Germany’s Regulatory Climate: Stifling?

Lynne Kiesling

One thing I forgot to mention in my post about Hamburg’s Fischmarkt is how heavily regulated it is. Not in terms of prices, but in terms of opening times. This is a prevalent form of regulation in Germany. The Fischmarkt opens at 6 AM Sunday, and at 9:30 a bell starts to ring, and a stentorian voice says over the PA system “it is now time to stop selling” or some such thing. This closing is enforced even though there are still hundreds of potential customers still walking around, ready to shop. Thus all of the merchants have to stop transacting by around 10:00 or they risk fines or the loss of the expensive and hard-to-get license to have a stall at the Fischmarkt. My friends tell me that these regulations used to be even more rigidly enforced, and that officials would come around at 9:30 precisely and stop transactions in process and fine merchants.

Why say strictly that the merchants can only sell on Sunday between 6AM and 9:30AM? Why not let the merchants and their customers determine over time the more natural, organic, mutually beneficial closing time (which might be 9:30)?. Whom would that harm? Is it a form of paternalist moralizing Ė they need to wrap up by 9:30 so everyone can get to church? If so, then itís a little obsolete, not to mention that it ignores potential innovations such as Ö different hours for mass/service! The historian in me thinks that some of it must originate in the medieval guild restrictions on hours and locations of trade (which was always sold as a benefit to customers but was really a form of entry restriction), to which German society may have become habituated over centuries. Of course, that begs the question of why trade with other, less restrictive societies hasnít led to the diminution of that habituation Ö but thatís about 30 years of free-ish trade chipping away at 700 years of history, so it should take a while.

My friend David in Hamburg is an American (and, on top of that, an exceedingly libertarian American) who has lived in Germany off and on for a very long time. Invariably we talk about German economic policy and the extensive and, to his mind, oppressive state of German regulation. Of course, he is a pessimist who sees economic doom and gloom everywhere he looks in Germany, because he is of an entrepreneurial temperament and has continually encountered roadblocks along the way during his 14 years of living full-time in Germany. But I canít say that I disagree with him.

Our main question was this: why do Germans so naturally and automatically propose and accept regulatory approaches to transactions (we are not necessarily picking on Germany, it just happens to be the country he knows; clearly we could ask the same questions about France)? Letís take another example. I accompanied David to take back his empty bottles from water, juice and beer to the drink store, where he got a receipt for his returns and then purchased more drinks in glass bottles. I did not see a can in their house. This outcome results from a regulatory trait: to get your deposit back on cans, you have to return them to the exact same store where you purchased them! Plus I believe they are differentially taxed so that for home consumption itís more economical to use bottles and return them to the drink store.

But thatís not the end of the bottle and can story, because what law requires beverage manufacturers to do is to wash and reuse the bottles, even though itís potentially cheaper, more sanitary, and more energy efficient to crush the bottles and make them into new ones. This regulation, putatively in the name of reducing waste and being good to ďMother EarthĒ may instead lead to higher resource use. And that doesnít even take into account how economical and technologically advanced can recycling has become. Pushed by the beneficial alignment of cost reduction and environmental incentives (an alignment that naturally exists for all resource use, unless tampered with and distorted), US (and UK, for that matter) can manufacturers have innovated ways of making cans with thinner walls and bottoms that still serve their purpose. Has there been such innovation in glass bottle manufacturing in Germany? No. There is no cost reduction incentive pushing them to strive to deliver functionality with lower resource use.

Another feature of German regulation that deeply affects the everyday life of my friend, his family, and all Germans is the belief that ďsolvingĒ distortions requires additional regulations and laws, notwithstanding the fact that they introduce additional distortions. Again, I donít think this is a tendency unique to Germany. David put it very poignantly: ďit never occurs to German politicians, or to most German citizens, to address distortions by reducing the number of laws! Itís never a viable policy question to ask whether itís the law and regulation that is causing the initial distortion in the first place!Ē Now, like I said, my friend is a bit Eeyore-ish on the subject of German regulation, but my experience (both professional and recreational) in Germany is consistent with his glum demeanor.

Whatís the abstract conclusion that we reached? Using the logic of complex dynamic systems and the importance of flexibility and adaptability in such systems, we conclude that Germanyís economic and regulatory environment is sufficiently rigid and maladaptive to put Germany out of step (almost 180 degrees in his estimation) with how the modern world works, creates new value, and thrives. Such regulatory control and management could suit a more static, more inward-focused economy and society. But in a modern, highly meshed, complex system with its numerous and varied interconnections, such stasism comes with a high opportunity cost attached.

Decline is incremental; the innovation that does occur and the manifestations of a global, interconnected economy both hasten the decline (by creating knowledge about whatís possible) and delay it (because those interconnections do create value). But as other, more dynamic societies pull away from Germany in relative value creation, the balance shifts toward decline.

Is there a solution? Iím afraid that it will be difficult without substantial costs being imposed on incumbent, vested interest stakeholders, at all income levels. How do you cut the corporatist and welfare Gordian knots that are deeply and broadly embedded in German society in ways that will minimize those costs while generating the most possible ďbang for the buckĒ in terms of forward-looking value-creation incentives?

Ich habe keine Idee.


7 thoughts on “Germany’s Regulatory Climate: Stifling?

  1. Hi –

    As an American living in Germany for the last 15 years (and having spent 6 years before that here as well), I have an inkling of what needs to be done (as if anyone here would listen…).

    Collapse and reconstruction are the only solutions. The current system is so inconcievably corrupt and incompetent that only a complete collapse and rejection by the populace can achieve change.

    Of course, being Germans, no one would allow such a thing and in any case it would be heavily regulated.

    And your friend is right to see everything in terms of doom and gloom: the outlook for Germany is about as bright as a sub-basement in Doom 3.

    John

  2. That German rule on cans is new, a couple of years old at most.
    As an example of quite how advanced the US and UK markets are for can recycling, you can trade them on a futures market.
    UBC scrap.

    The attitude is not just German about regulations. Recently Margot Wallstrom (EU Vice Pres) defended some new regulations on airline passenger refunds with the words : a deregulated market requires greater consumer protection.

    After Iíd finished crying at that little piece of economic illiteracy I quite liked it. Got three paid articles out of it.

  3. It’s a few years since I lived in Germany but it sounds like the situation hasn’t changed very much.

    I think the rules on glass bottles are there to protect the German mineral water industry from the much more efficient French industry. The cost of using glass bottles, collecting the empty glass bottles and taking them back to France makes it difficult for the French to compete.

    I wonder how much this convoluted system costs German consummers and I wonder how much extra damage it does to the environment compared with using disposable plastic bottles.

  4. It’s a few years since I lived in Germany but it sounds like the situation hasn’t changed very much.

    I think the rules on glass bottles are there to protect the German mineral water industry from the much more efficient French industry. The cost of using glass bottles, collecting the empty glass bottles and taking them back to France makes it difficult for the French to compete.

    I wonder how much this convoluted system costs German consummers and I wonder how much extra damage it does to the environment compared with using disposable plastic bottles.

  5. As a dual EU/US citizen — it is clear that that Europe is over-regulated. The combination of the long-terms trends in the EU economy, demographics and politics is clear. Europe is dying. Economically they are gonna be toast as Asia and the US accelerate even faster ahead…

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