The Role of Government

Germany Table of Contents

The Federal Government Role

The German federal government plays a crucial role in the German economy, sometimes directly and sometimes indirectly through the effects of other policies on the economy. Unlike the Japanese government, there is no single ministry that attempts to direct industrial government and competitiveness, but government policy can have wide-ranging effects because of the many offices that play a role.

The three principal figures responsible for economic policy are the chancellor, the minister for economics, and the minister of finance. The three positions have rarely been held simultaneously by members of a single party and are usually divided among two or sometimes three parties. Economic policy therefore has to reflect the interests of at least two political parties, with all that this means in terms of compromise and conciliation. The coalition negotiations to form a new government after a national election are never more delicate or more difficult than when they touch on economic policies.

The main parties have different economic philosophies and pursue generally different objectives. The CDU and the CSU are conservative, business-oriented parties, but with a long tradition of support for social welfare programs. The FDP is liberal in the British sense, very much in favor of the free market and a minimum of government regulation. The SPD believes in combining political freedom with large social programs and government involvement in the economy. It is impossible for any of the three parties to be in a government with the others without yielding something, and government policy has therefore usually contained a mixture of sometimes contradictory objectives that then must be resolved by compromises within the cabinet.

The Chancellor

The way the chancellor and his office, the Chancellory, deal with the economy depends very much on the incumbent's interests and personal style. For example, under Helmut Schmidt (1974-82), who was very interested in economic matters, the Chancellory shaped, directed, and coordinated the economic policy of the entire government economic apparatus. It also kept close contact with the business and financial community, including the Bundesbank, and became deeply involved in long-range planning. Helmut Kohl (1982- ), however, has operated very differently, using the Chancellory for limited day-to-day coordination but not attempting to use it to manage the economic policy of the government. He has used the political, not the bureaucratic, structure to make policy, working through the CDU/CSU and the FDP or through personal contacts. Although Kohl was definitely in charge of die Wende and other government policies, he has not usually presented himself as either the originator or the executor of economic and financial policy. He has chosen to control events from behind the scenes, reducing the government's visibility as well as its role.

The Minister of Finance and the Minister for Economy

In the cabinet, roles are more fixed, although they might change in accordance with personalities and political parties. The primus inter pares over the last several decades has been the minister of finance. He is responsible for the federal budget, which has become ever more important as the government's share of national income has grown and as governments increasingly use the budget to set priorities and guide national economic activity. The minister of finance also accompanies the chancellor to the annual financial summits and is the main German spokesperson in the meetings of the Group of Seven (G-7--see Glossary), the world's principal economic powers. He is thus in a position to manage not only domestic but also international financial policy for Germany and to coordinate the two.

The minister for economics, once the government's chief economic policy maker (especially when the minister was Ludwig Erhard), has gradually lost power as many of the important functions have been transferred to other ministries--including new ministries concerned with environment and research. Since the 1970s, the minister for economics has functioned more like a United States secretary of commerce, remaining a principal channel for contact with industry, labor, and semipublic associations. But several of the ministers have complained in bitter frustration that they were not able to carry out the policies they wanted.

The Bundeskartellamt

The Bundeskartellamt (Federal Cartel Office) is the institution specifically instructed and empowered to prevent a return to the monopolies and cartels that periodically controlled much of the German economy between the 1870s and 1940s. The policies of the office, like the office itself, have been controversial, with some Germans wanting it to have greater power and others believing that it is already abusing its existing authority.

The Bundeskartellamt was established in 1957. Many, including Erhard, believed that it had not been given enough authority to restrict cartels and other monopolistic practices. The Western Allies had insisted that the fledgling Federal Republic have such a law, but West German business associations used their influence to undercut the authority of the Bundeskartellamt to the point where it has sometimes been described as a "Swiss cheese with countless holes." Some of the holes in the Swiss cheese were closed in 1973, when the Bundestag passed a merger law (Fusionsgesetz ) intended to block monopolies in advance so that the Bundeskartellamt would not always have to act after the fact.

In retrospect, the laws and the office have performed a central and useful function, but they have not been able to prevent a gradual shift toward ever larger companies in Germany. The number of mergers in West Germany increased rapidly during the late 1980s, rising to over 1,000 per year. And the Bundes-kartellamt has not been effective in curtailing the countless informal contacts and discussions that have characterized the German system (like other European systems) and that would be suspect and perhaps illegal in the United States.

Because the Bundeskartellamt tends to use nonconfrontational tactics, the office has often been denounced as ineffective. Critics contend that the office has actually blocked very few mergers or other forms of cooperation. They also assert that hidden monopolistic or oligopolistic practices have been creeping back into the German economy. But others argue that the very existence of the Bundeskartellamt has enhanced competition and that the office's predilection for solving problems through nonjudicial processes fits properly into the German system and is therefore effective in that system.

Despite its title, the Bundeskartellamt does not have the final authority over German mergers and acquisitions. That authority is reserved for the political level, the Ministry for Economics, which on more than one occasion has overruled the Bundeskartellamt. After the Bundeskartellamt had raised a number of searching questions about the legality and propriety of Daimler-Benz's 1989 acquisition of Messerschmidt-Bölkow-Blohm (MBB), and after it had even disapproved the acquisition, the minister for economics approved the merger on condition that Daimler-Benz and MBB sell off majority control in a small marine and technology division. The government justified the step by recalling that it had specifically sought the merger to support MBB--which was engaged in military production and could not be permitted to collapse--with Daimler-Benz's financial resources.

The Bundeskartellamt has faced a particularly difficult task in the integration of the East German and West German economies. Many eastern German firms could not survive unless they could merge with large western German firms. The process may, however, create new enterprises whose size and combination of resources could open the way for monopolistic or oligopolistic temptations. Powerful economic and political pressures for such mergers exist, especially to help revitalize eastern Germany, but they also raise serious questions about their potentially negative impact on competition. Under those circumstances, the Bundeskartellamt has acted with considerable circumspection, blocking some mergers but approving most of them.

The Bundeskartellamt faces an even greater problem in the growing Europeanization of German business under the aegis of deeper EU integration. It became clear by the early 1990s that the EU's European Commission in Brussels was prepared to permit greater cooperation between European firms in order to compete more effectively against the worldwide reach of the giant corporations of the United States and Japan. Such cooperation went against German cartel laws. To solve the problem, the Bundeskartellamt announced in early 1993 that it would permit greater degrees of cooperation between small- and medium-sized German firms if that cooperation actually led to greater intra-European competition.

More about the Economy of Germany.

Custom Search

Source: U.S. Library of Congress