly doing this better than other European countries. Italy has implemented a reform of its educational system, but it hasn’t achieved anything. In France, President Macron has yet to initiate his reform of the school system and the trainee system.

AUDRETSCH Immigration is like the World Cup in soccer…

AUDRETSCH No, no, I’m not making a comment about sports. I’m referring to the international competition in this regard. The best players are in demand all over the world. And in exactly the same way, today every location, every city, and every country has to struggle to attract the best minds to work there. This is a challenge for Germany too, but it applies to every country in the world.

AUDRETSCH That’s true. But if Germany can’t solve this problem, what country can? Basically, no other country in the world can match its system of education and integration.

BROYER A high level of education is a key to future success. That’s especially true if an hour of work in German industry costs $ 25 more than an hour of work in Korea. In Korea, the workers are also highly qualified, but currently they are campaigning for the introduction of a 52-hour week instead of the 68-hour week they have now.

BROYER From a historical standpoint, all of the major growth phases of national economies all over the world were caused by demographics and immigration. What we’re seeing in Germany at the moment is the biggest wave of migration since the one caused by the war in the former Yugoslavia in 1992. At the moment, the integration of immigrants into the workforce is still too low. The likelihood that a refugee will find a job in German is 35 percent as a long-term average. Today, during this wave of immigration, it is less than 20 percent.

BROYER During periods when a population is aging, there are only two other opportunities besides immigration to safeguard the substance of the national economy. The first one is robotization. Germany is extremely progressive in this area, even though it isn’t doing so well in terms of digitalization in general. Incidentally, there’s a strong correlation between the average age of a country’s workforce and the number of robots being used in industry. Three countries lead the world in terms of the robotization of industry: Japan, South Korea, and Germany. These are exactly the three industrialized countries whose population is aging the fastest. The second opportunity to safeguard the substance of a national economy is to keep older people working longer. However, this process works only once. Where should additional growth come from if all of the “silver workers” are still occupying all the jobs? That’s why educational policy and immigration policy simply belong together.

BROYER President Trump isn’t the only one. And to a certain extent other countries will probably have to join in this taxation contest. I’m convinced that, at the latest, the next German government will put the topic of corporation taxes and municipal business taxes on its agenda.

AUDRETSCH Here too, you can justify a high level of taxes if this revenue is invested in the industrial location. Consequently, the crucial question is: Are the high tax revenues in Germany being invested in a strategically effective way? If the answer is yes, the level of taxation balances out.

BROYER Look, President Macron has already begun to reduce corporate taxes. Above all, he wants to significantly increase the tax incentives for venture capital. That too makes a lot of sense, because it counteracts the biggest problem we have at the moment: the low interest rate. This factor is often overlooked. Especially in an aging society, low interest rates mean that big companies have to significantly increase their payments into pension funds. That reduces their ability to invest, and that in turn reduces
the capacity for innovation. The main reason for the tremendous growth of the current account surplus in Germany since 2007 thus really has nothing to do with the Germans’ low interest in consumption. Instead, it’s due to the fact that German companies have to plow back their profits into payments on their pension obligations, because of the low interest rate. Mr. Audretsch, perhaps someone ought to explain that to Mr. Trump: If we want to reduce the current account surplus in Germany, we have to raise the interest rate. That’s all.

BROYER Germany is one of the countries that benefits most from the euro. If Germany were still using the Deutsche Mark, the exchange rate would be between 10 and 20 percent higher, and Germany’s export trade would therefore be more problematic. Moreover, the euro has strongly expanded Germany’s sales markets. And the euro is also important because it enables Europe to assert itself in a bipolar world that is dominated by the USA and China.

AUDRETSCH That’s certainly a huge advantage! Without the euro, Germany would have to change completely. I can’t even imagine the abolition of the euro.

BROYER US economists already predicted that when the euro was established.

AUDRETSCH That’s right, especially the most famous ones. But I have to admit that I was also unable to imagine that the UK would ever leave the EU.

BROYER In historical terms, the euro and the EU are not the first attempts to create a unified Europe. So far, all of these attempts have failed—after the Peace of Westphalia and after the Congress of Vienna. Unfortunately, the history of the continent of Europe is a simple one: We’ve got a bunch of small nations that beat other nations up in order to win supremacy over the continent. Sometimes it’s the British, sometimes the Germans, sometimes the French. And every time, an alliance of other nations forms in order to stop these bullies from becoming dominant. At the moment, Germany is dominating the continent within the euro zone.

BROYER Neither one. I would invest the € 10 billion in the stabilization of the euro zone. This is extremely important, and the consequences of a breakup of the euro zone would be very bad for Germany. The money should be used strategically for this purpose.

AUDRETSCH I agree. Germany has benefited tremendously from the euro zone, and it now has to deal considerately with its European partners in order to stabilize the euro. When the crisis with Greece broke out, most German politicians said, “The Greeks have to put their national budget in order.” It was a great mistake to leave the Greeks to do this alone. The EU is like a marriage, in good times and bad ones. That’s why Germany has to invest in Europe, in this partnership.