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Exploding Profits and Stagnant Wages

by Fred Schmid Thursday, Sep. 15, 2005 at 4:20 PM

"Domestic demand has stagnated for years.. Money for investments exists in excess in Germany. However investments declined 0.7% in 2004 despite record profits. Invest-ments fell for the fourth year in a row and are 13 percent lower than the 2000 level.."


The German economy grew only 1.7% in 2004 because of slack consumer spending

By Fred Schmid

[This short article published in: isw, January 2005 is translated from the German on the World Wide Web,]

The German government has become more modest. It sells the meager economic growth of 1.7 percent in 2004 as a “success” of its economic policy. The economic minister even speaks of a “change of the trend.” However subtracting the calendar effect of 5 additional workdays in 2004, the GDP growth of 1.1 percent shrivels to zero. Government-friendly economic researchers forecast only a one-percent growth for 2005. Where is the “change of the trend” given these prospects? 2005 may be the fifth year of stagnation with even higher unemployment.

The mini-growth is borrowed from foreign countries. The world economy grew around 5 percent and was helped by additional orders of the German economy. Despite high-altitude flights of the Euro, exports rose ten percent while imports climbed only 7.7 percent. The export surplus was the only growth motor. Without the export surplus, the economy would stutter around zero growth. In presenting the annual statistics, the president of the German statistical office Johann Hahlen spoke of the extraordinary competitiveness of the German economy. Germany gained the title export world master again in absolute numbers. Shouldn’t the theme have been “positional weakness” and “inadequate competitiveness”?

The export dynamic bursting with energy is at the same time the problem. To increase competitiveness and conquest of the world markets, the wage costs were driven down. The result is that domestic demand has stagnated for years. Private consumer spending amounting to nearly 60 percent of the whole GDP demand shriveled 0.3 percent in 2004. The reason was zero growth in “employee pay” and 0.0 percent “growth” in the sum of net wages and salaries – despite the tax reform! The ridiculously higher sallies of top management and other top wage earners are included in this amount. Thus declining retail sales do not reflect “consumer refusal.” The average employee household simply has less money in its household budget..

On the other hand, “profit- and assets income” exploded in 2004. They shot up almost eleven (10.7) percent, a record high. This category represents a lump sum average amount in which the mini-“profit” of personal companies and the fat increased profits of big businesses are combined. The super-profits of corporations are not included in this category. The profits of the Dax-30 corporations alone rose over 80 percent in 2004.

Thus money for investments exists in excess. However investments declined 0.7 percent in 2004 despite record profits. Investments fell the fourth year in a row and are 13 percent lower than the 2000 level. Why don’t entrepreneurs invest? According to the official explanation, because they have “no confidence in the location Germany.” No trust in the most competitive location in the world?! Why should they expand their capacities and hire new people when both private and public demands – record indebtedness of public budgets – are stagnating and the sales prospects are miserable? Thus businessmen and corporations prefer to direct the spring tide of profits in foreign investments with the off-shoring of jobs, in the friendly and hostile takeover of other firms resulting in job destruction, in higher salaries for the chief executives and board of directors, in buying back shares for higher capital gains, in speculative transactions on the financial markets and in higher profits and dividends.

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