Germany – Page 6 – artdiamondblog.com

Labor Market Flexibility Increases Employment and Prosperity

“France is definitely behind,” says William Keylor, professor of International Relations and history at Boston University. “If France were to create a more-flexible labor market it would eventually increase productivity and prosperity, but the short-term transition would be difficult and people just aren’t thinking long term.”
There have been labor changes across continental Europe recently. Denmark’s measures to liberalize hiring and firing have helped the country cut its unemployment rate in half from about 10% in the early 1990s to under 5%. Spain, too, has introduced short-term employment contracts which have helped cut its unemployment rate by more than half from 20% a decade ago.
But elsewhere, attempts at change have met with staunch opposition, often resulting in watered-down measures. Italy passed changes to its labor laws in 2004, introducing an extension of temporary-work contracts that were introduced in 1997 and were credited with helping cut Italy’s overall unemployment rate to 7.1% from 12% when the contracts began. Yet many economists say Italy, which recorded zero growth last year, hasn’t gone far enough.
In Germany, where unemployment stands at 11%, a coalition government headed by conservative leader Angela Merkel has promised to reduce unemployment by introducing similar measures to those hotly debated in France. The government had to settle on compromise measures that can extend a current probation period for workers to 24 months, from the current six. But companies don’t have the right to terminate contracts within those two years without giving just cause. Other, more difficult, provisions, are still on hold.
The new measures that will be introduced in Parliament as early as today are targeted at “disadvantaged” youths, which refer to people between 18 and 25 who have left school without any qualifications and who are unemployed. The provisions include increasing financial incentives to employers to hire people under 26 who face the most difficulties.
It would apply to some 160,000 young people currently hired under government-subsidized job contracts, according to an interview with Employment Minister Jean-Louis Borloo in an interview with Le Monde newspaper. The cost to the government would be around €150 million ($180 million) in the second half of 2006, Mr. Borloo was quoted as saying.
But economists said the change of tack was a bad signal. “The real problem is that the results obtained by opponents of the new law…show that it is very difficult to introduce reforms in France,” Dominique Barbet, economist at BNP Paribas, wrote in a research note. “This will give opponents of reform confidence for future actions.”

For the full story, see:
ALESSANDRA GALLONI. “Bowing to Protesters, Chirac Abandons Youth-Labor Law; Reversal Highlights Europe’s Difficulties With Painful Reforms.” The Wall Street Journal (Tues., April 11, 2006): A3 & A10.
(Note: the title and version of the article quoted here are from the online version. The title and content of the version in the printed paper was a little different in a couple of places.)

EU Free Market Undermined by National Protectionism

BRUSSELS — After French and Dutch voters killed the EU constitution last year, its framers fretted that Europe couldn’t function without their bloated document. That was always laughable. But driven by economic insecurity, those failed referendums, particularly in France, ended up calling into question the very foundation of the EU, a common and free market.
It didn’t take politicians long to take this message to heart. In recent weeks, the idea and reality of a single European market has come under threat. From France to Spain, from Luxembourg to Italy and even newcomer Poland, economic nationalism is gaining strength, evoking memories that the European project was created expressly to bury. Neelie Kroes, the EU’s competition commissioner, told me that these developments “risk taking Europe into a 1930s-style downward spiral of tit-for-tat protectionism.” This sensible Dutchwoman is not prone to hyperbole, and hardly alone in voicing the concern.
This winter, France made 11 sectors, from data security to (bizarrely) casinos, off limits to foreign buyers. And together with Luxembourg, Paris opposed a mooted merger between the world’s biggest steel companies, Mittal and Arcelor. (The protectionist furies so far haven’t managed to sink Mittal’s hostile bid.)
Prime Minister José Louis Rodríguez Zapatero also wants to keep the energy sector in Spanish hands. When Germany’s E.On moved to trump a rival Spanish bid from Gas Natural for the utility Endesa, Mr. Zapatero gave the regulator wider powers to block the takeover.
The most audacious national block was yet to come. Two weeks ago, France stepped in to stop Italy’s Enel from acquiring Suez by forcing through a shotgun wedding between the publicly owned Suez and state-owned Gaz de France. This tie-up epitomized Prime Minister Dominique de Villepin’s notion of “economic patriotism.” The Italians saw only economic protectionism, which the country’s central bank governor, Mario Draghi, said was “doomed to failure.” But Rome can’t easily claim the moral high ground, having shielded its banking sector for more than a decade.
The single market isn’t doing well on other fronts either. Last month, the European Parliament, with lawmakers following orders from their capitals, emasculated legislation that would have freed up the EU’s services market. A free market for services, by some estimates, would have added 0.7% to Europe’s GDP and created some 600,000 jobs.

