Quote of the day – Germany and ‘competitiveness’

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Legrain photoThe quote of the day, from an article entitled Germany’s Economic Mirage. It’s by Philippe Legrain, former adviser to the European Commission President:

“Policymakers should focus on boosting productivity, not “competitiveness,” with workers being paid their due.”

We have focused for a long time on this weasel word ‘competitiveness,’ mostly but not exclusively in the area of tax.

There is a fairly close analogy here between wages and tax, in the context of ‘competitiveness.’

As we have often noted, tax is not a cost to an economy, but a transfer within it. To argue otherwise is to fall for the fallacy of composition. The truth is that tax cuts in one area, providing benefits to one sector at the expense of losses elsewhere, don’t automatically improve anything that one might call “competitiveness.” Read more on this here.

Similarly, wages are not a “cost” to an economy either, but a transfer within it: from a capital-rich corporate sector to their employees. Hence wage cuts don’t automatically make any economy more ‘competitive’ either.

In this word ‘competitiveness’ there is a whole realm of economic theory here, waiting to be properly explored.


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