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Germans Are Concerned As Firms Talk of Shifting Their Investment Abroad

By Francine S. KieferStaff writer of The Christian Science Monitor / January 28, 1992



BONN

IT is Germany's version of Lee Iacocca sounding the alarm bells.

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Edzard Reuter, chief executive of Daimler-Benz, says that Germany is in danger of losing its competitive edge as one of the world's top manufacturing locations.

Mr. Reuter, as well as the heads of many other German manufacturing companies, warns that Germany is becoming too expensive a place to do business.

"The vast majority of German enterprises are seriously considering whether it would make more sense to make upcoming investments abroad" instead of at home, he said recently.

It doesn't matter that German workers are among the world's most productive. High corporate taxes and high labor costs are eating that advantage away. A diesel engine of Mercedes quality, says Reuter, can be produced in South Korea at half the cost of one at home.

For the last decade, German companies have been sending more and more of their investment money to other countries. In 1990, German concerns scattered a record 30 billion deutsche marks ($19.3 billion) in investments outside the country. Foreign firms did not find Germany very attractive either. In 1990, they invested a mere 3 billion marks ($1.9 billion) here. Preliminary figures show the trend worsened again last year.

Almost every major figure in German industry is prophesying the decline of Germany as a site for industrial activity.

One reason for the chorus of concern is politics: Management is in the midst of annual trade-union negotiations in which labor is demanding wage increases of more than 10 percent. Unions have threatened to strike.

"There is a little politics going on here, and things are being painted in black and white," admits a spokesman for Siemens, AG, the electronics giant based in Munich.

But economists say there is just cause for concern:

* High labor costs: Industrial labor costs are the highest in the European Community, one reason being that employers must pay a hefty amount of workers' social benefits.

German labor also works far fewer hours than the global competition. Japanese industrial workers put in over 500 hours more a year than Germans do; Americans over 200 hours. Six-week vacations are standard in Germany and the average German calls in sick four weeks every year. Labor negotiators, meanwhile, have won a 35-hour workweek.

"We've become a people who reap, but no longer sow," Heinrich Weiss, president of the Federation of German Industry, told Der Spiegel magazine.

* Lack of flexibility: Unions here are set in their ways, and Germany lacks the mobility characteristic of American workers. The Siemens spokesman complained, for instance, that a recent consolidation of two German plants within 20 miles of each other was held up for a year because of labor negotiations - even though there were no layoffs, and bus transportation and child care were provided.

"It gives a factory director reason to wonder whether he should just close the factory and move somewhere else," the Siemens spokesman says.

* High taxes: The government takes 66 percent of profits here. In Britain and the Netherlands, which are both successfully attracting foreign investment, the government takes only 35 percent. Even if a company records losses here, it still must pay taxes. Chancellor Helmut Kohl is trying to push through corporate tax reform, but the proposed measures, say industrial leaders, do not provide enough relief.

* Environmental regulation: Another complaint is that the government follows too stringent an environmental policy. Last year the German chemical industry spent 60 percent more on compliance with green laws than its foreign competitors.

Today's worry over competitiveness reflects a similar mood in the early 1980s when German managers woke up to discover that neither their products nor their production methods were competitive, says Thomas Vajna, of the Cologne economics research group, Institut der Deutschen Wirtschaft.

"It's no longer a question of competitiveness of products, but of the place itself," Mr. Vajna says. The danger, he says, is that productivity gains can no longer offset rising wages. Most German manufacturers have already made big improvements in productivity through new technology, and there is little further improvement to be had, he explains.

All of this gloom, however, is not to say Germany has nothing going for it. It still has a reliable and efficient infrastructure, can be considered a gateway to the developing market in the East, is relatively free from strikes, has a stable currency, and has a highly skilled workforce. This last is "unbelievably important," says the Siemens spokesman.

Despite the capital outflow, the German economy created more than 3 million new jobs in the last decade - 800,000 last year alone, according to the Economics Ministry. And Vajna admits that, excluding eastern Germany, the country is not really desperate for foreign investment. "We're a rich country," he says.

But he worries about the future. With European economic integration at the start of 1993 and with the Japanese threat, the Germans are vulnerable, he says.

Right now, it is the big industrial concerns - the chemical, auto, and electronics firms - which are increasingly investing abroad, explains Vajna. He is worried that their suppliers may follow if it becomes too expensive to transport parts to the new production sites. "In the future, when borders disappear and East Europe really opens up," he asks, "how many firms will invest here and how many will leave?"