For the full commentary, see:
DANIEL SCHWAMMENTHAL. “Common Market? Think Again!” The Wall Street Journal (Mon., March 13, 2006): A19.

“Growing Recognition of Economic Costs” of Koyoto Protocol

Commentary on the Kyoto Protocol:

(p. 3) . . . the current stalemate is not just because of the inadequacies of the protocol. It is also a response to the world’s ballooning energy appetite, which, largely because of economic growth in China, has exceeded almost everyone’s expectations. And there are still no viable alternatives to fossil fuels, the main source of greenhouse gases.

Then, too, there is a growing recognition of the economic costs incurred by signing on to the Kyoto Protocol.

As Prime Minister Tony Blair of Britain, a proponent of emissions targets, said in a statement on Nov. 1: ”The blunt truth about the politics of climate change is that no country will want to sacrifice its economy in order to meet this challenge.”

This is as true, in different ways, in developed nations with high unemployment, like Germany and France, as it is in Russia, which said last week that it may have spot energy shortages this winter.
. . .
The only real answer at the moment is still far out on the horizon: nonpolluting energy sources. But the amount of money being devoted to research and develop such technologies, much less install them, is nowhere near the scale of the problem, many experts on energy technology said.

Enormous investments in basic research have to be made promptly, even with the knowledge that most of the research is likely to fail, if there is to be any chance of creating options for the world’s vastly increased energy thirst in a few decades, said Richard G. Richels, an economist at the Electric Power Research Institute, a nonprofit center for energy and environment research.

”The train is not leaving the station, and it needs to leave the station,” Mr. Richels said. ”If we don’t have the technologies available at that time, it’s going to be a mess.”

For the full commentary, see:
ANDREW C. REVKIN. “THE WORLD; On Climate Change, a Change of Thinking.” The New York Times, Section 4 (Sun., December 4, 2005): 3.
(Note: ellipsis added.)

Unintended Consequences of Making My Cold Medicine Hard to Get

Source of image: http://www.sudafed.com/products/cold_and_cough.html

When I get a cold, nothing keeps me functioning as well as Sudafed Cold and Cough. Unfortunately, the pills contain pseudoephedrine, which apparently is an ingredient that can be used in the process of making meth. So in their zeal to protect people from their own bad choices, governments across the country, including my own Nebraska, have put increasingly severe restrictions on the sale and purchase of medicines like Sudafed Cold and Cough. Many stores that used to carry the medicine, have dropped it, and those that still carry it, have significantly increased the price.
So the government has made life harder for me. But at least they’ve benefitted the meth addicts, right? Read on:

(p. 1A) Restrictions on the sale of cold medicine appear to be reducing seizures of homemade methamphetamine labs in Nebraska and Iowa.
Both states passed laws last year restricting over-the-counter purchases of cold medicines used to make meth – and both report fewer lab discoveries.
But officials in the two states – and others with similar restrictions – now have a new problem: The drop in home-cooked methamphetamine has been met by a flood of crystal methamphetamine coming largely from Mexico.
Sometimes called ice, crystal meth is far purer, and therefore even more highly addictive, than powdered home-cooked meth.
And because crystal meth costs more, the police say thefts are increasing, as people who once cooked at home now have to buy it.
The University of Iowa Burn Center, which in 2004 spent $2.8 million treating people whose skin had been scorched off by the toxic chemicals used to make meth at home, says it now sees hardly any cases of that sort. Drug treatment cen- (p. 3A) ters, on the other hand, say they are treating just as many or more meth addicts.
And although Iowa child welfare officials say they are removing fewer children from homes where parents are cooking the drug, the number of children being removed from homes where parents are using it has more than made up the difference.

