Courtesy Reuters

Rule-Based Competition

Professor Krugman has trained his sights on fellow economists and the political leaders they have influenced. To embrace skepticism and enlighten is the duty of a scientist, and Krugman does both. Politicians should not rely on explanations that give only one cause. In particular, theories that equate complex national economies with companies should be viewed with caution, especially if the emphasis on competition leads to a downgrading of social and environmental standards and coordinated economic policy.

It can be demonstrated that the level of prosperity of national economies depends to a large extent on the productivity and to a lesser extent on the international competitiveness of their companies. Because of its greater dependence on world markets, Germany is in a different situation than the United States. Germany's integration in the world economy has increased rapidly over the past decade. In addition, Germany is confronted with the singular problem of transforming the German Democratic Republic, a highly unproductive economy that was completely sealed off from international competition, into a productive market economy with open borders.

Nevertheless, Krugman suggests that even for a country as highly involved in foreign trade as Germany, the heavy burden of public debt, taxes and levies, and the thicket of regulations now pose a problem for investors and future productivity gains. Levies and regulations in Germany have reached such dimensions that they have a much greater impact than any adverse action by Japanese or American politicians.

In Germany as in any other country, those who follow the fashion of using international competitiveness to explain every economic problem risk making mistakes. The result is a waste of tax money or, worse, calls for closing borders. Even now, national economies are competing to cut taxes and offer industrial subsidies to increase investment and ease overheads, thus distorting market conditions. The result is rising public debt. At least this consequence has been the experience of the United States, which initiated the tax-cutting contest during the Reagan years.

Moreover, as a result

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