The German Tortoise and the American Hare

CAMBRIDGE: For almost a decade Germany has searched its soul about its economic viability. Is there too little flexibility in our labor markets? Are wages too high? Is there too much regulation? How can German firms which should be world-beaters succeed if they have to fight with one arm tied behind their back by their very own government and workers? Of course, one would not want American ways of doing business imported here. Still, things have got to change.

But the talk drones on and on without any change being decided upon. For a brief moment earlier this year the debate came to a grinding stop as former finance minister Oskar Lafontaine jerked the questioning onto entirely different grounds. Squeeze big business, that was Oskar's answer to Germany's dilemma.

But it did take long before the corporatism underpinning Germany's economic model reasserted itself. Lafontaine's brief and turbulent bid for mastery in Germany, and his spectacular crash, opened a rare opportunity to see how the country's domestic interests are really aligned; what can happen and what must not take place. Lafontaine, it seems, had forgot that the deepest belief of German social democracy is "don't rock the boat". Don't rock the boat stepping on the toes of big business, which was Lafontaine's error, nor on union sensibilities, as Chancellor Schroeder almost did as he dickered about making a Thatcher/Blair style bid to reshape Germany's economy.

The Economist, indeed, recently asked if Germany and Europe are really doing so bad in comparison with the United States. Over the past 2 decades, America has had higher growth and higher productivity growth. But have living standards in the US raced ahead? If they haven't, isn't it all the talk about the new American model just hype and bubble?