For the full story, see:
“Meth labs decline, but ‘ice’ fills gap.” Omaha World-Herald (Sunrise Edition, Mon., January 30, 2006): 1A & 3A.

Apparently the only current substitute for pseudoephedrine in cold medicines is phenylephrine. But it has several drawbacks. Consider:

. . . pharmacologists, who specialize in the properties of medications, say oral phenylephrine has several disadvantages. First, the effects of the current formulations wear off faster than pseudoephedrine — meaning users will need to take a pill after four hours instead of up to six for the shorter-acting pseudoephedrine. Pseudoephedrine also comes in long-acting 12- and 24-hour pills, an option not currently available for over-the-counter phenylephrine.
Another question is whether oral phenylephrine is as effective as pseudoephedrine. There have been no major published head-to-head trials comparing the two, and neither Pfizer nor Germany’s Boehringer Ingelheim GmbH, a major supplier of powder phenylephrine for pills, has studied the matter. In 2003, Pfizer conducted a consumer survey in which 400 mall-goers with stuffy noses were given either standard Sudafed or Sudafed PE. In a telephone survey a week later, about 70% of each group reported “good” or “excellent” results, the company says.
But pharmacologists say there are reasons for caution. For one, oral phenylephrine is heavily absorbed by the intestine and broken down in the liver — so only 6% to 40% of the actual medicine makes it into the blood stream, compared with nearly all of pseudoephedrine, scientists say. Moreover, its use as a decongestant has been far less heavily studied than pseudoephedrine’s. The FDA review cited more than six studies, primarily unpublished work from a single laboratory, which found it effective. The review also cited a nearly equal number of studies from a variety of laboratories that found phenylephrine no better than a placebo — but the agency concluded overall that it does work. Little has been published since then.
The American Heart Association warns that both drugs can raise blood pressure, so people with high blood pressure or heart disease should consult their doctor before taking them. It isn’t known whether phenylephrine poses more or less of a risk than pseudoephedrine, though some experts say phenylephrine has been less tested so may merit more caution.
If a stuffy nose is making you miserable and only the most proven remedy will do, you may want to take the time to look for pseudoephedrine — even if it means you have to wait at the counter.

For the full story, see:
LAURA JOHANNES. ” ACHES & CLAIMS; Choosing a Pill for That Cold.” THE WALL STREET JOURNAL (Tues., December 27, 2005): D4.

Good Rules Encourage Entrepreneurship, Resulting in Vibrant Economy

Some useful observations from the 2004 co-winner of the Nobel Prize in Economics, Edward Prescott:

Good tax rates, . . . , need be high enough to generate sufficient revenues, but not so high that they choke off growth and, perversely, decrease tax revenues. This, of course, is the tricky part, and brings us to the task at hand: Should Congress extend the 15% rate on capital gains and dividends? Wrong question. Should Congress make the 15% rate permanent? Yes. (This assumes that a lower rate is politically impossible.)
These taxes are particularly cumbersome because they hit a market economy right in its collective heart, which is its entrepreneurial and risk-taking spirit. What makes this country’s economy so vibrant is its participants’ willingness to take chances, innovate, acquire financing, hire new people and break old molds. Every increase in capital gains taxes and dividends is a direct tax on this vitality.
Americans aren’t risk-takers by nature any more than Germans are intrinsically less willing to work than Americans. The reason the U.S. economy is so much more vibrant than Germany’s is that people in each country are playing by different rules. But we shouldn’t take our vibrancy for granted. Tax rates matter. A shift back to higher rates will have negative consequences.
And this isn’t about giving tax breaks to the rich. The Wall Street Journal recently published a piece by former Secretary of Commerce Don Evans, who noted that “nearly 60% of those paying capital gains taxes earn less than $50,000 a year, and 85% of capital gains taxpayers earn less than $100,000.” In addition, he wrote that lower tax rates on savings and investment benefited 24 million families to the tune of about $950 on their 2004 taxes.
Do wealthier citizens realize greater savings? Of course — this is true by definition. But that doesn’t make it wrong. Let’s look at two examples: First, there are those entrepreneurs who have been working their tails off for years with little or no compensation and who, if they are lucky, finally realize a relatively big gain. What kind of Scrooge would snatch away this entrepreneurial carrot? As mentioned earlier, under a good system you have to provide for these rewards or you will discourage the risk taking that is the lifeblood of our economy. Additionally, those entrepreneurs create huge social surpluses in the form of new jobs and spin-off businesses. Entrepreneurs capture a small portion of the social surpluses that they create, but a small percentage of something big is, well, big.
Congratulations, I say. Another group of wealthier individuals includes those who, for a variety of reasons, earn more money than the rest of us. Again, I tip my hat. Does it make sense to try to capture more of those folks’ money by raising rates on everyone? To persecute the few, should we punish the many? We need to remember that many so-called wealthy families are those with two wage-earners who are doing nothing more than trying to raise their children and pursue their careers. Research has shown that much of America’s economic growth in recent decades is owing to this phenomenon — we should encourage this dynamic, not squelch it.

