New book by Hans-Werner Sinn: Die Basar-Ökonomie. Deutschland: Exportweltmeister oder Schlusslicht? (The bazaar economy. Germany: world export champion or economic laggard?)

Press release, Oct 14, 2005

The German economy is an enigma. It is the world vice-champion in exports but also Europe’s laggard in economic growth and it suffers from mass unemployment. This book tries to explain this enigma by attributing both phenomena to the high and rigid German wage costs.

On the one hand, due to high wage costs Germany is developing relatively fast into a bazaar economy and thus more goods pass through the country in relation to the export-induced value added. Components produced cheaply abroad are assembled in Germany, labelled "Made in Germany" and sold for high prices. On the other hand, people and capital are forced out of the labour-intensive sectors into the export sectors where they are most able to withstand the pressure from foreign, low-wage competitors. A pathological over-expansion of value added in exports is added to the exaggerated development of the flow-through of material. Export boom, weak economic growth and unemployment are the common features of a country that is currently incapable of using the forces of globalisation to its own advantage.

Hans-Werner Sinn argues that Germany will only be able to gain new trade advantages from globalisation if it makes its labour markets more flexible. To prevent social ruptures he calls for a reform that would make the social state a partner instead of a competitor of the private sector. Wage subsidies instead of substitute wages is what is now required. Welfare-to-work and early retirement with actuarially correct deductions plus the option of continuing to work are concrete examples of this requirement.

This book is a reaction to the intense discussion touched off by Sinn’s bestseller, Ist Deutschland noch zu retten? and contains further thoughts on how Germany can prevail in an era of a rapidly expanding globalised economy. The concept “bazaar economy” provides the occasion for discussing Germany’s more fundamental structural problems. The author used the concept "bazaar economy" for the first time on 15 November 2003 in his speech (Deutschland-Rede) at the Schloss Neuhardenberg Foundation.

The book has been published by Econ Verlag and is now available in bookstores.