British and German businesses need to keep their governments on their toes, says Ulrich Hoppe
Britain and Germany have much in common. Not only are their companies successful in world markets but both nations also believe in open market economies which do not avoid the wider responsibilities towards society and the environment. Taking the lead on addressing climate change is a field in which not only governments but also business can work together to convince others to follow suit. Recent initiatives started not only by both governments, but also by the corporate world show the right direction in which to go. It is widely agreed that global warming needs to be addressed now as a delay will lead to much higher costs. Intensified global cooperation on this subject would be very beneficial for the world economy as a whole, but even individual action on a nation state level can help.
An argument often cited is that if others do not follow suit, one economy acting on its own would lose its competitive edge. This is not necessarily true. As can be seen from the example in trade liberalisation, a unilateral liberalisation is nearly always beneficial for the nation that does so. Of course, if others follow suit, the benefits would be even greater but this should not deter individual nations or groups of like-minded ones, like the UK and Germany, to make a start.
FREEDOM IS VITAL
Referring back to international trade and investment, it can be argued that Germany is more active in terms of global trade and the UK is more active in terms of global investment flows. The huge openness of both economies is proof that economic freedom is vital for the success of both nations. Nevertheless, the difference between the trade and investment performance shows not only the distinctiveness of each economy but also highlights areas where one can learn from the other.
That Germany continues to be one of the leading exporters in the world shows how competitive her companies are in terms of innovation and productivity. What Germany lacks to some extent is being an international market place for foreign companies to do business in and from. This is undoubtedly a key competitive advantage of the UK, as she has (in relation to GDP) twice as much foreign direct investment flow than Germany. Put simply, Germany needs to become a more open place for foreign businesses and the UK needs to work on its productivity, particularly its training and education system.
Both governments know about these weaknesses but, despite official activity, not enough is happening on the ground. Germany, despite moving in the right direction, is still too regulated (which not only deters foreign businesses but also hampers home-grown ones) and the UK has not yet successfully managed to narrow the productivity gap to its continental European competitors. More pressure on governments is necessary in order to achieve real progress in these vital areas. The introduction of the Single European Market in the early 1990s is a sign of how successful business pressure can be. In future, British and German business will need to lobby their governments harder so that they, in turn, will push the European Union to work on further liberalisation and developing the much talked about knowledge economy. This wider European angle is important as often, if only for domestic political reasons, the European Union was needed for introducing positive change at home.
A HINDRANCE TO DEVELOPMENT
Despite the very positive economic effects of European integration over the last 50 years, there are still some areas where the Union has not adapted to changing developments. A prime example is the Common Agricultural Policy (CAP) which is still a major obstacle for realising the full economic potential of European integration.
Not only is it a waste of taxpayers' money but it also hinders development towards liberalising global trade. The UK has always been highly critical of the CAP whereas Germany's official criticism has often been far more muted. As German businesses would benefit even more from freer trade than their British counterparts, they should push Chancellor Merkel's government to work towards this long overdue shift in European priorities. British support, be that public or private, on this issue will be most welcome.
Dr Ulrich Hoppe is Secretary General of the German-British Chamber of Industry & Commerce and is a member of the EU Economic Review Council