For the full commentary, see:
EDWARD C. PRESCOTT. “‘Stop Messing With Federal Tax Rates’.” The Wall Street Journal (Tues., December 20, 2005): A14.

With Flat Tax, Estonia Has 11% Growth

“Prime Minister Andrus Ansip of Estonia in the cabinet room, which is equipped with a computer for each minister.” Source of caption and photo: online version of NYT article quoted and cited below.

(p. A4) TALLINN, Estonia – Estonia, one realizes after a few days in the abiding twilight of a Baltic winter, is not like other European countries.
The first tip-off is the government’s cabinet room, outfitted less like a ceremonial chamber than a control center. Each minister has a flat-screen computer to transmit votes during debates. Then there is Estonia’s idea of an intellectual hero: Steve Forbes, the American publishing scion, two-time candidate for the Republican presidential nomination and tireless evangelist for the flat tax.
Fired with a free-market fervor and hurtling into the high-tech future, Estonia feels more like a Baltic outpost of Silicon Valley than of Europe. Nineteen months after it achieved its cherished goal of joining the European Union, one might even characterize Estonia as the un-Europe.
“I must say Steve Forbes was a genius,” Prime Minister Andrus Ansip declared during an interview in his hilltop office. “I’m sure he still is,” he added hastily.
The subject was the flat tax, which Mr. Forbes never succeeded in selling in the United States. Here in the polar reaches of Europe it is an article of faith. Estonia became the first country to adopt it in 1994, as part of a broader strategy to transform itself from an obscure Soviet republic into a plugged-in member of the global information economy.
By all accounts, the plan is working. Estonia’s economic growth was nearly 11 percent in the last quarter – the second fastest in Europe, after Latvia, and an increase more reminiscent of China or India than Germany or France.
People call this place E-stonia, and the cyber-intoxication is palpable in Tallinn’s cafes and bars, which are universally equipped with wireless connections, and in local success stories like Skype, designed by Estonian developers and now offering free calls over the Internet to millions.
. . .
Germans showed how allergic they were to the idea when Angela Merkel chose a flat tax advocate as her economic adviser. Antipathy toward him was so intense that political analysts say it probably cost Chancellor Merkel’s party a clear majority in the German Parliament.
Yet the concept has caught on in this part of Europe. Latvia, Lithuania and Slovakia all have a flat tax, while the Czech Republic and Slovenia have considered one. Tax policy, not support for the American-led war in Iraq, is the bright line that separates the so-called old Europe from the new.

For the full article, see:
MARK LANDLER. “Letter From Estonia: A Land of Northern Lights, Cybercafes and the Flat Tax.” The New York Times (Weds., December 21, 2005): A4.
(Note: ellipsis added.)

