James Pethokoukis

Politics and policy from inside Washington

America, don’t let this happen to you!

June 29, 2009

Stick with me on this. The WSJ outlines three economic options for Germany, whose trade-based economy has fallen nearly 7 percent during the past four quarters: 1) do nothing and wait for the global economy to pick up; 2) increase domestic consumption via higher union wages; 3) innovate!

This is a choice bit:

The third option would be to foster entrepreneurship in new sectors, to supplement Germany’s traditional strengths in cars and engineering.  …  ”Somebody created a comparative advantage in machinery and BMWs in the 1960s, but nobody has created anything much since,” says Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. German public policy and the country’s state-dominated banking system focus on rewarding existing companies rather than new ones, Mr. Posen says. … But Germany is second last in the number of business start-ups among 18 advanced economies surveyed by the Global Entrepreneurship Monitor, an international research project.  … A recent study by consultants McKinsey & Co. says Germany could double its average economic growth to 3% a year if it got serious about new industries, from research-led sectors to services for the growing number of elderly consumers. Without such an effort, German living standards will decline relative to other advanced economies, the report warns.

My spin: Perhaps the key part of the article was when Posen pointed out that the nation’s state-dominated banking system tends to reward existing players, not startups.  This is why it is so important to get Uncle Sam out of the U.S banking system ASAP.  American economic policies must also be graded as to whether they enterpreneurial innnovation and competitiveness. It’s not just green energy, gang!

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