Why German Companies Leave Home
The business climate in Germany is deteriorating fast. The Social Democratic government of Chancellor Gerhard Schroder is proposing to lower taxes on large corporations, the most heavily taxed in Europe (top rate of 47%, compared to 30% for Britain). But it may be too little, too late. IG Metall just won a significant wage increase, a move that's likely to boost the cost of labor in most of the country. With inflation practically at zero and pricing power virtually nil, Germany Inc.'s profits are being squeezed. The result? Whether there are tax cuts or not, a growing number of German companies will continue to shift investment outside the country.
Take Siemens. In 1992, the giant German corporation had a total of 413,000 employees, with 253,000, or two-thirds of them, working inside Germany. By 1997, there were as many Siemens employees working outside the country as inside. By early 1999, more people worked for Siemens in the United States, Latin America, Asia, and the rest of Europe (245,000) than in Germany itself (194,000). So while the number of employees at Siemens actually grew between 1992 and 1999, a growing percentage were employed outside Germany.
Siemens is no anomaly. Think DaimlerChrysler, Deutsche Bank, Bankers Trust, and dozens of other deals involving German capital going into investments outside the country.
In the last quarter of 1998, Germany's economy shrank at a 1.6% rate while the U.S. economy grew at 6.1%. Germany's weakness is pulling down the euro, now off 6% against the dollar from its introduction. Perhaps the Schroder government believes that a weak euro will provide enough stimulus from exports to offset higher wage costs. But with much of Eastern Europe, Asia, and Latin America in recession, that is unlikely. Certainly Japan has been unable to use a weak yen strategy to generate growth.
Unless Germany begins to change its corporate climate dramatically and the government cuts personal income taxes , its corporations will continue to move investments elsewhere, taking with them jobs, tax revenues, and technology. To compete in a global marketplace, they may not have a choice.