The Unmovable Elephant: Germany and the UK's Competitiveness Jungle

Abstract

During the 1980s there existed a deep fascination in the UK with what makes Germany successful. This has dissolved somewhat in the last 15 years as Germany has struggled with the challenges of reunification and globalisation. Since 1997 the UK has focused on the drivers of productivity and wealth creation in the interests of closing the ‘productivity gap’ with the US. In contrast, productivity improvements in Germany have been regarded as something of a ‘luxury problem’ for policy makers who have had to facilitate systemic change in eastern Germany and adaptation in the old Länder. This paper looks at the systemic adaptation in Germany from a UK perspective and argues that, although structural reform still has some way to go, the endogenous growth drivers of the German economy are strong, and visibly stronger than in the UK. It is argued that commentators and policy makers alike have been ignoring the real issue in the debate about the future of the German economy.