NCPA - National Center for Policy Analysis

German Capitalism

May 15, 2002

Many American policymakers look across the Atlantic and see an over-regulated, tradition-bound, behind-the-times Europe and refuse to believe it can function efficiently in a globalized information economy. Europeans are listening -- to a degree.

In Germany, Social Democratic Chancellor Gerhard Schroder is increasingly pursuing the siren song of American capitalism. In response, he brought his country the "Third Way" -- a distinctly European way of looking at capitalism, one that combines market capitalism softened by governmental intervention.

  • Since then, Germany has lowered its top income tax rates from 51 percent to 42 percent, and its corporate tax rates from 40 percent to 25 percent.
  • Schroder has also pushed through a program of corporate deregulation that has opened up German business to mergers and buyouts.
  • The number of stockholders in Germany has tripled in the past five years, to the point where Germany now has more shareholders than trade-union members.

In spite of these sweeping changes, Germany still has a long way to go. Hampered by slow growth and high unemployment, Germany's economy may end up paying dearly for hanging onto economic policies (such as bank-based financing, rather than stock issues) that made them rich 10 years ago; or alternatively, they may reap windfalls from policies (like America's in favor of capital mobility) that seemed worthless in the past.

As the German brand of capitalism converges with the American shareholder variety, what we should note is that the Germans and other Europeans are seeking to learn not so much capitalist doctrine as capitalist flexibility.

Source: Christopher Caldwell, "Europe's "Social Market," Policy Review, October-November 2001, Hoover Institution.


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