GERMANY: Star economist honoured in Munich

One of Germany's most influential economists, Hans-Werner Sinn, Professor of Economics and Public Finance at the University of Munich, has been honoured for his outstanding academic performance with the Bavarian Order of Merit. Sinn was awarded the Order, the highest recognition awarded by the State of Bavaria for scientific and artistic merit, at a ceremony in Munich's Residenz on 17 April.

The number of living holders of the Order is limited to 100 and it is presented every two years. Since he became President of Munich's prestigious Ifo (Institute for Economic Research) in 1999, Sinn has played an increasingly prominent role in the country's economic politics and is a member of the German Council of Economic Experts.

As Germany's top neoliberal economist, Sinn's outspoken anti-trade unionist views have frequently given rise to controversy in the heated atmosphere of the Grand Coalition reforms. To mark his 60th birthday, the economics faculty at Munich and the Ifo hosted a special international conference last Friday discussing 'Economic policy in the presence of globalisation'.

Sinn is deeply concerned about escalating wage costs in Germany, claiming that what he refers to as unreasonably high wages and salaries are responsible for mass unemployment, especially among low-skilled employees. To make Germany more competitive, working hours ought to be increased from 38 to 42 without wage adjustment, he says.

This would make employees more productive while enhancing supply and demand. From an economic angle, Sinn equates longer working hours with technological progress, arguing you cannot be in favour of one aspect and against the other. He blames the trade unions for spiralling wage levels and says that curbing their power would help make Germany more competitive internationally.

Also, he claims the unions were wrong to press for more employee participation the 1960s, arguing that more joint interest in firms for employees would be the better alternative. Co-determination, he alleges, has been the preferable option for trade unions because it secures them more posts for their officials.

A third obstacle to greater competitiveness and a better German position in globalisation is the structure of its welfare state. Sinn's critique of the German welfare state system is elaborated in Ist Deutschland noch zu retten?, of which there is a revised English edition: Can Germany be Saved? The malaise of the world's first welfare state. While generally accepting the need for a social welfare state ensuring redistribution to benefit the poorer strata of the population, Sinn maintains the German state welfare system needs better incentive structures. Unemployment benefit levels are reducing willingness to accept low-paid jobs.

Sinn's Ifo-Institut therefore advocates that the state ensure a minimum income instead of minimum wages. The Ifo model incorporates a Kombilohn, an income combining the wages paid by the employer with a state top-up share to attain a minimum level where necessary. According to Ifo, this system could create several million additional jobs, especially for the low-skilled jobless.

But critics of the model compare it with a revolving door, with subsidised employees ousting the unsubsidised ones. Trade unionists argue the model could only create new jobs if a demand for additional products really were to exist. But as it is, they say the Kombilohn only adds to wage-dumping by putting pressure on those earning higher wages, the bottom line being even less purchasing power and even more unemployed.

Basically Sinn is a staunch advocate of the market economy, as he stressed in an interview with Suddeutsche Zeitung last autumn. The market economy may not be fair but it is efficient, he says, with "a little more inequality" in income distribution also ultimately securing higher living standards for those benefiting less from it than if one were to create an egalitarian system "where everyone gets the same amount and everyone is poor".

Following Adam Smith's "invisible hand" and his "private vices, public virtues" formula, Sinn argues that everyone in the market economy will first of all think of his own well-being. "Even so, the market economy works," he says. "It doesn't need good people but works with people wishing to maximise their own advantage."