Finland Building Europe’s First New Nuclear Reactor in 15 Years

Petr Beckmann holding a copy of his The Health Hazards of NOT Going Nuclear. Golem Press, 1976. Beckmann died on August 3, 1993. Source of photo and Beckmann date of death: http://www.commentary.net/view/atearchive/s76a1928.htm

Not all those who are right, live to see their ideas vindicated. Thank you Petr Beckmann, for writing the truth, when the truth was not popular.

. . . when Finland, a country with a long memory of the Chernobyl disaster in 1986 and considerable environmental bona fides, chose to move ahead this year with the construction of the world’s largest nuclear reactor, the nuclear industry portrayed it as a victory, one that would force the rest of Western Europe to take note.

But the decision to build the reactor, Olkiluoto 3, Europe’s first in 15 years, was not taken quickly or lightly.
. . .
“There is an expectation that others will follow, both because of the way the decision was made and the boosting of confidence in being able to get through all the oppositional fear-mongering,” said Ian Hore-Lacy, the director of public communications for the World Nuclear Association, an industry lobbying group.
The United States, which has not had a nuclear plant on order since 1978, is experiencing a groundswell of interest. Taking the first step in a long process, Constellation Energy, a Baltimore-based holding company, announced in late October that it would apply to the Nuclear Regulatory Commission for permission to construct and operate a pressurized water reactor like the kind being built in Finland, possibly in upstate New York or Maryland. The Finnish reactor, designed by Areva, the French state-controlled nuclear power group, is being built by Framatome ANP, a joint venture of Areva and Siemens, a Germany company.
In addition, President Bush signed into law an energy bill in August that offers billions of dollars in research and development funds and construction subsidies to companies willing to build new nuclear plants. Several utility companies have applied for early site permits, a preliminary step toward building reactors.
Worldwide, the resurgent interest in nuclear power is even more pronounced. Twenty-three reactors are under construction this year in 10 countries, most of them in Asia, which has aggressively pursued nuclear energy. India is building eight reactors. China and Taiwan are building a total of four reactors and are planning eight more. Russia is building four and South Korea is planning eight.
…
Nuclear energy’s selling points were timely: it does not create emissions, unlike coal, oil and gas, and provides predictable electricity prices, a major bonus for Finnish industries, nuclear proponents said.
“The only viable alternative, if we want to maintain the structure of the economy, maintain our industries and meet our Kyoto targets, is nuclear,” said Juha Rantanen, the chief executive officer of Outokumpu, one of the world’s largest steel producers and one of Finland’s biggest energy users. “We can’t have a declining economy. We face huge challenges and an aging population. Something had to be done.”
Environmentalists, however, argued that nuclear reactors could never be entirely safe. They are always radioactive, and their waste remains toxic for 100,000 years.
But the designers of Areva’s pressurized water reactor, which is costing $3.5 billion to build, helped counter those arguments. In the event of a core meltdown, they said, the nuclear material would flow into a separate enclosure for cooling. They also said that the reactor is being built with enough concrete to withstand the impact of an airliner.
In the end, Finland’s largest trade union supported the project, basically sealing the deal.
. . .

Read the full article at:
LIZETTE ALVAREZ. “Finland Rekindles Interest in Nuclear Power.” The New York Times (Mon., December 12, 2005): A10.
(Note: ellipses added.)

Nazi Economy Was Not Efficient

A common view of National Socialism is that it was evil, but efficient. A recent book by Richard J. Evans challenges the “efficient” part of the common view. Here is a relevant paragraph from a useful review of Evans’ book:

(p. B5) The Nazi machine, as Mr. Evans describes it, moved forward with a good deal of creaking and squeaking. The economy was no exception. On many fronts, the Nazis managed nothing more than to bring the economy back to the status quo that existed before the Depression. As late as January 1935, one estimate put the number of unemployed at more than four million, and food shortages were still a problem in 1939. Workers put in longer hours simply to stay even.

For the full review, see:
WILLIAM GRIMES. “The Radical Restructuring of a Germany Headed to War.” The New York Times (Weds., October 26, 2005): B8.

The reference to the book is:
Richard J. Evans. The Third Reich in Power: 1933-1939. The Penguin Press, 2005.