International -- Editorials
WHAT BONN CAN LEARN FROM GERMANY INC. (int'l edition)
Two highly significant meetings took place in Germany recently. One was in Chancellor Helmut Kohl's office in Bonn, the other in Daimler Benz's boardroom in Stuttgart. Both had the same goals: securing jobs for the future, making Germany competitive again despite its overvalued currency, and sparking some dynamism in the local economy.
There are no prizes for guessing which will yield results. The new partnership of Hilmar Kopper's Deutsche Bank and Jurgen E. Schrempp's Daimler (page 14) has produced a radical solution to what had become a chronic problem. Daimler's decision to cut loose industrial dinosaurs such as AEG and money-losing Dutch plane maker Fokker will cost thousands of jobs. But it is the only way to treat gangrene.
It is also a sign that, finally, Deutsche Bank is beginning to act like the major shareholder it is. After all, the bank owns a quarter of Daimler's equity. Schrempp, too, is starting to fulfill his role as a manager paid to produce results by targeting a 12% return on equity instead of spinning wonderful--but money-losing--strategic visions. Both Kopper and Schrempp admit they made mistakes in the past, but then both came up with new answers and moved on.
Were this only so in government. Those assembled in Bonn from government, labor unions, and employers' lobbies are, in contrast, still locked in the flawed logic of yesteryear. They are fiddling with laws and practices that destroy jobs, trying to divide up the economic pie instead of striving to make it bigger. They are behaving as though Germany isn't part of a ferociously competitive world economy. Schrempp put his finger on the problem accurately: Germans, he said, have to get used to the idea that there are times when gradual solutions can't work. A decisive break is needed. The same could be said of Europe as a whole, as its economy sinks into a swamp of low growth, high taxes, and rising unemployment. Financial markets are clear on the solution they prefer. The German mark is down, but Daimler's stock is at its highest point in well over a year.
The new-style German capitalism that is just emerging from Daimler and other companies still needs a lot of help from government. For a start, the big banks such as Deutsche could use a cut in the capital-gains tax. This would give them incentive to sell more of their vast equity holdings in major German companies and liberate hordes of capital for investment. Germany also needs to produce a whole new generation of investors who will act as engaged owners of Corporate Germany. The era of patient capital is ending in Germany. Investors must play a much more active role in managing the assets they own. Above all, the government needs to fix a self-evident truth in its collective head: In a market economy, it is the market, not the government, that creates jobs and wealth.